Opinion ID: 1407452
Heading Depth: 2
Heading Rank: 2

Heading: Amount of attorneys' fees awarded

Text: The remaining issue between the parties centers on the circuit judge's method of determining a reasonable fee to be awarded under the state action statute. The State and the Retirement System argue that the circuit judge erred in basing an award of attorneys' fees on a percentage of the TERI participants' recovery because it resulted in an unreasonably high fee award. In turn, counsel for the TERI plaintiffs argue that the circuit judge correctly based the fee on a percentage of the TERI participants' recovery, but chose a percentage that resulted in an unreasonably low award of attorneys' fees. We agree with the State and the Retirement System that a calculation of attorneys' fees under the state action statute based on a percentage of the TERI participants' recovery is improper. We further agree that under the circumstances of this case, an award of attorneys' fees totaling $8.66 million is unreasonable.
Under the American Rule, the parties to a lawsuit generally bear the responsibility of paying their own attorneys' fees. See Pennsylvania v. Del. Valley Citizens' Council for Clean Air, 478 U.S. 546, 561, 106 S.Ct. 3088, 92 L.Ed.2d 439 (1986). This Court and others recognize numerous exceptions to this rule, including the award of attorneys' fees pursuant to a statute. See Jackson, 326 S.C. at 307, 486 S.E.2d at 759. A statutory award of attorneys' fees is typically authorized under what is known as a fee-shifting statute, which permits a prevailing party to recover attorneys' fees from the losing party. See Blum v. Stenson, 465 U.S. 886, 893, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984). Neither party disputes that the state action statute applicable here is such a fee-shifting statute. See S.C.Code Ann. § 15-77-300 (providing that a court may allow the prevailing party to recover reasonable attorney's fees to be taxed as court costs against the appropriate agency). Another exception to the American Rule recognized by this Court is the award of attorneys' fees pursuant to the common fund doctrine. The common fund doctrine allows a court in its equitable jurisdiction to award reasonable attorneys' fees to a party who, at his own expense, successfully maintains a suit for the creation, recovery, preservation, or increase of a common fund or common property. Petition of Cram. Johnson v. Williams, 196 S.C. 528, 531, 14 S.E.2d 21, 23 (1941). Attorneys' fees awarded pursuant to the common fund doctrine come directly out of the common fund created or preserved. Id. The justification for awarding attorneys' fees in this manner is based on the principle that one who preserves or protects a common fund works for others as well as for himself, and the others so benefited should bear their just share of the expenses. Id. at 531-32, 14 S.E.2d at 23. A key distinction between the award of fees authorized by statute and the award of fees from a common fund is that the equitable principles underlying the common fund doctrine create a mechanism in which attorneys' fees are not assessed against the losing party by fee-shifting, but rather, are taken directly from the common fund or recovery and borne by the prevailing party through fee-spreading. See Burke v. Ariz. State Ret. Syst., 206 Ariz. 269, 77 P.3d 444, 448 (Ct.App.2003) (emphasis in original). To reflect this distinction, courts generally hold that a lodestar approach reflecting the amount of attorney time reasonably expended on the litigation results in a reasonable fee under a fee-shifting statute. See Blum, 465 U.S. at 900 n. 16, 104 S.Ct. 1541 (comparing the bases for awarding a reasonable attorneys' fee under the common fund doctrine versus a federal fee-shifting statute). Conversely, when awarding fees to be paid from a common fund, courts often use the common fund itself as a measure of the litigation's success. These courts consequently base an award of attorneys' fees on a percentage of the common fund created, known as the percentage-of-the-recovery approach. See, e.g., Edmonds v. United States, 658 F.Supp. 1126, 1144 (D.S.C.1987) (expressing a preference for a percentage-of-the-recovery method when awarding attorneys' fees from a common fund). [6] The circuit judge in the instant case utilized the percentage-of-the-recovery approach in awarding counsel for TERI plaintiffs $8.66 million in attorneys' fees under the state action statute. Counsel for