Prevailing New York civil rights plaintiffs get fees - with a caveat.

Addressing certified questions from the Second Circuit, New York's highest court has confirmed that, following U.S. Supreme Court precedent, state courts may award attorney fees to prevailing civil rights plaintiffs who receive only nominal damages when the lawsuit serves a "significant public purpose." (McGrath v. Toys "R" Us, No. 141, 2004 WL 2720092 (N.Y. Nov. 23, 2004).)

In a case involving three New York City transsexuals who sued Toys "R" Us alleging discrimination in a public accommodation, the New York Court of Appeals adopted standards for awarding fees in civil rights cases that the Supreme Court announced in Farrar v. Hobby. (506 U.S. 103 (1992).)

In Farrar, the Supreme Court concluded that a civil rights plaintiff who wins only nominal damages is a "prevailing party," but that the low award "highlights" the plaintiff's "failure to prove an essential element of his claim for monetary relief." In such cases, the Court ruled, "the only reasonable [attorney] fee is usually no fee at all."

Consideration of "the extent of relief, the significance of the legal issue on which the plaintiff prevailed, and the public purpose served" could provide an exception to that rule, Justice Sandra Day O'Connor wrote in a concurring opinion.

The three New York plaintiffs went shopping at a Brooklyn Toys "R" Us store in late 2000. While they were there, they allege, store employees used insulting epithets referring to their gender identity and approached them threateningly with baseball bats.

After the plaintiffs filed a complaint with the New York City Commission on Human Rights, the company offered as a settlement 100 "Geoffrey dollars," coupons for use in its stores. The plaintiffs declined and filed their lawsuit.

A jury found for the plaintiffs in a June 2002 trial but awarded each only $1 in damages. Judge Charles Sifton awarded attorney fees, holding that even under Farrar, "there is no rule that an award of nominal damages will never support a fee award." Sifton held that McGrath had served a public purpose because it was "the first public accommodations case to go to trial under the [New York City] code" and "the first case in which the rights of transsexuals were asserted and vindicated."

Toys "R" Us appealed, arguing that the case was not significant because lower courts had already determined that New York City's Human Rights Law protected transsexuals' rights. Two months before the McGrath trial, the City Council amended the law to explicitly protect transsexuals from discrimination.

Noting that "the parties sharply dispute whether plaintiffs' suit satisfies [the] 'groundbreaking' exception to Farrar," the Second Circuit certified questions to the New York Court of Appeals. It asked whether New York applies the Farrar standard and, if so, whether the plaintiffs were entitled to fees even though lower courts had previously recognized that city law prohibits discrimination against transsexuals.

Answering in the "affirmative, the New York high court held that the approach to attorney fees under New York City's code is essentially the same as the federal approach. But "we cannot conclude that a judgment in Favor of a historically unrecognized group can never serve an important public purpose," Judge Victoria Graffeo wrote for the court.

"Given the uncertain state of the law at the time this action was commenced, and the fact that the breadth of the code was not clarified until shortly before trial, many city residents might have been unaware at the time of the verdict that discrimination against transsexuals was prohibited," Graffeo wrote. "We are therefore unpersuaded that the fact that a few lower courts had interpreted the code as covering trans-sexuals rendered plaintiffs' verdict--the first of its kind--insignificant as a matter of law."

Although the ruling is in his clients' favor, New York City lawyer Thomas Shanahan views it with some trepidation because it creates a bright-line rule for awarding attorney fees.

"McGrath will likely have a chilling effect on civil rights plaintiffs and their counsel, because unless you can guarantee damages--and there is no guarantee, we all know that--it's likely they're not going to bring cases to remedy violations of civil rights," Shanahan said.