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California Supreme Court Rejects Attorney's Fee Award as Disproportionate in Limited Damages Case

In a unanimous decision, the California Supreme Court has held that a trial court may deny attorney’s fees in cases under the California Fair Employment and Housing Act (“FEHA”) where the compensatory damages award could have been recovered in a “limited civil case.”  Chavez v. City of Los Angeles et al., No. S162313 (Cal. Jan. 14, 2009).  

A limited civil case is one that, before the unification of the municipal and superior courts, would have been within the jurisdiction of a municipal court. Actions that may be brought as limited civil cases include those in which the amount in controversy does not exceed $25,000.  Limited civil cases are subject to certain procedural restrictions intended to control the cost of litigation.

The Court reversed the Court of Appeal’s judgment permitting an employee to recover $871,000 in attorney’s fees and found that the trial court did not abuse its discretion in denying the fee application pursuant to Section 1033 of the California Civil Code.  Indeed, the Court noted that the fee request was “grossly inflated” in light of the employee’s $11,500 damages award, which was less than half of the $25,000 jurisdictional limit for a limited civil case.  This case may open the door to increased settlement negotiations in employment discrimination cases where the employees’ damages are limited.

In 1989, the City of Los Angeles hired Robert Chavez as a police officer.  During his employment, Chavez was accused of stealing payroll checks and, although he was exonerated, he subsequently experienced difficulties with his supervisors, leading to transfers, suspensions and multiple lawsuits. 

In 2004, Chavez sued the City for alleged racial and perceived disability discrimination, harassment and retaliation under the FEHA.  Following a trial, the jury awarded Chavez damages in the amount of $11,500, consisting of $1,500 in unpaid overtime and $10,000 in compensatory damages on his retaliation claim.  The award was less than half of the $25,000 jurisdictional limit for a limited civil case. 

Chavez sought an award of $871,000 in attorney’s fees under the FEHA, which allows reasonable attorney’s fees and costs to a prevailing party.  The trial court rejected the fee application, instead applying Section 1033 of the California Civil Code, which permits trial courts to deny fees in cases where the recovery could have been obtained in a limited civil case. Chavez appealed, and the Court of Appeal reversed, holding that Section 1033 of the California Civil Code did not apply in FEHA actions and that the trial court abused its discretion by denying the fee application.  The City appealed.

The California Supreme Court first reviewed the language of both Section 1033 of the California Civil Code and the FEHA.  The Court noted that Section 1033(a) of the California Civil Code permits trial courts to deny an application for attorney’s fees where the plaintiff has obtained a judgment that is less than that which could have been recovered in a limited civil case, but was not brought as such.  The purpose of Section 1033 is “to force plaintiffs to bring their cases in the inferior courts wherever possible, and to penalize them if they do not do so.” 

Under the FEHA, a court may award to the prevailing party reasonable attorney’s fees and costs.  The provision’s purpose is to make it easier for “plaintiffs of limited means to pursue meritorious claims.” 

Chavez argued that these two provisions could not be reconciled and that the FEHA should trump the California Civil Code. The Court rejected Chavez’s argument, finding “no irreconcilable conflict” between Section 1033 and the FEHA’s attorney’s fee provision.  The Court said trial courts must give “due consideration” to the FEHA’s policies and determine whether denying a fee application under Section 1033 is consistent with those policies.  If so, a plaintiff’s failure “to take advantage of the time- and cost-saving features of the limited civil case procedures may be considered a special circumstance that would render a fee award unjust.” 

To determine if an FEHA claim should have been brought as a limited civil action, the trial court should evaluate the case in light of the information that the plaintiff’s attorney knew, or should have known, when the action initially was filed and as it developed, the Court instructed.  If the trial court is “firmly persuaded” that (1) the plaintiff’s attorney had no reasonable basis to anticipate a damages award exceeding that recoverable in a limited civil case and (2) the action could have been litigated as a limited civil case, the trial court may deny the plaintiff’s claim for attorney’s fees.

Applying this standard, the Court concluded that Chavez’s recovery was “modest, at best.” His claim had no broad public impact and benefitted no one but himself.  The trial court reasonably concluded Chavez’s fee request was “grossly inflated” in light of the single claim on which he succeeded, the amount of damages awarded on that claim, and the amount of time an attorney might reasonably expect to spend in litigating such a claim.  The Court said, “[T]his fact alone was sufficient, in the trial court’s discretion, to justify denying attorney fees altogether.” 

The Court also found that the trial court correctly determined that the action should have been brought as a limited civil case given Chavez’s lack of evidence on damages.  Chavez’s attorney should have realized his client’s injury was too slight to support a damage recovery in excess of $25,000.  Accordingly, the Court concluded the trial court did not abuse its discretion in denying attorney’s fees to Chavez.

Mark Askanas, a Partner in Jackson Lewis’ San Francisco office, noted, “This case may open the door to settlement in cases where the plaintiff’s damages are limited.  Faced with the risk that they may be denied their fees altogether; plaintiffs’ attorneys may be more willing to recommend a settlement to their clients, rather than reject a reasonable offer based on an anticipated fee recovery.  Plaintiffs’ lawyers will typically comment that even if recovery is minimal, they will get all of their attorneys’ fees.  This case has placed an arrow in the employer’s quiver in settlement negotiations.  Finally, employers may have some leverage to counter plaintiffs’ lawyers’ argument.”