                     United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                     ___________

                                     No. 98-1253
                                     ___________

John Tyler,                            *
                                       *
            Appellant,                 *
                                       *
      v.                               *
                                       *
Corner Construction Corporation, Inc., * Appeal from the United States
d/b/a Howard Johnson-Plaza Suite       * District Court for the
and Lodges and/or Ho-Jo’s Lounge;      * District of South Dakota.
and Charles A. Bernhoft, Dave Walton, *
Pat Krsnakk, Timothy Eisenhauer,       *
and Orrin Gunderson,                   *
                                       *
            Appellees.                 *
                                 ___________

                              Submitted: November 17, 1998

                                   Filed: February 10, 1999
                                    ___________

Before LOKEN, JOHN R. GIBSON, and MORRIS SHEPPARD ARNOLD, Circuit
      Judges.
                           ___________

MORRIS SHEPPARD ARNOLD, Circuit Judge.

        John Tyler appeals from the district court's denial of his motion for attorney's
fees and costs pursuant to 42 U.S.C. § 1988(b), which provides that in a lawsuit under
42 U.S.C. § 1983, the district court, "in its discretion, may allow the prevailing party
... a reasonable attorney's fee as part of the costs." The issue before us is whether the
court in this case properly determined that Mr. Tyler was not a prevailing party
because his case was settled for its alleged nuisance value.

                                            I.
        Mr. Tyler was a customer at defendant Corner Construction's hotel-lounge
complex when five bouncers, also defendants, allegedly seized and arrested him
without probable cause, used unreasonable force, and deprived him of his liberty
without due process of law. He sued, claiming that the defendants had violated his
constitutional and civil rights under color of law, because the bouncers were off-duty
police officers who carried their police badges and weapons to work at the hotel
lounge and who collaborated with the local police in carrying out the arrest.
Mr. Tyler further claimed that the defendants engaged in a pattern of violating the
civil rights of members of the public. He requested actual damages of $50,000 and
punitive damages of $500,000 on the civil rights claims and on three additional state-
law claims (false imprisonment, assault and battery, and negligence).

       The defendants paint a very different picture of the events in question. They
allege that Mr. Tyler had a long record of convictions for violence and drunkenness,
that they had been forewarned that he might cause trouble on the night in question,
that trouble did indeed ensue, and that his minor injury was sustained during his
frantic resistance to a citizen's arrest by the bouncers. Despite the supposed
weakness of Mr. Tyler's case, it survived two motions for summary judgment.
Mr. Tyler rejected an offer to settle the suit for $4,500 that would have required him
to waive attorney's fees and costs, but later accepted an offer of $17,500 that reserved
the question of attorney's fees to the district court. The settlement agreement
contained a statement that the defendants did not admit that Mr. Tyler had stated a
claim cognizable under § 1983 and that they merely desired to settle the suit without
the expense and uncertainty of trial.




                                          -2-
       Mr. Tyler then moved for an award of more than $64,000 in attorney's fees and
costs pursuant to § 1988(b); the district court denied the motion. The prevailing
plaintiff in a § 1983 action should ordinarily recover attorney's fees, the court
recognized, but it held that Mr. Tyler was not a prevailing party. Applying the
"catalyst" theory, the court held that Mr. Tyler did not prevail, because the pressure
of his claim did not cause the defendants to pay him $17,500. Rather, the court
found, "the settlement was effected by dint of nuisance and threat of expense." In
these circumstances, the court concluded, an award of attorney's fees would be unjust
and contrary to the spirit of § 1988(b).

      We hold that the district court erred in employing the notion of a catalyst in
deciding the issue of attorney's fees rather than applying the principles outlined in
Farrar v. Hobby, 506 U.S. 103, 111-12 (1992), and thus wrongly concluded that
Mr. Tyler was not a prevailing party. We further hold that if a defendant enters into
a nuisance settlement, as we have defined it, a plaintiff is not entitled to an award of
fees.

