Third Circuit Court of Appeals So Holds Under 42 U.S. C. Section 1988; California State Court Decisions Split In Analogous Areas, But Ninth Circuit Disagrees.
On July 23, 2009, the Third Circuit Court of Appeals, in Lohman v. Duryea Borough, __ F.3d __, 2009 WL 2183056 (3d Cir. 2009), affirmed a district judge’s decision to award a successful plaintiff’s attorneys only $34,251.77 in attorney’s fees/costs ($30,000 being fees) out of a requested $112,883.73 after the plaintiff recovered only $12,205 in lost wages and nominal damages following a jury trial. Employer defendant made three informal settlement offers after trial commenced, including one for $75,000, all of which were rejected. In setting the lodestar for purposes of awarding fees under the germane civil rights fee-shifting statute (42 U.S.C. section 1988), the district judge did consider the settlement offers as an indicator of the success of plaintiff in terms of what employee ultimately recovered.
The Third Circuit affirmed the district judge’s fees/costs award, finding that consideration of the prior settlement offers was one factor that was probative on the “indicator of success” lodestar factor, following the lead of EMI Catalogue Partnership v. CBS/Fox Co., 1996 WL 280813 (S.D.N.Y. May 24, 1996) (a copyright case). The federal appeals court also found that a district judge could properly reject consideration of such offers if the negotiations occurred at an early stage of proceedings (before discovery) or if they were not a true measure of what a party was truly seeking in damages. The Third Circuit agreed with the district judge’s analysis that, even under a contingency fee arrangement of 33% or 40%, plaintiff would have obtained much more if the $75,000 offer had been successful and that plaintiff’s attorney would have received either $25,000 or $30,000 from acceptance of such an offer.
The Third Circuit also distinguished or found that other frequently cited cases in the areas did not categorically reject consideration of the informal settlement offers in the lodestar analysis. See Ortiz v. Regan, 980 F.2d 138, 140-141 (2d Cir. 1992); Clark v. Sims, 28 F.3d 420 (4th Cir. 1994); Cooper v. State of Utah, 894 F.2d 1169 (10th Cir. 1990). For another case that came to a similar result of the Third Circuit in Lohman, see Moriarty v. Svec, 233 F.3d 955, 967 (7th Cir. 2000) (a “substantial settlement offer,” even if the offer is noncompliant with F.R.Civ. P. 68, can cut off fees incurred after the date of the offer). The Third Circuit also did not find that the consideration of the prior settlement offers was improper even when defendant’s offers were informal rather than made under Rule 68.
So how do California state decisions weigh in on this issue? They are split. Although occurring primarily in analogous substantive areas, one says a fee reduction is improper (given the existence of California Code of Civil Procedure section 998, Rule 68’s state analog), while another did allow for consideration of rejected informal offers. Compare Greene v. Dillingham Construction N.A., Inc., 101 Cal.App.4th 418, 425-426 (2002) [FEHA case; fee request should not be reduced for rejecting informal offer] with Meister v. Regents of University of California, 67 Cal.App.4th 437, 449-450 (1998) [Information Practices Act of 1977 case; plaintiffs were “penalized” for rejection of reasonable informal offers]. A recent decision, City of Novato v. MCCE Development, 2009 WL 1695943 at *23-24 (lst Dist. June 17, 2009) [reviewed in our June 18, 2009 post], noted the conflict, but did not have to resolve it because the settlement at issue had primarily non-monetary components that made it difficult to value for lodestar reduction purposes. So, stay tuned with us, because there will be more jurisprudence on this issue at the California state level.
But what about the Ninth Circuit Court of Appeals? We do not think they would follow Lohman. In a case involving an award of contractual attorney’s fees under California Civil Code section 1717, the Ninth Circuit in Berkla v. Corel Corp., 302 F.3d 909, 922 (9th Cir. 2002) found that informal settlement offers were not probative on the issue—adhering to the view that a Rule 68 offer was needed to shift the “balance of power.” Why do we say that? Berkla expressly disagreed with Meister, finding it was further suspect by relying on Marek v. Chesny, 473 U.S. 1 (1985), a case evaluating success when a Rule 68 offer was made. Berkla was also recently followed by a district court in Gregor Leasing Corp. v. Potrero, 2008 WL 4830751 at *4 (N.D.Cal. Nov. 6, 2008) (Conti, D. J.).