Opinion ID: 754085
Heading Depth: 1
Heading Rank: 3

Heading: The District Court's Choice of the Lodestar and the Resulting Award

Text: 16 Our analysis cannot end here, however. Cook's attorneys argue that even if Judge Manning had the discretion to reject Special Master McGarr's recommendation, her choice of the lodestar was nonetheless an abuse of discretion. First they contend that Judge Manning did not consider the merits of the percentage-of-fund approach, because she erroneously believed that the lodestar method applied to common fund cases as a matter of law. And it is true that the district judge's opinion includes an unfortunate sentence: [A]s a matter of law, we find the percentage method to be inapplicable to this case as it defeats the whole purpose of attempting to make the plaintiffs whole. Mem. Op. at 39. But the bulk of the opinion manifestly demonstrates that the judge understood the relevant law. She explained at the outset of her fee analysis that both the lodestar approach and the percentage approach may be appropriate in the determination of attorney's fee awards and that [t]he decision of which method to employ remains within the discretion of the district court. Id. at 38 (citing Florin v. Nationsbank of Ga., 34 F.3d 560, 565 (7th Cir.1994) (a common fund case)). In announcing her decision to utilize the lodestar method, she stated that it was the better determinant of the attorneys' fees for the plaintiff's counsel in this case. Id. at 39 (emphasis added). She also noted that there are advantages to the percentage method, such as the simplicity of its administration. See id. at 38. In the face of all this, we have no doubt that the district judge was cognizant that she had a choice of methods. We think the statement about the percentage approach's not applying as a matter of law was a careless articulation of the judge's conviction that the lodestar method would yield the most reasonable fee in this case. We decline to remand on account of what amounts to no more than a slip of the pen. 17 Cook's attorneys also object to Judge Manning's use of the lodestar on the ground that, in this particular case, it failed to generate a reasonable fee. In In re Continental, we explained that the object in awarding a reasonable attorney's fee ... is to give the lawyer what he would have gotten ... in an arm's length transaction, had one been feasible. 962 F.2d at 572. Special Master McGarr reported that in the Chicago area, contingent fee contracts typically provide that an attorney will receive between 25 and 33 percent of the total recovery. As we construe the argument of Cook's attorneys, this factual finding is significant for potentially two reasons. First, because an arm's length transaction probably would have resulted in the attorneys receiving a percentage of the cash recovery, a fee that is determined by the lodestar method is not, a fortiori, a reasonable fee. Or, in the alternative, even if the fee can be determined pursuant to the lodestar approach, the fee is not reasonable unless it is similar to that reached under the percentage method. We consider each of these arguments in turn. 18 We have never held that a district judge must choose the method that is most prevalent in the marketplace. Indeed, such a holding would run counter to our statement that the district judge has discretion to choose between the lodestar and percentage-of-fund approaches. That we leave the matter to the district court's discretion implies that the judge may wish to consider several factors; evidence about the market's preference is only one. In Harman, we considered whether district courts should be required to utilize the percentage method in common fund cases. See 945 F.2d at 974-75. In concluding that it was premature to banish the lodestar approach, we noted that it helps prevent overcompensation and encourages accountability. See id. at 974. The inference, of course, is that, depending on the case, the percentage approach may result in excessiveness, and that district courts may wish to consider this as they choose between methods. Judge Manning had information about which approach the market favors, and no doubt these data figured into her fee analysis. But she was not obligated to regard the market data as the sole determinant in her choice between methods. 19 Moreover, if substantially similar results must be reached under the lodestar and percentages approaches, then Harman might as well have eliminated the lodestar altogether. Judge Manning's selection of a 1.5 multiplier is at the root of Cook's attorneys' objection to the fee award; presumably they believe that a multiplier of about 3 would have been more appropriate. The choice of a multiplier, however, is left to the district court's discretion, see id. at 976, and whether Judge Manning has abused this discretion depends upon the principles that guide its exercise. Taylor, 487 U.S. at 336, 108 S.Ct. at 2419. In this regard, we have explained that, in order to determine a multiplier, the district court must attempt a retroactive calculation of the probability of success as measured at the beginning of litigation. Skelton, 860 F.2d at 258. Our cases hold that the district court must award a multiplier when attorney's fees are contingent upon the outcome of the case (i.e., there is the possibility that the attorney will not receive any fee). See In re Continental, 962 F.2d at 569; Harman, 945 F.2d at 976. We also have speculated that a multiplier of 2 may be a sensible ceiling. See Skelton, 860 F.2d at 258. Finally, we have suggested that [a]fter establishing the lodestar and multiplier, the judge may find it useful to compare the percentage of the fund to contingent arrangements negotiated in other cases of the same type. Harman, 945 F.2d at 974. But we have never ordered the district judge to ensure that the lodestar result mimics that of the percentage approach. See id. (noting that the comparison is a reasonable, though not essential 'check' for the judge.); see also In re Continental, 962 F.2d at 572. Perhaps if we were engaging in de novo review, we would choose a different multiplier in light of the check against the market information provided by Special Master McGarr. But this does not mean that we can find that Judge Manning violated the principles governing her discretion to choose a multiplier. 