Shadis v. Beal
685 F.2d 824 (1982)
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Rule of Law:
A contract provision in a government funding agreement is void as contrary to public policy if it prohibits a legal services organization from seeking attorney's fees in civil rights suits against the government, as such a provision undermines the enforcement mechanism and purpose of the Civil Rights Attorney Fees Awards Act (42 U.S.C. § 1988).
Facts:
- Community Legal Services (CLS) is a non-profit corporation providing legal services to the poor, receiving about half of its funding from federal sources channeled through the Pennsylvania Department of Public Welfare (DPW).
- The DPW funneled these funds to CLS through an intermediary organization, the Pennsylvania Legal Services Center (PLSC).
- Beginning in 1979, DPW required that its funding contracts with PLSC, and in turn PLSC's contracts with CLS, include a 'no fees' provision.
- This provision prohibited CLS from requesting or accepting attorney's fees in any case brought against the Commonwealth of Pennsylvania or its employees.
- For the fiscal years 1979-1980 and 1980-1981, CLS signed the required funding contracts containing the 'no fees' provision.
- CLS signed these contracts while facing a severe fiscal crisis and after DPW stated that no funding would be provided to any program that did not acquiesce.
- With each signed contract, CLS attached a letter objecting to the 'no fees' provision and asserting its right to challenge its legality.
Procedural Posture:
- Plaintiffs, represented by CLS, filed a class-action lawsuit under 42 U.S.C. § 1983 against the Commonwealth of Pennsylvania in the U.S. District Court for the Eastern District of Pennsylvania.
- The plaintiffs prevailed on the merits of their civil rights claims, and the parties entered into a settlement agreement approved by the district court.
- Following the settlement, plaintiffs' counsel, CLS, filed a motion for an award of attorneys' fees pursuant to the Civil Rights Attorney Fees Awards Act, 42 U.S.C. § 1988.
- The Commonwealth of Pennsylvania (appellant) opposed the motion, arguing that the 'no fees' provision in its funding contracts with CLS barred such an award.
- The district court granted the motion for attorneys' fees, ruling that the contractual provision was void as contrary to the public policy of the Fees Awards Act.
- The Commonwealth of Pennsylvania appealed the district court's order to the U.S. Court of Appeals for the Third Circuit.
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Issue:
Does a contract provision in a state funding agreement that prohibits a legal services organization from requesting or accepting attorney's fees in civil rights suits against the state violate the public policy underlying the Civil Rights Attorney Fees Awards Act, 42 U.S.C. § 1988, and is it therefore unenforceable?
Opinions:
Majority - James Hunter, III
Yes, a contract provision prohibiting a legal services organization from seeking attorney's fees in suits against the state is void as contrary to the public policy underlying the Civil Rights Attorney Fees Awards Act. The court's decision is governed by federal law, not state contract law, because the underlying claim is a federal civil rights action and the fee request is made under a federal statute. The fundamental public policy of the Fees Awards Act is to encourage the enforcement of civil rights laws by creating a financial incentive for attorneys and organizations to act as 'private attorneys general.' Congress specifically intended for legal services organizations like CLS to receive these fees to enhance their capacity to litigate these important cases. The 'no fees' provision directly counteracts this policy by removing the incentive, effectively allowing the Commonwealth to 'buy immunity' from civil rights litigation. The Commonwealth's arguments for enforcement, such as budget predictability and avoiding 'double payment,' are unpersuasive; the fee award is not part of public funding but rather a consequence of the Commonwealth's role as a civil rights violator. Therefore, the strong public policy embodied in the federal statute outweighs the state's interest in enforcing the contract term.
Analysis:
This decision establishes that a government entity cannot use its funding authority to contractually insulate itself from the financial consequences of federal civil rights litigation. It affirms that the public policy goals of a federal statute, particularly the incentive structure of fee-shifting provisions, can override contract terms that undermine those goals. The ruling is significant for protecting the role of legal services organizations as key enforcers of civil rights, ensuring they are not financially coerced into abandoning litigation against the very government bodies that may provide their funding. This precedent reinforces that fee awards are an integral part of the remedy for civil rights violations, not merely a benefit that can be waived away by contract.
