Opinion ID: 2711586
Heading Depth: 3
Heading Rank: 1

Heading: Prevailing Methodologies for Fee Awards

Text: For an attorney fee awarded either pursuant to a fee-shifting statute or the common-fund doctrine, the touchstone for the amount of the award is the same— reasonableness. See ORS 742.061(1) (court to fix fee in “reasonable amount” in action on insurance policy); ORCP 32 M(1)(c) (court may order “reasonable attorney fees” in class action); Strunk, 341 Or at 184 (common-fund doctrine permits award of “reasonable fees” assessed to the fund). In determining what amount of fee is reasonable, two basic methods of calculation are generally available. One is the so-called “lodestar” method, by which the attorney is awarded a fee based on a reasonable hourly rate, multiplied by a reasonable number of hours devoted to work on the case, with certain adjustments potentially made to that amount for factors such as the risk of loss and the quality of the attorney’s work. See Conte & Newberg, 4 Newberg on Class Actions § 14:5 at 541-42. The other is the so-called “percentage method” (percent-of-fund) method, which sets the fees by calculating the total recovery secured by the attorneys and awarding them a reasonable percentage of that recovery. Id. § 13:80 at 493. In general, the lodestar methodology is thought to more directly account for the amount of work done, while the percent-of-fund method more directly reflects the result achieved. See generally id. § 14:5 at 541; Alba Conte, 1 Attorney Fee Awards § 1:8, 23-24 (3d ed 2004). Traditionally, in both state and federal courts, the percent-of-fund method has been the prevalent means of calculating the reasonable fee award in common fund cases. Conte & Newberg, 4 Newberg on Class Actions § 13:80 at 493. During the 1970s, however, the lodestar approach gained favor in common fund cases, largely as a result of the federal Third Circuit Court of Appeals decision in Lindy Bros. Bldrs. v. American R. & S. San. Corp., 487 F2d 161 (3d Cir 1973) (reversing trial court attorney fee award based on the percent-of-fund methodology). The favor was relatively short-lived. In the mid-1980s, the Third Circuit convened a task force to review the “widespread belief that 218 Strawn v. Farmers Ins. Co. the deficiencies of the [lodestar approach] either offset or exceed[ed] its benefits.” Third Circuit Task Force, Court Awarded Attorney Fees, 108 FRD 237, 246 (1986). The task force concluded, among other problems, that calculating a lodestar and adjusting it for factors such as quality of representation and risk undertaken created an unwarranted “sense of mathematical precision,” was insufficiently objective, was burdensome and unmanageable for courts, and encouraged lawyers to devote excessive or unnecessary hours to the litigation. Id. at 246-49.5 Because of “myriad problems posed” by calculating attorney fees under a Lindy-type lodestar approach, the task force made various recommendations for change. Id. at 273-74. Foremost among them was the importance of distinguishing between traditional common fund cases and cases involving statutory fees, which reflect differing policies. Id. at 250. In a common fund case, the goal is to equitably share the burden of litigation among those benefitted by the fund. Statutory fee cases, on the other hand, shift the burden of litigation to the losing party to serve other goals. In many statutory fee provisions, the goal is to “encourage private enforcement of the statutory substantive rights,” both economic and noneconomic. Id. Many statutory fee cases thus involve “important issues of social policy or civil rights,” and may result in either very low monetary recoveries or, as in the case of declaratory or injunctive relief, no monetary recovery at all. Id. at 253. The task force therefore concluded that the basic lodestar methodology, as refined by recommendations that the task force made, should be retained in most statutory fee cases. Id. at 259. But it advocated abandoning the lodestar method in traditional common fund cases, as well as in statutory 5 As the task force further observed: “Perhaps the sharpest attack on the Lindy regime is the claim that its preoccupation with attorneys’ time and market rates encourages the expenditure of excessive or unnecessary hours   . Quite understandably, district judges find it difficult, indeed, in most instances, impossible, to police these matters by looking over the shoulders of lawyers to monitor the way they handle their cases. To impose that obligation on the Bench is unrealistic, unduly time-consuming, and typically will amount to little more than an exercise in hindsight.” Id. at 262 (footnote omitted). Cite as 353 Or 210 (2013) 219 fee cases that are likely to result in a settlement fund from which adequate counsel fees can be paid. Id. at 255-56. For those cases, the task force concluded, a percent-of-fund method was the preferable approach. Id. In the years since the Third Circuit’s report, the lodestar method of fee calculation, despite the criticisms it has faced, has become the prevailing approach in statutory fee-shifting cases, largely because a formula based on a percentage of the recovery is not usually available. See Conte, 1 Attorney Fee Awards § 2:7 at 85 (describing trend in the law during and after 1980s). In common fund cases, however, federal and state courts alike have increasingly returned to the percent-of-fund approach, either endorsing it as the only approach to use, or agreeing that a court should have flexibility to choose between it and a lodestar approach, depending on which method will result in the fairest determination in the circumstances of a particular case. Conte & Newberg, 4 Newberg on Class Actions §13:80 at 496 (describing many federal jurisdictions as having either abandoned lodestar approach or given trial courts flexibility to use percent-of-fund analysis in its place; state courts “overwhelmingly” use percent-of-fund method rather than lodestar approach). Finally, because neither method has proven to be without flaws, courts do not always confine themselves to one or the other.6 Rather, there is a trend towards using a blended approach, in which a court may calculate the fee based on the percent-of-fund method and then, by comparing that fee to what the lodestar approach would produce, check the reasonableness of the result. Conte, 6 As Conte observes in his treatise on attorney fee awards, neither method is inherently better than the other or particularly satisfying in terms of predictability or consistency: “What has now emerged in most fee-award decisions is a recognition that fee determinations in both common-fund and statutory-fee situations are incapable of mathematical precision because of the intangible factors that must be resolved in the court’s discretion based on the circumstances of each particular case. There is also the recognition that rigid adherence to any feeformula approach which attempts to assign precise weights or multipliers to particular factors is an exercise that gives an impression of artificial precision to what essentially must be a sound judgment call by the court after considering the relevant factors as applied to the particular case involved.” 1 Attorney Fee Awards § 2:7 at 85 (footnote omitted). 220 Strawn v. Farmers Ins. Co. 1 Attorney Fee Awards § 2:6 at 69, 78 (describing tandem use of lodestar and percent-of-fund approaches as crosscheck on reasonable fee; growing recognition of shortfalls of lodestar approach); Conte & Newberg, 4 Newberg on Class Actions § 13:80 at 496-97 (state and federal courts often use hybrid approach to cross-check reasonableness of fee award). That approach has been most often used in so-called “hybrid” class actions that are initiated under a statute with a fee-shifting provision, but that later, through settlement or judgment, result in a common fund recovery for the class. Conte & Newberg, 4 Newberg on Class Actions § 14:10 at 605. The blended approach is usually used to ensure the reasonableness of a percent-of-fund award. Conte & Newberg, 4 Newberg on Class Actions § 14:7 at 172 (Supp 2012). Courts also have used it, however, to test the reasonableness of a fee calculated through the lodestar method by checking the lodestar fee against what the percent-of-fund method would yield when there is a common fund available for that purpose. Id. Conte, 1 Attorney Fee Awards § 2:6 at 69-70 (in practice courts often compare results of both methods).