20 Cook's counsel rely heavily on In re Continental, 962 F.2d 566, in which we remanded for a recalculation of the amount due to the class counsel. There, like here, the district judge awarded the attorneys roughly one-half of what they had requested. See id. at 568. But apart from this superficial similarity, In re Continental is not analogous to the case at bar. The district judge in In re Continental refused to award any multiplier, even though the litigation was contingent. See id. at 569. He capped every attorney's billing rate at $175 per hour, even though some attorneys had regular billing rates of almost twice that, see id. at 568, and refused to compensate paralegal services at their market rate. See id. at 569. In addition, he reduced the time logged for legal research by 40 percent. See id. at 570. In contrast, Judge Manning accepted the hours reported as representative and calculated the lodestar according to the attorneys' regular billing rates. She also awarded a multiplier to reflect the riskiness of the litigation, albeit a multiplier that was lower than the one Cook's counsel would have preferred. But as we have already explained, Judge Manning's choice of a multiplier was not an abuse of discretion. And we remind Cook's counsel that Judge Manning's fee award effectively compensated each attorney and paralegal at the rate of $360 per hour--$35 more than the normal billing rate of the most expensive attorney involved in the litigation. 21 For its part, the Fund challenges the district court's authority to employ any sort of multiplier, even one of 1.5. But as the Fund recognizes, in Florin, 34 F.3d at 564, we held that risk multipliers are appropriate in cases that are initiated under ERISA and settled with the creation of a common fund. We do not believe that Florin conflicts with Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967), as the Fund suggests. In Fleischmann, the Supreme Court addressed whether attorney's fees could be awarded in cases brought pursuant to the Lanham Act. 2 In concluding that fee awards were impermissible, the Supreme Court noted that Congress had meticulously detailed the remedies available to a plaintiff who proves a violation of the Lanham Act. Id. at 719, 87 S.Ct. at 1407-08. Because attorney's fees were not included in the list of remedies and congressional attempts to amend the Act had been unsuccessful, the Court found that Congress intended to mark the boundaries of the power to award monetary relief in cases arising under the Lanham Act. Id. at 721, 87 S.Ct. at 1408-09. Therefore an award of attorney's fees was inappropriate. See id. 22 The Fund argues that Fleischmann necessitates that we overrule Florin. In Florin we held that in ERISA common fund cases, the award of attorney's fees is made pursuant to the principles of equity, not ERISA's fee-shifting provision. See 34 F.3d at 563. In the Fund's view, Fleischmann dictates that because ERISA has a fee-shifting provision, see 29 U.S.C. § 1132(g), attorney's fees may be recovered pursuant to that provision or not all. Under Fleischmann, the Fund contends, the resort to equitable principles violates boundaries demarcated by Congress. If the Fund is correct and attorney's fees in ERISA common fund cases may be granted only pursuant to the fee-shifting provision, Judge Manning does indeed lack the authority to utilize a risk multiplier. In City of Burlington v. Dague, 505 U.S. 557, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992), the Supreme Court held that fees awarded pursuant to a fee-shifting provision cannot be enhanced with a multiplier. 23 But because the Fund's interpretation of Fleischmann is untenable, the Fund's argument cannot withstand scrutiny. A case that finds that a court cannot award attorney's fees unless authorized by statute is not the equivalent of a case that holds that a court cannot award attorney's fees according to equitable principles when the relevant statute plainly contemplates that attorney's fees will be a remedy. Moreover, even if Fleischmann could be stretched so far, its application is not absolute. Fleischmann only stated that when a cause of action has been created by a statute which expressly provides the remedies for vindication of the cause, other remedies should not readily be implied. 