Chuong Van Pham v. City of Seattle, 76595-2.

CourtUnited States State Supreme Court of Washington
Citation159 Wn.2d 527,151 P.3d 976
Docket NumberNo. 76595-2.,76595-2.
PartiesCHUONG VAN PHAM, an individual, and Heliodoro Lara, an individual, Respondents, v. CITY OF SEATTLE, SEATTLE CITY LIGHT, Petitioner.
Decision Date01 February 2007
151 P.3d 976
159 Wn.2d 527
CHUONG VAN PHAM, an individual, and Heliodoro Lara, an individual, Respondents,
No. 76595-2.
Supreme Court of Washington, En Banc.
Argued November 9, 2005.
Decided February 1, 2007.

[151 P.3d 977]

Frederick E. Wollett, Kathleen O'Hanlon, Seattle City Attorneys Office, Seattle, for Petitioner.

John Patrick Sheridan, Sheridan & Baker PS, Gregory Alan Wolk, Seattle, for Respondents.

Deborah Dubois Brookings, Deborah D. Brookings Attorney at Law, Seattle, for Amicus Curiae Wash. Defense Trial Lawyers.

Michael Craig Subit, Frank Freed Subit & Thomas LLP, Jeffery Lowell Needle, Seattle, for Amicus Curiae Wash. Employment Lawyers Ass'n.

Bryan Patrick Harnetiaux, Debra Leigh Williams Stephens, Spokane, for Amicus Curiae Wash. State Trial Lawyers Ass'n Foundation.


¶ 1 Chuong Van Pham and Heliodoro Lara sued the City of Seattle, Seattle City Light

151 P.3d 978

(Seattle City Light) for employment discrimination on the basis of race and national origin. A jury awarded them $550,000 collectively. Pham and Lara sought and were awarded attorney fees, though the trial court awarded them $50,000 less than they had requested and declined to apply a fee multiplier. The trial court also awarded Pham and Lara a supplemental award to compensate for the additional income tax consequences of receiving front and back pay and attorney fees in a single lump sum. However, the trial court declined to award an additional tax offset for the tax consequences attributable to their noneconomic damages. The Court of Appeals concluded that the trial court erred by denying a tax offset for noneconomic damages, by declining to award attorney fees for some of the hours claimed by the plaintiffs' lawyers, and by declining to apply a contingency multiplier. Chuong Van Pham v. Seattle City Light, 124 Wash.App. 716, 724, 726, 731, 103 P.3d 827 (2004). The City of Seattle petitioned for review, which we granted.

¶ 2 We reverse the Court of Appeals in part and hold instead that the trial court properly declined to award an additional tax offset for Pham and Lara's noneconomic damages. We also conclude that the trial court did not abuse its discretion when it calculated attorney fees. Finally, we agree with the Court of Appeals that the trial court erred in considering the weakness of the plaintiffs' case when deciding whether to apply a fee multiplier. However, we remand to the trial court to determine whether, absent this improper consideration, a multiplier is justified here. We affirm in part and reverse in part and remand to the trial court for proper consideration of whether a fee multiplier is warranted in this case.

Statement of Facts and Procedural History

¶ 3 In 1997, Pham and Lara sued Seattle City Light alleging, among other things, discrimination based on race and ethnic origin in violation of the Washington Law Against Discrimination (WLAD), chapter 49.60 RCW. A jury found in their favor and awarded them $550,000. Specifically, the jury awarded Pham $263,075 in front pay, $86,072 in back pay, and $80,000 in noneconomic damages. The jury awarded Lara $80,140 in front pay, $10,000 in back pay, and $40,000 in noneconomic damages.

¶ 4 Both plaintiffs had been represented by Sheridan & Associates, P.S., on a contingent fee basis. The plaintiffs filed a petition for attorney fees and costs, requesting $347,588.27 in attorney fees, $52,064.79 in costs, and a multiplier of 2.0. In December 2002, the court awarded $297,532.77 in attorney fees, (approximately $50,000 less than the requested amount) and $42,092.02 in costs. The trial court declined to apply any multiplier.

¶ 5 Then in March 2003, pursuant to Blaney v. International Association of Machinists & Aerospace Workers, 114 Wash.App. 80, 55 P.3d 1208 (2002), the trial court granted a motion awarding Pham an additional $99,831 and Lara an additional $66,855 to cover additional tax consequences resulting from the fact that they were awarded front pay, back pay, and attorney fees in one lump sum. Pham and Lara had requested additional tax offsets totaling $171,284 and $94,703, which would have also compensated Pham and Lara for the tax consequences of their noneconomic damages, but the trial court elected not to award any tax offset for noneconomic damages.

