Appellant Carlos Pacheco filed this suit against Norman Mineta, the Secretary of the United States Department of Transportation, pursuant to Title VII of the Civil Rights Act of 1964, section 717(c), 42 U.S.C. § 2000e-16(c). Pacheco alleged both disparate-treatment and disparate-impact discrimination. The district court entered summary judgement against Pacheco on his disparate-treatment claim, dismissing that claim with prejudice. The court dismissed Pacheco's disparate-impact claim for lack of subject-matter jurisdiction, pursuant to Rule 12(b)(1), citing his failure to exhaust his administrative remedies. Pacheco appeals only the second ruling, challenging the district court's dismissal for failure to exhaust administrative remedies. The government cross appeals the district court's failure to award it costs pursuant to Rule 54(d)(1). We affirm the district court's 12(b)(1) dismissal and we vacate and remand the district court's ruling with respect to costs.

Carlos Pacheco is an Air Traffic Controller Specialist with the Federal Aviation Administration ("FAA") in Corpus Christi, Texas. In December 1999, the Corpus Christi Air Tower announced a supervisor-level vacancy. Pacheco applied, but was ultimately passed over for promotion by a less-experienced applicant.

Air Traffic employees who have bid on a vacancy are subject to a two step selection process. In the first step, a human resources personnel specialist from the Federal Aviation Administration (FAA) Human Resource Management Division (HRMD) determines which of the candidates is qualified for the position, and submits the names of the qualified candidates to the selecting official, which in this case was the Corpus Christi Facility manager, Warren Meehan. In this case, HRMD forwarded seven names, including Pacheco's, to Meehan. In the second step, the selecting official chooses among the candidates referred to him or her by HRMD.

Warren Meehan had recently implemented a promotion system based, not on years of experience, but on twenty-three specified employee attributes, such as initiative, loyalty and integrity. The idea for this system came to him while at a 1999 manager's conference, at which the FAA Regional Manager had described the twenty-three employee attributes that he deemed important in future FAA leaders. Upon his return from the conference, Meehan decided that all future promotions at Corpus Christi would consider these factors.

Meehan's new system was used for the first time in February 2000, for the Operations Supervisor December 1999 vacancy at the Corpus Christi air tower, the promotion that is the subject of Pacheco's suit.1 The supervisors of all seven employee candidates whose names had been forwarded by HRMD were interviewed and asked to rate their supervisee, on a scale of one to ten, in each of these twenty-three attributes. The supervisor interviews were conducted by a three-member panel, which included a Hispanic FAA employee from outside the facility. After the interview results were compiled, the panel reported them to Warren Meehan, who made the final employment decision. Pacheco, who was ranked sixth out the seven employees, was notified on February 28, 2000 that he did not get the promotion.

Pacheco timely contacted an equal opportunity counselor, alleging that he was passed over for promotion on the basis of his race.2 Unsatisfied with the counselor's advice, Pacheco timely filed a formal administrative complaint on April 29, 2000 with the Equal Opportunity Office (EEO) of his employer, the Department of Transportation (DOT).3 On June 2, 2000, the DOT's Office of Civil Rights notified Pacheco by mail that it was accepting the following claim for investigation: "Whether the FAA treated you differently, based on your national origin (Hispanic), when you were not selected for a supervisor's job on February 28, 2000." The letter notified Pacheco that if he objected to the way his claim was stated, he should contact the Office within five days. Pacheco did not respond.

Unsatisfied with the EEO's resolution of his complaint, Pacheco filed this suit in the court below on November 14, 2002, against Norman Mineta, Secretary of the DOT, pursuant to Title VII of the Civil Rights Act of 1964, section 717(c).4 Pacheco's suit alleges both disparate-treatment discrimination and disparate-impact discrimination.5 The district court entered summary judgment against Pacheco on his disparate-treatment claim, and dismissed Pacheco's disparate-impact claim for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). The court held that Pacheco had failed to exhaust his administrative remedy before the EEO with respect to his disparate-impact claim. Pacheco does not appeal the summary judgment dismissal of his disparate-treatment claim. His only issue before this court is whether he exhausted his administrative remedies with respect to his disparate-impact claim.