TERI plaintiffs argue that this Court's instructions to consider the benefit to all old TERI participants in awarding attorneys' fees make the determination of a reasonable award in this case analogous to cases in which attorneys' fees are awarded from a common fund. Therefore, even though the state action statute shifts the source of attorneys' fees to the State, counsel nevertheless urges this Court to find that the circuit judge properly awarded attorneys' fees based on the percentage-of-the-recovery approach typically utilized when the source of attorneys' fees is spread among the beneficiaries of a common fund. We disagree. In our view, utilizing common fund methodology when awarding attorneys' fees pursuant to a fee-shifting statute is wholly inappropriate in light of the underlying theoretical distinction between a common fund source of attorneys' fees and a statutory source of attorneys' fees. Although both sources are exceptions to the general rule that each party is responsible for the party's own attorneys' fees, the common fund doctrine is based on the equitable allocation of attorneys' fees among a benefited group, and not the shifting of the attorneys' fee burden to the losing party. This Court certainly acknowledges that a percentage-of-the-recovery approach may be appropriate under circumstances in which a court is given jurisdiction over a common fund from which it must allocate attorneys' fees among a benefited group of litigants. However, where, as here, a fee-shifting statute shifts the source of reasonable attorneys' fees entirely to the losing party, we find it both illogical and erroneous to calculate fees using the methodology justified under a fee-spreading theory. See Burke, 206 Ariz. 269, 77 P.3d 444 (vacating a trial court's award of $9.6 million in attorneys' fees based on a percentage of the recovery because a settlement agreement in which the state retirement system agreed to pay reasonable attorneys' fees established a fee-shifting as opposed to a fee-spreading scenario). Furthermore, we note that an award based on a percentage of the TERI plaintiffs' recovery is inconsistent with the express terms of the statutory scheme. Although the state action statute neither requires that attorneys' fees be awarded based on an hourly rate, nor places a numerical cap on attorneys' fees, we find it significant that the statute provides that attorneys' fees assessed to the state agency may only be paid upon presentation of an itemized accounting of the attorney's fees. S.C.Code Ann. § 15-77-330 (2005). In our opinion, the requirement of an itemized accounting squarely contradicts the utilization of the percentage-of-the-recovery method in awarding attorneys' fees under the statute. We additionally distinguish the instant case from Ex parte Condon, 354 S.C. 634, 583 S.E.2d 430 (2003), in which this Court approved a circuit court's award of attorneys' fees based on a percentage of the recovery in a class action case against the State and the South Carolina Department of Revenue on behalf of citizens 85 and older who failed to receive the one percent sales tax exemption provided for by law. In Condon, the parties reached a settlement agreement which stipulated that the circuit court would calculate and award attorneys' fees to be paid by the State to the prevailing plaintiff class. Although the agreement established a fee-shifting scenario in this regard, the guidelines for determining attorneys' fees set forth in the parties' agreement clearly contemplated an award based on a percentage of the common fund recovered. Id. at 636-37, 583 S.E.2d at 431. In contrast, the state action statute authorizing attorneys' fees in this case in no way suggests that attorneys' fees should be calculated based on a percentage of the common fund recovered. Moreover, the Court in this case specifically rejected counsel for TERI plaintiffs' petition for an award of fees under the common fund doctrine, specifying that attorney's fees in this matter should not come from the retirement contributions made by the old TERI participants. Layman v. State, S.C. Sup.Ct. Order dated June 1, 2006 (368 S.C. at 648, 630 S.E.2d at 274). Accordingly, we hold that because the state action statute shifts the source of the prevailing party's attorneys' fees to the losing party, an award of fees based on a percentage of the prevailing party's recovery is improper. Therefore, the circuit judge erred in calculating attorneys' fees in this manner.

