Why it matters

Employers who win Fair Employment and Housing Act (FEHA) cases in California can be reimbursed for fees and costs—including expert costs—only if they can prove that the plaintiff’s case was frivolous, a California appellate panel recently held. The dispute involved claims for discrimination, harassment and retaliation based on an employee’s membership in the Church of Jesus Christ of Latter-day Saints, as well as nonpayment of wages and whistleblower retaliation. After a five-week trial, the jury returned a verdict in favor of the employer, and the trial court awarded the defendants, as prevailing parties, $54,545.18 in costs, $29,097.50 in expert witness fees and $97,500 in attorney fees. However, the trial court denied the employer’s request for attorney fees with regard to the plaintiff’s FEHA claims, finding that the claims were not frivolous. Both parties appealed, and the appellate panel reversed the $83,642.68 award of costs and expert fees, ruling that the FEHA reimbursement provision found in Section 12965(b) trumped the more general fee-shifting provisions in Section 998(c) of the Code of Civil Procedure. The decision creates a split of authority among the California appellate courts on the issue of FEHA expert witness fees and puts employers on notice of the potential uphill battle to establish that the plaintiff’s claims were frivolous in order to recover costs, attorney fees and even expert witness fees in FEHA cases.

Detailed discussion

J. Brent Arave was the managing director of Merrill Lynch’s Desert Inland Empire Complex and a member of the Church of Jesus Christ of Latter-day Saints. In September 2010, a third party conducted an anonymous employee satisfaction survey on behalf of Merrill Lynch. The results of the survey ultimately led to Arave’s resignation and lawsuit alleging violations of the Fair Employment and Housing Act (FEHA) for discrimination, harassment and retaliation based on his religion, as well as nonpayment of wages and whistleblower retaliation.

The defendants made an offer to compromise under Section 998 for $100,000. Arave did not accept and the case proceeded to summary judgment, where the trial court dismissed some of his claims. A jury found for the defendants on all remaining counts after a five-week trial. The trial court then awarded the defendants, as prevailing parties, $54,545.18 in costs, $29,097.50 in expert witness fees and $97,500 in attorney fees spent on defense of the plaintiff’s wage claims. The court denied the employer’s request for attorney fees on Arave’s FEHA claims, determining that the claims were not frivolous.

Both parties appealed. While the California appellate court upheld the jury verdict and the determination that Arave’s FEHA claims were nonfrivolous, it reversed with regard to the trial court’s award of costs and expert witness fees.

The court began with the denial of attorney fees on Arave’s FEHA claims. Under Section 12965, the defendants were entitled to such fees only if they showed the FEHA claims were objectively without foundation when the plaintiff brought them or if he continued to litigate the claims after it became clear they were objectively without basis, the court explained.

Arave claimed that multiple employees attempted to get him to apologize for his religion, an assertion that all the defendants denied, meaning the plaintiff knew his claim was objectively baseless, Merrill Lynch told the court. But the court disagreed, finding that the evidence was not entirely one-sided and that the jury could have found in Arave’s favor. “That they did not do so does not indicate his claim was frivolous,” the panel wrote.

Turning to ordinary costs and expert witness fees, the appellate panel found the trial court applied the wrong standard in awarding them to the defendants.

A prevailing defendant cannot recover ordinary costs on FEHA claims “unless the court finds the action was objectively without foundation when brought, or the plaintiff continued to litigate after it clearly became so,” the court noted, citing the California Supreme Court decision in Williams v. Chino Valley Independent Fire District.

As the appellate panel affirmed the trial court’s finding that Arave’s FEHA claims were not objectively without foundation, it follows that the “defendants were not entitled to recover ordinary costs incurred in defending Arave’s FEHA claims, so we will reverse the order granting those fees.”

Merrill Lynch may not walk away totally empty-handed, however, as the court noted the holding in Williams does not preclude the defendants from obtaining ordinary costs on Arave’s wage claim. Unable to differentiate those costs on the existing record, the panel remanded the issue to the trial court.

Considering the award of postsettlement offer expert witness fees under Code of Civil Procedure Section 998(c), the appellate panel held that a defendant who prevails on a FEHA claim may recover expert witness fees under Section 12965(b) only when the plaintiff’s case is found to be frivolous.

Section 12965(b) permits the trial court, in its discretion, to “award to the prevailing party reasonable attorney’s fees and costs, including expert witness fees.” Case law has interpreted the FEHA statute to permit prevailing defendants to recover only if they show that the plaintiff’s FEHA claims are frivolous. In 2010, the California Supreme Court established that standard with regard to attorney fees, extending it in 2015 in Williams to ordinary litigation costs.

The appellate panel extended the reach of the frivolous standard even further, this time to expert witness fees, finding that the “plain language” of Section 12965(b) treats expert witness fees as a category of costs. “Though the statute does not say explicitly that expert witness fees sought by prevailing FEHA defendants are subject to the frivolity standard, that is true of requests for attorney fees and ordinary costs as well,” the court said.

Allowing cost shifting without the frivolous standard could discourage even potentially meritorious suits by plaintiffs with limited financial resources, the panel noted. “Expert witness fees, which can run much higher than ordinary costs, raise precisely the same concerns, and we see no basis in the statute, our case law, or public policy for treating them differently,” the court said.

This conclusion did not end the inquiry, however, as the court still needed to decide whether Section 998(c) overrides this limitation in situations where one party has made and the other party has rejected a settlement before trial.

“There is a conflict between Section 998(c) and Section 12965(b) as applied in this case,” the appellate panel wrote. “Section 12965(b) precludes the trial court from exercising its discretion to award defendants expert witness fees because plaintiff’s FEHA claims were not frivolous. However, Section 998(c) purports to authorize the trial court to exercise its discretion and award defendants at least a portion of their expert witness fees because they offered to settle for an amount greater than the verdict. We resolve the conflict in favor of the FEHA provision, which the Legislature enacted as part of a comprehensive statutory scheme designed to encourage victims of discrimination in employment or housing to seek relief.”

Because Section 12965(b) provides for the award of attorney fees, ordinary costs and expert witness fees in FEHA actions in a way that conflicts with the generally applicable provisions for such awards, the court held that the later, more specific FEHA provisions control.

Nothing in Section 998(c) warrants treating expert fee costs as a special case, the court said, and a trial court may consider whether the plaintiff rejected a reasonable settlement offer in deciding whether to award expert witness fees in a case where the defendant prevailed after trial against a frivolous FEHA claim.

The panel recognized its decision created a split among the California appellate courts but found the contrary authority not to be persuasive, as “we believe allowing Section 998(c) expert fee awards to defendants who are not entitled to expert witness fees under Section 12965(b) impermissibly undermines the effectiveness of FEHA.”

“Prospective plaintiffs with meritorious claims trying to decide whether to attempt to vindicate their rights would not be able to predict their exposure,” the court wrote. “Any attorney advising a prospective plaintiff would have to acknowledge they may lose even a very strong suit and end up being compelled to pay defendant tens of thousands of dollars in expert witness fees. Indeed, if we accepted defendants’ position, our decision would be an object lesson for all future FEHA plaintiffs on the risks of bringing colorable discrimination claims.”

The panel reversed the order awarding $29,097.50 in expert witness fees and $54,545.18 in ordinary costs (with some of this award potentially still available as applied to the plaintiff’s wage claims on remand).

To read the opinion in Arave v. Merrill Lynch, click here.