Opinion ID: 387362
Heading Depth: 2
Heading Rank: 1

Heading: The Redundant Contingency Factor

Text: 263 We ourselves in our previous panel opinions recognized the desirability, and indeed necessity where public interest law firms were concerned, of applying a contingency factor to the basic fee awarded. However, (1) we did this to a basic fee calculated on actual cost, and (2) the contingency factor was to be part of the reasonable profit, varied and controlled by the trial judge on his appraisal of several factors, including the contingency nature of the firm's practice and the particular lawsuit. When the contingency factor is applied to the market hourly rate, as the majority would do, the results are confusing and can lead to excessive awards. 264 Per Calculos, the majority's method, if allowed to stand, will take these and other Title VII attorney's fees Ad Astra. As applied to the total of 3,602 hours of work in this case, the weighted hourly rate of $57.17 results in a calculation of $205,916.50, close to the $206,000 fee suggested by the law firm to the court. This is designated by the majority opinion as the lodestar or market value 25 from which all other adjustments are to be made. 26 It is absolutely vital to see what this $57.17 hourly fee already includes. The regular hourly rates of the law firm, for each lawyer, are necessarily designed to cover the lawyer's individual salary or equivalent partnership pay, his appropriate share of the firm's overhead in every respect, a profit above the actual cost to the firm of his work (which makes up the total firm profit for the partners), and -this must be recognized and kept clearly in mind-an amount necessary for each hour which is billed to cover the numerous hours which for one reason or another cannot be billed, or must be billed at a more modest rate. The firm can never calculate its hourly charge for an attorney on the fallacious theory that every hour of work is going to be productive. There are hours which simply cannot be billed regular paying clients because the are redundant, or too numerous for the character of the task to which they are devoted; and in those instances in which the representation in litigation is on a contingent basis (i. e., as defined by the majority opinion, compensation only if the firm's side prevails), hours may not be compensable at all. 265 It is basic common sense that the bill for legal services in successful litigation may have a more comfortable margin than that for a losing effort. That margin, a sort of bonus for winning, acknowledges that litigators adjust their fees in accordance with each fluctuation in their win-loss record. Even in purely private suits, where law firms recover their fees from their own clients, fees and the underlying hourly rates on which they are computed are adapted to the particular circumstances. In the market, a request for fees or hourly rates not conforming to the results of litigation would be outrageous. 266 The fatal flaw is that our colleagues have taken a standard of values from the marketplace, indeed have referred to their lodestar fee at times as a market value fee, which it is, and have applied it in the Government sector where there is no real market. What our colleagues fail to realize is that the market value fee they have taken as a lodestar, the starting point to be adjusted for contingencies, already has a substantial contingency factor built into the fee. 267 This is what a market is for. A market is to place value on commodities or services considering all of the contingencies. 27 As we pointed out above, it is absolutely necessary for every private law firm to fix an hourly rate that takes care of the salary of the attorney and overhead attributable to him, provides a profit for the partnership, and also takes care of the contingency of those many hours for which there is no monetary compensation at all (one of the reasons for which is the contingency of not winning the case and not collecting a fee), or for which the firm must make a pragmatic, prudential decision to charge the client at a lower rate because the firm was not successful in litigation and could not rationally expect to recover as large a profit from the case as it might have had it won. 268 While in the practice of law the fixing of fees and establishment of customary rates is not as volatile as the New York Stock Exchange, the distinguished private firm involved in this litigation is, as our colleagues have rightfully recognized, in a marketplace of sorts. The regular hourly rates fixed by this and other firms reflect in every possible way the contingencies of the marketplace, including the contingency of failure in a litigated case (or the failure of its client in the marketplace, i. e., bankruptcy) and of the receipt of no fee at all, as could have occurred in this Title VII litigation. And so their fee in the marketplace is truly a fee calculated on the market value of their services. The majority opinion has thus pointed in numerous places to market value as the fairest and most useful starting part for the calculation of the plaintiff's fees in this successful Title VII suit against the Government. Our colleagues have then erroneously specified that this