On Appeal from the United States District Court for the District of New Jersey
Before: GIBBONS and BECKER, Circuit Judges, and DUMBAULD, Circuit Judge*fn*
The issue on appeal is whether the failure of the parties to a civil rights suit to have provided for attorneys fees in a written settlement agreement creates a "special circumstance" depriving a prevailing plaintiff in the underlying action of its rights to reasonable attorney fees under 42 U.S.C. § 1988 (1976). We hold that it does not, even where the parties discussed but were unable to agree on attorneys fees during settlement negotiations. Rather, the burden is on the losing party to show that the settlement agreement clearly waived the statutory right to attorneys fees. Accordingly, we reverse the judgment of the district court, which held to the contrary, and remand for further proceedings.
The merits of litigation underlying the present dispute is not of importance for purpose of this appeal. Briefly put, it involved a claim by plaintiff El Club Del Barrio, a putative class representative of Hispanic citizens in Newark, New Jersey, that Hispanics were entitled to greater participation in the affairs of the defendant United Community Corporation, a quasi-governmental corporation in Newark.*fn1 Plaintiff also sued Kenneth Gibson as Mayor of Newark. A settlement embodied in a consent decree was reached under which the plaintiff El Club Del Barrio was the prevailing party.
Having prevailed in the underlying litigation, El Club Del Barrio then brought a suit for attorneys fees under 42 U.S.C. § 1988 against defendants United Community Corporation and Mayor Gibson. Among the defenses offered by the defendants was that plaintiff had waived its rights to attorneys fees by its conduct during settlement negotiations. Specifically, defendants argued that in an original draft of the settlement agreement plaintiff had provided that dismissal of its action would be without prejudice to its right to seek attorney fees, but when defendants objected to this provision, the plaintiff withdrew it. The final settlement agreement and consent order thus simply provided for dismissal of the underlying action with prejudice and was silent on the issue of attorneys fees. In defendant's submission, this silence, coupled with the conduct at the settlement negotiations, shows that the plaintiff waived its right to attorneys fees.
The plaintiff does not dispute that an earlier settlement draft reserved the right to seek attorneys fees and that the final agreement did not do so. Plaintiff contends, however, that its withdrawal of the attorney fee provision did not constitute a waiver of its right to seek such fees, and that, because of the policy of the Civil Rights Attorney's Fee Awards Act of 1976 (§ 1988), it was entitled to pursue its claim. Moreover, plaintiff argues this withdrawal was a response to this court's holding in Prandini v. National Tea Co., 557 F.2d 1015 (3d Cir. 1977), that, because of the conflict of interest between the attorney and his client that would otherwise result, an attorney could not press for attorney fees during settlement negotiations if the opposing party refused to pay for them. In plaintiff's view, it had no choice but to withdraw the demand for attorneys fees.
The magistrate assigned by the district court made two critical findings in holding for the defendants. First, she found that "the defendants were misled and reasonably believed that the issue of attorneys fees had been removed from the case when reference to fees was removed from the form of consent order." Second, she found that "even if the issue had not been mentioned at all during the settlement negotiations, the failure to reserve the issue in the consent judgment should result as a matter of law in the denial of fees to the applicant." The district court approved the recommendation of the magistrate and adopted the opinion of the magistrate as the opinion of the court.
Our evaluation of the issue in this case is guided primarily by the Supreme Court's decisions in Newman v. Piggie Park Enterprises, Inc., 390 U.S. 400 (1968), and Hensley v. Eckerhart, 103 S. Ct. 1933 (1983). These cases hold that a prevailing plaintiff "should ordinarily recover an attorney's fee unless special circumstances would render an award unjust." Hensley, 103 S. Ct. at 1937. Our evaluation is also guided by the need for simplicity in this area.
We do not think that the presumption of Newman and Hensley would be well served by the district court's rule that silence in the settlement agreement waives the right to recover under section 1988. This "silence equals waiver" rule, which the district court applied to the bar this section 1988 suit, pays inadequate attention to the presumption established in Hensley and Piggie Park in favor of prevailing civil rights plaintiffs. Nor do we thind that the significance of silence should be determined by an examination of extrinsic evidence such as the course of negotiations. This "course of negotiations" rule, which was also found by the district court to bar recovery, perhaps pays adequate deference to the spirit of Hensley and Piggie Park, but unnecessarily complicates litigation.*fn2 Requiring the district court to inquire into the circumstances of settlement negotiations and to determine who said what to whom when seems a pointless exercise where observance of a formality will suffice.
It would thus seem that the best rule of law would be one that places the burden on the party losing the underlying litigation. If the parties cannot agree on counsel fees and the losing party wishes to foreclose a suit under section 1988 for attorneys fees, it must insist that a stipulation to that effect be placed in the settlement agreement. We so hold.*fn3 Since no such stipulation appears in the settlement agreement here, we ...