Despite the DOT's summary judgment victory, the district court, without explanation, ordered that each party bear its own costs pursuant to Rule 54(d)(1). FED. R.CIV.P. 15(d)(1). The DOT filed a motion for a new trial and to amend judgment on the ground that the court erred in denying an award of costs to the prevailing party without any explanation. The district court then ruled that the losing party "brought this action in good faith" and accordingly denied the DOT's motion. The DOT has cross-appealed on the issue of costs.

Pacheco appeals the district court's Rule 12(b)(1) dismissal of his disparate-impact claim, arguing that he did, in fact, exhaust his administrative remedies before the EEO. Because we find that the scope of Pacheco's administrative charge is too narrow to have exhausted a claim for disparate-impact discrimination, we affirm.

A. Disparate Impact versus Disparate Treatment

Title VII creates a federal cause of action for two largely separate theories of discrimination, disparate treatment and disparate impact. International Brotherhood of Teamsters v. United States, 431 U.S. 324, 97 S. Ct. 1843, 1854 n. 15, 52 L. Ed. 2d 396 (1977). Disparate-treatment discrimination addresses employment actions that treat an employee worse than others based on the employee's race, color, religion, sex, or national origin. In such disparate-treatment cases, proof and finding of discriminatory motive is required. Id.

Disparate-impact discrimination, on the other hand, addresses employment practices or policies that are facially neutral in their treatment of these protected groups, but, in fact, have a disproportionately adverse effect on such a protected group. Hebert v. Monsanto, 682 F.2d 1111, 1116 (5th Cir.1982). In disparate-impact cases, proof or finding of discriminatory motive is not required. Id. The defendant, however, can rebut a prima facie showing of disparate impact by proving that the challenged policy is a business necessity. Griggs v. Duke Power Co., 401 U.S. 424, 91 S. Ct. 849, 853-54, 28 L. Ed. 2d 158, (1973).

Section 717 of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-16(c), permits most federal employees to seek relief from proscribed discriminatory employment practices in Federal District Court. As a precondition to seeking this judicial relief, however, complaining employees must exhaust their administrative remedies by filing a charge of discrimination with the EEO division of their agency.6 Brown v. General Servs. Admin., 425 U.S. 820, 96 S. Ct. 1961, 1967-68, 48 L. Ed. 2d 402 (1976); Martinez v. Dep't. of U.S. Army, 317 F.3d 511 (5th Cir.2003); 29 C.F.R. § 1614.105-107 (2005). We review de novo a district court's determination of whether the exhaustion requirement is satisfied.7 Martinez, 317 F.3d at 512; Randel v. Dep't. of U.S. Navy, 157 F.3d 392, 395 (5th Cir. 1998).

The scope of the exhaustion requirement has been defined in light of two competing Title VII policies that it furthers. On the one hand, because "the provisions of Title VII were not designed for the sophisticated," and because most complaints are initiated pro se, the scope of an EEOC complaint should be construed liberally. Sanchez v. Standard Brands, Inc., 431 F.2d 455, 463 (5th Cir. 1970); Fellows v. Universal Restaurants, Inc., 701 F.2d 447, 451 (5th Cir.1983).8 On the other hand, a primary purpose of Title VII is to trigger the investigatory and conciliatory procedures of the EEOC, in attempt to achieve non-judicial resolution of employment discrimination claims. Id. at 466. Indeed, "[a] less exacting rule would also circumvent the statutory scheme, since Title VII clearly contemplates that no issue will be the subject of a civil action until the EEOC has first had the opportunity to attempt to obtain voluntary compliance." Sanchez, 431 F.2d at 467. See also Ong v. Cleland, 642 F.2d 316, 319 (9th Cir.1981) ("[a]llowing a federal court complaint to proceed despite its loose `fit' with the administrative charge and investigation ... is precluded if it would circumvent ... agency efforts to secure voluntary compliance before a civil action is instituted."). With that balance in mind, this court interprets what is properly embraced in review of a Title-VII claim somewhat broadly, not solely by the scope of the administrative charge itself, but by the scope of the EEOC investigation which "can reasonably be expected to grow out of the charge of discrimination." Sanchez, 431 F.2d at 466. We engage in fact-intensive analysis of the statement given by the plaintiff in the administrative charge, and look slightly beyond its four corners, to its substance rather than its label. Fellows, 701 F.2d at 451; Fine v. GAF Chemical Corp., 995 F.2d 576, 578 (5th Cir.1993); Ong, 642 F.2d at 319.9

