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Lawyers who prevail in a civil rights case but win only nominal damages are generally not entitled to attorney fees, the Court of Appeals ruled Tuesday in a groundbreaking opinion. For the first time, the court embraced the so-called Farrar standard and found that attorneys who win token awards in civil rights actions have “prevailed” for fee purposes, but that fee awards are “rarely … appropriate unless the litigation served a significant public purpose.” In McGrath v. Toys “R” Us, 141, the judges agreed on the applicability of Farrar v. Hobby, 506 US 103 (1992) to the New York City Civil Rights Law. But two dissenting judges argued that the first public accommodation case vindicating the rights of transsexuals did not achieve any new meaningful public goal. They contended that the basic principle, anti-discrimination, was established earlier. Also Tuesday, the court resolved a split between the appellate divisions and held that in order to qualify for a permanent total disability under Workers’ Compensation Law, a brain-injured laborer must be unemployable in any capacity but need not be in a vegetative state. Tuesday’s 6-1 opinion adopts the position of the two upstate appellate divisions, the 3rd Department in Albany and the 4th Department in Rochester, while rejecting that of the 2nd Department in Brooklyn. McGrath came to Albany via Foley Square, where the 2nd U.S. Circuit Court of Appeals certified a series of questions to the New York tribunal concerning the Farrar standard. The case involves three pre-operative transsexuals who complained that they were harassed by Toys “R” Us employees in a Brooklyn store. The plaintiffs filed a federal lawsuit alleging gender and sexual orientation bias under the New York City Human Rights Law, which includes an attorney fee provision for the prevailing party. A jury found for the plaintiffs but awarded each only $1 in damages. Toys “R” Us conceded that the plaintiffs had technically prevailed but cited Farrar in arguing that attorney fees were not warranted. Eastern District Chief Judge Charles P. Sifton awarded $191,551 in attorney fees. He described the case as “the first … in which the rights of transsexuals were asserted and vindicated.” Sifton said that providing reasonable attorney fees would “encourage the bringing of meritorious civil rights claims which might otherwise be abandoned because of financial imperatives surrounding the hiring of competent counsel.” On appeal to the 2nd Circuit, the federal appellate court asked for guidance on whether New York would adopt the Farrar standard and, if so, whether in a case such as this attorney fees should be granted despite the award of nominal damages. ‘FARRAR’ GOVERNS Writing for the majority, Judge Victoria A. Graffeo suggested that while attorney fees are generally not appropriate when there is an award of only nominal damages, fees can be appropriate in select cases. Here, for instance, she said McGrath is the first public accommodation case that went to verdict under the city’s Human Rights Law and marks the first judgment for transsexuals. “We cannot conclude that a judgment in favor of a historically unrecognized group can never serve an important public purpose; a groundbreaking verdict can educate the public concerning substantive rights and increase awareness as to the plight of a disadvantaged class,” Graffeo wrote. Judges Susan Phillips Read and Robert S. Smith agreed with their colleagues that Farrar governs and that an exception to Farrar is available when a verdict establishes “pioneering legal precedent.” However, they argued that there was no such benchmark here. The dissenters said the precedent articulated in this case — that discrimination based on gender or sexual orientation is unacceptable — was firmly established long before McGrath v. Toys “R” Us. “If the fee provision [in the city Human Rights Law] encourages a goldrush of attorneys promoting doubtful or inconsequential claims, it will be of little value to either legitimate civil rights plaintiffs or to the general public,” Read said in dissent. “Here, plaintiffs failed to accomplish any important public goal as private attorneys general by litigating a civil rights issue that had already been resolved in favor of transsexuals by the courts.” Thomas D. Shanahan of Shanahan Associates in Manhattan argued for the plaintiffs. H. Nicholas Goodman of Quirk & Bakalor in Manhattan argued for Toys “R” Us. TORT REFORM MEASURE Three Workers’ Compensation cases gave the court an opportunity to clarify an issue that had divided the upstate and downstate appellate courts. Rubeis v. the Aqua Club, 142, Largo-Chicaiza v. Westchester Scaffold Equipment Corp., 185, and Knauer v. Anderson, 186, all involved brain-injured workers asserting claims against third-party defendants and all revolved around a 1996 tort reform measure. That year, the Legislature enacted the Omnibus Workers’ Compensation Reform Act to restrict the liability of employers under Workers’ Compensation Law. Under the amended statute, employers are liable for workplace injuries only when the employee suffers a “grave injury” — which includes a brain injury resulting in “permanent total disability.” The Appellate Division, 2nd Department, had adopted a strict standard, holding in essence that a worker has not suffered a brain-related “permanent total disability” unless he or she has lost the ability to function. But the 3rd and 4th departments embraced a more liberal standard, holding that a worker who is unemployable because of a brain injury has suffered a permanent total disability. Tuesday, the Court of Appeals adopted the somewhat more lenient standard articulated by the 3rd Department in Way v. Grantling, 289 AD2d 790 (2001) and accepted by the 4th Department. In the main opinion, Chief Judge Judith S. Kaye said the 1996 reform was intended to ensure that employers would face third-party liability only in very narrowly defined instances. Yet, she said, the 2nd Department’s “limitation of permanent total disability to a vegetative state is too harsh.” The majority concluded that the 3rd Department’s reading was more reasonable and more in keeping with the overall intent of the amended statute. “[W]e make clear that the test we adopt for permanent total disability under [Workers' Compensation Law] is one of unemployability in any capacity,” Kaye wrote. Read dissented in all three cases. She acknowledged that some of the results under the amended Workers’ Compensation Law “seem downright peculiar.” For instance, Read noted that the loss of an index finger constitutes a grave injury while loss of a thumb does not. “We clearly know, however, what the Legislature intended, which was to curtail third-party actions against the employer of an injured worker sharply,” Read said. She suggested that despite “the Legislature’s best efforts to insulate” the statute “from judicial interpretation (and the perceived attendant risk of judicial expansion),” the majority did just that with its ruling. The court reversed the 2nd Department in Rubeis and Largo-Chicaiza and affirmed the 4th Department in Knauer. Appearing were Michael J. Hutter of Powers & Santola in Albany for a third-party respondent and Steven J. Ahmuty of Shaub Ahmuty Citrin & Spratt in Lake Success for the third-party appellant in Rubeis; Jayne F. Monahan of Pearl River for the third-party appellants and Robert C. Baxter of White Plains for the third-party respondent in Largo-Chicaiza; Hutter for the third-party appellant in Knauer, John T. Loss of Connors & Vilardo in Buffalo for the respondent and Norman B. Viti of Gibson McAskill & Crosby in Buffalo for the third-party respondent.

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