Opinion ID: 2711586
Heading Depth: 3
Heading Rank: 2

Heading: Whether to Adjust the Lodestar for Contingency

Text: ORS 20.075(2)(h) directs a court, in setting a reasonable attorney fee, to consider whether the attorney fee is fixed or contingent. Strawn relies on ORS 20.075(2)(h) as supporting an enhanced award in this case through the use of a multiplier. He contends, essentially, that a mere hourly award would compensate his attorneys significantly below the amount that they would receive if they were paid on a contingent fee basis, thus failing to account for the risk that his attorneys incurred agreeing to undertake the case.15 In support, Strawn compares the amount of attorney fees already awarded by the trial court and Court of Appeals to the amount that his counsel would have been entitled to receive under the terms of the contingent fee agreement that Strawn and his attorneys negotiated. The contingent fee agreement with Strawn (as class representative) entitles his attorneys to a percentage of the “gross recovery to all class members”—50 percent if the case goes to appeal.16 Strawn asserts that the gross recovery for the class is $12,114,305, which consists of the general judgment of $8,900,000, plus fee-shifting attorney fee awards against Farmers of $2,670,000 by the trial court and $544,305 by the Court of Appeals. Strawn asserts that the attorney fees awarded to date are only 31 percent of that gross recovery—well below the 50 percent provided in the contingency fee agreement. 15 As Conte explains: “It is axiomatic that attorneys who work on a contingent-fee basis must charge a higher fee than those who work on a noncontingent-fee basis, to compensate them for the risk of loss and the risk of receiving no compensation for services rendered and to permit them to earn an income that would be competitive with colleague who get paid, win or lose.” 1 Attorney Fee Awards § 1:8 at 23-24 (footnote omitted). Neither party in this case has explored the legislative history of ORS 20.075(2)(h) to determine whether, as Strawn assumes, the legislature intended that provision to authorize a multiplier to account for contingency. For present purposes, we may assume, without deciding, that it does, because (as we later explain) we conclude that the fees awarded are reasonable without any multiplier. In this case, therefore, it suffices to note that courts that have used the lodestar methodology to determine a reasonable fee have divided over the question of how any enhancement to the lodestar for contingent fee cases should be calculated, a division illustrated by the three opinions in Pennsylvania v. Del. Valley Citizens’ Council, 483 US 711, 107 S Ct 3078, 97 L Ed 2d 585 (1987). 16 More specifically, the fee agreement entitles counsel to the greater of 50 percent of the class recovery or the fees actually awarded by the court. Cite as 353 Or 210 (2013) 227 As we earlier noted, that comparison by Strawn invites a percent-of-fund method of calculating the attorney fee as a check on the lodestar calculation. And as we have already explained, such an approach seems particularly appropriate in this case, because this litigation resulted in a significant common fund for which a percent-of-fund approach is generally considered to be an appropriate way to calculate a reasonable attorney fee. Strawn’s calculation, however, reflects three significant errors. First, Strawn incorrectly includes the fee-shifting attorney fee awards as part of the gross recovery subject to the contingent fee. Doing so amounts to a form of doublecounting. The client would be charged a percentage of not only the fund recovered under the judgment, but also an added percentage based on the attorney fees that the attorney will recover from the other side. Because of that double-counting problem, fee-shifting attorney fee awards may not be considered as part of the gross recovery subject to a contingent fee, at least in the absence of a specific fee agreement to the contrary. See Chalmers, 263 Or at 453-54 (noting possibility of holding that fee-shifting award could “be added to the amount of the judgment in determining the total amount of recovery subject to the contingent fee percentage,” but rejecting such a rule absent a specifically negotiated fee agreement that so provides).17 The fee agreement in this case, which is part of the record, does not 17 Chalmers noted the “basic unfairness” to a client who expects the attorney to be fully paid by the contingent fee, only to learn that the attorney will claim both the contingent fee and a fee awarded by the court. 