The Majority Opinion Acknowledges That Parties Can Start High When Staking A Claim.
In today's Daily Journal, I have an article about Vargas v. Howell et al., 2020 DJDAR 905 (9th Cir. Feb. 5, 2020), entitled: 'Mechanical' analysis of attorney fees award in civil rights case results in partial reversal'. In Vargas, the trial judge slashed a senior litigation attorney's fees 90% in a civil rights case. The Court of Appeals panel majority required further explanation for the severe discount, and District Judge Roger Benitez dissented, believing that the trial judge had provided enough explanation already. While my article focuses on the fee issue, one issue addressed in the case will be of interest for mediators, as well as for attorneys and clients negotiating a settlement.
The majority opinion argues that punishing a fee applicant in a civil rights case because the settlement amount is a fraction of the claim can create "perverse incentives." Because it is unusual and interesting for a court to speculate or opine about the effect of a fee award on settlement negotiation strategy, I provide the court's comments. Here is the panel's discussion of the potential impact on negotiation strategy of a trial court's discounting fees 90% because the settlement was 10% of the claim:
The effect of that approach is to punish Vargas’s attorneys for pursuing what might well have been a sensible negotiation strategy. A reasonable attorney representing Vargas could have made the strategic choice to present an initial damages estimate as high as possible. Of course, an unrealistically high estimate could make settlement talks unproductive, and an attorney must also ensure that any estimate presented to the court is “likely [to] have evidentiary support after a reasonable opportunity for further investigation.” Fed. R. Civ. P. 11(b)(3). But within those limits, Vargas’s attorneys could reasonably have decided that by offering a high damages estimate, they would retain “room to later grant concessions, while still reaching a favorable settlement.” Stephen J. Ware, Principles of Alternative Dispute Resolution § 3.15, at 313 (3d ed. 2016). Had they started from a lower number, the settlement might have been lower. Whether or not that is the strategy Vargas’s attorneys had in mind, they should not be faulted for negotiating a settlement.
The district court’s approach threatens to create perverse incentives for lawyers representing civil rights plaintiffs. If fees are reduced whenever a case settles for less than the initial demand, lawyers will be encouraged to make only modest initial demands, limiting the potential recovery for their clients. And as the litigation proceeds, they will be encouraged to refuse to lower their demands, making settlement more difficult and prolonging the litigation. No one will be well served by that approach.