Attorneys’ Fees: The “Hidden” Cost In Discrimination Litigation – Suffolk Lawyer, Volume 21, Number 4, December 2004

By: Paul F. Millus

All litigators are aware that the “American Rule” provides that attorneys’ fees are not available as an item of damage in the absence of statutory or contractual authority. ⁽¹⁾ However, attorneys involved in litigating employment discrimination claims know well that attorneys’ fees can be a significant aspect of any settlement negotiation or large part of the monies paid to a plaintiff after trial. For many defense practitioners and claims counsel, the possibility of an attorneys’ fees award has become a significant motivation for settlement making even when it may be readily acknowledged that plaintiff’s claim may be of nominal value.

Statutory Scheme

Pursuant to 42 U.S.C. § 2000e-5(a), in any action brought under those statutes, the “prevailing party” is entitled to a “reasonable attorney’s fee (including expert fees) as part of the costs.” ⁽²⁾ Whether a plaintiff is the “prevailing party” is subject to some debate. However, typically, the Supreme Court has given a “generous formulation” to the term “prevailing party.” Generally, plaintiffs may be entitled to attorneys’ fees if (i) the plaintiff received a judgement on the merits; (ii) the plaintiff “substantially prevails”; and/or (iii) the parties entered into a settlement agreement that is enforced through court-ordered consent decrees. Moreover, judicial action other than a judgment on the merits or a consent decree can also support an award of attorneys’ fees.⁽³⁾

Generally, a plaintiff prevailing in a discrimination case on any level at law or equity will be deemed the “prevailing party.”⁽⁴⁾ The fees are determined by employing what is known as a “lodestar” calculation. To calculate the “lodestar,” or base fees, the courts utilize the following mathematical formula: the number of hours reasonably devoted to the litigation multiplied by the reasonable hourly rate = lodestar amount. ⁽⁵⁾

Current Trends in Discrimination Litigation

Employment discrimination suits have grown significantly. According to the U.S. Department of Justice, the number of employment discrimination cases in federal court nearly tripled from 8,413 cases in 1990 to 21,032 cases in 2000.⁽⁶⁾ In 2003 alone, the EEOC reported a total of 81,293 charges filed, including multiple-type discrimination resulting in the filing of 393 lawsuits by the EEOC.⁽⁷⁾

According to a 2003 risk survey performed by Chubb Insurance Group, a leading provider of employment practice liability insurance, 44% of executives surveyed said they believed it was likely that an employee would sue their company in 2004 for discrimination, and 50% said it was likely that an employee would file a complaint with the EEOC or a state agency during this year. More than 55% of the survey respondents estimated the cost of a discrimination suit to be $100,000 or more.⁽⁸⁾ There has also been a consistent upward trend in the use of jury trials to resolve discrimination complaints. The proportion of jury verdicts have also increased from 35% in 1990 to 78% in 1998.⁽⁹⁾

Likewise, such litigation is becoming far more lucrative from a plaintiff’s perspective. From 1997 through 2003, the median jury verdict in all types of employment practice liability cases increased from $133,691 to $250,000.⁽¹⁰⁾ During that same span of time statistics show that 44% of awards in federal court cases resulting in plaintiffs’ verdicts ranged from $75,000 to $250,000. Plaintiffs are winning more often in federal court, with an increase in plaintiffs’ verdicts from 24% in 1990 to 36% in 1998.⁽¹¹⁾ Thus, with the influx of more and more cases, there are additional opportunities for plaintiffs to be awarded counsels’ fees from defendants.

Attorneys’ Fees and Litigation Strategy

Today, hourly rates of $350 to $450 per hour for a partner’s time in the Southern District and at least $200 to $300 per hour for a partner’s time in the Eastern District are regularly awarded by the courts thus making the attorneys’ fees component a major factor when evaluating settlement possibilities. ⁽¹²⁾ Indeed, an attorneys’ fees award will often exceed the compensatory damage award. Always mindful that jury can award verdicts out of sympathy alone, the potential obligation to pay plaintiffs’ attorneys’ fees warrants careful consideration of settlement possibilities even in the most marginal of cases. In Farrar v. Hobby, the Supreme Court stated that after considering the amount and nature of damages awarded, the court may lawfully award low fees or no fees. However, in this jurisdiction, courts have interpreted Farrar v. Hobby‘s holding narrowly to apply to cases where no compensatory damages are awarded at all.⁽¹³⁾ In fact, the Second Circuit has plainly ruled that “a reasonable fee may well exceed the prevailing plaintiff’s recovery,” and oftentimes that is proven true in practice. ⁽¹⁴⁾

On November 23, 2004 the New York State Court of Appeals decided McGrath v. Toys “”R”" Us, Inc., 1 N.Y.3d 618, 777 N.Y.S.2d 12, (2004) which was accepted for certification of questions by the U.S. Court of Appeals for the Second Circuit. See 356 F.3d 246 (2nd Cir. 2004). In McGrath the District Court Judge awarded $193,551 in attorneys’ fees under the New York City Administrative Code § 8-502(f) to three plaintiffs, who were pre-operative transsexuals. They had prevailed at trial on a claim that Toys “R” Us had discriminated against them in a public accommodation based on gender and sexual orientation. The appellate dispute concerned the reasonableness of the district court’s fee award in light of the fact that the jury awarded each plaintiff only $1 in nominal damages. The New York Court of Appeals (Justice Read dissenting) has ruled that counsel fee awards under the City Human Rights Law are subject to the Farrar analysis. However, the Court also held that plaintiffs’ claims could have fallen within the “significant public purpose” exception addressed in the Farrar concurrence by Justice O’Connor. Thus, the case goes back to the Second Circuit for further consideration and the possibility remains that the fee award will be upheld despite the award of nominal damages.

