Unanimous Supreme Court Limits Recovery of Attorney Fees to be Paid to Prevailing Party Defendant Who Defended Frivolous Claims

Yesterday, a unanimous United States Supreme Court held that prevailing defendants who are entitled under 42 U.S.C. § 1988 to recover attorney fees which were incurred in successfully defending against frivolous claims are only entitled to recover fees if they prove that they would not have incurred the fees "but for" the frivolous claim. Fox v. Vice, No. 10-114 (2011). "[A] court may grant reasonable fees to the defendant in this circumstance, but only for costs that the defendant would not have incurred but for the frivolous claims." In other words, "[t]he dispositive question is not whether attorney costs at all relate to a non-frivolous claim, but whether the costs would have been incurred in the absence of the frivolous allegation." The Court admonished trial courts that fee disputes should not result in second major litigation because the goal is only to obtain "rough justice," not auditing perfection. Therefore, it is unlikely that the defendant who prevailed in getting every federal claim dismissed will be entitled to attorney fees if the same evidence and legal work was necessary to defend against non-frivolous state law claims over which the court refused to extend jurisdiction. Because §1988 also permits prevailing defendants to recover attorney fees for frivolous federal employment claims, this decision is of interest to employers.

In the Fox case, the dispute involved purported dirty tricks during an election for police chief. The plaintiff still won the election despite the criminal and tortuous behavior (which ultimately resulted in his opponent's conviction for extortion), but later filed suit for, among other things, defamation and violation of 42 U.S.C. §1983 against his opponent and the town. This lawsuit was removed to federal court, the §1983 claim was dismissed on summary judgment and the court declined to exercise jurisdiction over the state law claims (which could then be litigated in state court with the evidence gained during federal court discovery). The opponent then moved to for attorney fees under §1988 for prevailing on the federal §1983 claim. The Court awarded approximately $48,000 in fees to the defendant. The Court of Appeals affirmed.

The "American Rule" generally provides that each party pays its own attorney. However, Congress has abrogated that rule on occasion with attorney fee shifting statutes, including §1988. This statute permits prevailing parties, usually plaintiffs, to recover attorney fees when prevailing on federal claims. Plaintiffs recover on the theory that they are acting as private attorney generals to vindicate federal civil rights and prevailing "plaintiffs may receive fees under §1988 even if they are not victorious on every claim." Nonetheless, they may not recover fees incurred while pursuing unsuccessful claims. In turn, prevailing defendants are also entitled to attorney fees, but on more limited grounds. "Accordingly, §1988 authorizes a district court to award attorney's fees to a defendant "upon a finding that the plaintiff's action was frivolous, unreasonable, or without foundation." Because litigation is often messy and involves both frivolous and valid claims, it is possible that both parties could be entitled to reimbursement for attorney fees at the conclusion.

The issue in this case involves time spent defending five depositions that were taken where the evidence related to both the federal and the non-frivolous state law claims. The Court sought to avoid a windfall to the defendant merely because there was one frivolous claim brought in the suit. Therefore, it adopted a "but-for" test:

the "but-for" standard we require may in some cases allow compensation to a defendant for attorney work relating to both frivolous and non-frivolous claims. Suppose, for example, that a plaintiff asserts one frivolous and one non-frivolous claim, but that only the frivolous allegation can legally result in a damages award. If an attorney performs work useful to defending against both, but did so only because of the defendant's monetary exposure on the frivolous charge, a court may decide to shift fees. Or similarly, imagine that the frivolous claim enables removal of the case to federal court, which in turn drives up litigation expenses. Here too, our standard would permit awarding fees for work relevant to both claims in order to reflect the increased costs (if any) of the federal forum. And frivolous claims may increase the cost of defending a suit in ways that are not reflected in the number of hours billed. If a defendant could prove, for example, that a frivolous claim involved a specialized area that reasonably caused him to hire more expensive counsel for the entire case, then the court may reimburse the defendant for the increased marginal cost. As all these examples show, the dispositive question is not whether attorney costs at all relate to a non-frivolous claim, but whether the costs would have been incurred in the absence of the frivolous allegation. The answers to those inquiries will usually track each other, but when they diverge, it is the second that matters.

