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LABOR & EMPLOYMENT LAW — 08/21/09

Settlement negotiations may be considered when deciding attorney’s fees

A district court properly considered settlement negotiations between the parties when it reduced an employee’s attorney fees and costs from the $112,883.73 he requested to $34,251.77 following a favorable jury verdict on his First Amendment reprisal claim, held the Third Circuit Court of Appeals in a matter of first impression. (Lohman v Duryea Borough, 3rdCir, 92 EPD ¶43,622)

The employee brought an action asserting numerous claims relating to his discharge, but only three of his First Amendment reprisal claims survived summary judgment and proceeded to trial. His employer made three settlement offers after trial commenced, including one for $75,000. The employee rejected each of these offers. Ultimately, the jury found in favor of the employee on only one of his three claims, awarding him $12,205 in lost wages and nominal damages. The employee moved for attorney’s fees and costs of $112,883.73. After engaging in extensive consideration of the lodestar (i.e., the number of hours reasonably expended multiplied by a reasonable hourly rate), and determining that figure to be $62,987, the district court decided that the amount needed to be adjusted further based on the employee’s less than complete success on his claims. In assessing his degree of success, the court took into consideration settlement negotiations between the parties. Granting his motion in part, the district court ultimately awarded him only $34,251.77.

Appealing, the employee asserted that the district court improperly considered the settlement negotiations, including evidence that he rejected the settlement offer of $75,000, when the court further reduced his fee award.

Federal Rule of Evidence 408, which governs confidential settlement communications, does not bar courts from considering settlement negotiations as one factor when evaluating a prevailing party’s degree of success for the purposes of awarding attorney’s fees under 42 USC Section 1988, held the Third Circuit. Settlement negotiations are only barred when “offered to prove the merit or lack of merit of a claim,” wrote the circuit court. “[T]he use of such evidence as bearing on the issue of what relief [is] sought by the employee does not offend the clear terms of Rule 408.” Therefore, while settlement negotiations are clearly only one factor to be considered in the award of fees and may be relevant in measuring success, courts are free to reject such evidence when, for instance, negotiations occur at an early stage before discovery, or are otherwise not a fair measure of what a party is truly seeking in damages, confirmed the circuit court. But, in the case of the employee, not only did he reject a $75,000 settlement offer, an offer more than six times the amount awarded by the jury, he failed to offer a reason as to why a comparison between the rejected offer and ultimate jury award would not be “an indication of his success in the litigation as a whole.”

For more information on this and other topics, consult CCH Employment Practices Guide or CCH Labor Relations.

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