So, for example, in Fellows, this court held that an entire class of plaintiffs had exhausted their administrative remedies, even though the administrative charge complained only of individual discrimination. Fellows, 701 F.2d at 447. See also Sanchez, 431 F.2d 455 (same). Later, in Gamble v. Birmingham Southern Railroad Co., this court held that black railroad workers who had filed an administrative charge complaining of discrimination in promotions to conductor had also exhausted their administrative remedies with respect to claims of discrimination in promotions to higher supervisory positions. 514 F.2d 678 (5th Cir.1975).

On the other hand, in Fine v. GAF Chemical Corp., this court held that a plaintiff's administrative remedies were not exhausted with respect to an incident of sexual discrimination because the incident sued upon was separate from the one raised in her administrative charge. 995 F.2d 576, 577-78 (5th Cir.1993). And, in Young v. City of Houston, this court held that a sex discrimination claim had not been exhausted by the plaintiff's charge of race and age discrimination. 906 F.2d 177 (5th Cir.1990).

This court has not faced a question on appeal like Pacheco's: whether a disparate-impact claim was exhausted by the plaintiff's administrative charge.10 Thus, we have yet to consider what facts in an administrative charge might be reasonably expected to trigger an EEO disparate-impact investigation. However, other circuits, as well as some federal district courts, have addressed the question.

For example, in Grace v. Bank of America, Judge Fitzwater ruled that a plaintiff who filed an administrative charge of a race-based firing did not exhaust her disparate-impact claim. Grace v. Bank of America, No. Civ. A. 303CV 1294D, 2003 WL 23095993 (N.D.Tex. Dec.23, 2003). In Grace, the plaintiff had filed an administrative charge asserting that the bank discriminated against her by terminating her employment. In dismissing the plaintiff's disparate-impact claim, the court explained that "a claim for disparate impact is not `like or related to' the plaintiff's EEOC charge nor could it reasonably be expected to grow out of [it]." Id.

Judge Cote in the Southern District of New York issued a similar ruling in Woodman v. WWOR-TV, holding that the plaintiff's administrative charge could be reasonably expected to lead only to an investigation of age-based disparate treatment, not age-related disparate impact. Woodman v. WWOR-TV, 293 F. Supp. 2d 381, 390 (S.D.N.Y.2003). In that case, the plaintiff had filed an age-discrimination charge with the EEO alleging that:

"[A]ll of my nine colleagues at BHC/WWOR who were fired, except two, were over the age of 40. On the other hand, my counterpart in Los Angeles, who is much younger, was not fired. It seems, therefore, that age was a motivating factor in my employment termination."

Woodman, 293 F.Supp.2d at 390. The court held that it was not enough for the plaintiff to have alleged that other colleagues were affected because she had failed to "identify a specific, facially neutral employment practice." Id. Furthermore, the court reasoned that the plaintiff's administrative charge had complained of intentional age discrimination, a crucial element in a disparate-treatment claim that is unnecessary in a disparate-impact claim. Id.

In Gomes v. Avco, the Second Circuit held that the plaintiff's administrative charge had exhausted both a claim for disparate-treatment and disparate-impact discrimination. 964 F.2d 1330, 1335 (2d Cir.1992). There, plaintiff's administrative charge stated he was passed over for promotion because of his Portuguese ancestry. He alleged that (1) he applied for a promotion; (2) such promotions are governed by an "eight-years experience" rule; (3) he arguably met this eight-year experience requirement; (4) the promotion was given to someone less qualified; and (5) he was the only Portuguese employee in his job classification.