fee be adjusted upward in every case to take care of contingencies, the primary contingency being that of failure to prevail in some lawsuits and thus the contingency of failure to receive any fee at all. 28 Since the market value fee in commercial private practice already includes the contingency of failure and receipt of a lower fee than otherwise obtainable, our colleagues create a danger of duplication when they add this contingency factor to the already generous market value regular hourly rate. 269 The majority appears to recognize that market rates already include a substantial contingency factor, when it acknowledges the possibility that an hourly rate underlying the 'lodestar fee' itself comprehends an allowance for the contingent nature of the availability of fees in Title VII litigation against the Government .... 29 This is more than just a vague possibility. As we have seen, adjustments for contingency can be expected to be commonplace, given the general nature of law firm billing practices. Consequently, allowances for contingency will generally be comprehended in the hourly rate, and the amount of contingency allowance may well be substantial. 270 To alleviate this problem, the majority suggests that (t)he district judge has ample powers of inquiry into the makeup of hourly rates to assure that the Government will not suffer from any such duplication .... 30 If the majority is serious about weeding out redundant contingency allowances, these judicial powers of inquiry will always have to come into play. 31 Given the serious possibility that any hourly rate may contain a contingency factor, the district judge will always have to inquire whether in fact it does contain such a factor. And if it does, he must inquire into its magnitude. 271 Determining the existence and amount of the contingency factor in any hourly rate is a difficult task, and the majority does not suggest how it is to be done. Although there may be several possible ways to do this, the most obvious one is to break down the putative hourly rate into its constituent parts in order to identify that component which reflects the contingency factor. The contingency factor would be that component of the fee in addition to the amount needed to cover costs and to provide the firm with its normally expected overall profit rate. In other words, it would be the amount needed to ensure that in the long run the firm earns its desired profit, after taking account of the proportion of hours spent on a case that must be billed at a lower rate if at all due to lack of success in litigation. It may very well be that a law firm's desired profit is an unreasonable one. In the marketplace this is no problem: reasonable is whatever the market will bear. Here, with hourly rates applied artificially in a nonmarket context, the potential for unreasonably high desired profits compounds the difficulty of isolating the contingency component. 272 But the most striking aspect of any technique employed, pursuant to the majority's approach, to identify the contingency factor, is that the elimination of built-in contingency allowances could be achieved more simply from the outset by employing the cost-plus method. Cost-plus provides a base figure that is free of any contingency factor; from that base figure the appropriate adjustments could then be made to reflect contingency of nonsuccess in the case at hand, as well as exceptional quality of work, without duplicating any built-in contingency factor already included in the fee. 273 Starting from actual cost of services is a far more direct approach than starting with an hourly fee and trying to weed out any built-in contingency allowances. Starting from the hourly rate simply invites confusion and duplication of contingency allowances. Unless district judges are especially diligent in weeding out any built-in contingency allowances, there is no way in which the market value regular hourly rate, the lodestar fee, can be taken as the starting point, and a contingency factor for failure applied to that market value fee without totally distorting and exaggerating the compensation awarded to successful plaintiffs' attorneys. We think that an evaluation of the contingency factor is necessary in Title VII cases, in all fairness to the attorneys who bring these suits-sometimes successfully, sometimes unsuccessfully. But the contingency factor can only be applied if the actual cost of services -salary and overhead-is taken as the starting point. 274 Actual cost of services has no contingency factor built in, as does the regular commercial hourly rate, which is fixed by the customary market, and which is truly a market value fee. Where the Government is the purchaser of services, actual cost plus is a fair and reasonable basis on which to compensate anyone, lawyer or layman. Actual cost of service is a true starting base, to which the factors relevant to Government litigation (and not necessarily relevant in private litigation) can be properly applied. What our colleagues have done here is a horrendous example of miscalculation and inflation of fees chargeable to the Government and to the taxpayer, without even realizing the economics of the marketplace on which they purport to rely. 275