When Both Sides Claim to be a “Prevailing Party” Entitled to Attorneys’ Fees

Raab v. City of Ocean City, 833 F.3d 286 (3d Cir. 2016).  In this case under the Civil Rights Act, 42 U.S.C. §1983, both plaintiff and the defendant municipality claimed to be the “prevailing party” and therefore sought an award of attorneys’ fees under 42 U.S.C. §1988.  The case arose out of a physical confrontation between plaintiff and a municipal police officer, Ruch.  Plaintiff sued Ruch and the City.  Both defendants sought summary judgment.  The District Court granted the City’s motion, but denied in part the motion that Ruch filed.  Thereafter, plaintiff and Ruch reached a settlement, under which plaintiff would be paid $150,000, with the issue of attorneys’ fees being reserved for later disposition.  Plaintiff and the City each filed motions for attorneys’ fees, each claiming to have been the prevailing party.

Before those motions were decided, and without objection by any party, the District Court entered an order of dismissal, which stated that “[t]he terms of the settlement agreement are incorporated herein by reference, and the Court shall retain jurisdiction over such agreement.”  The parties then filed a stipulation of dismissal without prejudice, “exclusive of the pending motions for attorney fees.”

The District Court denied both motions for attorneys’ fees.  That court ruled that, because plaintiff had not obtained “either a judgment or a court-ordered consent decree,” plaintiff was not a prevailing party.  Defendant was deemed a prevailing party, but the court denied fees because plaintiff’s complaint had not been frivolous or without foundation.  Both plaintiff and the City appealed, and the Third Circuit affirmed in part and reversed in part, in an opinion by Judge Chagares.  Plaintiff was found to be entitled to fees as a prevailing party, but the panel affirmed the District Court’s denial of fees to the City.  The abuse of discretion standard of review governed the review of the denials of attorneys’ fees, but de novo review applied to the District Court’s conclusions on questions of law.

Citing Buckhannon Bd. & Care Home, Inc. v. West Virginia Dep’t of Health & Human Resources, 532 U.S. 598 (2001), Judge Chagares observed that a plaintiff is a prevailing party where there is “a material alteration of the legal relationship of the parties” that is “judicially sanctioned.”  The $150,000 payment to plaintiff was a material alteration of the parties’ relationship.  The fact that the plaintiff “prevailed through a settlement rather than through litigation does not weaken her claim to fees.”

The “judicially sanctioned” prong of Buckhannon was also satisfied.  Though settlements negotiated out of court “may lack the necessary judicial imprimatur, the facts of this case differ.”  Judge Chagares cited the language of the dismissal order that “both explicitly incorporated the terms of the settlement agreement and retained jurisdiction to enforce the agreement.”  Those were sufficient indicia of “judicial sanction over the settlement agreement.”  And that was so even though the District Court had not reviewed the settlement before entering the dismissal order.  Judge Chagares cited Roberson v. Giuliani, 346 F.3d 75, 80, 84 (3d Cir. 2003), where the Second Circuit found prevailing party status on similar facts.

Ruch argued that because the parties had not consented to the continuing jurisdiction of the District Court, that court lacked the authority to retain jurisdiction.  Judge Chagares disagreed.  Where, as here, the order retaining jurisdiction was entered before the stipulation of dismissal was filed, the District Court had the power to retain jurisdiction on its own motion.  Rule 41(a)(2) of the Federal Rules of Civil Procedure, as interpreted in Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375 (1994), allowed that.

Finally, Judge Chagares rebuffed an argument by Ruch that was based on New Jersey’s Local Civil Rule 41.1(b), which he argued did not contain language that allowed a District Court to add conditions to a dismissal order, such as the retention of jurisdiction.  Case law was against that argument, a Local Civil Rule could not override a Federal Rule of Civil Procedure, and Ruch never objected to the dismissal order, so that no challenge to that order was before the Third Circuit.  In the course of that discussion, Judge Chagares cited New Jersey Federal Practice Rules, by Allyn Z. Lite.  [Disclosure:  Though retired from the full-time active practice of law, Mr. Lite retains an affiliation with my firm, Lite DePalma Greenberg, LLC].

Dealing with the City’s appeal was much more straightforward.  Though the City was a prevailing party because it succeeded on summary judgment as to all of plaintiff’s claims, “the standard for awarding attorney’s fees to prevailing defendants is more stringent than that for awarding fees to prevailing plaintiffs.”  A prevailing defendant, Judge Chagares said, “may recover attorney’s fees only if the District Court finds that the plaintiff’s action was frivolous, unreasonable, or without foundation, even though not brought in subjective bad faith.”  The District Court here applied precisely that test, and determined that plaintiff’s complaint did not meet that standard.  Accordingly, the denial of fees to the City was affirmed.