263 Or at 454. The court recognized that an attorney and client might (subject to the attorney’s ethical obligations) negotiate a fee agreement to calculate the fee in that or some other way, because an agreement would not create any surprise or unfairness. Id. In the absence of a specific provision, however, any fee-shifting award must be credited against the amounts due under the contingency fee agreement: “If    the contingent fee agreement makes no specific reference to any possible attorney fee which may be awarded by the court and makes no specific provision for the manner in which any such fee is to be considered in computing the amount, source, and manner of distribution of the contingent fee, we hold that any attorney fee awarded by the court shall be offset as a credit or deduction from the amount of the agreed contingent fee, as computed upon the basis of the amount of the judgment.” Id. If the fee-shifting award is large enough, then the client would be entitled to the full amount of the judgment, despite the contingent fee agreement. Id. at 45455. 228 Strawn v. Farmers Ins. Co. provide for the contingent fee to be calculated by adding any fee-shifting award to the damages. We conclude, then, that the fee-shifting attorney fee awards made in this case should not be included in the total recovery for purposes of calculating the contingent fee. Instead, the contingent fee applies only to the total damages (compensatory plus interest, and punitive damages) awarded to the class based on the jury’s verdict: $8,900,000. So calculated, the amount of attorney fees that Strawn’s attorneys have received to date (that is, at trial and before the Court of Appeals) is not 31 percent, as Strawn claims. It is, instead, 42 percent. The second error is that Strawn’s calculations fail to reflect the statutory limit on the contingent fee that could be collected in this case. The class was awarded $900,000 in compensatory damages and $8 million in punitive damages, for a total of $8.9 million. Strawn assumes that the contingent fee would be half of that, or $4.45 million. But the legislature, by statute, has limited the contingent fee that may be paid from a punitive damages award. Specifically, under former ORS 18.540(1)(a) (1999),18 no more than 20 percent of a punitive damages award may be awarded to a plaintiff’s counsel as attorney fees. In this case, the maximum contingent fee amount payable to Strawn’s counsel from the punitive damages award would be $1.6 million. That amount, added to half the compensatory damages ($450,000), equals $2,050,000. That figure—slightly over $2 million—represents the largest contingent fee that, consistently with former ORS 18.540(1)(b) (1999), Strawn’s attorneys could have received from the class recovery for litigating this case, notwithstanding the negotiated fee agreement. Necessarily, Former ORS 18.540(1)(a) (1999) provided, in part: 18 “Forty percent [of the award of punitive damages] shall be paid to the prevailing party. The attorney for the prevailing party shall be paid out of the amount allocated under this paragraph, in the amount agreed upon between the attorney and the prevailing party. However, in no event may more than 20 percent of the amount awarded as punitive damages be paid to the attorney for the prevailing party.” Former ORS 18.540 (1999) has since been renumbered as ORS 31.735 and was amended in 2011. Or Laws 2011, ch 689, § 1; Or Laws 2011, ch 597, § 311. Those amendments are not relevant to the disposition of this case. Cite as 353 Or 210 (2013) 229 then, it is also the “reasonable market expectation” that Strawn’s attorneys would have had for taking the risk of litigating this case for a contingent fee. The trial court and Court of Appeals, however, have already awarded Strawn’s attorneys over $3 million in attorney fees. Thus, relative to the amount they would have received under the contingent fee agreement, Strawn’s attorneys are not being undercompensated by the base lodestar fee. The third error in Strawn’s calculation is his use of a 50-percent contingent fee that he and his attorneys negotiated as the appropriate comparison for a percent-offund analysis. As Strawn concedes, a court is not bound by that agreement in determining a reasonable fee to be paid from the class recovery under the common-fund doctrine.19 Strawn nevertheless presumes that a 50-percent fee would be appropriate in this case. We disagree. For individual litigation, the normal range for a reasonable contingent fee is between 33 and 40 percent of any recovery, with 50 percent usually serving as the upward limit. Conte, 1 Attorney Fee Awards § 2:8 at 123 (describing usual range) and § 2:8 at 