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Attorney Fees Continue to be the 800-Pound Gorilla in Employment Cases

Posted in Labor Law

By:       Brendan J. Begley

A federal appellate court this week upheld an attorney-fee award of nearly $700,000 to a California employee who won less than $28,000 in damages in a lawsuit alleging wrongful demotion.  According to the Ninth U.S. Circuit Court of Appeals in Muniz v. United Parcel Service, Inc., Case No. 11-17282, the trial court was not required to reduce the large disparity between the damages and the fees. 

Previous decisions from California courts also have ruled that fees may exceed damages. Nonetheless, this federal decision is noteworthy for employers.  Some management attorneys see such an outcome as a de facto award of punitive damages without a punitive-damages showing.

The plaintiff, Kim Muniz, alleged three adverse employment actions; specifically, (1) the denial of a stock bonus, (2) her placement on a performance improvement plan, and (3) her two-level demotion from Division Manager to Supervisor.  She claimed that these actions were motivated by retaliation, gender discrimination, and age discrimination in violation of the California Fair Employment and Housing Act.  By the time of trial, only her gender-discrimination claim remained.

The jury was persuaded that the employer’s decision to deny Muniz a stock bonus was not motivated by her gender.  The jurors also found that placing Muniz on the performance improvement plan was spurred by both discriminatory and non-discriminatory motives.  Because the jury believed that the employer would have placed Muniz on the performance improvement plan even in the absence of discrimination, the employer was not liable for damages on the basis of that decision. 

Liability stemmed solely from the jurors’ conclusion that gender was the reason for Muniz’s demotion.  Her lawyers had asked the jury during closing argument to award Muniz over $700,000 in damages, but the jurors did not go nearly that far.  Instead, they awarded her only $27,280 – which included $9,990 in lost earnings, $7,300 for past medical expenses, and $9,990 for past non-economic loss.

Thereafter, Muniz’s attorneys asked the trial court to order the employer to pay their fees, arguing that they were entitled to rates between $195 and $650 per hour.  The trial court reduced those hourly rates to a range between $130 and $445, which (based upon the number of hours worked by each attorney) resulted in a total award of $697,971.  The employer appealed, arguing that the Muniz’s limited success and her inflated fee request required a substantially lower award of fees.  The Ninth Circuit held that the trial court was not required to reduce the award on those grounds.

The result may have been a lot worse for the employer.  Indeed, Muniz’s lawyers asked for a base level of $1,297,151 in fees, and requested to apply a multiplier to increase that sum to $1,945,726 – but the trial court refused.  On the other hand, the result could have been much better for the employer.  As noted in the decision, the trial court could have denied any recovery of fees to Muniz’s legal counsel under California law if her damages were less than $25,000.  Consequently, the small difference between $24,999 and $27,280 in damages made a difference of nearly $700,000 in attorney fees.

The takeaway from this decision is that employers face significant risk when it comes to making personnel decisions that are adverse to employees, even when the potential damages are not great.  While exposure to damages in some cases may be less than a year of the employee’s salary, exposure to an award of attorney fees now may exceed 25 times the damages.  Getting legal counsel involved in such decisions earlier to avoid any liability may pay off for employers in the long run.