A prevailing plaintiff in an employment discrimination case is generally entitled to an award of attorney's fees. Often in such cases, the potential attorney's fees dwarf the amount of potential damages, which can make settlement difficult. Employers recently received some welcome news on this issue from the California Supreme Court. On January 14, 2010, the Court, in Chavez v. City of Los Angeles, upheld a trial court's denial of attorney's fees to a plaintiff who achieved limited success in a retaliation claim brought under the California Fair Employment and Housing Act (FEHA), and ruled that the trial court had discretion to deny or limit the recovery of attorney's fees given the amount of the damages awarded to the plaintiff.

In California, the prevailing party in a civil case is generally entitled to recover certain costs. Those costs can include attorney's fees when recovery of such fees is provided by statute. California Government Code section 12965 provides for an award of attorney's fees in cases under FEHA. However, Section 1033 of the California Code of Civil Procedure gives a trial judge discretion to deny attorney's fees and costs to a prevailing plaintiff where the plaintiff recovers less than the $25,000 limit that can be recovered in a "limited civil case," but the plaintiff did not file the lawsuit as a limited civil case. Limited civil cases are subject to certain procedural restrictions, including limits on the number of depositions and written discovery requests, which are intended to control the costs of litigation.

Robert Chavez, a police officer, filed several lawsuits against his employer, the City of Los Angeles, arising from various events during his employment. In the last of this series of lawsuits, Chavez sued the City and his supervisors in state court, asserting claims for discrimination and harassment on the basis of a perceived mental disability in violation of FEHA. He also alleged that he had been retaliated against for filing administrative complaints and FEHA lawsuits. A jury found in favor of the City on the discrimination and harassment claims, but found that Chavez had been retaliated against and awarded him $11,500 in damages.

Despite the nominal damages award, Chavez's attorneys filed a motion seeking recovery of attorney's fees and costs in an amount exceeding $800,000. Relying on Section 1033 of the California Code of Civil Procedure, the trial court denied the request for fees because the lawsuit was not filed as a limited civil case. Chavez appealed. The Court of Appeal reversed, stating that Section 1033 did not apply in FEHA cases. The Court of Appeal reasoned that Section 1033 was designed to encourage the pursuit of minor grievances in courts of limited jurisdiction, but held that this rationale did not apply in FEHA cases, in which even a modest monetary recovery can vindicate important legal rights.

The Supreme Court concluded that Section 1033 gives trial judges the discretion to limit fee awards in FEHA actions. The Court reinstated the trial court's ruling denying fees due to Chavez's minimal success and because it believed that his attorneys' request for fees was inflated. The Supreme Court clarified that the trial court may deny all or part of the plaintiff's claim for fees and costs if it concludes that the plaintiff's attorney had no reasonable basis to anticipate a FEHA damages award in excess of the $25,000 damages cap for a limited civil case, and that the action could have been fairly and effectively litigated as a limited civil case.

The holding of this case means that plaintiff's attorneys risk ending up empty-handed in employment cases if they miscalculate the extent of their client's damages and the amount of discovery reasonably necessary to prove their case. It may also mean that the potential for a large award of attorney's fees will be less of a roadblock to settling FEHA cases where the plaintiff's actual damages are minimal. The rationale of this decision will, in addition, provide a critical tool for employers in opposing fee requests that the California state courts have otherwise routinely granted in the past.