In too many cases, an employment discrimination plaintiff achieving only modest success on the merits has been able to recover a large award of attorney fees. The California Supreme Court took great strides toward correcting that situation on January 14, 2010, in Chavez v. City of Los Angeles. The Chavez decision holds that a trial court may properly deny attorney fees in cases brought under California’s Fair Employment and Housing Act (FEHA) when a plaintiff recovers no more than $25,000 in damages. This decision reconciles an apparent tension between the general rule that a prevailing plaintiff should be awarded attorney fees in cases brought under FEHA, and a provision of California’s Code of Civil Procedure that empowers a court to deny attorney fees if the case could have been filed in California’s limited jurisdiction courts.

More fundamentally, the Chavez decision affirms that California will follow federal law on awarding attorney fees on several important principles. For example, the extent of a plaintiff’s success on the merits is a crucial factor for the court to consider in determining the proper amount of fees to award. Also, attorney fees are not recoverable on unsuccessful claims, and fees can be denied altogether if a fee request is unreasonably inflated or the amount of recovery was only modest.

Attorney Fees Under California Code of Civil Procedure Section 1033(a)

In California, civil cases may be filed in courts of “limited” or “unlimited” jurisdiction. Cases filed as “limited” civil cases are restricted to damage awards of no greater than $25,000, and significantly restrict the scope and cost of discovery and related pre-trial procedures.

Under Code of Civil Procedure section 1032, a prevailing party generally is entitled to recover its costs of litigation from the losing party. Where authorized by statute or contract, attorney fees are treated as an allowable cost pursuant to Code of Civil Procedure section 1033.5(a)(10). However, under section 1033, when a case is filed as an “unlimited” case, and the prevailing party is awarded no more than $25,000 in damages—i.e., the case could have been filed as a “limited” case, the court has discretion to deny the prevailing party its costs, including attorney fees.

Attorney Fees Under FEHA

The FEHA provides that a court “may award to the prevailing party reasonable attorney fees and costs.” In applying similar provisions under Title VII, the United States Supreme Court has held that a prevailing plaintiff should ordinarily recover attorney fees. Because California courts look to the federal courts for guidance on issues pertaining to the application of the FEHA, as a practical matter, prevailing plaintiffs typically are awarded attorney fees in cases brought under FEHA.

Chavez v. City of Los Angeles

Between 1998 and 2004, plaintiff Chavez filed multiple complaints in California superior court against the City of Los Angeles for discrimination, harassment, and retaliation under the FEHA. Chavez’s complaints eventually were transferred to federal court. Ultimately, most of Chavez’s claims were dismissed on the City’s motion for summary judgment. The district court, however, allowed plaintiff to refile his remaining FEHA claims in state court.

Following a five-day jury trial in 2005, Chavez prevailed on a single claim of retaliation. The jury awarded Chavez $11,500 in damages. Chavez later filed a motion requesting an award of attorney fees in the amount of $870,935.50.

Relying on Code of Civil Procedure section 1033(a) and Steele v. Jensen Instrument Co., 59 Cal. App. 4th 326 (1997), the trial court denied Chavez’s motion for attorney fees. The trial court justified its denial of attorney fees, in part, by noting that Chavez’s evidence supporting lost wages and emotional distress damages was “sparse,” and that in pursuing his case, Chavez had focused overwhelmingly on liability, not damages.

The Court of Appeal reversed the trial court’s decision. The Court of Appeal reasoned that the purpose of section 1033(a) was to promote the filing of minor grievances in courts of limited jurisdiction, which was “inapposite in statutory discrimination or civil rights actions because even a modest financial recovery can serve to vindicate a substantial legal right.” In other words, according to the Court of Appeal, the FEHA and section 1033(a) served conflicting public policies. The Court of Appeal further explained that plaintiff could not have filed the case in limited civil jurisdiction court because it involved two complex causes of action against four different defendants. The limitations on discovery in limited jurisdiction court would have prevented plaintiff from deposing all of the named defendants, and other essential witnesses.

In reviewing the Court of Appeal’s decision, the California Supreme Court analyzed whether the trial court abused its discretion by denying the motion for attorney fees pursuant to Code of Civil Procedure section 1033. The Court acknowledged the FEHA’s underlying policy of encouraging the prosecution of meritorious claims, and recognized that the prospect of an award of attorney fees furthers that policy. The Court also acknowledged, however, that the procedures associated with limited civil cases provide for time and cost savings. The Court then stated that, “[i]n determining whether a FEHA action should have been brought as a limited civil case, the trial court . . . should evaluate the entire case in light of the information that was known, or should have been known, by the plaintiff’s attorney when the action was initially filed and as it developed thereafter.” From this, the Court held that a trial court has discretion to deny an award of attorney fees under section 1033(a), even when the claims at issue are based on the FEHA. In short, when there is insufficient reason to anticipate a FEHA damages award exceeding $25,000, and the plaintiff ultimately is awarded less than $25,000, the trial court has discretion to deny a claim for attorney fees.

What The Chavez Decision Means For Employers

In many cases, the threat of a substantial attorney fees award prompts the defendant to assess potential exposure as significantly greater than any award for damages on the merits of the FEHA claim at issue. Often, plaintiff’s counsel will incur fees that dwarf any realistic damages exposure. In small damages cases, Chavez now provides defendants with some leverage in negotiating settlements. In other words, Chavez diminishes the ability of plaintiffs to use the prospect of a large attorney fees award as a threat in appropriate cases. More significantly perhaps, in class actions where the damages to the named plaintiff(s) are likely to be no more than $25,000, a denial of class certification means the attorneys for the named plaintiff(s) may not be able to recover any fees at all even if they prevail on the individual claims at trial. After Chavez, plaintiffs’ attorneys now will assume a greater risk in taking on small damages cases.