• The Triad: The Plaintiff's Attorney, the Statutory Fee Award and the Contingent
  • March 13, 2012 | Author: Moyenda Mutharika Knapp
  • Law Firm: Johnson & Bell, Ltd. - Chicago Office
  • If the plaintiff enters into an agreement with her attorney which allows for the attorney to receive a contingent fee and a statutory fee, can the district court consider the contingent fee agreement in calculating the prevailing party’s attorney’s fee award?  In Pickett v. Sheridan Health Center, 2011 U.S. App. LEXIS 24866 (Dec.15, 2011), the United States Court of Appeals for the Seventh Circuit (“Seventh Circuit”) answered that question in the negative.  The Seventh Circuit ruled that the district court used impermissible factors, including relying on a contingent fee arrangement between the plaintiff and her attorney, to reduce the statutory fee award.  The Seventh Circuit also ruled that the district court should have given the plaintiff time to respond before applying the Consumer Price Index (“CPI”) and the Laffey Matrix (“Matrix”) to determine the fee award.  In addition, the Seventh Circuit ruled that the district court should have clearly explained how it calculated the plaintiff’s $400 hourly rate. While the Seventh Circuit was mindful of the district court’s move to eliminate the substantial fees that the attorney sought to determine an award that was more accurate, the methods that the court used to do so were not permitted.

    After the jury awarded the plaintiff $65,000 ($15,000 for compensatory damages and $50,000 for punitive damages) and the district court also awarded $1,357.42 in back pay following a two-week trial action based on Title VII of the Civil Rights Act of 1964 (“Title VII”), the plaintiff’s counsel sought the recovery of $131,665.88 in attorney’s fees.  The trial covered the plaintiff’s retaliation claim in which she alleged termination for complaining about sexual harassment.  The district court had granted summary judgment on the plaintiff’s sexual harassment claim. The district court awarded the plaintiff’s attorney $70,000 in fees.

    The Seventh Circuit found that the district court erred in its fee award and found that its most significant error was in reducing the fee based on the contingent fee agreement.  The agreement between the plaintiff and her attorneys required her to pay a 33.3 percent contingent fee, a $7,500 flat fee, and assign her right to statutory fees.  The Seventh Circuit found that the contingent fee that an attorney contracts for with their client is separate from the statutory fee that the attorney gets from the losing party to compensate the party for its attorney’s services.  The district court must therefore determine the reasonable hourly fee without considering the contingent fee.

    In determining the reasonable hourly fee, the Seventh Circuit noted that the district court must use the lodestar method, which involves multiplying the “number of hours reasonably expended on the litigation...by a reasonable hourly rate.” Id., 2011 U.S. App. LEXIS 24866 at *7 (quoting Hensley v. Eckerhart, 461 U.S 424, 433 (1983)).  The Seventh Circuit noted that the lodestar method applies even when a contingent fee agreement exists.  Relying on Blum v, Stenson, 465 U.S. 886, 894-95 and fn. 11 (1984), the Pickett court noted that for contingent fee attorneys, courts should rely on the hourly rates of attorneys with comparable skill, experience, and reputation.

    The Pickett court, citing Denius v. Dunlap, 330 F.3d 919, 930 (7th Cir. 2003), noted that the Seventh Circuit has defined a reasonable hourly rate as being “derived from the market rate for the services rendered.”  Relying on the Denius decision, the Seventh Circuit presumed that the attorney’s actual billing rate in similar cases was appropriate for the market rate.  Id. When the attorney uses a contingent fee agreement, to determine the hourly rate the district court should cite the rates from attorneys in the community with similar experience doing similar work and attorney’s fee awards in similar cases.  The fee applicant need only produce third-party affidavits of billing rates to meet his or her burden.  These comparable attorneys need to bill by the hour.  The court should not adjust the comparable hourly rate for a contingent fee attorney.

    The fee applicant bears the burden of proving with satisfactory evidence that the requested fee comports with those in the community, and, if he or she meets this burden, then the burden shifts to the opponent to provide good reason why a lower fee should be awarded. If the attorney seeking the fee does not satisfy its burden, the court can determine a reasonable rate on its own.

    As for the plaintiff’s counsel’s hourly rate, he claimed that it was $592.50.  In support of this claimed rate, the plaintiff’s attorney submitted his affidavit and those of three experienced Chicago employment attorneys, evidence setting forth his past fee awards, and his time and billing records in the matter, as well as those from a two-day Title VII case that was tried near the same time as this case was tried.