Our analysis does not end with a determination of the proper method for calculating attorneys' fees, however. Regardless of any theoretical preference for one method of fee calculation over another, the overriding benchmark for awards of attorneys' fees under both the state action statute and the general premise of the common fund doctrine is that attorneys' fees must be reasonable. See Del. Valley Citizens' Council, 478 U.S. at 562, 106 S.Ct. 3088. In light of the circumstances of this case, we hold that an award of $8.66 million in attorneys' fees is entirely unreasonable. From its inception in our original jurisdiction, this Court repeatedly took actions which served to narrow the focus of this litigation and minimize the associated costs to all involved. In the order granting original jurisdiction, the Court required that all contributions made by old TERI participants pursuant to Act 153 must be deposited by the Retirement System into an interest-bearing escrow account until the Court rendered a final decision. This prophylactic decree, made on the Court's own motion, acted to preserve the funds at issue with no further legal action necessary by either party. The Court's order expanded the scope of this mandate for efficiency to the sequencing and substance of the case. With no further discovery permitted, the Court instructed the parties to agree on the matters to be included in the appendix within ten days of the order granting original jurisdiction and set forth specific guidelines as to the exact materials to be submitted to the Court by each party thereafter. [7] The Court limited these materials to the parties' final briefs and the appendix, and specified that the parties would be notified if the Court finds that oral argument is necessary to resolve the issues in this matter. The Court also provided a specific timeline for submission of materials along with the admonition that [n]o continuances or extensions will be granted absent extraordinary circumstances. Pursuant to this timeline, the entire process of collecting and submitting the necessary documents was to be completed within a maximum of eighty days from the Court's order. Finally, noting the named TERI participants' motion for class certification in the trial court, this Court ordered that the motion be re-filed in the Court within five days of the order. Even after the final judgment in Layman, this Court's actions were aimed at serving the parties' fiscal interests. When the State and the Retirement System informed the Court that their records contained all of the information necessary to effectuate the return of contributionsalready held in escrow pursuant to the earlier Court orderto all of the TERI participants subject to the Court's ruling, the Court decertified the class of TERI plaintiffs. Because the relief granted to the named plaintiffs applied to each and every TERI participant in the defined class, the Court determined that the Retirement System's assurances that it would fully comply with the Court's order for relief made the timeconsuming and costly formality of class notice unnecessary. Moreover, the Court rejected counsel's request for attorneys' fees to be paid out of the common fund so that the TERI participants would not ultimately bear the costs of litigation associated with enforcing their contract rights with the government. Counsel for the TERI plaintiffs claim that their efficient and expeditious efforts fully justify an $8.66 million award of attorneys' fees. Counsel claims that their good lawyering not only resulted in 100% recovery for the TERI participants, but ultimately saved tens of thousands of dollars in attorneys' fees due to the quick result obtained in the case. Although counsel's efforts were certainly commendable, counsel is not entitled to sole credit for the overall efficiency of the case when it was also counsel's compliance with this Court's instructions that yielded this judicious result. Viewing the circuit judge's award of attorneys' fees in light of the state action statute's limitation that attorneys' fees assessed to a state agency may only be paid upon presentation of an itemized accounting of the attorney's fees, S.C.Code Ann. § 15-77-330, the circuit judge's $8.66 million award results in an hourly rate of $6,000 for each attorney and staff member involved in the litigation of the case on behalf of the TERI participants. We find this fee inconsistent with this Court's careful crafting of both the procedural and substantive path of this case aimed at minimizing costs for all involved. Accordingly, we hold that under the circumstances of this case, the circuit judge's award of $8.66 million in attorneys' fees pursuant to the state action statute was unreasonable.