Thus, the case was remanded to determine whether the prevailing defendant was entitled to attorney fees where the frivolous and non-frivolous claims overlapped and were interrelated.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney

EEOC Settles Class Action Reverse Race Discrimination Lawsuit for $246.5K

On Friday, the EEOC announced that it was settling a class action reverse race discrimination lawsuit brought in federal court in Indianapolis, Indiana against a discount clothing retailer for $246.5K. According to the press release, "Dots' Merrillville, Ind., clothing store denied jobs on a systemic basis to white applicants since at least April 1, 2007. During that time, the EEOC contended, Dots regularly hired black entry-level applicants for sales positions, but excluded white applicants who were equally or better qualified." In addition,

The consent decree settling the suit provides that the settlement proceeds will be distributed to 32 class members. The decree also requires Dots to notify class members of open sales positions for a period of 18 months and to offer them interviews if they are still interested in employment with the company. Dots agreed to cease any further discrimination against white applicants and not to retaliate against applicants or employees who exercise their rights to complain about discrimination or assist in an investigation or discrimination-related proceeding. Dots will post a notice of non-discrimination at each of its facilities in Indiana and Illinois under its District 11 and train its managers and employees involved in the hiring process. Dots will also report on all hiring at its Merrillville location for a three-year period and will submit reports to EEOC detailing its compliance with the decree

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Double Double Toil and Trouble: When Workplace Violence, Workers’ Compensation, & Immunities Collide

Last week, the Ohio Court of Appeals issued a decision involving the collision of a violent workplace rape, workers compensation, sovereign immunity and waiver. Vacha v. North Ridgeville, 2011-Ohio-2446. According to the decision, the plaintiff employee was violently raped by a coworker at the defendant city's wastewater treatment plant. Because she suffered both physical and psychological injuries, she applied for and was awarded permanent total disability benefits through Ohio workers' compensation system. She later filed suit for civil damages and asserted claims for negligent and reckless hiring and supervision of the rapist, vicarious liability and an employer intentional tort. The City argued in moving for summary judgment that it could not be liable for civil damages to an employee who prevailed on a workers' compensation claim. It also argued that it was protected by sovereign immunity provided to political subdivisions. Finally, it argued that the plaintiff could not show that it had committed an intentional tort (to avoid workers compensation immunity). The Court agreed with most of the City's arguments, but sent the case back to the trial court because political subdivisions were not immune from all employer intentional tort claims and the City had failed to raise one of its arguments before the trial court.

The City's first argument was that the plaintiff's sole remedy was the workers' compensation system. Although purely psychological injuries are not compensable through workers' compensation, the plaintiff suffered both physical and emotional damages from the rape and was awarded total disability benefits. Therefore, the court decisions permitting plaintiffs to pursue negligent/reckless hiring/supervision claims were distinguishable because the plaintiffs in those cases – unlike the plaintiff in this case -- were not eligible to receive workers compensation benefits and, thus, were not subject to the exclusive workers' compensation remedy. As the Court noted,

R.C. 4123.74 provides that employers who are in full compliance with their obligation to pay workers' compensation premiums "shall not be liable to respond in damages" for "any injury *** received or contracted by any employee in the course of or arising out of his employment[.]" The statute is a codification of the principle set forth in Section 35, Article II of the Ohio Constitution that workers' compensation benefits will be an employee's exclusive remedy against her employer for workplace injuries and provides, in part:

"Such compensation shall be in lieu of all other rights to *** damages, for such *** injuries *** and any employer who pays the premium or compensation provided by law *** shall not be liable to respond in damages at common law or by statute for such *** injuries[.]"

The Court ultimately concluded that "if an employee's "injury" is compensable within the workers' compensation system, the employer is consequently immune from a civil action by the employee for negligently or recklessly causing the injury."