The court held that "[t]o be sure, this complaint most naturally supports a claim of intentional discrimination . . . nonetheless, once the EEOC investigated the case and found that [the plaintiff] did not satisfy the eight year rule, it would have been perfectly natural for the EEOC to question the necessity of the eight year rule itself." Id. at 1334. The court reasoned that the plaintiff's allegation that he was the only Portuguese employee in his job classification would reasonably lead the EEOC to consider disparate impact. Id. Furthermore, the allegation that less-qualified people were promoted ahead of him might lead the EEOC to question the business justification for such a rule. Id. But most importantly, unlike Grace or Woodman, the plaintiff in Gomes had identified a facially neutral employment policy (the eight-year rule) that provided a foundation for an EEO disparate-impact investigation. The court recognized that the eight-year rule would have put the EEO on notice of a possible disparate-impact claim, thus "an investigation of [the plaintiff's] disparate impact claim would reasonably have flowed from an investigation of his disparate treatment claim." Id. at 1335.

Pacheco's administrative charge (see note 3, supra) lists three incidents of discrimination:

(1) "The [February 28, 2000] incident was non-selection for a supervisor's job opening at this facility. Once again, the `good old boy' was selected even though I was more qualified having been in the agency since 1978. This being my seventh facility (my third level 4 facility)."

(2) "The incident before this occurred the summer of 1999 when I had a bid at Orlando in the Southern Region. I was told by the Chief that the Southern Region doesn't pick out of region. Three months later a white controller from our facility was picked up for Atlanta (in the Southern Region). This person hadn't been here two years with the FAA. I asked the Chief about the aforesaid policy, he had no comment."

(3) "An incident before this occurred in 1998, someone defaced a picture of my son on my mail tray (no others were touched). I presented the incident to the Chief who in turn told me he would write me a formal letter of apology. It must have slipped his mind because I have yet to receive it."

Only the first incident was accepted for investigation by the EEOC. The second and third were rejected as time-barred.11 These two incidents (which are not the subject of the instant suit) are relevant only to the extent that they provide context to the first.

In reviewing the first incident, the question is whether a disparate-impact investigation might reasonably be expected to grow out of the facts that Pacheco did allege. In deciding this question, a review of the prima facie case for disparate impact is relevant. A disparate-impact plaintiff must show (1) a facially neutral policy; (2) that, in fact, has a disproportionately adverse effect on a protected class. Hebert, 682 F.2d at 1116. Furthermore, proof of discriminatory motive is not required for disparate-impact claims. Id.

On its face, Pacheco's administrative charge alleges none of the elements of disparate impact. Instead, it is facially a disparate-treatment claim, like those in Grace and Woodman, alleging that he was singled out for intentional discrimination because of his race. Pacheco complained that he was passed over for promotion in favor of a "good old boy."12 As the district court below noted, this complaint "clearly supports claims for unfair and intentional discrimination, but does not even suggest claims under a disparate impact theory."

In particular, we note that Pacheco's administrative charge fails to identify any neutral employment policy that would form the basis of a disparate-impact claim. See Gomes, 964 F.2d 1330, 1335. A neutral employment policy is the cornerstone of any EEO disparate-impact investigation, since the EEO must evaluate both the policy's effects on protected classes and any business justifications for the policy.

Finally, we note that all three incidents mentioned in Pacheco's administrative charge are examples of disparate-treatment discrimination. The two earlier incidents, where Pacheco was allegedly lied to about the Southern Region's hiring policy and allegedly harassed by a co-worker who defaced a picture of his son, though time barred, provide a context for understanding Pacheco's latest allegation. In his administrative charge, Pacheco himself links all three incidents, suggesting that they were part of a larger pattern of intentional discrimination against him by the manager of the FAA's Corpus Christi facility.

To be clear, we do not require that a Title-VII plaintiff check a certain box13 or recite a specific incantation to exhaust his or her administrative remedies before the proper agency. See Sanchez, 431 F.2d at 463-65. Nor do we require, for purposes of exhaustion, that a plaintiff allege a prima face case before the EEOC. See Id. Instead, the plaintiff's administrative charge will be read somewhat broadly, in a fact-specific inquiry into what EEOC investigations it can reasonably be expected to trigger.

In this case, we hold that a disparate-impact investigation could not reasonably have been expected to grow out of Pacheco's administrative charge because of the following matters taken together: (1) it facially alleged disparate treatment; (2) it identified no neutral employment policy; and (3) it complained of past incidents of disparate treatment only.14 Accordingly, we affirm the district court's 12(b)(1) dismissal of Pacheco's disparate-impact claim.

