Opinion ID: 2331509
Heading Depth: 1
Heading Rank: 5

Heading: Calculation of the Fee

Text: Friolo contends that, in Admiral Mortage Inc., supra, 357 Md. 533, 745 A.2d 1026, we strongly suggested that Maryland courts follow the lodestar approach. We did no such thing. Admiral Mortgage was an action under the Payment Act by a former employee to recover unpaid commissions that he claimed were due on loans placed by him but not closed prior to his resignation. The employer claimed that no commissions were due. The matter was submitted to a jury, which decided that commissions were due and that the employer's withholding of them was not because of a bona fide dispute. It awarded the amount it found due, nearly (but not quite) treble damages, and attorneys' fees. The principal issues before us were (1) whether there was sufficient evidence of a lack of bona fide dispute, and (2) whether the court erred in submitting the determination of attorneys' fees to the jury. We concluded that there was sufficient evidence to show a lack of bona fide dispute but that the allowance and calculation of attorneys' fees was for the judge, not the jury, to determine. In that latter regard, we drew a distinction between the allowance of enhanced damages and the allowance of attorneys' fees. The discretion to allow enhanced damages, we said, was the kind of discretion ordinarily committed to the trier of fact but that attorneys' fees were another matter. For one thing, they may continue to accrue after the verdict is rendered if post-trial motions or appeals are filed, and thus may not be finally determinable by a jury in any event. Moreover, we pointed out that those fees, when allowed, have traditionally been set by a judge, who is usually in a far better position than a jury to determine what is reasonable. Admiral Mortgage, 357 Md. at 548, 745 A.2d at 1033. In elucidating that point, we noted that, in the Federal system, attorneys' fees awarded under fee-shifting statutes were calculated in accordance with the lodestar approachthe product of reasonable hours times a reasonable rateand concluded that the determination of those two items involved a number of factors that were both subjective and judgmental. In Maryland, we said, that approach would include consideration of the factors set forth in Rule 1.5 of the Maryland Rules of Professional Conduct, among which were the novelty and difficulty of the questions involved and the skill requisite to perform the legal service adequately. Those factors, we observed, were more judgmental than fact-based and therefore more apt to be within the expertise of a judge than of lay jurors. In a footnote to that discussion, we noted: Complicating even that examination is the issue, which ultimately we would need to decide, of whether, if the `lodestar' approach is to be used, the amount determined in accordance with that approach is subject to increase or decrease to account for other factors, including the fee agreement between the lawyer and the plaintiff, especially where the plaintiff's lawyer is on a contingency fee arrangement. Id. at 553 n. 13, 745 A.2d at 1036 n. 13. Nowhere in Admiral Mortgage did we strongly suggest that Maryland courts use the lodestar approach, and we certainly did not endorse, or even mention, any matrix adopted by the U.S. Attorney in the District of Columbia, or by anyone else, in applying a lodestar method. The issue was not before us. Friolo also relies on Md.-Nat'l Cap. P. & P. Com'n v. Crawford, 307 Md. 1, 511 A.2d 1079 (1986), in which we did approve a lodestar approach. The action in Crawford was under 42 U.S.C. §§ 1983 and 1988. At issue, among other things, was the validity of an attorney's fee in favor of the successful litigant that was based on a lodestar approach but included a $10,000 bonus to make cases like that one more attractive to lawyers, to compensate the lawyers for the irritation of having to defend the underlying judgment on appeal and for the deferred payment of the fee, and to reward the lawyers for any continued litigation. Id. at 40-41, 511 A.2d at 1099. It does not appear that anyone challenged the basic lodestar approach, although there was an issue over the reasonableness of the hours allegedly spent on the case. We found the bonus to be unreasonable and remanded for reconsideration of the fee in light of the guidelines set in our opinion and in Hensley v. Eckerhart, supra, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 and City of Riverside et al. v. Rivera et al., 477 U.S. 561, 106 S.Ct. 2686, 91 L.Ed.2d 466 (1986). We did not adopt a lodestar approach in Crawford as a matter of Maryland law and certainly not with respect to the statutes under consideration here. As noted, Crawford was an action