Second Circuit Affirms EDNY Award Of Attorneys’ Fees Against Civil Rights Plaintiff

On July 21, 2014, the Second Circuit issued a decision in Carter v. Incorporated Village of Ocean Beach, 13-815-CV, affirming an award by the EDNY of attorneys’ fees to defendants in a civil rights action.

In Carter, the “[p]laintiffs, five former seasonal and part-time police officers . . . pursued a variety of wrongful termination and defamation claims against” a collection of defendants, including Suffolk County and several of its employees and agencies (the “County Defendants”). The plaintiffs dismissed some of their claims and the EDNY “granted summary judgment to all Defendants” on the remaining claims. After that ruling was affirmed by the Second Circuit, the EDNY “awarded attorney’s fees and costs to the County Defendants.” The plaintiffs appealed. The Second Circuit affirmed.

One issue raised by the plaintiffs was that the EDNY awarded fees to the County Defendants on claims that were not addressed by the EDNY summary judgment decision. The Second Circuit rejected the argument, explaining:

Plaintiffs rely on Nemeroff v. Abelson, 620 F.2d 339, 350‐51 (2d Cir. 1980) (per curiam), which observed that generally the defendant is not considered the prevailing party when, as here, there is a voluntary dismissal of the action by the plaintiff with prejudice. Plaintiffs argue that they therefore cannot be held liable for any fees and costs that the County Defendants would have incurred anyway to defend against the claims that were dismissed voluntarily. But Nemeroff’s general statement of fee-shifting law was dictum because the order of dismissal in that case expressly reserved defendants’ right to move for costs. The court had no occasion to apply the rule it posited. Moreover, the only authority Nemeroff cited, Mobile Power Enterprises, Inc. v. Power Vac, Inc., 496 F.2d 1311, 1312 (10th Cir. 1974), has since been overruled by a unanimous en banc Tenth Circuit, which explained that Mobile Power was illogical, a misreading of both the Federal Rules and earlier precedent, and contrary to the decisions of most other courts. Nemeroff is also in tension with subsequent case law from the Supreme Court. In Buckhannon, the Supreme Court held that, to prevail for purposes of attorney’s fees, a party (the plaintiff in that case) must have gained through the litigation a material alteration of the legal relationship of the parties. A voluntary dismissal of an action with prejudice works such alteration, because it constitutes an adjudication on the merits for purposes of res judicata, and any action so dismissed could not be brought again. Because the Nemeroff dictum suggests to the contrary, and has no redeeming justification, we reject it.

(Internal quotations and citations omitted) (emphasis added). Having dealt with the precedent of Nemeroff, the Second Circuit went on to affirm because the combination of their victory on summary judgment and the voluntary dismissal meant that “the victory for the County Defendants was total,” and that the plaintiffs “are barred by res judicata from relitigating any of” their claims.

With respect to the plaintiffs’ state law claims, over which the EDNY declined to exercise jurisdiction (and thus which were not determined on the merits by the EDNY), the Second Circuit explained:

Other courts have ruled that a declination to exercise supplemental jurisdiction is insufficient to confer prevailing party status on a defendant, since those claims could later be refiled. In the circumstances of this case, however, a state court had dismissed the state law claims on the pleadings before the district court resolved the motion for attorney’s fees in the federal case. Accordingly, there was no chance that these claims would be refiled, and the defendants are properly considered prevailing parties on these claims. Moreover, the state law claims against the County Defendants were frivolous for the same reason that the federal claims were frivolous: the County Defendants had nothing to do with the alleged improper termination and the defamation underlying Plaintiffs’ complaint.

Plaintiffs argue that even if the state law claims were frivolous, fees cannot be imposed without adjudication of these claims by the federal court. This argument is implicitly at odds with [the Supreme Court’s decision in] Fox, in which the district court granted summary judgment on the federal claims (which were frivolous) and remanded the state claims (which were not). The issue was how to allocate between work associated with the former and work associated with the latter; the Supreme Court held that plaintiffs could be liable only for costs and fees that the defendant would not have incurred but for the frivolous claims. If Plaintiffs were correct, there would have been no need in Fox to draw a line between claims that were frivolous and those that were not: claims remanded to state court would never be subject to fee-shifting.

(Internal citations omitted). Finally, as to the plaintiffs’ argument that “no fees should have been awarded as to all their” claims other than federal civil rights claims, the Second Circuit explained that:

The state claims in Fox were not specifically listed in § 1988. Under Plaintiffs’ logic, the Court would have disposed of the appeal by explaining that fees associated with those claims were unavailable, without reference to frivolousness. More importantly, Plaintiffs’ argument distorts the text of § 1988, which provides that in any action or proceeding to enforce a federal civil rights provision, the prevailing party may be entitled to fees. Plaintiffs’ action sought to enforce (inter alia) federal civil rights provisions, and the County Defendants prevailed.

