• U.S. Supreme Court Nixes "Enhanced" Attorney's Fee Award
  • May 4, 2010 | Author: Vincent A. Cino
  • Law Firm: Jackson Lewis LLP - Morristown Office
  • In a decision that may affect the popularity of employment class actions among plaintiffs’ attorneys, the U.S. Supreme Court has ruled that federal courts should not award enhanced attorney’s fees for “superior attorney performance” except in the most extraordinary circumstances.  Perdue v. Kenny A. et al., No. 08-970 (U.S. Apr. 21, 2010).  Rather, there is a strong presumption that the “lodestar” method of calculating a “reasonable attorney’s fee” (the number of hours the attorneys and their employees worked multiplied by the hourly rates prevailing in the community) yields a sufficient fee.  Enhancements should not be awarded without specific evidence that the lodestar fee would not have been “adequate to attract competent counsel.”  Because the federal district court failed to provide a proper justification for its fee enhancement, the Court reversed the judgment awarding $10.5 million in attorney’s fees that included a 75 percent fee enhancement.

    The Facts
    The plaintiffs sued the Governor of Georgia for violations of their federal and state constitutional and statutory rights.  The parties entered into a consent decree resolving all issues, other than the plaintiffs’ attorney’s fees  under federal law (42 U.S.C. § 1988).  The plaintiffs submitted a request for more than $14 million in attorney’s fees.  Half of that amount was based on their calculation of the lodestar fee (roughly 30,000 hours multiplied by hourly rates of $200 to $495 for attorneys, and $75 to $150 for non-attorneys) and the balance was a fee enhancement for “superior work and results.”  The defendants objected to the fee request.  Without explanation, the district court awarded fees of approximately $10.5 million, which included a lodestar calculation of approximately $6 million, and a 75 percent enhancement for superior work and results.  The defendants appealed, and the U.S. Court of Appeals for the Eleventh Circuit affirmed.  The defendants appealed to the Supreme Court.

    Lodestar Approach
    The general rule in our legal system is that each party must pay its own attorney’s fees and expenses.  Congress determined that in civil rights cases, however, prevailing parties are entitled to an award of a “reasonable” attorney’s fee.  42 U.S.C. § 1988.  Although the statute does not define a “reasonable attorney’s fee,” courts have developed various methodologies for calculating attorney’s fees.  The most commonly used method is the “lodestar approach.”  The Court noted that this approach “produces an award that roughly approximates the fee that the prevailing attorney would have received if he or she had been representing a paying client who was billed by the hour in a comparable case.”  The Court explained that, although fee enhancements may be awarded, they may not be based on a factor that already is included in a lodestar calculation, such as the case’s novelty and complexity or the quality of an attorney’s performance.  The fee applicant bears the burden of proving that an enhancement is necessary and must produce “specific evidence” supporting the award.

    Fee Enhancement
    The plaintiffs argued that they were entitled to a fee enhancement for superior attorney performance.  The Court agreed that superior attorney performance that is not adequately taken into account in the lodestar could serve as a basis for an enhancement, but cautioned that this is so only in rare or exceptional circumstances.  The Court held that to award an enhancement would require proof that the lodestar fee would not have been “adequate to attract competent counsel.”  It gave several examples of such circumstances.  One is where the method used in determining the hourly rate does not adequately measure the attorney’s true market value.  However, there must be “specific proof linking the attorney’s ability to a prevailing market rate.”  According to the Court, an enhancement also may be appropriate if there is an extraordinary outlay of expenses, the litigation is exceptionally protracted, or if there is exceptional delay in the payment of fees.  The Court emphasized that the enhancement must be calculated using a method that is reasonable, objective, and capable of being reviewed on appeal, such as by applying a standard rate of interest to the qualifying outlays of expenses.
     
    The Court rejected “the suggestion that it is appropriate to grant performance enhancements on the ground that departures from hourly billing are becoming more common.”  The Court also rejected the argument that enhancements were analogous to the practice of paying attorneys a reduced hourly rate with a bonus for obtaining specified results.

    Enhancement Not Justified
    The Court held that the district court failed to justify the 75 percent enhancement.  The effect of the enhancement was to raise the hourly rate to more than $866 with no evidence that such a rate was appropriate in the relevant market.  The district court also omitted calculating the amount of the enhancement attributable to extraordinary outlays for expenses and the delay in reimbursement.  It failed as well to show that the delay in reimbursement was outside the normal range expected by attorneys who rely on § 1988 for fees. Determining a “reasonable attorney’s fee” is within a trial judge’s sound discretion, the Court noted that discretion is not unlimited.  Because the district court did not provide a reasonably specific explanation for the fee award, the Court reversed the judgment.

    The Takeaway
    This case may provide employers with compelling arguments against claims for enhanced fee awards in employment discrimination and civil rights cases (particularly class action cases) and provide additional support for settlement positions.  Plaintiffs will be required to provide reasonable, objective proof demonstrating that an enhancement is warranted.