106 (stating general upward limit). Class actions, however, generally benefit from significant economies of scale and generate proportionately larger common funds than do individually litigated cases. Id. § 1:9 at 27 and 2:7 at 104.20 Because of that reality, courts frequently reduce the percentage of the fund awarded below what would be awarded in individual litigation. Id. § 2:7 at 104. Thus, for complex class actions that result in substantial economic recoveries, the normal fees tend to be between 20 to 30 percent of the recovered fund, with deviations from 19 Specifically, Strawn acknowledges: “[G]iven a court’s unique authority in class-action proceedings and the necessity of ensuring that no conflict or adversity arises between the class and class counsel, the proper procedure in Oregon should ensure that attorney fee awards in class-action proceedings are always subject to the control of the court in which the class-action proceeding is pending, regardless of any written fee agreement.” (Emphasis in original.) 20 Said another way, from a contingent-fee practice market-based perspective, “class action lawyers working to generate common funds are in big business, while individual contingent-fee practitioners are in small business, generally speaking.” Conte, 1 Attorney Fee Awards § 1:9 at 26. 230 Strawn v. Farmers Ins. Co. that range when the fund is extraordinarily large or small relative to the hours of work reasonably expended by the attorneys. Id. § 2:8 at 106-14; see also Conte & Newberg, 4 Newberg on Class Actions § 14:6 at 550 (20 to 33 percent is usual range for securities and antitrust litigation). A 50 percent-of-fund fee remains the usual upward limit, so that the fee does not consume a disproportionate portion of the fund recovered. Conte, 1 Attorney Fee Awards § 2:8 at 106; Conte & Newberg, 4 Newberg on Class Actions § 14:6 at 550. But such a percentage is extraordinary. The median of the usual range—25 percent—is used by many courts as a reasonable starting point for common-fund awards in class actions, with deviations made based on circumstances justifying an upward or downward adjustment. Conte, 1 Attorney Fee Awards § 2:8 at 113. Here, the contingent fee agreement that Strawn and his attorneys entered into was at the upward limit: 50 percent of any fund awarded. For present purposes, we will assume (but need not decide) that that percentage might have been appropriate if this case had been litigated for Strawn in his individual capacity only. In this class action, however, Strawn’s attorneys benefitted from significant economies of scale. They were able to rely on evidence that was common to all the class members, rather than having to produce individualized proofs of the terms of their contracts, the acts that breached those contracts, and the reliance by the class members that was necessary to prove the fraud claim. Strawn, 350 Or at 340-44 (describing legal and factual basis for claims); id. at 351-62 (holding that reliance for fraud claim did not have to be established through individual proofs, but could be inferred from evidence common to class). And the class action aspect of the case undoubtedly aided Strawn in obtaining the $8 million punitive damages award, which depended on proof of reprehensibility through, among other class-based evidence, a showing of repeated, rather than isolated, wrongdoing. See generally Goddard v. Farmers Ins. Co., 344 Or 232, 253, 179 P3d 645 (2008) (discussing reprehensibility factor that supports award of punitive damages). Thus, because this was a class action case, Strawn’s attorneys likely generated a much larger common-fund award for significantly less effort than would Cite as 353 Or 210 (2013) 231 have been entailed in bringing individual claims for each class member.21 The remaining question is: What should an appropriate percent-of-fund fee be in this class action? The parties have not considered that question, and we conclude that we need not identify a particular percentage at this juncture. The total amount of attorney fees that Strawn’s attorneys received at trial and in the Court of Appeals already amounts to 42 percent of the common recovery awarded to the class, and therefore already exceeds the normal range for class actions awards. This is not a case that has resulted in an exceptionally small common-fund award, which might justify going above that normal range. Thus, the comparison demonstrates that no enhancement of the lodestar calculation is warranted. On Strawn’s main petition for attorney fees, then, we reject Strawn’s request for a multiplier or other enhancement of the base award of $202,719.