## Facts

- Medically needy individuals brought a 42 U.S.C. § 1983 class action challenging Pennsylvania’s administration of Medicaid benefits, alleging unlawful benefit terminations/reductions without adequate notice or hearing and illegally low eligibility standards.
- Plaintiffs were represented by Community Legal Services (CLS), a nonprofit legal services organization partly funded through arrangements involving Pennsylvania’s Department of Public Welfare (PDPW).
- The merits dispute ended in a court-approved settlement under which plaintiffs essentially prevailed.
- Plaintiffs sought attorneys’ fees for CLS under 42 U.S.C. § 1988 as prevailing parties.
- The Commonwealth opposed the fee request based on “no-fee” provisions in two contracts (PDPW–PLSC and PLSC–CLS) that purported to forbid CLS from requesting or accepting attorneys’ fees in suits against the Commonwealth or its employees.
- The district court awarded fees and held the contractual no-fee provisions void as conflicting with the public policy embodied in § 1988.

## Issues

1. Whether contractual provisions prohibiting a legal services organization from requesting or accepting attorneys’ fees against a state and its employees are enforceable when fees are authorized by 42 U.S.C. § 1988.
2. Whether, under Restatement (Second) of Contracts §§ 178–179, the public policy favoring civil-rights fee shifting outweighs the Commonwealth’s interest in enforcing the no-fee clauses.

## Decision

- The Third Circuit affirmed the district court.
- The court held the contractual no-fee provisions void and unenforceable as contrary to public policy.
- The court left intact the attorneys’ fee award to plaintiffs’ counsel under § 1988.
- The appeal addressed only enforceability of the no-fee clauses, not the underlying Medicaid merits.

## Legal Principles

- 42 U.S.C. § 1988 reflects a federal policy to encourage private enforcement of civil rights laws by awarding reasonable attorneys’ fees to prevailing parties, including against state defendants.
- Under Restatement (Second) of Contracts § 178, a contract term is unenforceable on public-policy grounds when the interest in enforcement is clearly outweighed by a public policy against enforcement; § 179 recognizes legislation designed to protect public welfare as a source of such policy.
- Blanket contractual waivers that prevent a funded legal services organization from seeking § 1988 fees in a broad category of civil-rights cases conflict with the federal remedial design and are unenforceable.
- State financial support for legal services is not a substitute mechanism that permits contracting around Congress’s chosen fee-shifting scheme.

## Conclusion

The Third Circuit held that Pennsylvania could not use funding-related contracts to bar CLS from seeking or accepting § 1988 attorneys’ fees in civil-rights litigation against the Commonwealth, because such no-fee clauses conflicted with the strong federal public policy favoring fee awards to ensure effective enforcement of federal rights.


Shadis v. Beal, 685 F.2d 824 (3d Cir. 1982)