Employment Law -- Dec 20, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

Despite $27,000 Jury Award, 9th Circuit Approves Almost $700,000 in Attorney’s Fees

Why it matters: Affirming the broad discretion of federal district court judges to award attorney’s fees, the Ninth U.S. Circuit Court of Appeals held that an award of $700,000 in fees was justifiable despite a jury’s award of just $27,000 to the plaintiff. “There is a disparity between the damages recovered and the fees awarded,” the federal appellate panel wrote. “We are not convinced that California law requires the trial court to reduce that disparity.” The 26 to 1 ratio of attorney’s fees to actual damages should catch employers’ attention and serve as a warning about the dangers of attorney’s fees for prevailing parties in civil rights actions. Even where a plaintiff was unsuccessful on several claims and a jury awarded minimal damages, the attorney’s fees greatly increased the overall cost of the case.

Detailed Discussion
After being demoted two levels from Division Manager to Supervisor at United Parcel Service, Kim Muniz filed suit, alleging gender discrimination, age discrimination, and retaliation claims under California’s Fair Housing and Employment Act (FEHA).

UPS defended the suit by arguing that Muniz had been promoted beyond her abilities and that the allegedly discriminatory manager was attempting to find a position within her appropriate limits.

A jury considered only Muniz’s claims of gender-based employment discrimination after she dropped some claims and others were resolved at summary judgment. Jurors awarded her a total of $27,280.

Both UPS and Muniz claimed to be prevailing parties and sought attorney’s fees under FEHA, but the federal district court ruled that Muniz was the prevailing party. She requested more than $1.9 million in attorney’s fees for the work of three lawyers and one paralegal, including a lodestar multiplier of 1.5.

After consideration, the district court rejected the multiplier and reduced the hourly rates for two of the attorneys as well as the total hours worked by the paralegal and one of the attorneys. Based on Muniz’s limited success, the judge made an additional reduction of 10 percent for a final total of $696,162.78.

UPS appealed, seeking additional reductions based upon Muniz’s limited success and her inflated fee requests.

Emphasizing the discretionary powers of the district court, the 9th Circuit said the award was not an abuse of discretion. Fee awards must be adjusted to reflect limited success under both California and federal law, the court explained, using two components: a deduction from the lodestar for hours spent exclusively on unsuccessful claims and an evaluation of the remaining hours to determine if they were reasonably necessary to achieve the result obtained.

UPS contended that it should not have to foot the bill for Muniz’s retaliation and age discrimination claims and that time spent on those claims should be excluded. But the company did not attempt to estimate the actual number of hours the attorneys could reasonably have spent on the unsuccessful claims, the court noted, nor did it segregate out its own hours based on defending the specific claims.

“[P]articularly where it does not appear that either party could segregate hours spent exclusively on the unsuccessful claims,” the panel held the district court was not clearly mistaken in declining to make a greater reduction of the award. As for an evaluation of whether the remaining hours were necessary, the court said Muniz’s “success was not insignificant.” She asked for damages “in excess of $25,000” for gender bias in her complaint and the jury awarded her $27,280.

The district court recognized that the fee request was inflated, denying the multiplier and reducing the lodestar by 10 percent, actions that were “not an abuse of discretion,” the 9th Circuit said.

A deeper cut was not required, the panel majority wrote. “UPS has not demonstrated that the initial fee request in this case was made in bad faith and was so inflated that a 10 percent negative multiplier was not adequate to account both for limited success and possible inflation of the fee request,” the court said. “There is a disparity between the damages recovered and the fees awarded. We are not convinced that California law requires the trial court to reduce that disparity.”

The employer did score one victory, however, as the court found the paralegal’s fee award was based on inadmissible hearsay. One of the lawyers filed a declaration based upon his personal knowledge that he had watched the paralegal reconstruct her hours as found on the spreadsheet provided to the court. But “the declaration would arguably be an expert opinion” by the attorney, the 9th Circuit said, and therefore hearsay. Because case law requires “an evidentiary basis for each aspect of an award,” the panel remanded the case for reconsideration of the $55,286.40 permitted by the district court for the paralegal.

A dissenting opinion argued that the district court failed “to show its work” and should have provided more explanation for the 10 percent reduction and how the ratio of the fee award to the jury’s award was reasonable.

To read the decision in Muniz v. UPS, click here.

