Negotiating Attorneys Fees
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Negotiating Attorneys Fees

January 2011


In settlement negotiations, attorneys who represent public agencies in civil rights and public interest cases often face a stumbling block when plaintiffs counsel refuse to discuss attorneys fees until after substantive remedies are resolved.

Invariably, the plaintiffs will seek to recover attorneys fees in addition to substantive remedies. Usually, the claim is based on California's "private attorney general" statute (Cal. Code Civ. Proc. § 1021.5), which allows courts to award fees to litigants who vindicate important rights. A parallel right exists under federal law. (42 U.S.C. § 1988.)

Attorneys fees are usually a crucial component of settlement negotiations. Indeed, in some cases the recovery of fees may be the primary motivation for bringing suit in the first place—either as a deterrent to future illegal behavior or as a reward for counsel. On the defense side of the table, the prospect of a big fee award can raise as much (if not more) concern than the substantive issues. Accordingly, for many governmental entities, the primary value of a particular settlement—and in some cases the only value—may be to shut off a ballooning fee claim.

Is There a Conflict?
Plaintiffs counsel often claim that split negotiations are necessary to avoid an ethical conflict between the client's claim and the lawyers' interest in getting paid. Some courts have expressed concern that a conflict may indeed arise when the payment of fees depletes the agency's ability or willingness to provide substantive relief. (See Ramirez v. Sturdevant, 21 Cal. App. 4th 904, 919-920 (1994); and Mendoza v. United States, 623 F.2d 1338, 1352-1353 (9th Cir. 1980)). The conflict occurs because under the terms of many retainer agreements, a fee award belongs to both the attorney and the client.

Nonetheless, the cases expressly reject any blanket prohibition against concurrent negotiation of substantive relief and fees, finding that the existence of a conflict should be determined on a case-by-case basis (Ramirez, 21 Cal. App. 4th at 919-920).

Indeed, it would appear that an attorney who insists on bifurcated negotiations may be making a tactical, rather than a truly ethical, decision: Counsel may believe that a public agency, once reconciled to a substantive settlement, will be less likely to walk away from a huge fee demand. Rather than insisting on serial negotiations, counsel should seek to alleviate the concern.

Steps to Settlement
To illustrate, consider in practical terms how settlement negotiations proceed. First, the parties negotiate and tentatively resolve all of the plaintiff's substantive demands, conditioned on resolution of the fee claim in a second (bifurcated) stage. With agreement on the merits, the plaintiff theoretically has obtained the litigation objective, and attorneys fees remain the only obstacle to final resolution. If counsel accepts the defendant's fee offer, the plaintiff client gets the relief sought; if counsel rejects the offer, the client may get nothing. In this scenario, any demand by counsel to recover fees poses a direct conflict with the plaintiff's litigation objective—not an ethical result.

Some plaintiffs counsel argue that the solution is to require final resolution of substantive relief before negotiating fees. That way, the argument goes, the plaintiff's litigation objective will be secure regardless of whether the parties can agree on attorney compensation. Such a piecemeal settlement, however, does not serve the public entity's interest in buying peace and avoiding excessive fee demands.

Concurrent Talks
The ethical concern may best be addressed with an agreement to negotiate substantive relief separate from fees, but concurrently—never trading one for the other. Although novel, this approach meets the ethical concerns expressed in the case law and better reflects each party's interests. A formal agreement to eschew horse trading eliminates, rather than merely delays, the ethical concern: As the parties move gradually toward settlement on parallel tracks, fees will never stand directly in the way of substantive relief.

Further, the issue of fees may even drive negotiations forward, both as a motivating factor and as a measure of settlement prospects. Concurrent negotiations may allow the parties to more accurately portray, evaluate, and develop their respective strategies. This, in turn, moves the matter more efficiently toward either final resolution, or a well-informed decision to abandon futile negotiations.

And don't forget: In a case where the court must approve a settlement, a fairness hearing may be the best protection of all, and for all.

Adam W. Hofmann is an associate in the San Francisco office of Hanson Bridgett. He represents both public entities and private parties in complex litigation.

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