                                           II.
       In determining what fees, if any, to award to a plaintiff in a civil rights action,
a district court must first decide whether the plaintiff is a "prevailing party," that is,
whether he or she achieved through litigation some of the benefit originally sought
in bringing suit. Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). If the court
answers this question in the affirmative, it should then determine what attorney's fees
are reasonable under the circumstances. The proper amount of attorney's fees
depends in part on the extent of the plaintiff's success, id. at 438-40; where the
plaintiff obtains only "limited" relief, the court may award only limited fees. Id. at
440; see also id. at 438-39 n.14.

       In Farrar, 506 U.S. at 111-12, the Supreme Court held that "a plaintiff
'prevails' when actual relief on the merits of his claim materially alters the legal

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relationship between the parties by modifying the defendant's behavior in a way that
directly benefits the plaintiff." The relief may take the form of an enforceable
judgment, a consent decree, or a settlement. Id. at 111; see also Maher v. Gagne, 448
U.S. 122, 129 (1980). The term "prevailing party" is generously defined, the Court
said in Farrar, 506 U.S. at 109, and does not turn on the magnitude of the plaintiff's
success, id. at 114: The plaintiffs in Farrar, id. at 107, 113, who had sued for
$17 million in compensatory damages from six defendants and were awarded only
one dollar from one defendant, were nevertheless prevailing parties because the
judgment forced that defendant to pay money that he would not otherwise have paid.
Under Farrar, Mr. Tyler is thus a prevailing party in his suit against the defendants
because he has obtained relief in the form of a settlement that gives him a legal claim
against them for $17,500.

      Different considerations are relevant in cases in which the plaintiff sought
injunctive relief and the defendant voluntarily changed its behavior before trial,
rendering the lawsuit moot. In such a situation, "the plaintiff is a 'prevailing party'
under section 1988 if his suit is a catalyst for the defendant's voluntary compliance
and the defendant's compliance was not gratuitous, meaning that the plaintiff's suit
was neither 'frivolous, unreasonable, [n]or groundless.' " Little Rock School District
v. Pulaski County Special School District No. 1, 17 F.3d 260, 262 (8th Cir. 1994),
quoting United Handicapped Federation v. Andre, 622 F.2d 342, 347 (8th Cir. 1980);
see also A.J. by L.B. v. Kierst, 56 F.3d 849, 865 (8th Cir.1995) ("when remedial
action by a defendant moots the lawsuit before trial, a party is entitled to prevailing
party status if his lawsuit was a catalyst that brought about or prompted the
defendant's remedial action").

.      The district court found that Mr. Tyler's suit caused the settlement under which
the defendants paid $17,500, but did not change the defendants' behavior toward him.
Furthermore, the court noted, it was not the merits of the case (the possibility that
Mr. Tyler would succeed in litigation) that caused the defendants to give in: It was

                                         -4-
the "nuisance and threat of expense" that motivated the settlement. The court thus
concluded that since Mr. Tyler's suit was not the catalyst for the settlement, he could
not be a prevailing party.

        It is true that the language of some of our opinions, taken out of context, could
be read to mean that the question of whether a plaintiff's suit was a catalyst to a
settlement is relevant in determining whether that plaintiff has prevailed when a
dispute is resolved by a settlement between the parties. For instance, in Little Rock
School District, 17 F.3d at 263 n.2, we said that "[w]e decline to extend Farrar's
language beyond its context of determining prevailing party status after a final
determination on the merits of litigation" (emphasis added). It is clear from our cases
as a whole, however, that we apply the principles outlined in Farrar to determine
prevailing-party status in cases that result in settlement. Farrar, 506 U.S. at 111,
itself specifically states that the relief on the merits of a plaintiff's claim necessary
to confer prevailing-party status may take the form of a consent decree or a
settlement.

        The catalyst theory, moreover, has always been advocated as an alternative to
the Farrar approach in cases where the defendant voluntarily granted the requested
relief, rendering the lawsuit moot; it extends prevailing-party status to some plaintiffs
who have not obtained "an enforceable judgment ... or comparable relief through a
consent decree or settlement," as Farrar requires, id. See A.J., 56 F.3d at 865, and
Baumgartner v. Harrisburg Housing Authority, 21 F.3d 541, 545 n.3 (3rd Cir.1994).
We have discovered no cases since Farrar was decided in which we have not applied
its principles to a case resulting in a negotiated settlement.

