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You defend a discrimination claim aggressively all the way to trial. The plaintiff wins a technical victory and gets only a small award of damages. So small, that it seems like a win for you. You can live with that, right? But now here comes the employee’s attorney’s petition for fees and costs. If you think that the small award of damages would be a significant factor to determine the award for the attorney’s fees and costs, you would be wrong, at least in Massachusetts. A Massachusetts employer found that out recently, when an appeals court upheld an award of attorney’s fees and costs to the employee of over $100,000, even though the jury awarded the employee only $7,650 in damages. The case is reported as Diaz v. Jiten Hotel Management, Inc., No. 13-1444 (1st Cir. 2013) (this was the third trip to the appeals court for the case).

 

In fact, the attorneys’ fees and costs could have been much higher. The trial court reduced the amount considerably because the employee had pursued other claims that had no merit and were not successful. The trial court originally reduced the attorney’s fees award because the employee rejected a $75,000 settlement, which would have resulted in the employee’s attorney obtaining a $25,000 contingency fee. However, the appeals court reversed that ruling and stated that it was error to consider the employee’s refusal to settle.

 

On the most recent trip the appeals court, the court rejected the employer’s contention that the award of fees and costs of over $100,000 was so disproportional to the $7,650 damages award as to be an abuse of discretion. The appeals court rejected this contention and reasoned that, under Massachusetts law, fee shifting statutes are “designed to encourage attorneys to take these types of cases and are based on full compensation for the work performed.” It went on to note that these statutes are designed to encourage suits that will not result in a big fee award because the vindicate important rights.

 

Thus, the message in Massachusetts is clear. If an employee wins a discrimination suit against you, you could be on the hook for a large award of attorney’s fees and costs, even if the employee wins a very modest award, and even if the employee was unreasonable in rejecting your settlement demand.

 

What to do? There is no magic bullet. Consider an early settlement of a claim that may have some merit. Keep in mind that even if it is a claim that you may not subjectively believe in, that does not mean the case does not have settlement value. Cases that turn heavily on questions of fact can be decided against you, regardless of what the true facts may be. As Denzel Washington’s rogue cop character said in the movie Training Day, “it’s not what you know, it’s what you can prove.”

 

In this case, the employer did try to settle, and actually made a very generous (considering the jury award) offer of $75,000. Who knows why the employee rejected the offer. Ironically, the employee would have been much better of with the settlement (assuming a typical contingency fee agreement), but the employee’s attorney presumably ended up better off with the award. Mediation should be strongly considered in these situations. There is no shame in putting a wedge between the employee and her attorney at mediation if it results in a fair settlement to the employee. There may be other options to consider, including an Offer of Judgment. But full-fledged defense of the claim can backfire, because you spend more fees on your own counsel, but also run up the fees and costs of the employee’s attorney. Have a candid discussion with your attorney about how to defend any claim against your company, including the risks of an adverse judgment and an award of attorney’s fees and costs.

 

By Adam P. Whitney, 617.338.7000