Because we hold that Pacheco did not exhaust his administrative remedies with respect to his disparate-impact claim, we need not decide whether, as Pacheco contends, the district court abused its discretion by denying Pacheco certain discovery on that claim. Nevertheless, we note that the record indicates no such abuse of discretion. Atkinson v. Denton Pub. Co., 84 F.3d 144, 147-48 (5th Cir.1996) (reviewing for abuse of discretion); Mayo v. Tri-Bell Indus., Inc., 787 F.2d 1007, 1012 (5th Cir.1986) (declining to reverse trial court's "discovery rulings" unless they are "arbitrary or clearly unreasonable").

Not until this suit has Pacheco finally alleged, albeit in only the most conclusory fashion, disparate-impact discrimination. His complaint alleges that he was the victim not only of intentional discrimination but also of a facially-neutral promotion "application and selection process" with an adverse impact on Hispanics.15

Pacheco was eliminated in the new configuration of the second stage of the selection process which was used for the first time in February 2000 in the promotion to fill the Corpus Christi Operations Supervisor vacancy which Pacheco was denied. According to Meehan's affidavit, the process has been used only one other time since, and there is no contrary evidence. Despite this, Pacheco's interrogatory requested the identity "of all persons who have been selected or promoted into a supervisory or management position in the southwest region of the FAA between 1995 and the present . . . [including] their race and national origin."

The information sought through this interrogatory would have been of limited relevance to Pacheco's suit. Pacheco requested the discovery of FAA employee-promotion data dating back to 1995, five years before the policy of which he apparently complains was implemented. More importantly, Pacheco requested this data for the entire Southwest region,16 even though he never alleged discrimination by anyone but the Manager of the FAA's Corpus Christi facility.17 Accordingly, even if Pacheco had exhausted his administrative remedies with respect to his disparate-impact claim, we would decline to hold that the district court abused its discretion by denying Pacheco such broad, and largely irrelevant, discovery. See, e.g., Atkinson, 84 F.3d at 147 (holding, in an age discrimination suit, that the district court did not abuse its discretion by denying discovery of past employee records because there was no nexus between the plaintiff's claim and the records that the plaintiff sought); Conboy v. Edward D. Jones & Co., L.P., 140 Fed.Appx. 510, 516 (5th Cir.2005) (unpublished).

The DOT argues that, as a matter of law, the good faith of the plaintiff is, by itself, an insufficient reason to defeat the cost-shifting provision in Rule 54(d). This question is a matter of first impression in this court, but all circuits that have expressly considered the question agree with the DOT's position.

Rule 54(d)(1) of the Federal Rules of Civil Procedure provides that "costs, other than attorneys' fees shall be allowed as of course to the prevailing party unless the district court otherwise directs. . . ." FED.R.CIV.P. 54(d)(1). Because the Rule authorizes the district court to deny the award, we review that exercise of authority for abuse of discretion. Schwarz v. Folloder, 767 F.2d 125, 131 (5th Cir.1985). Only when a clear abuse of discretion is shown can an award of cost be overturned. Kinnear-Weed Corp. v. Humble Oil and Refining Co., 441 F.2d 631, 637 (5th Cir. 1971).

However, Rule 54(d)(1) contains a strong presumption that the prevailing party will be awarded costs. Schwarz, 767 F.2d at 131. Indeed, this court has held that "the prevailing party is prima facie entitled to costs," and has described the denial of costs as "in the nature of a penalty." Schwarz, 767 F.2d at 131. As a result of this cost-shifting presumption, the general discretion conferred by Rule 54(d)(1) has been circumscribed by the judicially-created condition that a court "may neither deny nor reduce a prevailing party's request for cost without first articulating some good reason for doing so." Schwarz, 767 F.2d at 131 (citation omitted); cf. Delta Air Lines, Inc. v. August, 450 U.S. 346, 101 S. Ct. 1146, 1151 n. 14, 67 L. Ed. 2d 287 (1981) (assuming that costs are denied to the prevailing party "only when there would be an element of injustice in a cost award").