Conversely, if an employee's "injury" does qualify for workers' compensation coverage, that remedy is exclusive and the employer is immune from civil action liability arising out of an allegation that the employer was negligent or reckless in causing the employee's injury. That is the only reasonable interpretation of the language of R.C. 4123.74 and 4123.01(C) and any other interpretation would be unfair to the employer in the overall balance of competing interests in the workers' compensation system.

Nonetheless, the workers' compensation immunity does not apply to employer intentional torts. The trial court found that there were disputed issues of material fact concerning the intentional tort claim which could not be resolved on summary judgment. On appeal, the City argued that the more stringent employer intentional tort standard of R.C. § 2745.01 should apply to bar the plaintiff's claims. However, the City had not raised that argument before the trial court – probably because the statute's constitutionality was being challenged – and, thus, had impliedly waived that argument.

Finally, the City argued that it was entitled to sovereign immunity under R.C. § 2744.02 because none of the plaintiff's claims arose within any of the exceptions to that statute. In response, the plaintiff correctly pointed out that "R.C. 2744.09(B) explicitly provides that R.C. Chapter 2744 political subdivision tort immunity does not apply to "[c]ivil actions by an employee *** against his political subdivision relative to any matter that arises out of the employment relationship between the employee and the political subdivision[.]" However, the city contended that employer intentional tort actions are not "civil actions" within the meaning of the immunity statute. The majority of the Court was not impressed and found that an employer intentional tort claim could come within the political subdivision sovereign immunity statute. (However, one judge dissented and concluded that political subdivisions are immune from employer intentional tort claims).

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court Upholds Mandatory E-Verify Required by Arizona

This morning, the Supreme Court upheld a controversial Arizona law which requires employers operating in the state – as part of its business licensing law – to comply with the federal 1986 Immigration Reform and Control Act and to utilize the federal E-Verify program to confirm the eligibility of employees to legally work in the United States. Chamber of Commerce of the United States v. Whiting, No. 09-115 (2011). The Chamber of Commerce and civil rights groups had united to oppose the Arizona law, which they contended violated Congressional supremacy to govern immigration and was both explicitly and implicitly preempted. However, the District Court, the Ninth Circuit and the Supreme Court each concluded that the ICRA had left an explicit exception for states to regulate the hiring of immigrants through business licensing laws and that the Arizona statute paralleled the federal statute in its requirements in order to avoid any conflict with federal law.

Prior to the 1986 passage of the IRCA, the Supreme Court had held that immigration control was a federal power, but the states still had the authority under their sovereign policing powers to prohibit the knowing employment of individuals not entitled to reside or work in their state. However, the IRCA explicitly preempts states from imposing any civil or criminal sanctions upon employers for hiring unauthorized aliens, except through licensing and other similar laws. 8 U. S. C. §1324a(h)(2). The "Legal Arizona Workers Act provides that the licenses of state employers that knowingly or intentionally employ unauthorized aliens may be, and in certain circumstances must be, suspended or revoked. The law also requires that all Arizona employers use a federal electronic verification system [i.e., E- verify] to confirm that the workers they employ are legally authorized workers."

The challenged Arizona statute required the state attorney general or county attorney, upon receipt of a complaint, to verify with the federal government the work eligibility status of the challenged employee. Only the federal government could determine work eligibility, not local government. In addition, every employer is required to utilize e-verify upon hiring a new employee. Further, good faith compliance with the I-9 requirements of the IRCA and the e-verify system create an affirmative defense for the employer. Once unauthorized aliens are identified, the statute requires the local government to notify ICE or local police and to bring an enforcement action against the employer. The first violation of the statute can result in a suspension of the employer's business license, an order to terminate all unauthorized aliens, and quarterly reporting requirements. A second violation can lead to revocation of the employer's business license.