under 42 U.S.C. § 1983, and, in remanding for reconsideration in conformance with the Hensley guidelines (but without the bonus), we simply took account of the fact that the Supreme Court had adopted that approach under § 1988 for § 1983 cases and that there seemed to be no opposition to that approach in the Crawford case. The lodestar approach was developed principally in the Federal system, where, as the Supreme Court noted in Pennsylvania v. Del. Valley Citizens' Council, 478 U.S. 546, 562, 106 S.Ct. 3088, 3096, 92 L.Ed.2d 439, 454 (1986), there are over 100 separate statutes providing for the award of attorneys' fees. The development of that approach was traced recently in Gisbrecht v. Barnhart, 535 U.S. 789, 122 S.Ct. 1817, 152 L.Ed.2d 996 (2002). It stemmed, according to Justice Ginsburg, from internal accounting practices adopted by lawyers in the 1940's to determine whether their fees were adequate. Id. at 799, 122 S.Ct. at 1824, 152 L.Ed.2d at 1006. In 1958, the American Bar Association, concerned that attorneys' earnings had not kept pace with inflation, urged attorneys to keep records of the hours spent on each case, in order to ensure that the fee ultimately charged provided reasonable compensation for the attorney's effort. Id. Although other methods of billing continued to be used, Justice Ginsburg observed that, as it became standard accounting practice to record hours spent on client matters, attorneys found that billing by hours was both convenient and easily explained to the client, and that, by the 1970's, the practice of hourly billing had become widespread. Id. at 799, 122 S.Ct. at 1824, 152 L.Ed.2d at 1007. The Federal courts did not initially embrace that approach as a predominant criterion. In Lindy Bros. Bldrs., Inc. of Phila. v. American R. & S. San. Corp., 487 F.2d 161, 168 (3d Cir.1973), a class action antitrust case, the court concluded that, while the lodestar approach was an important beginning, a court could not properly determine a fee award just by multiplying hours by rate, but that two other factors were also importantthe contingent nature of success ( i.e., the likelihood of any recovery) and the extent to which the complexity and novelty of the issues, the quality of the attorney's work, and the recovery obtained mandate an increase or decrease. A year later, the Court of Appeals for the Fifth Circuit, in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir.1974), held that, in setting fees under 42 U.S.C. § 2000e-5(k)Title VII of the Civil Rights Act of 1964courts should consider twelve factors, one of which was hours devoted to the case. [2] Within the next decade, the lodestar approach clearly took hold and ultimately, after Hensley v. Eckerhart, supra, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40, Blum v. Stenson, 465 U.S. 886, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984), and Pennsylvania v. Del. Valley Citizens' Council, supra, 478 U.S. 546, 106 S.Ct. 3088, 92 L.Ed.2d 439, achieved dominance in the Federal system and became the guiding light of our fee-shifting jurisprudence. Burlington v. Dague, 505 U.S. 557, 562, 112 S.Ct. 2638, 2641, 120 L.Ed.2d 449, 456 (1992); Gisbrecht v. Barnhart, supra, 535 U.S. at 802, 122 S.Ct. at 1825, 152 L.Ed.2d at 1007. More important to us than the fact that the Federal courts have embraced the lodestar approach is why they have done so and how they have implemented that approach. Hensley explains both. The case began as a multi-faceted class action attack on a variety of practices employed by a State mental health facility, including its failure to pay the minimum wage for work done by the patients, but ended up with a one-count complaint that certain conditions at the facility deprived the residents of their Constitutional right to treatment. Hensley, 461 U.S. at 426-27, 103 S.Ct. at 1936, 76 L.Ed.2d at 46. During the pretrial period, the State changed a number of its practices to meet some of the complaints (including commencing to pay patients for the work they did), which led to the filing of narrower amended complaints and a constriction of the issues for trial. Id. After trial, the court found merit in some, but not all of the remaining claims, and the issue, generated by a petition for attorneys' fees, was whether the partially prevailing plaintiffs could recover fees for legal services related to the unsuccessful claims. Id. at 427-29, 103 S.Ct. at 1936-37, 76 L. Ed 2d at 46-47. The right to claim a fee arose from § 1988the Civil Rights Attorneys' Fees Awards Act of 1976which was a response to Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975) and authorized courts to award a reasonable attorney's fee in civil rights litigation. Hensley, 461 U.S. at 429, 103 S.Ct. at 