$700,000 Attorney Fees on a $27,000 Verdict!!

This is why we preach you have to get out of a lawsuit as quickly as you can! Mediation may require employers to pay even if the employer did nothing “wrong.” I can perfectly understanding “drawing the line in the sand” but consider this. Last week, the Ninth Circuit issued its decision in Muniz v. UPS, holding that the trial court did not abuse its discretion in awarding the plaintiff close to $700,000 in attorneys’ fees, even though the plaintiff’s damages recovery was only $27,000 and the defendant defeated the majority of plaintiff’s claims prior to trial! This result is an unpleasant example of how an employer can be largely victorious in defending an employment suit yet still lose big on attorneys’ fees.

In Muniz, the plaintiff was given a performance improvement plan and later demoted, based on unsatisfactory performance. Plaintiff sued, alleging “kitchen sink” discrimination based on age and gender, and also alleged retaliation and negligent supervision and training. Plaintiff’s age discrimination, retaliation, and negligent supervision claims (as well as plaintiff’s claim for punitive damages) were defeated and/or voluntarily dismissed prior to trial (meaning UPS prevailed on these claims). The only claim that was actually tried was plaintiff’s claim for gender discrimination based on being given a performance improvement plan and later demoted. The jury determined that plaintiff’s demotion was motivated by gender discrimination but awarded plaintiff damages of only $27,000 (much less than plaintiff’s plea to the jury to award her $700,000). The jury also concluded that plaintiff’s performance improvement plan was motivated in part by gender discrimination, but that UPS would have taken the same action for legitimate, non-discriminatory reasons. As such, the plaintiff was not permitted to recover damages (alleged emotional distress) associated with the performance criticism.

In sum, the defense largely prevailed in the case, having defeated all but one of plaintiff’s claims and substantially limiting plaintiff’s recovery. That is, until plaintiff filed a motion for recovery of attorneys’ fees for prevailing on one FEHA discrimination claim. Plaintiff outrageously sought $1.9 million in fees for her limited success, including a claimed lodestar (number of hours expended times hourly rates) of $1.3 million (which included time spent litigating the claims that were defeated) and a requested 1.5 upward enhancement. The trial court denied the requested 1.5 multiplier and limited its analysis to the reasonableness of 1.3. In this regard, the trial court found that plaintiff’s counsel’s proffered hourly rates were unreasonable and reduced them slightly. The trial court also found that plaintiff’s counsel had not sufficiently proven the number of hours expended on the litigation and, therefore, reduced the compensable total hours by 20 percent, bringing the fee award down to $773,000. At that point, the court considered UPS’ argument that the fee award needed to be substantially reduced to account for plaintiff’s very limited success and the extreme disproportion between the plaintiff’s damages and the amount of fees sought. The trial court reduced the fees by only 10 percent and awarded plaintiff nearly $700,000 in fees.

UPS appealed to the Ninth Circuit, arguing primarily that the fee award should have reduced more than 10 percent to account for plaintiff’s limited success. The Ninth Circuit disagreed, relying heavily on the deferential standard of review which gives a trial court broad discretion to set the amount of fees awarded. The Ninth Circuit held that the trial court could have reduced the fee award more, but that it could not be said that it was an abuse of discretion for the trial court not to do so. The court reasoned that a reduction for time spent on unsuccessful claims is proper only to the extent it can be demonstrated that certain hours were spent exclusively on the unsuccessful claims. Time spent, for example in discovery, on both successful and unsuccessful claims should not be reduced from a fee award. The Ninth Circuit concluded that the trial court properly considered these issues and did not abuse its discretion in determining the amount of fees to award.

The Muniz case is another one for the plaintiffs’ attorney arsenal. It will make it more difficult for employers fighting FEHA claims in California federal courts to successfully limit any award of attorneys’ fees to a prevailing plaintiff, thereby effectively increasing the incentive to settle such claims early on. I get it. It seems like “extortion” but do the math. It really boils down to dollars and “sense.”