The Court easily dismissed the argument that the Arizona statute was not a licensing scheme and that the federal exemption was limited to licensing of migrant workers. The Court also rejected the argument that the Arizona statute conflicted with the federal IRCA because the Arizona statute incorporated IRCA definitions and standards and explicitly provided that determinations of work authorization were to be made exclusively by the federal government. Only when the federal government confirms that the individual is an unauthorized alien can the state government prove its burden that the individual is not authorized to work in Arizona. Finally, the Court rejected the argument that the state law upset the balance struck by the IRCA to avoid over-burdening employers and discouraging employment discrimination. The Arizona law did not impose any material additional burdens on employers and state law already prohibited national origin discrimination.

In 1996, Congress authorized the creation of the pilot e-verify program, but precluded making it mandatory outside the federal government. (However, federal contractors are required to utilize it pursuant to a 2008 Executive Order). Employers who verify the employment eligibility of newly hired employees establish a rebuttable presumption that they have complied with the IRCA. There is no provision in the 1996 enabling statute precluding states from making mandatory the use of e-verify. Indeed, when the 2008 Executive Order was challenged by government contractors and the Chamber of Commerce, the federal government pointed out that its use was already mandatory in Arizona and a few other states. Since that time, the federal government has expanded the e-verify program and encouraged its use. Indeed, the United States, in its amicus brief, disputed that the e-verify system could not handle the use by all employers in all 50 states. The United States also disputed any challenge to the accuracy of the e-verify system.

IRCA expressly reserves to the States the authority to impose sanctions on employers hiring unauthorized workers, through licensing and similar laws. In exercising that authority, Arizona has taken the route least likely to cause tension with federal law. It uses the Federal Government's own definition of "unauthorized alien," it relies solely on the Federal Government's own determination of who is an unauthorized alien, and it requires Arizona employers to use the Federal Government's own system for checking employee status. If even this gives rise to impermissible conflicts with federal law, then there really s no way for the State to implement licensing sanctions, contrary to the express terms of the savings clause.

In light of this decision, it can be expected that additional states will adopt their own version of the Arizona statute. This decision does not resolve the additional challenges to other provisions of Arizona's immigration control laws which are still working their way through the courts.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney

Ohio Appeals Court Lowers $46.5M Damage Award to $10.5M In Retaliatory Discharge Case

Last Thursday, the Cuyahoga County Court of Appeals ruled that Ohio's Tort Reform Act required the reduction of $43M in punitive damages to no more than $7M (which was twice the amount of compensatory damages awarded by the jury) in a retaliatory discharge case brought under the Ohio Civil Rights Act. Luri v. Republic Servs., Inc., 2011-Ohio-2389. In that case, the plaintiff general manager alleged that his employer manufactured a reason to fire him in April 2007 in violation of Ohio Revised Code § 4112.02(I) after he refused to fire the company's three oldest employees in November 2006. He had protested that one of the older employees had strong performance evaluations and could sue the company for age and disability discrimination. In addition, the plaintiff presented evidence that the defendants had altered and/or fabricated evidence to support its illegal termination decision and then refused to waive his non-competition agreement after firing him.

The Court held that the trial court did not abuse its discretion in refusing to bifurcate the trial (between liability and damages) because the evidence that proved liability was also relevant to the defendant's bad faith, justifying punitive damages. In particular, evidence that the defendants had manufactured evidence proved not only guilty intent in the termination decision, but also bad faith. The Court refused to find an error in the jury instructions because the defendants had failed to ask in the jury interrogatories or instructions for the economic and non-economic damages to be separately specified. In addition to the $3.5M in compensatory damages awarded by the jury, the trial court also awarded over $1M in attorney fees and prejudgment interest. However, the Court of Appeals found that the Tort Reform Act at Ohio Revised Code § 2315.21(D) limited the punitive damages to twice the amount of compensatory damages and those damages should be imposed collectively, rather than per plaintiff. Otherwise, the amount of the $43M punitive damage award did not shock the Court's conscience or constitute a violation of due process under the circumstances.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.