Another Reason for Employers to Fear Social Media: Advertising for Plaintiffs

Why it matters: A routine Fair Labor Standards Act suit has turned into a PR nightmare for one company. The Boyd Gaming Corporation filed an emergency motion after discovering ads on Facebook and Twitter posted by the FLSA plaintiff’s attorney seeking additional plaintiffs. One of the ads included a link to Boyd’s own Facebook page, causing it to appear on the company’s public news feed. Concerned that the advertisements implied liability had already been determined and presented potentially misleading information, Boyd asked the court enjoin the ad campaign. Although the judge noted that all attorneys have a duty to avoid “false or misleading” advertising, he declined to review the ads and denied the motion. The lesson for employers: beware of social media being used for plaintiff-generating purposes. And if seeking to challenge potentially misleading online advertisements, tailor the requested relief in lieu of requesting a complete ban on all ads, leaving less review work for a court and a greater chance of success.

Detailed Discussion
Craig Gamble filed a putative collective action under the Fair Labor Standards Act against his former employer, Boyd Gaming Corporation, in Nevada federal court. He alleged that the company required employees to work “off the clock” without being paid.

While still in the early stages of litigation, Boyd discovered advertisements posted online by Gamble’s counsel, Cogburn Law Offices. The law firm created a website and posted ads on Facebook and Twitter stating that the firm currently represents “employees of Boyd Gaming who are owed overtime for work performed off-the-clock.”

Cogburn’s own Facebook page even featured a link to Boyd’s Facebook page, which resulted in the ad appearing on the company’s public Facebook news feed.

Boyd responded to the ad campaign with an emergency motion to enjoin the advertisements, calling them “misleading” and “one-sided,” and arguing that potential collective action members could be confused into thinking liability had already been determined. The appearance of the ad on Boyd’s own news feed could also cause followers on the site to think the company endorsed or supported the ad or the plaintiffs’ claims, the employer told the court.

In his denial of Boyd’s request to halt the advertising, U.S. District Court Judge James C. Mahan noted that under the Nevada Rules of Professional Conduct, all attorneys have a duty “not to advertise in a way that is ‘false or misleading,’ and that this court has the power to sanction false advertisements regarding pending litigation.”

However, the court determined that Boyd’s request was overbroad.

“[I]t is not the role of this court to micromanage the activities of parties or their counsel. Defendant’s request for relief, that the court issue an injunction preventing plaintiffs’ counsel from performing ‘any further misleading advertising’ would potentially force this court to scrutinize Cogburn’s every attempt to reach out to collective action members and determine the honesty of each representation,” Judge Mahan wrote. “Such an activity would frustrate the interests of judicial economy and could chill plaintiffs from making permissible advertisements for fear of adverse action by the court.”

To read the order in Gamble v. Boyd Gaming Corporation, click here.

EEOC Settles “Severe, Rampant” Sexual Harassment Allegations for $350,000

Why it matters: As part of its strategic enforcement plan, the Equal Employment Opportunity Commission has vowed to combat sexual harassment in the workplace. In a recent complaint against Mexican-themed restaurant chain Senor Frog’s, the agency did just that, alleging that harassment in a now-closed Hawaiian location was both “severe” and “rampant,” leading all the way to the owner of the company. The case – and subsequent settlement for $350,000 and injunctive relief – provides an example for employers of how the EEOC is handling sexual harassment claims, one of its stated priorities.

Detailed Discussion
Citing “severe, rampant sexual harassment” of female employees at the Hawaiian branch of Senor Frog’s restaurant, the Equal Employment Opportunity Commission filed a complaint against the company and Altres, a local staffing company.

At least nine female employees were “repeatedly bombarded with sexual propositions, explicit sexual remarks, groping, grabbing, and exposure of genital areas by male managers, and even ordered to perform sexual favors for high-level Senor Frog officials,” according to the EEOC, which called the harassment “out of control.”

The owner of the Mexican-themed restaurant chain himself permitted managers at the Honolulu location to engage in the “widespread sexual harassment,” the agency charged, adding that female servers and bartenders also suffered with regard to promotions and earnings as compared to their male counterparts.

Altres, hired by Senor Frog’s to provide human resources services and oversee non-management staff, was also responsible for the hostile work environment as a joint employer, the agency said.

When the conciliation process failed, the agency filed suit.

“We are troubled by the increase of sexual harassment cases and companies continuing to fail to take this problem seriously,” Anna Y. Park, a regional attorney for the EEOC, said in a press release about the lawsuit. The agency later amended its complaint to add additional plaintiffs, bringing the total to 13 female employees making allegations over a five-year period from 2007 to 2012, including retaliation for complaining about the alleged harassment.

To settle the charges of violating Title VII, the restaurant chain agreed to pay $350,000 and injunctive relief. Although the Honolulu location at issue closed in August 2012, Senor Frog’s agreed that if it re-opens that restaurant or another in Hawaii, the company will create and distribute an anti-harassment policy and implement annual training for all employees.

For $150,000 and a promise to provide training for all employees, Altres reached a separate agreement with the agency.