(Internal quotations omitted).

Rule 68 Entitles Civil Rights Action Defendants to Costs Even Though Plaintiff Prevailed on Claim

On June 3, 2014, the Second Circuit issued a decision in Stanczyk v. City of New York, Docket No. 13-1582-CV, holding that Rule 68 requires a prevailing civil rights plaintiff to pay a defendant’s post-offer costs if the plaintiff’s judgment is less favorable than the unaccepted Rule 68 offer.

In Stanczyk, the City of New York, which, along with two police officers, was a defendant in a civil rights action, made an offer of judgment before trial in the EDNY. The City was not found liable, but jury did find that the two police officers had used excessive force against the plaintiff and awarded the plaintiff $55,000 in compensatory damages and $2,000 in punitive damages against each officer.  The EDNY granted the plaintiff’s “fees and costs incurred prior to the date of Defendants’ Rule 68 Offer and awarded the defendants post-offer costs, excluding attorney’s fees.” The Second Circuit affirmed the award, explaining:

Rule 68 is a cost-shifting rule designed to encourage settlements without the burdens of additional litigation. Under normal circumstances, a plaintiff who prevails on a 42 U.S.C. § 1983 claim is entitled to recover costs, including reasonable attorney’s fees. Rule 68, however, precludes a plaintiff from recovering post-offer costs if (a) the defendant timely serves plaintiff with an offer of judgment, (b) plaintiff rejects the offer, and (c) plaintiff prevails but obtains a judgment less than the rejected offer.

The City’s unaccepted offer provided for a judgment in an amount greater than that which [the plaintiff] obtained at trial. In light of Rule 68, it is undisputed that the district court properly limited [the plaintiff’s] costs and attorney’s fees to those incurred prior to [the date of the Rule 68 offer]. The district court also determined that Rule 68 entitled Defendants to costs–excluding attorney’s fees–that they incurred after making the Offer. [The plaintiff] challenges this latter portion of the district court’s decision and argues that Rule 68 cuts off a prevailing plaintiff’s right to costs but does not compel a prevailing plaintiff to bear the defendant’s post‐offer costs.

In other words, [the plaintiff’s] challenge requires us to determine whether Rule 68 not only cancels the operation of Rule 54(d)–which entitles a prevailing party to costs–but also reverses it. Although this is an issue of first impression in this Circuit, every Circuit to have confronted this question appears to have reached the same conclusion: Rule 68 reverses Rule 54(d) and requires a prevailing plaintiff to pay a defendant’s post-offer costs if the plaintiff’s judgment is less favorable than the unaccepted offer. . . .

[O]ur conclusion in no way dictates that a prevailing plaintiff . . . would be liable for a defendant’s post-offer attorney’s fees–a result that would be at odds with Section 1988. In Marek, the Supreme Court made clear that the term “costs” in Rule 68 was intended to refer to all costs properly awardable under the relevant substantive statute or other authority. Because a civil rights defendant can recover attorney’s fees only when the plaintiff’s claims are vexatious, frivolous, or brought to harass or embarrass, and a prevailing plaintiff by virtue of her victory exceeds this standard, we cannot conceive of a situation in which attorney’s fees could be properly awardable to a non-prevailing defendant under Rule 68 in a civil rights action.

(Internal quotations and citations omitted) (emphasis added).

Second Circuit Clarifies Rules for Time to Appeal Non-Final Orders

On April 2, 2014, the Second Circuit issued a decision in United States ex rel. Maurice Keshner v. Nursing Personnel Home Care, Docket Nos. 13-1688-cv (Lead), 14-251-cv (Con), addressing the question of when the time to appeal non-final fee awards begins to run.

In Keshner, the Second Circuit addressed a motion to dismiss an appeal from an order issued by the EDNY awarding a qui tam plaintiff attorney’s fees because the appeal had been filed more than 60 days after the initial decision granting the fees was issued.  The Court held that a “fee award, entered before entry of a final judgment or a partial judgment entered pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, did not have to be appealed until entry of an appealable judgment.” It explained that:

because the fee award against [the appealing defendant] was a collateral order in a case that remained pending because of open claims against other defendants, the entry of the fee award did not trigger [the defendant’s] obligation to file a notice of appeal. Failure to take an available collateral order appeal does not forfeit the right to review the order on appeal from a final judgment. Indeed, we would not expect an appellate court to require an interlocutory appeal of a pre-judgment or pre-final order fee award because review of a fee award would normally be intertwined with the merits of an appeal from a final judgment or final order. Of course, once the District Court in the pending case entered a partial judgment under Rule 54(b), the time to appeal that judgment began upon its entry.

(Internal quotations and citations omitted).