386 U.S. at 720, 87 S.Ct. at 1408 (emphasis added). As we explained in Florin, there is ample reason to conclude that Congress (and the Supreme Court in Dague) did not intend to foreclose resort to equitable powers in common fund cases. See Florin, 34 F.3d at 563-65 (discussing statutory language, the purpose of ERISA and the policy considerations in Dague). Finally, Fleischmann itself suggests that in common fund cases, a court may exercise its equitable powers to award attorney's fees, regardless of whether the remedy has been prescribed by Congress. The Fleischmann plaintiff sought to rely on Sprague v. Ticonic Nat'l Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939), which involved a variation of the common fund situation. See 386 U.S. at 719, 87 S.Ct. at 1407-08. In declining to grant attorney's fees, the Fleischmann Court expressly noted that the considerations that had supported the award of attorney's fees in Sprague were inapplicable. See id. at 720, 87 S.Ct. at 1408. For all these reasons, we are confident that the reasoning of Florin is sound. 24 Under Florin, Judge Manning's use of a multiplier was not merely permissible, but mandated, because Cook's counsel had no sure source of compensation for their services. 34 F.3d at 565 (quoting In re Continental, 962 F.2d at 569). Contrary to the Fund's contention, the application of a multiplier did not result in Cook's attorneys receiving double compensation for the riskiness of the litigation. As the Supreme Court has explained, the degree of risk in a particular case depends upon the merits of the claim and the difficulty of establishing those merits. See Dague, 505 U.S. at 562, 112 S.Ct. at 2641. The unenhanced lodestar usually accounts for the difficulty of prevailing on the merits, because it reflects the number of hours that are necessary to overcome the difficulty and the hourly rates of attorneys who are skilled enough to do so. See id. But the unenhanced lodestar does not reflect the factual and legal merits of the claim--the fact that at the outset of the litigation, no matter how dazzling the array of legal talent or how many hours will eventually be logged, there is nonetheless the possibility of no recovery. See Harman, 945 F.2d at 976. The Fund emphasizes that Dague holds that the risk of no recovery should not factor into the computation of the lodestar. But as we explained in Florin, the policy considerations in Dague have little force in common fund cases. Florin, 34 F.3d at 564. In fee-shifting cases, the attorney's fee is an additional burden on the defendant; the plaintiff's recovery is not reduced by the amount of fees that the defendant is ordered to pay. In common fund cases, however, attorney's fees are assessed against the fund; the defendant's liability cannot exceed the amount the defendant has agreed to compensate the plaintiff. See id. Therefore, in contrast to Dague and other fee-shifting cases, defendants in common fund cases cannot be characterized as subsidizing unsuccessful lawsuits against other defendants. See id. at 565. And we perceive no injustice in requiring plaintiff class members to shoulder the burden of compensating counsel for prosecuting the class' case without any assurance of compensation. Id. In sum, Judge Manning did not err when she enhanced the lodestar by a multiplier of 1.5. 25 Apart from the issue of the multiplier, the Fund raises an objection to Judge Manning's computation of the lodestar. Here the Fund challenges the nuts-and-bolts of the lodestar calculation, specifically, whether Judge Manning included excessive hours when she multiplied the number of hours expended by each attorney by the attorney's reasonable hourly rate. This is a question about the district court's methodology, which is subject to de novo review. See Harman, 945 F.2d at 973. 26 After review of the fee application and the district court's opinion, we believe that a remand is unwarranted. The Fund argues that too little work was done by associates, that excessive hours were logged for conferencing and after settlement offers had been made, and that the Fund was billed for time spent preparing the fee petition. Special Master McGarr found that a very small part of the total hours expended may have been excessive, but declined to pursue the matter further because it was not relevant to the percentage-of-fund approach. See Report at para. 83. Judge Manning noted the objections, but concluded that the hours were representative of the work performed by Cook's counsel. See Mem. Op. at 41. In light of this conclusion, we are disinclined to pursue the only issue raised by the Fund that might have necessitated a remand--the possibility that the lodestar included hours expended on the fee application. See Mills v. Eltra Corp., 663 F.2d 760, 761 (7th Cir.1981) (attorneys cannot bill common fund for services related to the fee petition); Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 540 F.2d 102, 111 (3d Cir.1976) (same). Here Judge Manning was concerned with the total number of hours logged and whether the resulting fee was a reasonable one given the services of Cook's attorneys. Therefore it is unlikely that a minor change in the hourly totals would have an effect on the final amount of the fee award. Given the events in this particular case, and our review of the fee application, we are satisfied that the hours included in the lodestar are representative. As we explained in In re Continental, the judge determining the fee award has to play surrogate client. 962 F.2d at 572. And we suspect that Judge Manning was a particularly diligent surrogate for the plaintiffs. She was plainly determined to preserve as much of the fund as possible while still providing Cook's counsel with a reasonable fee. Indeed, given Judge Manning's manifest concern for the plaintiff class, the Fund lacks credibility when it suggests that the district judge did not adequately guard against excessiveness.