We turn next to the method of calculating attorneys' fees in this case, and hold that a lodestar analysis is the proper method for determining an award of reasonable attorneys' fees under the state action statute. A lodestar figure is designed to reflect the reasonable time and effort involved in litigating a case, and is calculated by multiplying a reasonable hourly rate by the reasonable time expended. See Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 652 (4th Cir.2002). Using this as a starting point for reasonableness, a court may consider other factors justifying an enhancement of the lodestar figure with a multiplier before arriving at a final amount. See Edmonds, 658 F.Supp. at 1148. In our opinion, the lodestar method is particularly appropriate in this case because it equally embraces the theory of fee-shifting embodied in the state action statute, as well as the notion of efficiency established by the Court in the underlying litigation. Accordingly, we proceed with a lodestar analysis in order to determine reasonable attorneys' fees in this case. See also Del. Valley Citizens' Council, 478 U.S. at 565, 106 S.Ct. 3088 (noting the strong presumption that the lodestar approach is the most accurate determination of reasonable attorneys' fees in light of the intended purpose of the usual fee-shifting statute); Burke, 206 Ariz. 269, 77 P.3d 444 (finding the lodestar calculation to be the appropriate method of awarding reasonable attorneys' fees where a settlement agreement established a fee-shifting as opposed to a fee-spreading scenario). In determining the reasonable time expended and a reasonable hourly rate for purposes of calculating attorneys' fees, South Carolina courts have historically relied on six common law factors of reasonableness: (1) the nature, extent, and difficulty of the case; (2) the time necessarily devoted to the case; (3) the professional standing of counsel; (4) the contingency of compensation; (5) the beneficial results obtained; and (6) the customary legal fees for similar services. See Jackson, 326 S.C. at 308, 486 S.E.2d at 760. In order to address the exceptional circumstances of this case, this Court instructed the circuit judge in the Layman remand order to give enhanced consideration to three of these factors in determining an award of reasonable attorneys' fees: specifically, the actual amount of work performed, expenses incurred, and the benefit obtained for all of the old TERI participants. Layman v. State, S.C. Sup.Ct. Order dated June 1, 2006 (368 S.C. at 648, 630 S.E.2d at 274). In emphasizing these criteria, this Court intended to remain consistent with the theoretical guidelines for awarding fees pursuant to a fee-shifting statute, while addressing the equitable implications in awarding statutory attorneys' fees to counsel who, over a relatively brief period of time, successfully litigated a claim that yielded 100% recovery for the entire class of TERI plaintiffs. We reiterate that it was error for the circuit judge to read so far into these equity-based specifications to the point of awarding attorneys' fees based on a method commonly associated with an equitable theory (i.e., fee-spreading) that was not in play in this case.
Beginning with an analysis based on the common law factors of reasonableness, we proceed with a lodestar calculation of reasonable attorneys' fees using the hourly rate quotes and time sheets submitted by counsel for TERI plaintiffs. Because neither party disputes that the hourly rates submitted by counsel for the TERI plaintiffs are reasonable given the professional standing of counsel and the nature of the case, the chart below reflects this Court's determination that counsel for TERI plaintiffs' current rates constitute a reasonable hourly rate for purposes of a lodestar calculation. See Liberty Mut. Ins. Co. v. Emp. Res. Mgmt., Inc., 176 F.Supp.2d 510 (D.S.C.2001) (explaining that a reasonable hourly rate is determined by comparing the rates of the prevailing party's attorneys to the prevailing market rates in the community for similar services by lawyers of comparable standing). In order to reflect his role as lead counsel in class action litigation, the lodestar analysis uses Mr. Lewis's premium hourly rate which he typically reserves for difficult cases. Turning next to the reasonable time spent on the litigation, we first consider that the time sheets submitted by counsel for TERI plaintiffs include all of the hours spent on the litigation of the case (designated in the chart below as Total Hours Expended), with no distinction between time associated with the TERI participants' claims giving rise to the instant case, and time associated with the Working Retirees' claims, which were remanded. Although the record indicates that Working Retirees constituted roughly one-third of the class of plaintiffs in Layman, we do not find it necessary to adjust the total hours expended by this proportion in order to arrive at a reasonable fee in this case. Not only were the same legal theories advanced on behalf of both the TERI participants