August 15, 2013

Fee-shifting to the plaintiff

Posted in Employment Law, Negotiation by Gene Killian |

Some people disdain criminal defense lawyers (until they need one). How can someone defend a murderer? Putting aside the question of civil liberties, I greatly admire criminal defense lawyers. Having done my share of work against government agencies over the years, I can tell you that nothing is more difficult. The government has unlimited resources and a certain institutional arrogance that you can’t really describe until you’ve actually experienced it.

Which is why, when a government agency gets its comeuppance for overreaching, it brings a (slight) smile to my face.  Which is exactly what recently happened in EEOC v. CRST Van Expedited, Inc., a federal district court case in Iowa.  The CRST case was a poster child for prosecutorial abuse by a government agency.

Basically, the EEOC filed suit, supposedly on behalf of a class of female employees of CRST (a trucking company), alleging sexual harassment and a sexually hostile working environment. Almost a year after filing suit, the EEOC still  had not identified the total number of people in the class. Eventually, the EEOC identified approximately 270 alleged claimants. The EEOC told the court that “it had a good faith belief that each and every one of the approximately 270 women disclosed to CRST had an actionable claim for sex discrimination.”

Upon closer examination, virtually all of the EEOC’s allegations crumbled.  Only one potentially valid claim remained. The  Court specifically noted that “many of the [EEOC’s] claims were groundless. For instance, the court [previously] summarily dismissed six individual claims because the individuals had never informed CRST of the sexual harassment while they were working for CRST.”  Eventually, all of the claims were either dismissed or withdrawn. Given the extensive and serious nature of the allegations made by the EEOC, however, CRST spent an enormous amount of money defending itself against this Inquisition.

Most people, when they think of fee-shifting, think it only goes one way. Not true. Because federal law allows for fee-shifting from the defendant to the plaintiff in certain circumstances, CRST applied for an award of attorney’s fees.

In response, the EEOC tried to argue that because one of its claims may have had merit when it was filed, there should be no fee-shift. The District Court, citing Supreme Court authority, wrote: “A district court may in its discretion award attorney’s fees to a prevailing defendant in a Title VII case upon a finding that the plaintiff’s action was frivolous, unreasonable, or without foundation, even though not brought in subjective bad faith.”  (Emphasis added.)

In applying this standard and awarding $4.6 million in fees and costs to the defendant, the court wrote: “The court previously determined that the EEOC’s claims were unreasonable… First, the court affirms its earlier conclusion that the EEOC’s failure to exhaust Title VII’s administrative prerequisites was unreasonable… Second, the court finds that the EEOC’s pattern-or-practice claim was unreasonable…[The EEOC] did not present any expert evidence, statistics or legal authority to support its argument that there is so much sexual harassment of CRST’s female drivers that CRST must tolerate sexual harassment, and its argument boils down to little more than… bald assertions.”

Fee-shifting to the plaintiff is a little tougher under New Jersey’s Law Against Discrimination, which requires an actual showing of bad faith.  In Michael v. Robert Wood Johnson Hospital, 398 N.J. Super. 159 (App. Div. 2008), for example, a hospital employee sued for age discrimination and a hostile work environment. She contended that the hospital’s vacation policy, its policy on tuition reimbursement, and her performance evaluations all discriminated against her. She conceded at deposition, though, that the vacation policy was uniformly applied to all employees. And, over the duration of her employment, she’d been reimbursed for tuition for more than 30 courses, and could not prove that younger employees received reimbursement that had been denied to her. As to the performance evaluations, her claim revolved around the fact that the performance evaluation form had changed, but she could not show that she had suffered any adverse consequences as a result. Her claims were therefore dismissed, and the hospital applied for $129,000 in counsel fees. The trial court granted the award, but it was reversed by the Appellate Division, which explained the New Jersey standard for fee-shifting to the plaintiff as follows:

“If the trial court concludes that the matter, although lacking merit, was not brought in bad faith, defendants would not be entitled to counsel fees. If the trial court determines that the matter was brought in bad faith, it should then proceed to consider what would constitute a reasonable award of counsel fees. In settling upon what it considers a reasonable award, the trial court should take into account the extent to which plaintiff has the ability to pay an award of counsel fees, and also the extent to which plaintiff pursued the matter because of her own views or desires or relied, either exclusively or partially, upon the advice of counsel.”  (Emphasis added.)

It’s important to remember that potential fee-shifting to the plaintiff-employee can have an impact on settlement negotiations or mediation.  Mediators (including me, when I mediate employment cases) often use the threat of fee-shifting to the company as a “hammer” to try to achieve an agreement. After all, if there’s a reasonable chance that the employer will be held liable for the employee’s attorney fees, the cost-benefit analysis of litigating the case has a different flavor. If the opportunity arises to use such a threat in reverse in the appropriate case, defense counsel should remember that the company has that arrow in its quiver. Even though the chance of actually collecting anything from a plaintiff-employee may be slim, the possibility of an adverse judgment may make some plaintiffs with questionable claims think twice.

- Gene Killian