Employer Could Terminate Lying, Disruptive Employee Without Liability, Says 10th Circuit

Why it matters: The Tenth U.S. Circuit Court of Appeals delivered a holiday gift to employers with a recent decision, affirming summary judgment for a hospital after it terminated an employee who lied about posting comments on Facebook about her supervisor. Although the former employee alleged her supervisor created a hostile work environment and that the hospital retaliated against her when she reported the unwanted touching and offensive sexual remarks, the panel found that her five-year delay in complaining was unreasonable. Further, the employer’s proffered reasons for termination – in addition to lying, the plaintiff was disruptive during the investigation of her claims – were a completely valid basis for termination, the panel concluded. The decision proves that where an employer has sexual harassment policies in place, takes prompt action on an employee’s complaint, and correctly documents valid reasons for firing, not every termination results in a successful employee lawsuit.

Detailed Discussion
A nuclear-machine technician at Mercy Hospital, Sara Debord reported directly to Leonard Weaver. During her five-year tenure at the hospital, Debord claimed in a lawsuit that Weaver put his hands up her sleeve or down the back of her shirt “at least three days a week.” Weaver said the touching was an attempt to show how “unusually cold” his hands were. Debord did not complain or report the alleged harassment, which she said also included offensive sexual comments and advances.

The behavior became an issue in 2009, when Debord was angry at Weaver and vented on Facebook. In multiple posts – which were seen by co-workers including Weaver – Debord call her boss “a snake,” accused him of overpaying her, and wrote that “he needs to keep his creapy [sic] hands to himself.”

Weaver referenced the posts in a meeting with the hospital’s HR director. Debord denied writing the posts three times – despite the fact that they appeared on her Facebook page – before finally admitting she authored the posts. The HR director also questioned Debord about the “creepy hands” comment and launched an investigation into the purported sexual harassment as well as the overpayment allegations.

Debord declined to file a formal complaint about Weaver’s alleged harassment and in defiance of the hospital’s policy to keep internal investigations confidential, texted co-workers about the situation. Based on “disruption, inappropriate behavior, and dishonesty,” Debord was terminated.

She sued Mercy Hospital on claims of sex discrimination and retaliation. Pointing to its legitimate, work-based reason for termination, the hospital moved for summary judgment.

Not only did the employer not know of the alleged harassment, it took immediate steps to investigate when it learned of the behavior, the 10th Circuit said, affirming summary judgment for the hospital.

Mercy did not have actual knowledge of Weaver’s touching, the court determined. A single e-mail from 2001 referencing an employee who complained about his “cold hands” did not support Debord’s claim, as “we do not know where or how often Weaver touched the employee, nor whether the touching was considered sexual harassment,” the panel wrote.

Constructive knowledge could also not be assigned to the employer despite statements from three other co-workers that Weaver also touched them. The statements did not demonstrate the touching was “so egregious, numerous, and concentrated” to create a jury question of constructive notice, the court said, particularly as the co-workers did not testify that the touching was sexual harassment and none of the employees reported the behavior.

As a fallback position, Debord contended Mercy Hospital was vicariously liable for Weaver’s actions because the employer failed to prevent or correct the hostile work environment. Again, the court disagreed.

“Mercy has shown that it ‘adopted valid sexual harassment policies [and] distributed those policies to employees via employee handbooks,’” the court said. Simply alleging harassment did not establish an inadequate policy. Importantly, the hospital acted reasonably promptly when it did learn of Debord’s allegations, immediately launching an investigation.

The fact that Weaver was not disciplined did not raise an issue of material fact as “corrective action does not always require discipline,” the panel noted, and the investigation proceeded even though Debord denied making a sexual harassment claim and declined to file a formal complaint.

Finally, the three-judge panel found that Debord’s five-year delay in reporting the harassment was unreasonable. “Debord does not dispute that Mercy offered an anonymous reporting system, and Debord has not offered a reasonable explanation for failing to use even that,” the court wrote. “Nor does she show any evidence that action would not be taken; to the contrary, her reports to HR prompted an immediate response.”

As for Debord’s retaliation claim, Mercy’s stated reasons for termination were undisputed. “She admits posting inflammatory material about her supervisor on the Internet, sending text messages to co-workers bad-mouthing her supervisor (unrelated to the alleged sexual harassment), discussing the overpay and harassment investigations with others, knowingly pocketing overpayment in 2007, and thrice lying about posting information on Facebook while at work,” the 10th Circuit wrote. “No reasonable jury could find these reasons ‘unconvincing.’ Thus, no reasonable jury could find pretext.”

The court affirmed summary judgment for the employer and remanded the case for a determination of the appropriate costs to be awarded to Mercy.

To read the opinion in Debord v. Mercy Health System of Kansas, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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