Opinion ID: 421654
Heading Depth: 1
Heading Rank: 4

Heading: Determination of Hourly Rate

Text: 38 The most perplexing aspect of this appeal concerns the appropriate rate of hourly compensation. At plaintiffs' suggestion, the District Court adopted a schedule of compensation, ranging from $70 to $140 per hour, based primarily on the rates at which the Cravath firm billed for the time of its associates in 1980. Starting with the range of Cravath hourly rates of $65 to $105 for associates with from one to eight years' experience, 7 the District Court accepted the plaintiffs' extrapolation of the top of the range to $140 for attorneys with more than thirteen years' experience and set $70 as the minimum rate for attorneys with less than two years' experience. The District Court's decision to base the fee award on Cravath's 1980 billing rates presents us with two distinct issues: first, whether it is appropriate to compensate attorneys from non-profit law offices with fees based on the billing rates of a large Wall Street law firm, and second, whether fee awards should be based on current rates or historical rates prevailing in prior years when the legal services were rendered. 39 A. An Appropriate Rate. While there is no doubt that non-profit organizations are entitled to fees under section 1988, 8 there is less certainty over the manner by which a rate should be determined. The legislative history does not expressly discuss the rate of compensation appropriate for non-profit lawyers. Some clues in the legislative history point in opposite directions. The Senate Report indicates that the amount of fee awards in civil rights cases should be governed by the same standards which prevail in other types of equally complex Federal litigation, such as antitrust cases, Senate Report, supra, at 6, reprinted in 1976 U.S.Code Cong. & Ad.News at 5913. However, this recognition of equivalence between civil rights cases and other complex cases does not necessarily imply equivalent fees for profit-making and non-profit attorneys. The Senate Report cites Davis v. County of Los Angeles, supra, which declined to reduce a fee award because non-profit attorneys were involved, yet also cites Swann v. Charlotte-Mecklenburg Board of Education, supra, in which the District Court acknowledged that the fee awarded to a prevailing plaintiff represented by a non-profit firm was lower than that charged by defendant's private counsel for similar services that were not even successful, 66 F.R.D. at 486. Both congressional reports caution against fee awards that produce windfalls to attorneys. Senate Report, supra, at 6, reprinted in 1976 U.S.Code Cong. & Ad.News at 5913; see House Report, supra, at 9, reprinted in E. Larson, supra, at 298. See also Hensley v. Eckerhart, supra, --- U.S. at ----, 103 S.Ct. at 1945 (Brennan, J., concurring in part and dissenting in part) (remand appropriate to avoid an unmistakable windfall). 40 Most courts have ruled that fee awards in civil rights cases should not be reduced when prevailing plaintiffs are represented by a non-profit law office, e.g., Oldham v. Ehrlich, 617 F.2d 163, 168-69 (8th Cir.1980); Palmigiano v. Garrahy, 616 F.2d 598, 601-02 (1st Cir.), cert. denied, 449 U.S. 839, 101 S.Ct. 115, 66 L.Ed.2d 45 (1980); Rodriguez v. Taylor, supra, 569 F.2d at 1248-49, and have refused to make reductions based on low overhead costs, Mary and Crystal v. Ramsden, 635 F.2d 590, 601-02 (7th Cir.1980), low salaries, Mid-Hudson Legal Services v. G & U, Inc., 465 F.Supp. 261, 270 (S.D.N.Y.1978), or reimbursement of the office's budget by government funding, Dennis v. Chang, 611 F.2d 1302, 1304-07 (9th Cir.1980). Some courts have acknowledged that fee awards to non-profit attorneys based on market rates for private attorneys result in overcompensation, but have declined to abandon market rates because the extra money will serve the beneficial purpose of expanding the availability of free legal services. See Oldham v. Ehrlich, supra, 617 F.2d at 168-69; Palmigiano v. Garrahy, supra, 616 F.2d at 602. 41 Our own precedents have not been entirely consistent. We have expressed the view that reduction from market rates of private attorneys is not appropriate, Beazer v. New York City Transit Authority, supra, 558 F.2d at 100; Torres v. Sachs, supra, 538 F.2d at 13; see also Carey v. New York Gaslight Club, Inc., supra, 598 F.2d at 1255 n. 1, yet we have also approved reductions of fee awards to reflect the percentage of a non-profit law office's budget that is reimbursed by government funding, Gagne v. Maher, supra, 594 F.2d at 345; EEOC v. Enterprise Association of Steamfitters Local No. 638, 542 F.2d 579, 593 & n. 13 (2d Cir.1976), cert. denied, 430 U.S. 911, 97 S.Ct. 1186, 51 L.Ed.2d 588 (1977), and we have also ruled that such reductions are not required, Beazer v. New York City Transit Authority, supra, 558 F.2d at 100. Now that the issue is forcefully brought before us by the allowance of an award in excess of a million dollars, computed on the basis of rates charged by a leading Wall Street firm, we think it is appropriate to explore the matter and provide the district courts with further guidance. 42 We begin by noticing that an award to non-profit lawyers based upon billing rates charged by profit-making lawyers inevitably produces a windfall. The billing rate for a profit-making law firm typically includes three components: the compensation of the billing attorney, a share of the firm's overhead, and some profit for the firm. 9 Obviously the profit component is a questionable ingredient in a reasonable fee for a non-profit law firm. In addition, the two remaining components of a private firm's billing rate would often reflect much higher expenses than those incurred by a non-profit office. Private firms in New York City usually pay their associates more than most attorneys earn in non-profit offices. Moreover, large private firms like Cravath incur overhead expenses far higher than those of non-profit firms. They pay premium rents, and they maintain the personnel and other resources necessary to provide the extensive legal services and quantity of documents required on short notice in connection with corporate and securities practices. 