    The plaintiff’s attorney’s prior fee awards ranged from $260 per hour in 1996 to $500 per hour in 2003.  The Seventh Circuit noted that a previous fee award is helpful to determine market rate for similar work.  The plaintiff’s attorney also produced records from a 2008 Title VII case where he received $620 an hour and for cases in 2007 where he settled cases and received between $540 to $585 per hour.

    The affidavits that he produced from local attorneys were from three local employment law attorneys who each had more than 30 years of experience. In their opinion, the plaintiff’s counsel’s fee request of $580 to $620 was reasonable.  However, the Pickett court, relying on Batt v, Micro Warehouse, Inc., 241 F.3d 891, 895 (7th Cir. 2001), noted that the Seventh Circuit has criticized opinions of market rate, preferring instead that the third-party affidavits provide evidence of charges by comparable attorneys for similar work. In Pickett, the local attorneys also set forth the fee ranges for attorneys in their firms and themselves.

    The defendant, however, failed to offer significant evidence as to why the rate should be reduced, relying only on cites to other cases in which the plaintiff’s attorney’s requested fee was reduced.  The Pickett court noted that this evidence, while scant, met its burden.  However, if the defense had failed to produce any evidence in support of lowering the fee, the district court would have had to award fees at the requested rate.

    The Pickett court noted that the district court properly considered the plaintiff’s attorney’s prior fee awards in determining his market rates.  Those prior fee awards, even calculating for inflation, led to lower rates than were requested.  In addition, the district court properly looked at the vast range of the plaintiff’s attorney’s rates.

    The Seventh Circuit ruled that the district court could also take judicial notice of the CPI, however, it failed to set forth in its opinion the years it used for its calculation or what CPI adjustment it used, which prevented the Seventh Circuit from determining what the district court calculated as the adjusted CPI hourly rate.  The district court could not, however, use the Matrix, which is a chart of hourly rates for Washington, D.C. attorneys and paralegals prepared by the United State’s Attorney’s Office in the District of Columbia for use in fee-shifting cases and which has never been formally adopted outside of the D.C. Circuit.  The Seventh Circuit also noted that the plaintiff requested an evidentiary hearing three times and that it was not held, and that while the district court need not hold an evidentiary hearing if it would only address arguments and materials already before the court in the briefs, the district court must allow the plaintiff an opportunity to respond when the court raises issues with respect to the fee petition on its own scrutiny or establishes sua sponte reasons to reduced the fee award.  In this case, the district court abused its discretion in not holding an evidentiary hearing or providing the parties an opportunity to be heard as to: 1) the hourly rate reduction due to the contingent fee agreement; 2) the use of the Matrix, which was not advanced by either party and has not been adopted by the Seventh Circuit and the district court; and 3) reversing an award to outside counsel who had prepared the fee petition because they were not prepaid to do so.

    The district court could properly reduce the fee for time spent on the sexual harassment claim on which summary judgment was granted and for duplicate hours.  In addition, the district court could have reduced the requested rate if the evidence failed to support it, such as with third party affidavits of attorneys who did not have similar experience or due to lower prior fee awards.  But the district court could not reduce the fee due to additional recovery to the plaintiff’s attorney due to the contingent fee agreement.  In this case, while the district court criticized the contingent fee agreement, it did not explain how it affected the fee award.  Nor did the district court sufficiently set forth its reasons for the $400 per hour fee award as a reasonable hourly fee.  The Seventh Circuit did not pass judgment on the $400 hourly rate, but was uncertain as to how the district court arrived at that fee.   The Seventh Circuit noted that the district court must clearly and concisely indicate how it determined the award. The Seventh Circuit remanded the matter to the district court for that court to determine whether it would have arrived at the same lodestar method calculation without factoring in the contingent fee.

    Finally, in contesting a fee award, the defense attorney should make sure to set forth a significant amount of evidence before the court as to why the plaintiff’s attorney’s requested fee should be reduced as the Seventh Circuit will afford “significant deference” to the district court’s fee award and will not disturb a district court’s award or rejection of fees in the absence of “extraordinary circumstances.”  Id., 2011 U.S. App. LEXIS 24866 at *53-54.  The defense attorney should also be aware that the plaintiff’s attorney is allowed to recover for the amounts that he or she incurs in defending the fee award or, if not, the result will be that the fee award under compensates the attorney.  Id., 2011 U.S. App. LEXIS 24866 at *52.