Why it matters: Affirming the broad discretion of federal district court judges to award attorney’s fees, the Ninth U.S. Circuit Court of Appeals held that an award of $700,000 in fees was justifiable despite a jury’s award of just $27,000 to the plaintiff. “There is a disparity between the damages recovered and the fees awarded,” the federal appellate panel wrote. “We are not convinced that California law requires the trial court to reduce that disparity.” The 26 to 1 ratio of attorney’s fees to actual damages should catch employers’ attention and serve as a warning about the dangers of attorney’s fees for prevailing parties in civil rights actions. Even where a plaintiff was unsuccessful on several claims and a jury awarded minimal damages, the attorney’s fees greatly increased the overall cost of the case.

Detailed Discussion

After being demoted two levels from Division Manager to Supervisor at United Parcel Service, Kim Muniz filed suit, alleging gender discrimination, age discrimination, and retaliation claims under California’s Fair Housing and Employment Act (FEHA).

UPS defended the suit by arguing that Muniz had been promoted beyond her abilities and that the allegedly discriminatory manager was attempting to find a position within her appropriate limits.

A jury considered only Muniz’s claims of gender-based employment discrimination after she dropped some claims and others were resolved at summary judgment. Jurors awarded her a total of $27,280.

Both UPS and Muniz claimed to be prevailing parties and sought attorney’s fees under FEHA, but the federal district court ruled that Muniz was the prevailing party. She requested more than $1.9 million in attorney’s fees for the work of three lawyers and one paralegal, including a lodestar multiplier of 1.5.

After consideration, the district court rejected the multiplier and reduced the hourly rates for two of the attorneys as well as the total hours worked by the paralegal and one of the attorneys. Based on Muniz’s limited success, the judge made an additional reduction of 10 percent for a final total of $696,162.78.

UPS appealed, seeking additional reductions based upon Muniz’s limited success and her inflated fee requests.

Emphasizing the discretionary powers of the district court, the 9th Circuit said the award was not an abuse of discretion. Fee awards must be adjusted to reflect limited success under both California and federal law, the court explained, using two components: a deduction from the lodestar for hours spent exclusively on unsuccessful claims and an evaluation of the remaining hours to determine if they were reasonably necessary to achieve the result obtained.

UPS contended that it should not have to foot the bill for Muniz’s retaliation and age discrimination claims and that time spent on those claims should be excluded. But the company did not attempt to estimate the actual number of hours the attorneys could reasonably have spent on the unsuccessful claims, the court noted, nor did it segregate out its own hours based on defending the specific claims.

“[P]articularly where it does not appear that either party could segregate hours spent exclusively on the unsuccessful claims,” the panel held the district court was not clearly mistaken in declining to make a greater reduction of the award. As for an evaluation of whether the remaining hours were necessary, the court said Muniz’s “success was not insignificant.” She asked for damages “in excess of $25,000” for gender bias in her complaint and the jury awarded her $27,280.

The district court recognized that the fee request was inflated, denying the multiplier and reducing the lodestar by 10 percent, actions that were “not an abuse of discretion,” the 9th Circuit said.

A deeper cut was not required, the panel majority wrote. “UPS has not demonstrated that the initial fee request in this case was made in bad faith and was so inflated that a 10 percent negative multiplier was not adequate to account both for limited success and possible inflation of the fee request,” the court said. “There is a disparity between the damages recovered and the fees awarded. We are not convinced that California law requires the trial court to reduce that disparity.”

The employer did score one victory, however, as the court found the paralegal’s fee award was based on inadmissible hearsay. One of the lawyers filed a declaration based upon his personal knowledge that he had watched the paralegal reconstruct her hours as found on the spreadsheet provided to the court. But “the declaration would arguably be an expert opinion” by the attorney, the 9th Circuit said, and therefore hearsay. Because case law requires “an evidentiary basis for each aspect of an award,” the panel remanded the case for reconsideration of the $55,286.40 permitted by the district court for the paralegal.

A dissenting opinion argued that the district court failed “to show its work” and should have provided more explanation for the 10 percent reduction and how the ratio of the fee award to the jury’s award was reasonable.

To read the decision in Muniz v. UPS, click here.