43 When the District Court reimbursed plaintiffs' attorneys at between $70 and $140 per hour, it was compensating their offices at a rate substantially higher than it cost those offices to support their attorneys on an hourly basis. Given the vast difference that undoubtedly separates Cravath's profit and costs from the costs of the New York Civil Liberties Union or the New York Legal Aid Society, we conclude that the District Court's use of Cravath rates to compensate these non-profit offices was so inordinately generous as to be unreasonable. 10 In so ruling we do not suggest that the public interest lawyers who represented the Willowbrook class in this case are in any way less skilled or dedicated than Cravath's lawyers. We have simply found that compensating these non-profit lawyers at Cravath rates would constitute a substantial windfall for the organizations involved. Windfalls are explicitly proscribed in the legislative history of section 1988, and we conclude that any award that includes such a large windfall must be considered unreasonable. 44 The windfall aspect of the fees that have been awarded could be eliminated by determining the cost that each non-profit law office incurred to provide an hour of time of the various attorneys. Presumably, this calculation would involve dividing the attorney's annual salary by his or her total number of productive hours per year and then adding a per-hour overhead cost, arrived at by dividing all non-salary costs for a year by the total of the productive hours in a year of all attorneys in the office. This cost-based approach would recognize that since the services of non-profit law offices are not allocated by a pricing mechanism, there is no real market billing rate that is precisely comparable for such offices. Indeed, cost-based fee awards have received increasing attention in recent years as an appropriate approach to all fee awards. See Copeland v. Marshall, supra, 641 F.2d at 908 (Wilkey, J., dissenting); Glover v. Johnson, 531 F.Supp. 1036 (E.D.Mich.1982); Page v. Preissner, 468 F.Supp. 399 (S.D.Iowa 1979); Alsager v. District Court of Polk County, 447 F.Supp. 572 (S.D.Iowa 1977). 45 Alternatively, a modified cost-based approach could be used that would combine the non-profit office's per-hour overhead cost with the value of an hour of an attorney's time, the latter component to be derived from the salary an attorney of comparable skill and experience is paid by a private law firm. This approach would reduce the windfall inherent in the use of a private firm's billing rate by eliminating both the profit component and the increment by which the private firm's overhead exceeds that of the non-profit office. By using the value of the non-profit attorney's time instead of the cost of that time to his employer it would produce a fee reflecting the costs the non-profit office would likely have incurred to hire the attorney were it not for budgetary limitations. 46 However attractive cost-based calculations of attorney's fee awards for non-profit law offices might be as a means of avoiding windfall recoveries, we are not disposed to mandate them for several reasons. First, the case law in this area, including our own decisions in Torres and Beazer, has approved, almost without exception, the use of billing rates as a basis for calculating fee awards for non-profit law offices and has generally counseled against an invariable distinction between non-profit law offices and profit-making firms in calculating fee awards. Second, the windfall effect occurs primarily when non-profit law offices are compensated at the billing rates of profit-making law firms at the higher end of the market; these are the rates that can be expected to reflect a substantial profit component and a substantial premium for high rent and other costs. Third, cost-based fee awards, if required as a general matter, would burden the parties and the district courts with inevitable disputes about cost accounting. Indeed, the burden of calculating costs was one of the reasons that influenced the majority of the District of Columbia Circuit to reject a cost-based approach to fee awards. Copeland v. Marshall, supra, 641 F.2d at 896-900. We are thus confronted with this dilemma: use of billing rates for fees of non-profit law offices produces windfalls, which Congress disapproved; on the other hand, use of cost-based rates would conflict with our precedents and create administrative burdens if generally required, and such rates are needed to avoid significant windfalls only when billing rates are high. 47 This statement of the problem suggests its own resolution: to award fees to non-profit law offices at billing rates of comparable attorneys in the general run of cases as long as the billing rates are not so high that their use risks significant windfalls, and to permit non-profit law offices to receive fees calculated at higher hourly rates only when such higher rates are justified to permit the offices to recover their costs. The point at which a claimed billing rate is so high as to yield a significant windfall to a non-profit law office will vary from one community to another and over time. We would expect the district judges throughout the Circuit to have general familiarity with the range of billing rates in the community of the applicant attorneys and to be able, without elaborate fact-finding, to select a break point beyond which a billing rate in that community at that time reflects both a significant profit component and overhead costs significantly higher than those of a non-profit office. Fees for non-profit law offices should not be based on hourly rates exceeding that break point, except in the unlikely event that the applicant's non-profit law office can demonstrate that a higher rate is required to enable it