Labor Logic

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John D. Finerty, Jr.

If you settle an employment case, consider a few details to resolve that, if left unresolved, will create disputes that may prolong the litigation unintentionally. The recent case of Sonii v. General Electric Co., Case No. 03-2818 (7th Cir. Feb. 13, 2004) was decided nearly three and one-half years after the underlying claims were settled. The issue that prolonged the litigation even after settlement: attorneys’ fees.

“Prevailing Party” Issues

Most federal employment laws allow a court to award attorneys’ fees and costs to a plaintiff who prevails in federal litigation. This is known as the “prevailing party” rule. Is a plaintiff, however, entitled to attorneys’ fees and costs by settling a case on favorable terms? Perhaps yes, but only if the settlement results in a judicial order akin to a consent decree.

Buckhannon Board & Care Home, Inc. v. West Virginia Department of Health & Human Resources, 532 U.S. 598 (2001), held that an assisted living center, ordered to close some of its facilities, was not a prevailing party under the ADA and Fair Housing Act, despite successfully effecting a change in state law that allowed those same residences to remain open. In so holding, the court disapproved of the “catalyst theory” that a plaintiff “prevails,” and is thus entitled to fees, by being a catalyst for voluntary change in the defendant’s conduct. Footnote 7 in that decision went further to note that achieving a settlement likewise falls short of prevailing unless the settlement yields a consent decree or other judicial order approving of the settlement.

Settlement Contract Protections

Employers that settle employment claims may consider adding a provision to the settlement document to address this issue. Possible settlement contract language reads as follows:

“This Agreement shall not be construed to render the plaintiff a ‘prevailing party’ within the meaning of the Civil Rights Act of 1964, as amended, the Age Discrimination and Employment Act of 1967, as amended, the Fair Labor Standards Act, as amended, the Civil Rights Attorney’s Fees Awards Act of 1976, the Wisconsin Fair Employment Act, as amended, the Employee Retirement Income Security Act of 1974, as amended, or under any law, statute or ordinance allowing attorneys’ fees or costs to a party who ‘prevails’ in any manner or sense, nor shall this agreement be deemed to constitute a fact or support of an award of attorneys’ fees or costs under any law, statute or ordinance.”

This language may or may not be appropriate for each situation and the facts of a particular case may affect whether a party would use this language at all. The point should not be lost, however, that attorneys’ fees are an issue in any employment claim and especially in cases where the fee shifting provisions of Title VII or the Civil Rights Attorney’s Fees Awards Act apply.

Final Judgment Issues

In Sonii v. General Electric, the district judge denied the plaintiff attorneys’ fees because the settlement was more akin to a private contract than a court mandated decree. By not shifting attorneys’ fees to the plaintiff in the actual settlement agreement, the plaintiff could not recover. The Seventh Circuit agreed on appeal, but dismissed the appeal for lack of jurisdiction.

As it turns out, the plaintiff immediately appealed the district court’s decision denying attorneys fees before the court entered a final judgment. In fact, there may have been a fundamental defect in the terms agreed upon by the parties that would have made entering a final judgment difficult.

The parties agreed that Sonii’s claims could be dismissed with prejudice, but not until attorneys’ fees issues were resolved. Perhaps the parties contemplated that the
district court would view the only issue as the amount of fees to award. The district court’s order in favor of the defendant, however, upset those plans.

The Court of Appeals implied a preference that, when parties settle a case, the district court should either enter a one-line order of dismissal or dismiss the case and incorporate the settlement contract of the parties as the judgment of the court. A simple dismissal order would not make the plaintiff a prevailing party; the alternative may, unless the parties address the issue in the settlement agreement.

The end result of Sonii v. General Electric was dismissal for want of jurisdiction. The court sent the case back to the district judge with instructions to enter a final judgment dismissing the suit with prejudice and to determine whether such a judgment makes the plaintiffs prevailing parties under Buckhannon v. West Virginia. Both sides could appeal, yet again, if adversely affected by the final judgment.

For more information on this case or for assistance handling a federal appeal, contact John D. Finerty, Jr. at Michael Best & Friedrich at (414) 225-8269 or on the Internet at [email protected].