The Fifth Circuit has little case law addressing this issue, but in other circuits, "[a] wide range of reasons have been invoked to justify withholding costs from the prevailing party." 10 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 2668, at 234 (1998). Among these are: (1) the losing party's limited financial resources; (2) misconduct by the prevailing party; (3) close and difficult legal issues presented; (4) substantial benefit conferred to the public; and (5) the prevailing party's enormous financial resources.18 Id. And, according to Wright and Miller, courts also deny costs if "the losing party prosecuted the action in good faith." Id. at 238, 101 S. Ct. 1146. However, every case cited by Wright and Miller for this proposition denies costs on the basis of both the losing party's good faith and some other one or more of the factors listed above.

Every circuit to expressly address the question in a published opinion—the Fourth, Sixth, Seventh, Ninth and Tenth— has ruled that good faith, by itself, cannot defeat the operation of Rule 54(d)(1). Teague v. Bakker, 35 F.3d 978, 996 (4th Cir.1994) ("[T]he mere fact that a suit may have been brought in good faith is alone insufficient to warrant a denial of costs in favor of a prevailing defendant"); Cherry v. Champion, 186 F.3d 442, 446 (4th Cir. 1999) ("[A] party's good faith, standing alone, is an insufficient basis for refusing to assess costs against that party."); White & White, Inc. v. American Hosp. Supply Corp., 786 F.2d 728, 731 (6th Cir. 1986) ("Good faith without more, however, is an insufficient basis for denying costs to a prevailing party"); Coyne-Delany v. Capital Development Board of Illinois, 717 F.2d 385, 390 (7th Cir.1983) ("The losing party's good faith and proper conduct of the litigation is not enough . . . ."); National Information Services, Inc. v. TRW, Inc., 51 F.3d 1470, 1472-73 (9th Cir.1995), overruled on other grounds by Association of Mexican-American Educators v. State of California, 231 F.3d 572, 593 (9th Cir.2000) (en banc) (overruling National Information Systems but only to the extent it held that "only misconduct may support the denial of costs to a prevailing party"); AeroTech, Inc. v. Estes, 110 F.3d 1523, 1527 (10th Cir.1997).

Here, even though the DOT was in all respects the prevailing party, it has been denied costs by the district court.19 When the government pressed the court for a reason, which it was required to give, the district court replied: "It is clear that Plaintiff brought this action in good faith. He is represented by an excellent lawyer who litigates in good faith. Under such circumstances, each party should bear its own costs."

Following our sister circuits, we hold that the losing party's good faith is alone insufficient to justify the denial of costs to the prevailing party. All federal litigants, including this plaintiff, have an obligation to bring suit in good faith. FED. R.CIV.P. 11; WESTERN DISTRICT OF TEXAS LOCAL RULE AT-4, STANDARDS OF PROFESSIONAL CONDUCT (adopting the standards of professional conduct of the State Bar of Texas, including Rule 3.01, which requires attorneys to bring suits in good faith). As the Ninth Circuit has said, "It follows that noble intentions alone do not relieve an unsuccessful litigant of the obligation under Rule 54(d) to compensate his opponent for reasonable costs. `If the awarding of costs could be thwarted every time the unsuccessful party is a normal, average party and not a knave, Rule 54(d)(1) would have little substance remaining.'" National Information Services, Inc., supra, 51 F.3d at 1472-73.

The district court abused its discretion in denying costs to the prevailing party on the basis of plaintiff's good faith alone. Out of respect for the district court's statutory discretion to shift costs, we vacate the award of costs and remand for a re-determination of whether (or to what extent) costs should be awarded to the prevailing party and, if not, the reasons for that denial.

Because we hold that Pacheco failed to exhaust his administrative remedies with respect to his claim for disparate-impact discrimination, we affirm the district court's Rule 12(b)(1) dismissal of that claim. However, because the district court abused the cost-shifting discretion granted to it under Rule 54(d)(1), we vacate the district court's ruling on the award of costs and remand for a re-determination of whether (or to what extent) costs should be awarded to the prevailing party.

The judgment is AFFIRMED in all respects except as to costs; the district court's ruling as to costs is VACATED, and the cause is REMANDED to the district court solely for a redetermination, not inconsistent herewith, of whether (or to what extent) costs should be awarded to the prevailing party.