1937, 76 L.Ed.2d at 47-48. The Hensley Court noted that both the House and Senate Reports relating to that Act referred favorably to the Johnson case and others that applied the 12-factor analysis. Id. at 429-30, 103 S.Ct. at 1937-38, 76 L.Ed.2d at 48. From those cases and legislative references, the Court concluded, first, that a plaintiff can be a prevailing party, and thus eligible to seek a fee under § 1988, if the plaintiff succeeds on any significant issue that achieves some of the benefit sought in bringing the action; he or she does not have to win it all to be regarded as prevailing. Id. at 433, 103 S.Ct. at 1939, 76 L.Ed.2d at 50. With respect to calculation of the fee, the Court concluded that [t]he most useful starting point for determining the amount of a reasonable fee was the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate. Hensley, 461 U.S. at 433, 103 S.Ct. at 1939, 76 L.Ed.2d at 50. That calculation, the Court said, provided an objective basis on which to make an initial estimate of the value of the lawyer's services. Id. The Court admonished that hours that were excessive, redundant, or otherwise unnecessary should be excluded, as hours not properly billed to one's client are also not properly billed to the adversary. Id. at 434, 103 S.Ct. at 1940, 76 L.Ed.2d at 51. Even with those adjustments, the product of hours times rate does not end the inquiry. The Court noted that there remained other considerations that might lead to an upward or downward adjustment, including the important factor of the `results obtained.' Id. As a footnote to that statement, the Court held that the trial judge may also consider other factors identified in [ Johnson ], although it noted that many of those factors are subsumed within the initial lodestar calculation. Id. at 434 n. 9, 103 S.Ct. at 1940 n. 9, 76 L.Ed.2d at 51 n. 9. Where the plaintiff has succeeded only in part, the Court concluded that two questions need to be addressed: (1) whether the plaintiff failed to prevail on claims that were unrelated to the claims upon which he or she succeeded; and (2) whether the plaintiff achieved a level of success that makes the hours reasonably expended a satisfactory basis for a fee award. Id. at 434, 103 S.Ct. at 1940, 76 L.Ed.2d at 51. With respect to the first, the relevance is that if the successful and unsuccessful claims are unrelated, work done on the unsuccessful claim cannot be deemed to have been expended in pursuit of the successful claim. The Court treated unrelated claims as if they had been raised in separate lawsuits, and therefore no fee may be awarded for services on the unsuccessful claim. Id. at 435, 103 S.Ct. at 1940, 76 L.Ed.2d at 51. That issue, the Court surmised, might not arise often, as civil rights cases usually involve a single claim and in other cases the relief sought frequently involves a common core of facts or related legal theories. In those situations, counsel's time will usually be devoted to the overall litigation, making it difficult to divide the hours expended on a claim-by-claim basis, and the claims should therefore be regarded as related. Id. With respect to the second factorthe level of successthe Court concluded that, when the plaintiff has obtained excellent results, the attorney should recover a fully compensatory fee. Id. at 435, 103 S.Ct. at 1940, 76 L.Ed.2d at 52. Normally, that would encompass all hours spent on the litigation, without reduction because the plaintiff failed to prevail on every claim, and, indeed, in cases of exceptional success, an enhanced award may be justified. Id. Conversely, if the plaintiff has achieved only partial or limited success, the product of hours reasonably spent on the litigation times the hourly rate may be an excessive amount, even where the claims were interrelated, nonfrivolous, and raised in good faith. Id. at 436, 103 S.Ct. at 1941, 76 L.Ed.2d at 52. The critical factor, the Court said, is the degree of success obtained. Id. All of this relates to how the lodestar approach is to be implemented. The Court also spoke to the underlying rationale for the approach. It observed: Application of this principle is particularly important in complex civil rights litigation involving numerous challenges to institutional practices or conditions. This type of litigation is lengthy and demands many hours of lawyers' services. Although the plaintiff often may succeed in identifying some unlawful practices or conditions, the range of possible success is vast. That the plaintiff is a `prevailing party' therefore may say little about whether the expenditure of counsel's time was reasonable in relation to the success achieved. Id. at 436, 103 S.Ct. at 1941, 76 L.Ed.2d at 52. The ultimate holding was that there