Opinion ID: 2711586
Heading Depth: 2
Heading Rank: 1

Heading: Methodology for Determining Attorneys Fees

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).
This court has never attempted to assess the appropriate methodology to be applied to common fund and statutory fee-shifting cases generally. Nor have the parties done so in this case. Rather, as they did at trial and on appeal to the Court of Appeals, the parties have assumed that the lodestar methodology is the appropriate one to use for both the statutory fee-shifting and the common-fund awards; likewise, the trial court and the Court of Appeals, without discussing the correct methodology, used the lodestar approach for both the common fund and fee-shifting awards. Strawn, however, invites something of a blended approach through his arguments to this court. In particular, in assessing the reasonableness of the lodestar fee and the adjustments to it that he proposes, Strawn compares the overall fee that he requests to the amount that his attorneys would have received under his contingent fee agreement with them, which was based on a percentage of the damages awarded. Cite as 353 Or 210 (2013) 221 The lodestar approach that the parties have used is at least a permissible one under the statutes involved.7 Because the parties have structured their principal arguments around that approach, we begin there as well. We also conclude, however, that a percent-of-fund methodology is a helpful cross-check on the lodestar calculation, for two reasons. First, this case is a “hybrid” one—that is, it is a class action that resulted in a significant common-fund award, even though it was brought at least partially pursuant to a statute authorizing a fee-shifting award.8 A percent-of-fund methodology fits with the nature of the relief that plaintiff and the class recovered in this case. See Strunk, 343 Or at 246 (in cases that result in a common fund recovery, the “fund itself is a primary measure of success”). 7 Neither a lodestar or a percent-of-fund approach is mandated by the statutes involved, although both are potentially permissible. ORS 20.075 sets out criteria to assess the reasonableness of all court-awarded attorney fees. That statute does not specify any particular methodology for the award, but it does instruct the court to consider the amount of time required by the case, given the difficulty of the questions involved and the skill necessary. ORS 20.075(2)(a). The emphasis is expressly on the time required by the issues involved, not the time actually spent; the lodestar method initially measures the latter. Actual time spent, however, is at least relevant to assessing the time required. At the same time, the statute also looks to the “amount involved in the controversy and the results obtained,” ORS 20.075(2)(d), which the percent-of-fund approach more directly measures in a common fund case or other case involving a significant monetary award. We therefore conclude that the statute, although not mandating either a lodestar or percent-of-fund methodology, does not foreclose either. The same is true of the provision governing fee awards in class actions. Among other factors, the applicable rule explicitly considers “[t]he time and effort expended by the attorney,” as well as the “[r]esults achieved and benefits conferred upon the class,” ORCP 32 (M)(1)(e)(i) and (ii). The rule suggests that either or both a lodestar and percent-of-fund method of fee calculation can be appropriate, depending on which methodology best arrives at a fair award given the circumstances of the particular case. 8 Worth noting in that regard is that ORS 742.061(1) applies to actions brought on insurance policies of any kind. The statute thus provides for an award of attorney fees in essentially private contractual disputes whether they involve a modest loss to an automobile owner, a massive loss to a corporation, or a dispute between insurers. Unlike many statutorily authorized fee-shifting awards, the award authorized by ORS 742.061(1) is not designed to ensure the availability of counsel to pursue socially desirable policies in cases that counsel might otherwise not be willing to pursue. The statute instead serves the different purpose of encouraging settlement of insurance claims without litigation. Compare Chalmers v. Oregon Auto. Ins. Co., 263 Or 449, 452, 502 P2d 1378 (1972) (identifying that as the purpose for the statutory predecessor to ORS 742.061(1)) with Honeywell v. Sterling Furniture Co., 310 Or 206, 213, 797 P2d 1019 (1990) (fees available in unlawful trade practices cases assure that wronged consumers can obtain counsel to prosecute claims that would otherwise be impractical to bring). 222 Strawn v. Farmers Ins. Co. Second, plaintiffs prevailed on two independent, if related, types of claims: contract-based and fraud. Both are fee-generating claims, but each looks to a different source for the fee. As we have already described, for the contract claims, Strawn’s attorneys are entitled to a fee-shifting award to be paid by Farmers. For the fraud claim and the punitive damages component of the case, the attorney fee award comes from the common fund itself. In a case involving both a fee-shifting award and a common-fund award, counsel appropriately should be paid reasonable fees from both authorized sources to further the purpose of each award; conversely, “allowing recovery under only one partially thwarts the object of the other.” Honeywell v. Sterling Furniture Co., 310 Or 206, 213, 797 P2d 1019 (1990). Because this case generated a significant monetary recovery on both types of claims, some of which ($900,000 in compensatory damages) is attributable equally to both, but much of which ($8 million in punitive damages) is attributable only to one (the fraud claim), a percent-of-fund method is particularly appropriate to test the reasonableness of the attorney fee awards to be made. Quite simply, it would overlook the realities of this litigation—in which the incentive to pursue the litigation was the potential monetary recovery—to not account for the amount of the fund recovered in determining, or at least cross-checking, the total amount of attorney fees that Strawn’s attorneys will receive.9