¶ 6 Pham and Lara appealed. Division One of the Court of Appeals affirmed in part and reversed in part. Pham, 124 Wash.App. 716, 103 P.3d 827. Among other things, the Court of Appeals held that Pham and Lara were entitled to compensation for their increased tax liability attributable to the noneconomic damage portion of the judgment. Id. at 731, 103 P.3d 827. The Court of Appeals also held that the trial court abused its discretion when it awarded Pham and Lara approximately $50,000 less than they requested in attorney fees and when it denied the fee multiplier. Id. at 726, 103 P.3d 827. The Court of Appeals ordered the trial court to determine the proper fee multiplier on remand. Id. at 724, 103 P.3d 827. Seattle City Light filed a petition for review, which this court granted.

151 P.3d 979
Income Tax Consequences of Noneconomic Damage Awards

¶ 7 In this case, plaintiffs Pham and Lara were collectively awarded $120,000 in noneconomic damages for emotional distress, in addition to front and back pay. They sought supplemental judgment from the trial court that would have required, in part, that Seattle City Light compensate them for federal income taxes they would have to pay on the noneconomic damages. The trial court awarded Pham and Lara an offset for the tax consequences of receiving their front and back pay in one lump sum. Pham, 124 Wash.App. at 729, 103 P.3d 827. However, the trial court declined to grant an offset that would have required the defendant to pay an amount equivalent to federal income taxes on the noneconomic damages. Id. The Court of Appeals reversed in part, concluding that the supplemental judgment should have included the offset for the noneconomic damages as well as front and back pay. Id. at 731, 103 P.3d 827.

¶ 8 Commentators and courts to date have recognized two ways in which an employment discrimination plaintiff may suffer adverse tax consequences. Gregg D. Polsky & Stephen F. Befort, Employment Discrimination Remedies and Tax Gross Ups, 90 Iowa L.Rev. 67, 69 (2004). First, where the plaintiff is awarded back pay and/or front pay and the plaintiff's recovery is received in a lump sum, the plaintiff is subject to marginal tax rates higher than if the plaintiff had earned the same amount of money in due course. Id. Second, prior to 2004 amendments to the tax code, a lump sum employment discrimination recovery that included attorney fees could result in application of the alternative minimum tax (AMT).1 If the AMT were implicated, it could cause the recovery to be taxed at rates in excess of 35 percent. Id. at 70. This outcome is known as the "AMT trap," and in severe cases it can result in a plaintiff losing money by winning the lawsuit. Comm'r of Internal Revenue v. Banks, 543 U.S. 426, 438, 125 S.Ct. 826, 160 L.Ed.2d 859 (2005); see also Porter v. United States Agency for Int'l Dev., 293 F.Supp.2d 152, 155 (D.D.C.2003) (describing the potential tax consequences of an attorney fee award for Title VII plaintiffs). In recent years, some federal and state courts, including our own, have become more receptive to requests for augmented awards in employment discrimination cases to ameliorate these adverse federal tax consequences. E.g., Blaney, 151 Wash.2d at 215-16, 87 P.3d 757; Sears v. Atchison, Topeka & Santa Fe Ry., 749 F.2d 1451, 1456-57 (10th Cir.1984); EEOC v. Joe's Stone Crab, Inc., 15 F.Supp.2d 1364, 1380 (S.D.Fla.1998); Ferrante v. Sciaretta, 365 N.J.Super. 601, 839 A.2d 993, 996 (2003).

¶ 9 In Blaney, we concluded that the WLAD allows an offset for "additional federal income tax consequences" incurred by an employment discrimination plaintiff. Blaney, 151 Wash.2d at 216, 87 P.3d 757 (emphasis added). Blaney was awarded front pay, back pay, and noneconomic damages for pain and suffering and emotional distress. Id. at 208, 87 P.3d 757. She sought to recover the additional taxes she would have to pay above and beyond what she would have paid had she been properly hired. Id. at 209, 87 P.3d 757. Specifically, we explained that Blaney would

incur this greater liability because payment by lump sum places her in the highest tax bracket and triggers the "Alternative Minimum Tax (AMT), which disallows portions of her attorneys fees as a miscellaneous itemized deduction."

Id. at 209 n. 2, 87 P.3d 757 (quoting declaration of D. Edson Clark, a certified public

151 P.3d 980

accountant, discussing the adverse tax consequences of a lump sum award).

¶ 10 While Pham and Lara assert that this court impliedly endorsed a tax offset for noneconomic damages in Blaney because we did not explicitly distinguish between economic and noneconomic damages in that case, they ignore the fact that we did not endorse a particular calculation. Blaney, 151 Wash.2d at 217, 87 P.3d 757 (affirming the result reached by Court of Appeals but applying a different analysis); Blaney, 114 Wash.App. at 100, 55 P.3d 1208 (emphasizing that on remand the burden of proof would be on Blaney to prove the adverse tax consequences in that case and the amount to be awarded would be determined by the trial judge). Even though we took note of the amount Blaney requested in her motion for supplemental judgment, we left the actual calculation to the trial judge. Any implication that we endorsed an award covering taxes of noneconomic damages is simply incorrect.

¶ 11 More importantly, the reasoning of the Blaney opinion does not support Pham and Lara's position. In determining whether payment for adverse tax consequences was a remedy contemplated by the WLAD, we looked to federal civil rights law and cases interpreting Title...

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