Should Evidence of Settlement Negotiations Affect Attorneys' Fees Awards?
25 Pages Posted: 21 Feb 2013 Last revised: 22 Apr 2016
Date Written: February 20, 2013
In October 2012, the U.S. Court of Appeals for the First Circuit held that a district court erred by reducing a prevailing plaintiff’s requested attorney’s fees based on evidence of settlement negotiations in which the plaintiff rejected a settlement offer that far exceeded what the plaintiff was awarded at trial. This created a circuit split, breaking from the precedent established by the Third Circuit, Fourth Circuit, Seventh Circuit, Eighth Circuit, and Ninth Circuit, all of which have approved a district court’s consideration of such evidence as part of its assessment of the degree of success obtained, which informs whether to adjust an award of attorneys’ fees calculated under the lodestar method.
The article identifies and discusses the strengths and weaknesses of these courts’ analyses, assessing whether evidence of settlement negotiations is inadmissible pursuant to Rule 408 of the Federal Rules of Evidence, the extent to which such evidence is reasonably probative of the amount truly sought by the plaintiff, and the policy ramifications related to either permitting or prohibiting district courts from considering such evidence. The article argues that the First Circuit’s position is problematic because it relies heavily on a non-obvious negative implication of Rule 68 and ignores the empirical research that reveals endemic agency issues in the attorney-client relationship. But the article also contends that, to the extent that the other circuits have adopted a prophylactic rule aimed at discouraging lawyers from counseling their clients against settling in the hopes of accruing additional fees, the better path is to use either monetary sanctions or referrals to state bar agencies upon a procedurally-sound finding of misconduct in specific cases.
Keywords: settlement, settlements, attorney's fees, attorneys' fees, 408, 68, circuit split, Sheppard, Diaz
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