Shadis v. Beal
| Decision Date | 04 August 1982 |
| Docket Number | No. 81-2734,81-2734 |
| Citation | 685 F.2d 824 |
| Parties | Jack SHADIS, Belle Feinberg, Marie Burton, Individually and on behalf of all other persons similarly situated, Appellees, v. Frank BEAL, Individually and as Secretary of the Department of Public Welfare, Commonwealth of Pennsylvania, Wilbur E. Hobbs, Individually and as Deputy Secretary of the Department of Public Welfare, Southeastern Region, Commonwealth of Pennsylvania, Leo A. Sullivan, Individually and as Welfare Policy Specialist, Office of Basic Family Maintenance, Department of Public Welfare, Southeastern Region, Commonwealth of Pennsylvania, Don Jose Stovall, Individually and as Executive Director of the Philadelphia County Board of Assistance, Helen Hyde, Individually and as Director of Operations, Philadelphia County Board of Assistance, June Reed, Individually and as District Supervisor, Medical Assistance District Office, Philadelphia County Board of Assistance, Cynthia Anderson, Individually and as Assistant District Supervisor, Medical Assistance District Office, Philadelphia County Board of Assistance, Mildred Davis, Individually and as Assistant District Supervisor, Medical Assistance District Office, Philadelphia County Board of Assistance, and Aurelius Robertson, Individually and as Casework Supervisor, Medical Assistance District Office, Philadelphia County Board of Assistance, William Harden, John Grady, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
John O. J. Shellenberger, Deputy Atty. Gen., Philadelphia, Pa. (argued), for appellants.
Jerome J. Shestack (argued), Bernard G. Segal, Joseph C. Crawford, Nicolas J. LePore, III, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for appellees.
Before GIBBONS and HUNTER, Circuit Judges and GERRY, * District Judge.
This appeal raises the question of whether certain provisions of two contracts between the Pennsylvania Department of Public Welfare ("PDPW") and the Pennsylvania Legal Services Center ("PLSC") and between PLSC and Community Legal Services ("CLS"), which prohibit CLS from requesting or accepting attorneys' fees in suits against the Commonwealth of Pennsylvania or Commonwealth employees, are void as contrary to public policy. Having been successful in their case-in-chief, 1 plaintiffs moved for an award of attorneys' fees to their counsel, CLS, pursuant to the Civil Rights Attorney Fees Awards Act, 42 U.S.C. § 1988 ("the Fees Awards Act"). 2 Appendix at 64a. An award was granted by Memorandum and Order of the district court on August 17, 1981 in favor of CLS. Appendix at 330a. The court held that the relevant contractual provisions between CLS and the Commonwealth were void because they conflicted with the public policy underlying by the Fees Awards Act. 3 We agree and will affirm the order of the district court.
CLS is a non-profit legal services corporation the sole purpose of which is to provide legal services to the poor. It receives approximately half of its operating budget directly from the federal Legal Services Corporation under the Legal Services Corporation Act, 42 U.S.C. § 2996, et seq. The remaining half is received under Title XX of the Social Security Act, 42 U.S.C. § 1397, et seq. Appendix at 107a-108a. Title XX funding is channelled from the United States Department of Health and Human Services to DPW. DPW then allocates a portion of the federal funds, together with a 25% matching state grant, to various community based legal services programs, including CLS. Appendix at 108a. The actual distribution and administration of Title XX monies for legal services is performed by the conduit organization, PLSC.
Pursuant to this funding arrangement, CLS entered into a series of annual contracts with PLSC for the fiscal years 1978-1981, during which CLS performed much of the work in the preparation of this case. The contracts for the fiscal periods 1979-1980 and 1980-1981 contained the provisions which prevent CLS from requesting attorneys' fees arising out of litigation against the Commonwealth or Commonwealth employees. 4
Before the no fees clause was inserted into the PLSC-CLS contract, DPW used other arguments in attempts to prevent CLS from obtaining fees when CLS attorneys successfully sued the Commonwealth. Beginning with fiscal year 1978-1979, DPW required, over the objections of PLSC and CLS, that DPW-PLSC funding contracts contain a no fees provision restricting the right of PLSC to receive attorneys' fees in cases against the Commonwealth. Since 1979, DPW has compelled PLSC to include a similar provision in its funding agreements with local legal services programs, including CLS. Appendix at 110a-111a.
