On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. Civil No. 05-cv-01423) District Judge: Honorable A. Richard Caputo.
The opinion of the court was delivered by: Rendell, Circuit Judge.
Before: RENDELL and GARTH, Circuit Judges, and PADOVA,*fn1 District Judge.
Nicholas Lohman appeals from the District Court's award of $30,000.00 in attorney's fees following a jury verdict in his favor in his wrongful discharge action. The jury awarded Lohman $12,205.00 in lost wages and nominal damages, after finding Appellees liable on one of Lohman's three First Amendment retaliation claims. Lohman contends that the District Court improperly considered settlement negotiations between the parties, including evidence that Lohman rejected a settlement offer of $75,000.00, to reduce the fee award. The issue before us -- namely whether and to what extent the trial court may consider settlement negotiations when awarding fees -- appears to be one of first impression in our Court.*fn2
Nicholas Lohman brought an action asserting numerous claims relating to his discharge from employment with Duryea Borough. Only three First Amendment retaliation claims survived summary judgment and proceeded to trial. Defendants made three settlement offers after trial commenced, including one for $75,000.00. Lohman rejected each of these offers. The jury found for Lohman on one of the three claims, and awarded him $12,205.00 in lost wages and nominal damages. Lohman moved for attorney's fees and costs of $112,883.73.
The District Court granted the motion in part, awarding $30,000.00 in attorney's fees and $4,251.77 in costs. The District Court engaged in an extensive consideration of the lodestar, and a review of the twelve factors set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974), and referenced by the Supreme Court in Hensley v. Eckert, 461 U.S. 424, 434 n.9 (1983). The District Court noted that in Hensley, the Supreme Court stated that "the most critical factor" in determining a reasonable fee "is the degree of success obtained." Lohman v. Borough of Duryea, No. 05-1423, 2008 W.L. 2951070 (M.D. Pa. July 30, 2008) at *11 (quoting Hensley, 461 U.S. at 436).
The District Court then proceeded to refer to case law that had been cited by the parties regarding the propriety of considering settlement negotiations in awarding fees, including Alphonso v. Pitney Bowes, Inc., 356 F. Supp. 2d. 442 (D.N.J. 2005), which was relied upon by Lohman. In Alphonso, defendants brought a post-trial motion for sanctions against a plaintiff, arguing that the plaintiff's unsuccessful employment retaliation claims were frivolous. Id. at 445. The plaintiff sought to undermine the defendants' position by offering evidence that the defendants made a settlement offer on the eve of trial. Id. at 447 n.4. The court disregarded the plaintiff's argument, intimating that the use of settlement discussions to show the validity or invalidity of a claim would violate Federal Rule of Evidence 408. Id.
However, the District Court here found another case, EMI Catalogue Partnership v. CBS/FOX Co., No. 86-1149, 1996 W.L. 280813 (S.D.N.Y. May 24, 1996), to be more relevant, and its logic more persuasive. In EMI, the court referred to the language of Rule 408 and considered the precise issue before us in a copyright case. The court noted that a distinction should be drawn where evidence of the alleged settlement negotiations is not being offered to prove "either liability for or invalidity of the claim or its amount." Rather, it is being offered to show that the Court's rejection of the claim should not merit an award of attorney's fees under the Court's power of equitable discretion . . . .
Id. at *2 (quoting Fed. R. Evid. 408). Furthermore, the court noted, Because nothing in the language of Rule 408 requires exclusion of evidence of settlement negotiations on issues "other than liability for or invalidity of a claim or its amount," the Court can consider evidence of settlement negotiations where, as here, that evidence is probative of the objective unreasonableness of the claim for purposes of determining whether to award attorney's fees under the Copyright Act.
Id. The District Court here agreed, and concluded that evidence of settlement negotiations could be used as an indicator of the degree of success obtained by Lohman's counsel under § 1988. It stated, in so concluding: "The fact that Plaintiff prevailed at trial may not be entirely indicative of counsel's success. Therefore, the Court will consider the settlement negotiations in its determination of Plaintiff's attorney's fee award." Lohman, 2008 W.L. 2951070 at *12 (internal citation omitted).
The Court calculated a lodestar of $62,986.75, but concluded that the award should be reduced for limited success. In reasoning through this reduction, evidence of settlement ...