Employment Law Daily FLSA fee-shifting analysis includes rejection of Rule 68 offer in assessing plaintiff’s success
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Friday, January 4, 2019

FLSA fee-shifting analysis includes rejection of Rule 68 offer in assessing plaintiff’s success

By Lorene D. Park, J.D.

Joining sister circuits, the Fifth Circuit held that a plaintiff’s rejection of a Rule 68 offer that would have provided more than ultimately obtained at trial should be considered in assessing the plaintiff’s degree of success under a fee-shifting provision like the FLSA’s. That said, an employer’s challenge to an attorneys’ fee award under the FLSA failed in this case because there was no abuse of discretion. The lower court properly considered the rejection of the employer’s Rule 68 offers, which ranged from $1,566 to $5,000, in analyzing the degree of an FLSA plaintiff’s success in being awarded only $1,131 in compensatory damages, and it lowered the lodestar as a result. The appeals court affirmed the $25,089 attorneys’ fees award. Judge Ho wrote a separate, concurring opinion (Gurule v. Land Guardian, Inc., December 27, 2018, Duncan, S.).

Four employees at a midtown Houston nightclub sued the employer under the FLSA, alleging it violated the minimum wage requirement by systematically diverting tips from tipped employees, and the overtime requirement by failing to pay time-and-a-half to employees working more than 40 hours per workweek. As relief, they sought minimum wage for hours worked, “wrongfully diverted” tips, overtime wages, as well as liquidated damages, attorneys’ fees, and costs.

Claims whittled down. One employee settled for $300 in 2016. In April 2017, the three remaining employees were granted stipulated dismissal of the overtime claims. The court then granted summary judgment against two of those employees’ remaining claims, finding no evidence that they performed uncompensated work. The two, who were bartenders, admitted they lacked evidence supporting their own claims, and relied on the “representative testimony” of the third remaining employee to prove their hours worked and tips received. The court explained that such “representational testimony” may establish a prima facie FLSA case under some circumstances, but not here because their duties were different from the third employee, who was a waitress and lacked “personal knowledge” of their work as bartenders.

Rule 68 offer rejected, jury awards less. All that remained was the waitress’s minimum wage claim, which was set for trial in September 2017. On this claim, the employer had made a Rule 68 offer of judgment in the amount of $3,133.44 back in February 2016. The employee rejected that amount, as well as subsequent offers ranging from $1,566 to $5,000. After a one-day trial, a jury returned a verdict in her favor, awarding $1,131.39 in compensatory damages. The district court awarded her another $1,131.39 in liquidated damages, plus $25,089.30 in attorneys’ fees. Because she had declined a more favorable Rule 68 offer in February 2016, she was ordered to pay the employer $1,517.57 in costs.

Bartenders fail to revive claims. The bartenders appealed summary judgment against their claims, arguing the employer did not seek summary judgment on their “minimum wage” claim, but only challenged the “stolen tip” claim. Affirming, the appeals court held that the district court correctly found the two claims were just the same claim for failure to pay minimum wage.

Attorneys’ fee analysis. Turning to the employer’s challenge to the attorneys’ fees award, the appeals court explained that the analysis for FLSA fee awards is the prevailing party analysis. Courts calculate a “lodestar” by multiplying the hours reasonably spent by an appropriate hourly rate, and then adjust that based on the 12 Johnson factors. While the most critical factor is the degree of success obtained, a low damages award alone should not lead to a reduced fee award.

Here, the employees’ attorney sought a lodestar of $129,565.00 (for 281 attorney hours and 31.8 legal assistant hours). In response to the employer’s objections the district court excluded several items, including a 29.1% reduction for time spent on the bartenders’ dismissed claims, 10% for block billing, and 20% for “lack of reasonable billing judgment.” It also excluded hours for legal assistants. The resulting lodestar was $62,722.80.

Lodestar adjusted downward. Performing the Johnson analysis, the court reasoned that six factors were neutral and six weighed in favor of downward adjustment of the lodestar, including: time and labor required; novelty and difficulty of issues; skill required; preclusion of other employment; amount involved and results obtained; and awards in similar cases. The appeals court found no error, noting the analysis properly recognized that degree of success strongly supported a reduction here.

On the degree of success, only one employee prevailed at trial, and she won compensatory damages of $1,131—far less than the $25,683 requested in her disclosures and less than four offers of judgment made earlier. The employer’s offers ranged from $1,566 to $5,000, but her only counteroffer was for $51,367; nearly twice her damages disclosure and 45 times the award. The district court noted that while there might have been a good reason for the gap between her expectations and reality, her counsel did not show he exercised good judgment in obtaining successful results, so the lodestar was reduced to an award of $25,089 in attorneys’ fees.

Rejection of Rule 68 offer and degree of success. On appeal, the employer argued that the court failed to adequately consider the employee’s lack of success. It pointed out that over a year before trial, her attorney rejected a Rule 68 offer that would have given the employee more than she won at trial, so the attorney should be granted no fees at all, or at best only a nominal fee.

Taking up the issue, the appeals court noted that the plain purpose of Rule 68 is to encourage settlement by requiring a party who rejects a timely offer to pay costs if the final judgment was not more favorable than the offer. Sometimes a claim falls under a statute where fees are part of “costs,” but this case involved the FLSA fee-shifting provision, which defines attorneys’ fees separately. Still, several sister circuits have held that the rejected offer should nonetheless be considered in assessing the reasonableness of an attorneys’ fee award.

Finding this approach persuasive, the Fifth Circuit held, with respect to setting a reasonable attorneys’ fee under a fee-shifting statute, that a court analyzing degree of success should ask whether a party would have been more successful had his or her attorney accepted a Rule 68 offer instead of pressing on to trial.

Here, though, there was no abuse of discretion. The lower court properly considered the rejection of the Rule 68 offers, noting the gap between the waitress’s expectations and reality and finding her attorney failed to exercise good judgment. The court thus appropriately factored the rejection of the employer’s better offers into its 60 percent downward adjustment of the lodestar.

Concurrence. Judge Ho wrote a concurring opinion, pointing out “The overarching question that courts should ask in such circumstances is whether the attorney expended the time in a good faith pursuit of value for the client—or was instead engaged in churning attorney fees. If the former, the time may be awarded, even though it ultimately proved fruitless. If the latter, the churned time should be denied.” Judge Ho opined that while this decision champions these values, the court might have gone further, and awarded no fees at all absent an attorneys’ explanation for the time spent pursuing a judgment higher than a rejected settlement offer.

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