The 1978-1979 contract between PLSC and DPW contained such a no fees provision. Although the 1978-1979 contract between PLSC and CLS did not contain a provision restricting the right to receive attorney's fees, the Commonwealth asserted the no fees provision of the PLSC/DPW contract as a defense to CLS's request for attorney's fees in Bolden v. Pennsylvania State Police, 491 F.Supp. 958, 959 (E.D.Pa.1980). The district court in that case held that the putative restriction was not effective because it lacked the approval and ratification of the PLSC Board of Directors. The Commonwealth did not appeal that ruling.
However, the Commonwealth again instituted no fees restraints. In August 1979, PLSC proposed a contract to CLS for the fiscal year 1979-80 which contained a no fees provision. Appendix at 113a. CLS signed and returned the proposed contract on January 11, 1980 with a letter objecting to the provision. Appendix at 147a. 5
In 1980 DPW again stated that no funding would be forthcoming for any legal services program which did not acquiesce in DPW's demands by signing a contract containing the no fees provision. Appendix at 117a.
Shortly before the end of the fiscal year, DPW and PLSC entered into a contract for fiscal year 1980-1981, which again contained a no fees restraint. On June 30, 1980, CLS received from PLSC the proposed 1980-1981 contract, with a demand that the document be executed and returned no later than the following week. Appendix at 118a. On July 7, 1980, CLS officers, faced with many obligations to poor clients and a severe fiscal crisis, executed and returned the 1980-1981 contract to PLSC. Again, CLS attached a letter asserting that CLS did not, by executing the contract, waive its right to challenge the legality and enforceability of the no fees provision. 6 Appendix at 118a. CLS thus challenged the no fees provision in this case and its position was upheld by the district court. The Commonwealth has appealed.
The threshold question in deciding this appeal is whether the district court properly concluded that this case presents a question of federal law, and not one of Pennsylvania of contract law. The district court was clearly correct. The underlying claim in this case is not based on contracts, but is a federal civil rights claim. Part of this claim is a request for attorneys' fees, made under a federal statute, to which a contract provision is raised as a defense. Therefore, the district court was correct in concluding that it is to federal law that it should turn for its rules of decision. 7
Appellants argue that this court's decision in Westmoreland Hospital Ass'n v. Blue Cross, et al, 605 F.2d 119, 123 (3d Cir.1979), cert. denied, 444 U.S. 1077, 100 S.Ct. 1025, 62 L.Ed.2d 759 (1980), supports the proposition that the rules of Pennsylvania contract law control this case. We disagree. In Westmoreland, we held that certain insurance contract provisions deducting federal mental health staff grants from computation of hospitals' costs of operation were not void as contrary to public policy. The underlying claim in Westmoreland was based on contract and not, as here, on a federal statute. Furthermore, the district court in Westmoreland found no public policy that was contradictory to the contract provisions in question, and we agreed. 605 F.2d at 125. Because there was no conflict between the contracts and the alleged public policy, there was no controversy to resolve. Thus, we are not restrained by Westmoreland. The case before us is clearly at its roots a federal claim. Therefore, we now turn to the question of whether the contract provisions in question conflict with public policy.
Having decided that federal law is controlling in this case, the district court held that the no fees restraints of the contracts between PLSC and CLS were unenforceable because they counteracted the federal public policy underlying the Fees Awards Act. The court utilized the analysis of the Restatement (Second) of Contracts § 178 (1981). 8 After considering and balancing the factors in favor of enforcement of the contracts against the public policies weighing against enforcement, the court denied effect to the no fees provisions. The district court's conclusion and its approach were correct.
Congress enacted the Fees Awards Act to encourage private citizens to enforce fundamental rights under the civil rights laws. 9 Quite simply, the policy behind the Act is to encourage compliance with and enforcement of those laws. Maher v. Gagne, 448 U.S. 122, 100 S.Ct. 2570, 65 L.Ed.2d 653 (1980); Maine v. Thiboutot, 448 U.S. 1, 100 S.Ct. 2502, 65 L.Ed.2d 555 (1980); Ross v. Horn, 598 F.2d 1312 (3d Cir. 1979); cert. denied, 448 U.S. 906, 100 S.Ct. 3048, 65 L.Ed.2d 1136; Skehan v. Bd. of Trustees, 590 F.2d 470 (3d Cir. 1978), cert. denied, 444 U.S. 832, 100 S.Ct. 61, 62 L.Ed.2d 41 (1979). See also, S.Rep.No.94-1011, 94th Cong., 2d Sess. 2, reprinted in (1976) U.S.Code Cong. & Admin.News, pp. 5908, 5910. Congress has noted that the primary goal of the Act is "to promote the enforcement of the Federal Civil Rights Acts, as Congress intended,...
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