In the case of Pierce, Secretary of Housing and Urban Development v. Underwood et al., 1987, the U.S. Supreme Court was tasked with determining whether a government agency's position in litigation could be considered "substantially justified" under the Equal Access to Justice Act (EAJA) even if it wasn't successful. The EAJA allows for awarding attorney fees to private parties who prevail over governmental agencies unless their stance was substantially justified or special circumstances make an award unjust. The court ruled unanimously that "substantially justified" means having a reasonable basis both in law and fact - not necessarily as being correct but rather as satisfying a minimum standard of reasonableness. They also held that no presumption exists that losing merits lack substantial justification; each case must be assessed on its own facts. This ruling came about after Underwood sued HUD for wrongful eviction from subsidized housing and won, then sought legal fees under EAJA arguing HUD’s position lacked substantial justification. Lower courts agreed with Underwood but this decision reversed those rulings stating while HUD lost they were not unreasonable in their arguments.

In the dissenting opinion for Pierce v. Underwood, Justice Scalia argued that the majority's interpretation of "substantially justified" was too lenient and could lead to an increase in frivolous lawsuits against the government. He contended that a more stringent standard should be applied when determining whether or not the government's position was substantially justified, suggesting it should mean more than merely reasonable. According to him, this would ensure only those who had been subjected to unreasonable governmental action would receive compensation under Equal Access to Justice Act (EAJA). Furthermore, he disagreed with using litigation outcomes as a determinant of substantial justification because it might discourage legitimate but uncertain legal challenges by federal agencies due their fear of paying attorney’s fees if they lose.