to secure reimbursement of its costs. We do not expect that even in the same community and at the same time each district judge will necessarily select the same break point as a presumptive maximum rate needed to avoid windfall fees to non-profit law offices. But we anticipate that the authority to place a ceiling on the appropriate private billing rate to be used in calculating fee awards for non-profit law offices will exert a moderating influence on those awards. This break point approach will avoid any distinction between non-profit law offices and profit-making firms in the general run of fee award claims where the billing rate of lawyers of comparable skill and experiences is below the figure that the judge would select as a break point, but at the same time it will permit the judge to reject use of billing rates above that figure, which would yield significant windfalls, contrary to an expressed legislative objective. With this approach in use, we think it appropriate to end the uncertainty as to whether the fees of non-profit law offices will or will not be proportionately reduced to reflect the share of their budgets reimbursed by public funding, and we conclude that such reductions should not be made. 48 In this case, we have decided to apply the break point approach ourselves. See Beazer v. New York City Transit Authority, supra, 558 F.2d at 100-01 (revising amount of fee award); Kamberos v. GTE Automatic Electric, Inc., 603 F.2d 598 (7th Cir.1979) (same). In light of billing rates in New York City in 1980, the last year for which fees are claimed in this application, we think that an appropriate break point to be used in this case is $75 per hour. We do not intend to preclude district judges in other cases from selecting a break point somewhat above or below the figure we have selected in this case. We simply conclude that as of 1980 fees for the claimants in this case should not be calculated at rates higher than $75 per hour, instead of at rates ranging from $70 to $140 as used by the District Court. 49 B. Current or Historic Rate. A further issue in determining an appropriate hourly rate is whether to use figures pertinent to the time when the services were provided or the time when the award is made. In this case, the District Court, using what it deemed comparable market rates, chose current rates over historic rates to compensate [plaintiffs] for inflation and loss of interest that had taken place between the time when the legal services were rendered and when the fees were awarded. 544 F.Supp. at 337 (citing City of New York v. Darling-Delaware, 440 F.Supp. 1132, 1134 (S.D.N.Y.1977)). Other district courts in the Southern District of New York have calculated fees based on historic rates. See e.g., Desimone v. Industrial Bio-Test Laboratories, Inc., 83 F.R.D. 615, 621 (S.D.N.Y.1979). To our knowledge, this Circuit has not yet decided whether current or historic rates should be used in calculating fee awards. 50 In ordinary cases resolved in a year or two, it will make little difference whether historic or current rates are applied: price levels at the time of the award will vary only slightly from those prevailing when the litigation was underway. But, with complex institutional litigation that can last for many years, the difference may be great. For instance, when the Willowbrook litigation began in 1972, the average billing rate for Cravath associates was $33 per hour. In 1980, when the Willowbrook plaintiffs filed their application for attorney's fees, the average Cravath rate was $85 per hour, over two-and-one half times the 1972 rate. 51 Neither historic nor current rates are ideal. Historic rates have the advantage of precision in that they are based on the amount that a private law firm would have charged for its work or, where costs are used, the amount that a non-profit law office actually spent to staff the litigation. But historic rates do not reflect inflation or the cost of forgone interest, and, therefore, undercompensate prevailing parties. As the District Court noted, current rates, in contrast, incorporate inflation into fee awards. But the incorporation is imprecise and can overcompensate prevailing parties. In this case, the District Court's use of current rates gave plaintiffs a considerable windfall because Cravath's average billing rates grew much faster than inflation between 1972 and 1980. Moreover, the premise underlying use of current rates--that the firm would have billed and collected from the client during the litigation and therefore had the use of the money--is not true for non-profit law offices and frequently not true for private firms, especially in civil rights litigation. 52 We conclude that historic rates should be used for both profit-making firms and non-profit law offices in setting fee awards in multi-year cases. While not a perfect solution, the use of historic rates at least conforms to Congress' instruction to avoid windfall awards. However, we are reluctant to impose upon district courts an added burden of ascertaining precise year-by-year figures in every case. If the services were rendered over two or three years, relevant figures for the current year will normally still be appropriate. Even in protracted cases, it will be sufficient to divide the litigation into just two phases and use one rate for the early phase and a current rate for the later phase. In this case, where we have determined that a $75 rate should be used as a maximum rate for 1980 (unless the plaintiffs can demonstrate a higher cost figure), we think it appropriate to use that rate as the maximum rate for services rendered in 1978 and thereafter, and to use a $50 rate as the maximum rate for services rendered in prior years. 11 Since plaintiffs' attorneys were allowed 9,809 hours for the years prior to 1978 and 903 hours since 1978, this formula yields a basic compensation of $490,450 for the period before 1978 and $67,725 for the period after 1978 to date, for a total lodestar figure of $558,175. 12