In 2009, this column reported on the U.S. Court of Appeals for the Third Circuit’s use of a rejected settlement offer as a means of reducing an attorney’s fee award to the prevailing party. In Lohman v. Duryea Borough, 574 F.3d 163 (3rd Cir. 2009), a wrongful discharge case based on First Amendment retaliation, the jury found for the plaintiff, Nicholas Lohman, on one of his three claims. Lohman was granted $12,205 in lost wages and nominal damages. In considering the petition for attorney fees, the trial court went so far as to consider evidence of a $75,000 settlement offer that Lohman previously turned down. In light of the large disparity between the jury award and the settlement offer, the district court reduced the amount of Lohman’s $112,883 costs and fees to $30,000 in fees and $4,251 in costs. The Third Circuit affirmed the trial court’s discretionary decision, agreeing that the rejected settlement offer was probative of “the degree of success obtained by Lohman’s counsel.”

At the time, Lohman’s counsel argued that reducing attorney fees based upon settlement negotiations is “against public policy, because it will penalize civil rights attorneys who achieve only partial success, and will discourage settlement discussions.” The Third Circuit declared that such an argument had only “superficial appeal.” Three years later, the same argument was more palatable to the First Circuit in Diaz v. Jiten Hotel Management, No. 11-2400 (1st Cir. Oct. 12, 2012), wherein the plaintiff received the same type of monetary recovery as the plaintiff in Lohman after also rejecting the higher settlement amount of $75,000.

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