Wednesday, October 31, 2012

Circuit Split: Attorney's Fees Adjusted for Settlement Offers?

Many employment law statutes allow successful plaintiffs to recover attorney's fees. The amount is set by the court. What happens when a party rejects a settlement offer, and is ultimately successful but not as successful as the prior settlement offer? Can the court take that into consideration? Jeffrey Campololongo picked up on a circuit split on this issue, and wrote about it in Circuit Split on Considering Prior Settlement Offers in Attorney Fees in The Legal Intelligencer (sub. req'd).

The Third Circuit held in Lohman v. Duryea Borough, 574 F.3d 163 (3d Cir. 2009) that the Court could consider prior settlement offers:
Lohman rejected a settlement offer of $75,000.00, an offer more than six times the amount awarded by the jury. Lohman offers no explanation as to why his rejection of this amount is not probative of the amount he sought in damages. Nor does he offer a reason as to why a comparison between the rejected $75,000.00 offer and the ultimate $12,205.00 jury award would not be an indication of his success in the litigation as a whole.
The Court reduced the attorney's fees from the requested amount of $112,883 to a mere $30,000 in fees. Even the lodestar amount was $62,986. In other words, the Court cut the fees . . . by a lot . . . based in part on the prior settlement offer.

Earlier this month, the First Circuit held the other way in Diaz v. Jiten Hotel Mgmt., No. 11-2400 (1st Cir. Oct. 12, 2012). The party rejected a $75,000 settlement offer and proceeded to trial . . . where she won $7,650 in compensatory damages. The trial court determined that the fees should be further adjusted downward.
The [trial] court pointed out that if Diaz had accepted Jiten's $75,000 settlement offer, she would have received more personally and her attorney would have only received about $25,000, and that it created a dangerous incentive to take low value claims to trial instead of settling.
But the First Circuit disagreed, "we conclude the district court's fee reduction improperly focused on Diaz's rejection of the settlement offer." The Court remanded with the instruction to follow the 12 Hensley factors, a reference to Hensley v. Eckerhart, 461 U.S. 424 (1983):
The twelve factors are: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the “undesirability” of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.
I don't see prior settlements in there (arguably "results obtained"). So, there appears to be a circuit split. Will SCOTUS take up the case? We shall see . . . .

Image: Third Circuit seal used in commentary on Third Circuit. Not official use.