Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 78 C 269 -- George N. Leighton, Judge.
Bauer, Chief Judge, Wood, Jr., Circuit Judge, and Grant, Senior District Judge.*fn*
WOOD, JR., Circuit Judge.
We decide this appeal today in conjunction with another appeal,*fn1 both of which arise from a massive class action filed under Title VII in the late 1970s alleging race discrimination against the Burlington Northern railroad. Both appeals concern a second round of attorneys' fees sought by plaintiffs' counsel.*fn2 This appeal presents the question of whether two particular law firms prevailed against Burlington Northern in post-settlement allocation proceedings and in the alternative whether a consent decree and related documents give rise to a contractual right to attorneys' fees. The district court decided both issues in favor of Burlington Northern. We affirm.
The early history of this case is set out in the background portion of the other appeal we decided today. This appeal arises from the fees and costs awarded to two of plaintiffs' counsel,*fn3 other than lead counsel, subsequent to the district court's approval of the consent decree in April 1984. Both law firms in this appeal reached settlements with Burlington Northern for fees and costs incurred in achieving the settlement of the case and entering of the consent decree. In July 1986, however, both law firms filed additional petitions for attorneys' fees for time spent in allocating the $10 million settlement fund.*fn4 In November 1986 the district court denied both law firms' second set of petitions for attorneys' fees and costs. The law firms appeal that denial of their petitions.
Generally speaking under the American Rule the prevailing party in a legal controversy is not entitled to attorney's fees from the loser. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247, 44 L. Ed. 2d 141, 95 S. Ct. 1612 (1975). The American Rule does not apply, however, under certain narrow exceptions or where specific legislation or contractual agreement shifts the payment of attorney's fees to the loser. Lowe v. Letsinger, 772 F.2d 308, 315 (7th Cir. 1985). The law firms contend that they are entitled to attorneys' fees under two of those exceptions to the American Rule: by statutory authorization in a fee-shifting provision of Title VII and by contract through the consent decree and related documents.
A. Fee Shifting Under Title VII
Title VII is an example of one piece of legislation that does shift the payment of attorney's fees to the loser. In pertinent part Title VII provides:
In any action or proceeding under [Title VII] the court, in its discretion, may allow the prevailing party . . . a reasonable attorney's fee . . . .
42 U.S.C. § 2000e-5(k) (1982). The standards applied to Title VII's fee-shifting provision are the same standards applied to the Civil Rights Attorney's Fee Awards Act of 1976, 42 U.S.C. § 1988 (1982). Zabkowicz v. West Bend Co., 789 F.2d 540, 549 n.9 (7th Cir. 1986) (citing Hensley v. Eckerhart, 461 U.S. 424, 433 n.7, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983)). Consequently, we look to cases construing both of the fee-shifting provisions to decide the Title VII issue presented on this appeal.
Before awarding fees under Title VII a district court must determine whether or not the petitioner for fee is a "prevailing party." The Supreme Court has explained that "'plaintiffs may be considered "prevailing parties" for attorney's fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.'" Hensley v. Eckerhart, 461 U.S. 424, 433, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983) (quoting Nadeau v. Helgemoe, 581 F.2d 275, 278-79 (1st Cir. 1978)). Although the prevailing party in the Supreme Court's characterization is cast as one who succeeded in actual litigation, "[t]he fact that [a petitioner for fees] prevailed through a settlement rather than through litigation does not weaken [its] claim to fees." Maher v. Gagne, 448 U.S. 122, 129, 65 L. Ed. 2d 653, 100 S. Ct. 2570 (1980). When a case is settled or a disposition of claims is achieved without full litigation on the merits, we apply a two-part test to determine prevailing party status:
Essentially, to prevail in a settled case, the plaintiffs' lawsuit must be causally linked to the achievement of the relief obtained. Secondly, the defendant must not have acted wholly gratuitously, i.e., the plaintiffs' claims, if pressed, cannot have been frivolous, unreasonable, or groundless.
Harrington v. DeVito, 656 F.2d 264, 266-67 (7th Cir. 1981), cert. denied, 455 U.S. 993, 102 S. Ct. 1621, 71 L. Ed. 2d 854 (1982). Generally we describe our standard of review of a district court's award or denial of attorney's fees as abuse of discretion. Lovell v. City of Kankakee, 783 F.2d 95, 96-97 (7th Cir. 1986). But when we are reviewing a decision to award or deny fees under this two-step test, where there was no full litigation on the merits, our standard of review is somewhat refined. We review the first step, the determination of whether plaintiff's lawsuit was causally linked to relief provided by defendant, under the clearly erroneous standard. Perlman v. City of Chicago, 801 F.2d 262, 268 (7th Cir. 1986), cert. denied, 480 U.S. 906, 107 S. Ct. 1349, 94 L. Ed. 2d 520 (1987); Illinois Welfare Rights Organization v. Miller, 723 F.2d 564, 569 (7th Cir. 1983). We do this because "[t]he first step, with requires that the lawsuit in some way have played a provocative role in obtaining relief, is a factual determination." Harrington, 656 F.2d at 267; Gekas v. Attorney Registration & Disciplinary Commission, 793 F.2d 846, 849-50 (7th Cir. 1986); Fed. R. Civ. P. 52(a) ("Finding of fact . . . shall not be set aside unless clearly erroneous . . . ."). However, we review the second step, the determination of whether the plaintiffs' claims were frivolous, unreasonable, or groundless, under the abuse of discretion standard. Gekas, 793 F.2d at 850; Reichenberger v. Pritchard, 660 F.2d 280, 288 (7th Cir. 1981).
The dispositive factual question confronting the district court was whether or not plaintiffs' efforts at increasing their respective allocations from the settlement fund, although not part of any formal litigation on the merits, caused Burlington Northern to provide ...