This decision adds clarity to what can be the confusing question of whether/when interlocutory appeals need be taken under the Federal Rules of Civil Procedure.  The Keshner Court noted that four months ago, in Perez v. AC Roosevelt Food Corp., 734 F.3d 175 (2d Cir. 2013), amended, No. 13-497, 2013 WL 6439381 (2d Cir. Dec. 10, 2013), the Second Circuit reached a different conclusion on different facts, so in assessing the question of when/whether to appeal a non-final order awarding attorney’s fees, one might want to consult Perez as well as Keshner.

District Court May Not Refuse To Award Prevailing ERISA Plaintiff Attorney’s Fee Without Performing Full Analysis Of Relevant Factors

On March 11, 2014, the Second Circuit issued a decision in Donachie v. Liberty Mutual Ins. Co. et al., Nos. 12-2996-CV (Lead), 12-3031 (XAP), clarifying “the scope of a district court’s discretion in deciding whether to award attorneys’ fees to a prevailing” ERISA plaintiff.

In Donachie, the EDNY granted the plaintiff summary judgment “on his claim for long-term disability benefits pursuant to ERISA,” but denied the “plaintiff’s request for attorneys’ fees, based on the conclusion that defendant did not act in bad faith.” The Second Circuit reversed the denial of an award of attorneys’ fees, explaining:

[A] district court’s discretion to award attorneys’ fees under ERISA is not unlimited, inasmuch as it may only award attorneys’ fees to a beneficiary who has obtained some degree of success on the merits. . . . [W]hether a plaintiff has obtained some degree of success on the merits is the sole factor that a court must consider in exercising its discretion. Although a court may, without further inquiry, award attorneys’ fees to a plaintiff who has had some degree of success on the merits, . . . courts retain discretion to consider five additional factors in deciding whether to award attorney’s fees. Those five factors, known in this Circuit as the Chambless factors are:

(1) the degree of opposing parties’ culpability or bad faith; (2) ability of opposing parties to satisfy an award of attorneys’ fees; (3) whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties’ positions.

. . .

[However,] if a court chooses to consider factors other than a plaintiff’s success on the merits in assessing a request for attorneys’ fees, Chambless still provides the relevant framework in this Circuit, and courts must deploy that useful framework in a manner consistent with our case law. A court cannot selectively consider some factors while ignoring others.

(Internal quotations and citations omitted) (bold emphasis added).

Because the district court “misapplied” the Chambless “framework,” the Second Circuit found that it had abused its discretion and, on performing the analysis itself, found no reason to deny an award and remanded the case to the district court for an award of reasonable fees.

Second Circuit Remands And Reassigns ADA Case After Judge Conducts His Own Investigation And Determines Plaintiff’s Counsel Not Deserving Of Attorneys’ Fees

In a March 11, 2014, summary order, the Second Circuit (Katzmann, C.C.J., Sack, C.J., and Rakoff, D.J.) vacated an order denying the plaintiff’s motion for attorneys’ fees under the Americans With Disabilities Act (the “ADA”). The court also remanded and reassigned the case because Eastern District Judge Sterling Johnson, Jr. had conducted his own investigation of the premises at issue and determined that plaintiff’s counsel had not succeeded in remedying the ADA violations—and therefore was not deserving of attorneys’ fees.

The seemingly sui generis case is Costello v. Flatman LLC, No. 13-1446 (Mar. 11, 2014). The plaintiff obtained a default judgment against the defendant for violations of the ADA and moved for attorneys’ fees as provided in the statute. The district judge visited each of the businesses identified in the plaintiff’s eight lawsuits, and took judicial notice that the “‘alleged structural deficiencies preventing access to persons with disabilities still exist.'” Slip Op. at 3 (quoting district court). Based on those observations, the district court concluded that plaintiff’s counsel “never sought to remedy these failings” and consequently that he should receive no attorneys’ fees. Id. In vacating and remanding, the Circuit explained that structural defects in the buildings that prevented access to the disabled did not represent the kind of fact appropriate for judicial notice because “it is not clear” that such defects are “not subject to reasonable dispute” or that the district court’s conclusions could be “readily determined from sources whose accuracy cannot reasonably be questioned.” Id. The Panel also granted the plaintiff’s request that on remand the case be assigned to another judge, given “the district court’s error in conducting its own investigation of the restaurants and taking judicial notice of its findings.” Id. at 4. The Court did not question the district judge’s impartiality, but said he would likely have difficulty on remand putting his own findings out of his mind.

