7th Circuit Explains When Attorneys’ Fee-Shifting Applies to FLSA Claims

A Wisconsin service technician filed a federal court lawsuit on behalf of himself and other employees for unpaid overtime wages. He alleged the employer had failed to include certain amounts in their base pay when calculating overtime payments. After initial discovery (or pretrial fact-finding), the employer conducted an audit and issued checks to all current and former employees covered by the suit. The payments included amounts for the original plaintiff and class representative as well as a separate check for the known attorneys’ fees incurred to that point. Litigation and a subsequent appeal to the 7th Circuit ensued over whether he was a prevailing party and was, therefore, entitled to additional attorneys’ fees under the Fair Labor Standards Act.

Facts

Timothy Fast worked as a service technician for Cash Depot, a Green Bay ATM maintenance and service company. In his class action lawsuit, he claimed the employer had underpaid him and the other employees by failing to account for certain non discretionary bonuses and other payments as part of their base pay when the company calculated overtime pay. It is of significance, however, that Fast and his attorneys never asked for class certification during the case.

Shortly after Fast filed suit and the parties exchanged initial discovery (a pretrial phase during which they submit questions, conduct interviews, and exchange information), Cash Depot determined the cost of defending the case would likely outweigh the class members’ potential damages. To determine the extent of its previous oversight accurately, the employer hired an accounting firm to conduct an audit. The auditors confirmed the company had miscalculated overtime pay, with the cumulative total underpayment amounting to less than $22,000.

In turn, Cash Depot issued checks to all current and former employees covered by the suit for the amounts owed to them individually. The company’s attorney also:

• Issued a check to Fast’s counsel to compensate the service tech for his underpaid wages and liquidated damages under the FLSA; and
• Informed Fast’s counsel the company intended to compensate Fast for his reasonable attorneys’ fees incurred up to that point in the litigation.

In its previous discovery responses, Fast had disclosed the attorneys’ fees accrued to that date. Based on that revelation, the company issued his counsel a check for $13,333.35 to cover the fees and costs. Neither Fast nor his counsel cashed the checks.

Procedural History

After making the payments, Cash Depot filed a request to dismiss, arguing the case was moot—that is, there was no longer any dispute to decide because the company had already paid Fast and the proposed class members in full. In the alternative, it asked the court to determine as a matter of law that it owed Fast only a specific amount of underpaid wages, plus his costs and reasonable attorneys’ fees. The court denied the request for dismissal, ruling the service tech had an interest in serving as a potential class representative and could avoid the employer’s attempt to “moot” the case by declining to disclose the amount of his calculations about how much Cash Depot owed.

Instead, the district court granted the request for summary judgment (dismissal without a trial) in part, ruling that to the extent Cash Depot had made correct calculations, those amounts were owed to Fast as the proper back wages, along with liquidated damages. The litigation continued with additional discovery until Fast’s attorney finally conceded the company’s calculations and corresponding payments to its employees were correct. By that point, however, the service tech’s attorneys had nearly quadrupled the fees previously incurred. Given the attorneys’ fees were the sole dispute left in the case, Fast’s attorneys filed a request for a fee award. In response, Cash Depot filed another round of motions for dismissal or, in the alternative, summary judgment. The district court denied the employee’s request for fees and granted the employer’s motion for summary judgment, ruling the FLSA provides for an attorneys’ fee award only when there is a favorable judgment for the person filing suit.

Looking to recent 7th Circuit case law that analyzed discretionary fee-shifting statutes, the district court ruled a “prevailing party” must attain a judgment in his favor, a court approved settlement, or some other favorable resolution with some judicial ratification (referred to in the case law as “imprimatur”). Because (1) Fast had received no such judgment, (2) Cash Depot had made voluntary payments, and (3) the service tech never asked for class certification, the district court granted summary judgment to the employer and dismissed the case.

Prevailing-party Analysis

The FLSA allows for employees to file suit for alleged violations. With respect to fee-shifting, the Act says a court “shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.” In analyzing the issue, the 7th Circuit at the outset noted the award of fees is mandatory, not discretionary, and the case law relied on by the district court wasn’t applicable to FLSA claims.

On appeal, Fast argued that even if the U.S. Supreme Court’s discretionary fee-shifting case law applied, he was a prevailing party because of the district court’s initial summary judgment ruling confirming that Cash Depot owed him wages, liquidated damages, and reasonable attorneys’ fees. Cash Depot, for its part, maintained the FLSA required Fast to obtain a final judgment in his favor before collecting the fees.

Focusing on the statute’s clear language and its own precedent, the 7th Circuit looked at a previous case addressing nearly identical verbiage from the Family and Medical Leave Act. In the earlier case, the appellate court ruled the triggering event for the mandatory attorneys’ fees award was an actual judgment in the employee’s favor. In contrast, other discretionary fee-shifting statutes discuss when such an award may be made to a “prevailing party.”

So the 7th Circuit concluded unequivocally that the FLSA requires a favorable “judgment” before an employee becomes entitled to attorneys’ fees. Despite the district court’s contingent ruling that “summary judgment is granted to the extent that Cash Depot correctly calculated that it owes Fast the sum of $380.76 in unpaid overtime plus his costs and reasonable attorneys’ fees,” it never entered a judgment in his favor. Therefore, his claim for fees was properly denied. Fast v. Cash Depot, Ltd., No. 18-3571 (7th Cir., July 30, 2019).

Bottom Line

The risk of fee-shifting should figure into your analysis about how to handle and defend against any claim. This 7th Circuit opinion is significant because it reinforces the efficiency and economy of an employer’s decision to (1) respond to litigation, including a threatened class action, by conducting an audit of its records, (2) making good on payments it determines it owes, and (3) resolving the matter as expeditiously as possible to avoid the risk of significant attorneys’ fees exposure. As was the case in Fast, the risk and cost can quickly escalate to be more than double the amount of actual damages.

This article, slightly modified to note recent updates, was featured in the September 2019 issue of the Wisconsin Employment Law Letter, which is co-edited by Axley Brynelson Attorneys Saul Glazer and Michael Modl and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.