Co-authored by Abad Lopez and Noah Finkel

Even in the face of an apparent victory, a company may be stuck with an unexpected and outsized attorneys’ fees tab.  In a recent case that highlights the multifaceted perils of drawn out litigation, the Tenth Circuit affirmed a $3.4 million attorneys’ fees award—even though the jury rejected the majority of plaintiffs’ claims and where the fees “substantially exceeded” plaintiffs’ actual damages award.

The case involved workers who sued under the Fair Labor Standards Act and the Kansas Wage Protection Act, which proceeded as a class and collective action.  At trial, the jury awarded the workers approximately $503,000 in damages under the FLSA and state law, a sum far less than that sought by the plaintiffs.  The jury found the company liable on a class-wide basis for systematically undercompensating employees for the time they spent putting on and taking off protective clothing and equipment and walking to and from their work stations.  However, the jury found that plaintiffs failed to prove their meal and rest break claims.  The district court then proceeded to award plaintiffs’ counsel $3.4 million in attorneys’ fees despite their rather limited success.

In affirming the district court’s full attorney’s fees award, the Tenth Circuit afforded considerable leeway under the “abuse of discretion” standard.  By doing so, it allowed fees for the time spent on plaintiffs’ successful donning and doffing claims, in addition to any time spent on their unsuccessful meal and rest break claims.  Even though plaintiffs’ claims ostensibly involved different legal theories, the court found that they were “interrelated.”  The court also had no concerns about the size of the award, even though plaintiffs only recovered 8% of the damages they sought and the award “substantially exceeded” the actual damages award by a 7 to 1 ratio.

As evident from this decision, litigation through trial may prove undesirable even in the face of an apparent victory.  Although at times warranted, defending a case at all costs, even where the actual potential damages are palatable, carries the added risk of an unexpected (and decidedly unpalatable) attorneys’ fees award.  As such, decisions about an “exit strategy,” including via early resolution, defeating certification, or early dismissal of particular claims through dispositive motions, are critical in light of these risks.  Even where defendants decide that victory at trial is the only acceptable outcome, this decision should be made with eyes wide open about the potential cost of a victory.