Based in the state of the law, a defendant faced with a sympathetic plaintiff in a case with little merit, must consider the possibility that the case should settle, primarily accounting for the risk of an attorneys’ fees award. This is a sobering thought, and one that raises the stakes considerably, especially when a client invokes the mantra “I would rather pay my lawyer than pay the plaintiff a dime.” In a common twist of fate, the client could end up paying both lawyers as well as the plaintiff, which could not comprise a worse scenario from that client’s perspective. Under these circumstances, the client in discrimination cases should be conditioned early to understand that even in the most seemingly frivolous cases, the looming presence of a fee shifting statute may warrant a more conciliatory approach. Conversely, the only effective way to (I) counter the real or perceived threat of an attorneys’ fees award and (ii) avoid overpaying on a marginal claim is to try the case thus leaving little doubt as to the identity of the “prevailing party.” ⁽¹⁵⁾

1. Elmira v. Larry Wurther, Inc., 150 A.D.2d 129, 546 N.Y.S.2d 183 (3d Dep't 1989), aff'dmem. 76 N.Y.2d 912, 563 N.Y.S.2d 45 (1990).
2. N.B. Under the New York State Executive Law, there is no statutory right permitting the prevailing party to attorneys' fees, unlike the N.Y.C. Administrative Code Section 8-502(f) which permits a reasonable fee to the prevailing party like its federal counterpart. Also, federal civil rights law provides for the payment of attorneys fees to prevailing parties in civil rights actions pursuant to 42 U.S.C. § 1988. The analysis is the same as in Title VII attorney's fees cases.
3. Roberson v. Giuliani, 346 F.3d 75 (2d Cir.2003).
4. To be a "prevailing party" the plaintiff need not have succeeded on the central issue in this case nor must the plaintiff have "obtained the primary relief sought." In the Second Circuit, "it is sufficient that the plaintiff succeeded on 'any significant issue in the litigation.'" Hightower v. Nassau County Sherrif's Department, 2004 WL 1595392 (E.D.N.Y. July 19, 2004).
5. Blanchard v. Bergeron, 489 U.S. 87, 109 S.Ct. 939, 103 L.Ed.2d 67 (1989)
6. U.S. Department of Justice : Bureau of Justice Statistics Special Report: Civil Rights Complaints in U.S. District Courts, 1990-1998, January 2000 NCJ 173427 and Civil Rights Complaints in U.S. District Courts, 2000, July 2002 NCJ 193979.
7. U.S. EEOC Litigation Statistics FY 1992 through FY 2003
8. Employment Practices Liability Survey Findings: The Chubb 2004 Private Company Risk Survey
9. U.S. Department of Justice : Bureau of Justice Statistics Special Report: Civil Rights Complaints in U.S. District Courts, 1990-1998, January 2000 NCJ 173427
10. Employment Practice Liability, Jury Award Trends and Statistics, Jury Verdict Research 2004 edition.
11. Id.
12. See Hightower v. Nassau County Sherrif's Department, 2004 WL 1595392 (E.D.N.Y. July 19, 2004) andNew York State Nat. Organization for Women v. Pataki, 2003 WL 2006608 (S.D.N.Y. Apr 30, 2003).
13. See Farrar v. Hobby, 506 U.S. 103, 109, 113 S.Ct. 566, 571-72, 121 L.Ed.2d 494 (1992) and LeBlanc-Sternberg v. Fletcher, 143 F.3d 748, 159 A.L.R. Fed. 747 (2d Cir. 1998); Hine v. Mineta, 253 F.Supp.2d 464 (E.D.N.Y. Mar 28, 2003); Young v. Healey, 1999 WL 1281503 (N.D.N.Y. Dec 16, 1999); Adams v. Rivera, 13 F.Supp.2d 550 (S.D.N.Y. Jul 31, 1998).
14. Orchano v. Advanced Recovery, Inc.,107 F.3d 94, 98 (2d Cir.1997).
15. N.B. So as not to mislead the successful defendant in such a case who believes that as a "prevailing party" she is now entitled to repayment of her fees, please see Christiansburg Garment Co. v. Equal Employment Opportunity Commission, 434 U.S. 412, 422, 98 S.Ct. 694 (1978) which held that fees are not to be awarded to a prevailing defendant unless the plaintiff's action was "frivolous, unreasonable, or groundless, or the plaintiff continued to litigate after it clearly became so. " Id. at 422. This is a very difficult standard to satisfy. See Davenport v. Nassau County Sheriff's Dept., 22 F.Supp.2d 40 (E.D.N.Y. 1998) and most recently Tancredi v. Metropolitan Life Ins. Co., ___ F.3d ___, 2004 WL 17773237 (2d. Cir. August 9, 2004).