is no precise rule or formula for making these determinationsthat the trial court may, in its discretion, eliminate specific hours or simply reduce the award to account for the limited success. Id. at 436-37, 103 S.Ct. at 1941, 76 L.Ed.2d at 52. The views expressed in Hensley were confirmed in three subsequent cases involving fee-shifting statutes. See Blum v. Stenson, supra, 465 U.S. 886, 104 S.Ct. 1541, 79 L.Ed.2d 891; Pennsylvania v. Del. Valley Citizens' Council, supra, 478 U.S. 546, 106 S.Ct. 3088, 92 L.Ed.2d 439; and Burlington v. Dague, supra, 505 U.S. 557, 112 S.Ct. 2638, 120 L.Ed.2d 449. The Court noted in the Pennsylvania case that the fee-shifting statutes were not designed as a form of economic relief to improve the financial lot of attorneys, nor were they intended to replicate exactly the fee an attorney could earn through a private fee arrangement with his client. Id. at 565, 106 S.Ct. at 3098, 92 L.Ed.2d at 456. Rather, it said, the aim of such statutes was to enable private parties to obtain legal help in seeking redress for injuries resulting from the actual or threatened violation of specific federal laws, and, if plaintiffs are able to engage a lawyer based on the statutory assurance that he will be paid a `reasonable fee,' the purpose behind the fee-shifting statute has been satisfied. Id. at 565, 106 S.Ct. at 3098, 92 L.Ed.2d at 456-57. In Burlington, the Court concluded that it was inappropriate to enhance an initial lodestar calculation to reflect the fact that the attorneys were employed on a contingent fee basis and thus compensate them for the risk of loss and non-payment. Burlington, 505 U.S. at 565, 112 S.Ct. at 2642-43, 120 L.Ed.2d at 458. The last word from the Supreme Court, so far, came in Gisbrecht v. Barnhart, supra, 535 U.S. 789, 122 S.Ct. 1817, 152 L.Ed.2d 996. That case did not involve a fee-shifting statute but how the lodestar approach meshed with a provision of the Social Security Act that limited the fee that attorneys could charge for representing social security claimants to a maximum of 25% of past-due benefits recovered. Like the situation with our workers' compensation law, the fee was to be paid from the benefits awarded. The issue was whether the 25% amount was presumptively reasonable or whether the court was required to use the lodestar approach to set the fee. Id. at 792, 122 S.Ct. at 1820, 152 L.Ed.2d at 1001-02. In each of three cases, the attorney had a 25% contingent fee agreement, but the trial court disallowed those fees and awarded lower fees based on lodestar. Id. at 798, 122 S.Ct. at 1823, 152 L.Ed.2d at 1005. Although once again confirming that the lodestar method continued to hold[ ] sway in federal-court adjudication of disputes over the amount of fees properly shifted to the loser in litigation, the Court concluded that, by permitting the 25% arrangement in the Social Security Act, Congress did not intend to displace contingency fee agreements as the primary means by which fees are set for successfully representing Social Security benefits claimants in court. Id. at 802, 807, 122 S.Ct. at 1825, 1828, 152 L.Ed.2d at 1008, 1011. Following the Federal lead, a number of States have also employed the lodestar approach, with its accompanying adjustments, in setting attorneys' fees under fee-shifting statutes. See City of Birmingham v. Horn, 810 So.2d 667 (Ala.2001) (class action concerning placement of waste transfer station); Edwards v. Alabama Farm Bureau Mutual Casualty Ins. Co., 601 So.2d 82 (Ala.1992) (action under Federal and State truth-in-lending laws); Edgerton v. State Personnel Board, 83 Cal. App.4th 1350, 100 Cal.Rptr.2d 491 (Cal. App.2000) (violation of Constitutional right); Dutcher v. Randall Foods, 546 N.W.2d 889 (Iowa 1996) (violation of Federal Equal Pay Act and Iowa Civil Rights Act); Fontaine v. Ebtec Corp., 415 Mass. 309, 613 N.E.2d 881 (1993) (discharge from employment in violation of Federal and State age discrimination laws); Podhorecki v. Lauer's Furniture Stores, Inc., 184 A.D.2d 1066, 585 N.Y.S.2d 268 (1992) (violation of consumer protection law); Paradinovich v. Milwaukee County, 189 Wis.2d 184, 525 N.W.2d 325 (Wis.1994) (civil rights violation). In focusing on the lodestar approach, or, indeed, any other, we must be mindful of Rule 1.5 of the Maryland Rules of Professional Conduct, which also requires that a lawyer's fee be reasonable and which sets out factors to be considered in determining the reasonableness of a fee. Most of them are identical or similar to the factors enumerated in Johnson v. Georgia Highway Express, supra, 488 F.2d 714, which the Hensley Court indicated were relevant even in a lodestar analysis. [3] The Rule is important to note because it puts a limit on what a lawyer may