       Because the district court applied the wrong principles we believe that it
reached the wrong conclusion. Mr. Tyler was a prevailing party under Farrar, 506
U.S. at 111-12, because he obtained "actual relief on the merits of his claim" that
"altere[d] the legal relationship between the parties" and "modif[ied] the defendant's

                                          -5-
behavior in a way that directly benefits the plaintiff." We turn, then, to the question
of whether the court's finding that this case was settled for its nuisance value provided
a sufficient basis for denying attorney's fees even though Mr. Tyler was a prevailing
party.

                                         III.
       The features of a nuisance settlement, and the implications, if any, of nuisance
settlements for prevailing-party status, are questions of first impression for us.
Although several courts have asserted in passing that something called a nuisance
settlement in a § 1988 action cannot give rise to an award of fees, see, e.g., Texas
State Teachers Association v. Garland Independent School District, 489 U.S. 782,
792 (1989), and Chicano Police Officer's Association v. Stover, 624 F.2d 127, 131
(10th Cir., 1980), see also Farrar, 506 U.S. at 122 (O'Connor, J., concurring), we
have never had the occasion to consider this question.

        A defendant's decision on whether to accept a settlement offer always involves
an economic calculation of some sort; that is, a rational defendant will ask whether
the offer is less than the anticipated cost of defense, including the risk of a recovery
by the plaintiff. Assuming that a proffered settlement does not include an admission
of liability, a defendant will almost always accept the offer if it is less than the cost
of defense. (There are exceptions: A grudge match is among them and a desire not
to create a market in complaints will create another.) But a so-called nuisance
settlement, we think, is not just one that is entered into after the usual economic
calculation: It is one that is accepted despite the fact that the case against the
defendant is frivolous or groundless, solely in an effort to avoid the expense of
litigation. See Fisher v. Kelly, 105 F.3d 350, 353 (7th Cir. 1997), and Ashley v.
Atlantic Richfield Co., 794 F.2d 128, 134-35 n.9 (3d Cir. 1986).

       While, as we have already said, Mr. Tyler is a prevailing party, and a prevailing
party is ordinarily entitled to attorney's fees of some sort, it is nevertheless true that

                                           -6-
there are "special circumstances" that can "render such an award unjust," Newman v.
Piggie Park Enterprises, Inc., 390 U.S. 400, 402 (1968) (per curiam). We believe
that a nuisance settlement, as we have defined it, represents just such a special
circumstance. Suits that are frivolous or groundless are true nuisances; indeed, they
are sometimes thinly disguised forms of extortion, the kinds of activities that courts
ought, for obvious reasons, not to encourage.

       In the present case, the district court concluded that the settlement into which
the parties entered was a nuisance settlement, but it seems to us that in doing so the
court improperly shifted the focus of inquiry by concentrating on the defendants'
subjective motives for settling the case. See Ashley, 794 F.2d at 134-35 n.9. We
think that it would be unjust to deny a plaintiff his or her attorney's fees simply
because a defendant thought that the plaintiff's claim was completely lacking in merit.
Defendants no doubt often think that this is the case when, in fact, it is not. What a
court ought to do, we think, is to concentrate on the objective meritoriousness of a
plaintiff's claim, and refuse to award fees if the claim is frivolous or groundless.

       In this case, it is true, Mr. Tyler's case had already survived two motions for
summary judgment, so the defendants had not identified a fatal legal or factual
weakness in the case by the time it was settled. Since, however, they might be able
to do so, and since the district court in considering the matter of fees did not make a
specific finding on whether Mr. Tyler's suit is significantly lacking in merit as an
objective matter, we remand the case for such a finding. If the court finds that the
case was frivolous or groundless, then no attorney's fees should be awarded. On the
other hand, if the court comes to the opposite conclusion, it must then apply the
principles outlined in Farrar and other applicable precedents and award a reasonable
attorney’s fee to Mr. Tyler.

                                         IV.



                                         -7-
       In view of the fact that Mr. Tyler was a prevailing party in this case, we remand
the matter to the district court for a determination of whether he is entitled to
attorney's fees and, if so, in what amount.

      A true copy.

             Attest:

                CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




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