Reasonable Attorneys’ Fees Awarded Under Fee Shifting Statute May Be At Southern District Market Rates But Must Account For Fees Already Recovered From Other Defendants

In Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., 05 CV 0453 (E.D.N.Y. Dec. 30, 2013), Judge Brian Cogan granted in part plaintiffs’ request for attorneys’ fees under the Clayton Act, to the extent of awarding $4,093,163.35 in fees, and no costs, out of the $13,724,641.75 in fees and $1,363,307.68 in costs requested.  The case was a seven-year, multi-district anti-trust class action against Chinese vitamin C manufacturers, in which a group of direct purchasers alleged that the defendants participated in a cartel to fix prices and limit the output of vitamin C exported to the United States.  Plaintiffs settled with two of the four main defendants and ultimately recovered a judgment, after a jury trial and trebling of the damages, of $153,300,000 against defendants Hebei Welcome Pharmaceutical Co. and North China Pharmaceutical Group Corp.  Plaintiffs were represented by Boies, Schiller & Flexner LLP and Susman Godfrey LLP.

Judge Cogan accepted plaintiffs’ counsel’s hourly rates of $375-$980, even though they were higher than the rates customarily charged by lawyers with offices in the District, due to the complex and demanding nature of the case. The Court said the case involved factual and legal issues that “have never been considered in this district and very possibly would be unique anywhere,” and required that “extraordinary” resources “be brought to bear to prosecute the case.” Slip op., 3.  In the Court’s view there was “no plaintiffs’ class action firm with the capacity to deal with a case of this magnitude resident within this district.”  Slip op., 4.  The Court said that because it was not a “close question” whether to apply the forum rate or counsel’s national rates, there was no need for plaintiffs to offer independent evidence that their counsel’s national rates were reasonable.  Rather, the Court relied on its own knowledge of market rates in the relevant community, which includes the Southern District, and said that plaintiffs had bolstered their reasonableness showing by demonstrating that counsel’s proposed rates were the same as the rates charged to clients paying on an hourly basis, and that similar or higher rates had been approved by courts in other complex class action litigation.

Virtually the entire reduction in the fees and the complete denial of the costs was in order to avoid what Judge Cogan viewed as double counting, in light of plaintiffs’ prior receipt of a substantial amount in fees and costs from the settling defendants.  Plaintiffs sought the “full amount of their fees in this case even though a substantial portion of those fees have been paid” as a result of the settlements, on the theory that “they are entitled to an enhancement of their lodestar calculation and that in lieu of that, I should not apply a credit in favor of defendants to their fee recovery.”  Slip op., 11.  Judge Cogan rejected plaintiffs’ argument that relied on a “linkage between an enhancement and an offset” for fees already recovered, because plaintiffs’ proposal would result in an enhancement of “over 100%.”  He concluded that not offsetting the fees plaintiffs had already received would result in a windfall to them at odds with the Clayton Act’s allowance of a “reasonable” fee award.

Deadline For Making Claim For Attorneys’ Fees In FRCP 54 Does Not Apply To Claims For Appellate Fees

In Long Island Head Start Child Development Services, Inc., v. Economic Opportunity Commission, 00 CV 7394 (E.D.N.Y. Dec. 5, 2013), Judge Arthur Spatt held that a claim for appellate attorneys’ fees under ERISA’s fee shifting provisions is not governed by the 14-day deadline set forth in Federal Rule of Civil Procedure 54(d)(2)(B).  Under that Rule, a motion for an award of attorneys’ fees must be brought “no later than 14 days after the entry of judgment.”  The defendant had appealed an adverse judgment to the Second Circuit and lost.  The Circuit issued its mandate on June 10, 2013.  Two and a half months later, on August 29, 2013, the plaintiffs moved under ERISA to recover their appellate attorneys’ fees.

The defendants argued that the motion was out of time under Rule 54(d)(2)(B), and should be denied, because it was made more than 14 days after “the entry of judgment.”  The court examined whether the word “judgment” used in the Rule includes an appellate judgment.  The court noted that Rule 54(a) defines judgment as a “decree and any order from which an appeal lies,” and that, as a Northern District of Texas court had ruled, an appellate judgment could qualify because “a judgment from the Court of Appeals can be appealed to the United States Supreme Court.”  Slip op. at 5.  The court ultimately rejected that view, however, based on an earlier Eastern District case that decided the same question under the fee-shifting provisions of Title VII, and held that since Title VII contained no deadline, and since neither the Federal Rules of Appellate Procedure nor the Second Circuit’s local rules contained a deadline, the fee motion had only to be made within a reasonable period.

Reasoning that ERISA also had no deadline for making a motion for appellate fees, the Court ruled that motions under ERISA’s fee-shifting provisions likewise had only to be made “within a reasonable of time after the circuit’s entry of final judgment.”  Slip op. at 8.  Other fee shifting statutes are unlikely to be far behind.  (As for the two and a half months it took plaintiffs to make their motion, the Court held the time was not unreasonable because it was only two days after the defendants’ right to petition for U.S. Supreme Court review had lapsed.)