charge his or her own client. In Attorney Griev. Com'n v. Korotki, 318 Md. 646, 665, 569 A.2d 1224, 1233 (1990), while reserving on whether there can ever be circumstances justifying a contingent fee in excess of fifty percent, we concluded that it is generally a violation of the rule for the attorney's stake in the result to exceed the client's stake. Given the rather simple issues in this case, it certainly would have been impermissible under Rule 1.5 for counsel to charge Ms. Friolo $57,000 based on a less-than-$12,000 recovery. The kind of limit imposed by the Rule, whether expressed as a percentage of recovery or through a lodestar approach, may well clash with the public policy behind statutory fee-shifting provisions, however, because it would likely preclude individuals seeking to recover relatively small amounts from procuring the assistance of private counsel, other than on a pro bono publico basis, and thus would frustrate the very purpose of the statute. The courts that have either allowed or mandated a lodestar approach have at least tacitly recognized that limits implicit from rules of this kind cannot be rigorously applied when determining what is reasonable under a statutory fee-shifting provision, the predominant purpose of which is to permit the favored suitor to obtain counsel that, because of legal or practical fee limitations, might otherwise be unavailable. The rule is not inherently in conflict with fee-shifting statutes, however. There are situations in which the two can be in harmony and where appropriate adjustments to a lodestar approach can produce a fee that would be reasonable under both the rule and the statute. Most of the cases applying lodestar have involved the adjustments to be made to a strict hours times rate methodology, and nearly all of the courts have stressed that hours times rate is simply the beginning point. Indeed, the adjustments, up or down, may well produce a result that, in the end, has little relationship to the actual time spent on the case. Whether those adjustments, which are largely case-specific, are denominated as an alternative approach to lodestar or are regarded as embraced within the overall lodestar calculus may well be a matter of semantics. For the reasons explained, and in conformance with what clearly is the predominant rule throughout the country, we conclude that the lodestar approach, with its adjustments, is the presumptively appropriate methodology to be used under the Wage and Hour Law and the Payment Law. We cannot conclude from this record that the trial court used that approach; its remarks were far too ambiguous in that regard. Even if it intended to apply that approach, it gave no real indication of how and why it concluded that a fee equivalent to a 40% share of the recovery was appropriatewhy the $57,000 claimed should be reduced to that amount. One of the benefits of the lodestar approach is that it allows the court to make appropriate findings, so that the parties and any reviewing appellate court can follow the reasoning and test the validity of the findings. We shall remand the case for the court to engage in that analysis. Parroting what we said in Admiral Mortgage, Inc., however, in directing that remand, we do not suggest that the amount of the fee awarded ... in this case was inappropriate. Admiral Mortgage, Inc., 357 Md. at 553, 745 A.2d at 1036. In addition to the other considerations that are part of the overall lodestar analysis, the court will need to consider that, with respect to the bonuses, awardable for fee-shifting purposes only under § 3-507.1, the jury made no predicate finding of a lack of a bona fide dispute. It will also need to determine whether the unsuccessful claimsfor fraud, for a 5% interest in the practice, Salazar's claimswere truly related to the successful ones and, if not, to disallow all time expended on those claims. In considering the reasonableness of the hourly rates charged by counsel, the court is not bound to any matrix adopted by out-of-State courts or agencies but must be guided by the nature of this case and the relevant issues it presented and by the rates or other fee arrangements common in the community for similar kinds of cases. Because the statutes allow only reasonable counsel fees, the court must exclude any fees of non-lawyers. Charges for paralegals and legal interns are subsumed within the attorney's fees. [4] Finally, the court should consider and give appropriate weight to any fee agreement that may have been made between Friolo and counsel. JUDGMENT OF CIRCUIT COURT FOR MONTGOMERY COUNTY WITH RESPECT TO ATTORNEYS' FEES VACATED; CASE REMANDED TO THAT COURT FOR FURTHER PROCEEDINGS IN CONFORMANCE WITH THIS OPINION; COSTS TO BE PAID BY RESPONDENT.