and the Working Retirees, making their claims virtually indistinguishable, but more importantly, guiding jurisprudence explicitly holds that a party need not be successful as to all issues in order to be found to be a prevailing party for purposes of awarding attorneys' fees under the state action statute. [8] Heath, 302 S.C. at 182, 394 S.E.2d at 711. Only in an abundance of caution, however, do we reduce the number of total hours expended by three percent (3%), rounded down to the nearest tenth, in order to account for any time devoted solely to the Working Retirees' claims, thereby arriving at what we view as a reasonable number of hours expended on the TERI participants' claims (appearing as Net Hours Expended in the chart below). See Edmonds, 658 F.Supp. at 1135 n. 18, 1147 n. 44 (performing a lodestar analysis and adjusting the time devoted to litigating the underlying case by two to three percent in order to account for the fact that some hours may not be properly compensable). Based on the foregoing, the Court calculates the lodestar fee in this case as follows: Total Net Hours Hours Expended Expended Hourly Rate Totals Lewis & Babcork A. Camden Lewis 139.5 135.3 $600.00 $81,180.00 Keither M. Babcock 224.8 218.0 $350.00 $76,300.00 Ariail E. King 109.7 106.4 $225.00 $23,940.00 Peter D. Protopapas 14.6 14.1 $250.00 $ 3,525.00 William A. McKinnon 262.1 254.2 $225.00 $57,195.00 Brady R. Thomas 25.2 24.4 $200.00 $ 4,880.00 Paralegals 271.3 263.1 $ 80.00 $21,048.00 Law Clerks 144.2 139.8 $ 70.00 $ 9,786.00 Richard A. Harpootlian, P.A. Richard A. Harpootlian 97.5 94.5 $500.00 $47,250.00 David Scott 96.8 93.8 $250.00 $23,450.00 Heather Herron 44.6 43.2 $ 80.00 $ 3,456.00 Holli Langenburg 5.1 4.9 $ 80.00 $ 392.00 ____________ TOTAL $352,402.00
Using the lodestar calculation of $352,402.00 as a starting point for a reasonable fee in this case, we further conclude that enhancing the lodestar figure through a multiplier is necessary to reflect the exceptional circumstances of this case as emphasized by the Court in the remand order. See Blum, 465 U.S. at 897, 104 S.Ct. 1541 (recognizing that an enhanced lodestar award may be justified in some cases of exceptional success (quoting Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983))). More specifically, we find that the expedited litigation timeline imposed by the Court, the wholly successful recovery for the entire class of TERI participants, the extraordinary sum of money returned to the TERI participants and ultimately saved by the TERI participants, and the termination of governmental acts constituting a breach of contract are exceptional circumstances which justify the use of a multiplier. Accordingly, we apply a multiplier of 1.25 to the lodestar calculation in order to arrive at a reasonable fee that adequately compensates counsel for the TERI plaintiffs. [9] To this total, we add the expenses incurred by counsel for the TERI plaintiffs, which this Court directed the circuit judge to include in the award of attorneys' fees, even though the state action statute does not mandate such reimbursement. [10] See also Hyatt v. Apfel, 195 F.3d 188, 192 (4th Cir.1999) (affirming a multiplier of 1.333 applied to a lodestar calculation of attorneys' fees to be paid by the defendant government entity on account of the exceptional results obtained by plaintiffs' counsel); Edmonds, 658 F.Supp. at 1148 (applying a multiplier of 1.15 to 1.25 to the lodestar fees for the plaintiffs' various attorneys to account for the exceptional circumstances surrounding the amount of money involved and the results obtained in the case). Adjusting the lodestar calculation to reflect the exceptional circumstances of this case emphasized by this Court in the remand order, we calculate a reasonable attorneys' fee as follows: Lodestar base calculation $352,402.00 Multiplier × 1.25 ____________ Subtotal $440,502.50 Add expenses incurred + 4,724.10 ____________ TOTAL ENHANCED LODESTAR $445,226.60 Accordingly, we hold that an enhanced lodestar figure equaling $445,226.60 constitutes a reasonable award of attorneys' fees to counsel for TERI plaintiffs under the state action statute.
The following summarizes our resolution of this appeal arising from the Court's remand of Layman to the circuit judge for a determination of reasonable attorneys' fees. We hold that the circuit judge's award of attorneys' fees using the percentage-of-the-recovery method was improper and resulted in an award that was unreasonable under the state action statute. We therefore vacate the award of $8.66 million to counsel for TERI plaintiffs and further hold that a reasonable award of attorneys' fees in this case is properly calculated using the lodestar method, enhanced by a multiplier and the addition of counsel's expenses to reflect the actual amount of work performed, expenses incurred, and the benefit obtained for all of the old TERI participants. Based on a calculation representative of this conclusion, we assess reasonable attorneys' fees in the amount of $445,226.60 against the State and the Retirement System.