Opinion ID: 618982
Heading Depth: 3
Heading Rank: 1

Heading: Reduction Due to Contingent Fee Arrangement

Text: In reducing Rossiello's hourly rate from $595 to $400, the district court appears to have relied in part on the fact that Rossiello will recover a contingent fee and a flat fee, amounting to nearly $30,000, aside from any statutory fees. The district court criticized Rossiello for not using the statutory award to offset Pickett's contingent fee obligation, noting that he did not cite to any case that has enforced an agreement that so gener[ous]ly compensates counsel. The district court also found the third party affidavits presented by plaintiff to be less persuasive because those attorneys did not receive contingent fees on top of their hourly rates. The district court further seemed to rely on its notions of fairness in concluding that an hourly rate of $400 will amply compensate Mr. Rossiello. We are unsure whether the court reduced the rate to prevent excessive recovery (i.e., reducing the rate by nearly 30% to balance out the 30% contingent fee) or whether it reduced the rate due to the lower persuasive weight of the affidavits from non-contingent-fee-earning attorneysbut we hold that either approach constitutes reversible error. The contingent fee that an attorney earns from his client and the statutory fee that an attorney recovers from the losing party represent distinct entitlements. In reviewing a fee petition, a district court is tasked only with examining whether the rate and hours requested are reasonable; the total amount that the attorney stands to recover must not influence this determination. We therefore vacate the award of attorneys' fees and remand to the district court to redetermine Rossiello's reasonable hourly rate without consideration of the contingent fee. The Supreme Court has made clear that courts are to use the lodestar method to calculate the statutory fee even when the attorney does not bill by the hour. See Venegas v. Mitchell, 495 U.S. 82, 87, 110 S.Ct. 1679, 109 L.Ed.2d 74 (1990); Blanchard, 489 U.S. at 94, 109 S.Ct. 939 (We have never suggested that a different approach is to be followed in cases where the prevailing party and his (or her) attorney have executed a contingent-fee agreement.); Blum, 465 U.S. at 894, 104 S.Ct. 1541. Because contingent-fee-earning attorneys do not possess the hourly billing rate needed to compute the lodestar, both the Supreme Court and this court have instructed courts to rely on the hourly rates that attorneys of comparable skill, experience, and reputation charge for similar work. See Blum, 465 U.S. at 894-95 & n. 11, 104 S.Ct. 1541; People Who Care, 90 F.3d at 1310. Neither the Supreme Court nor this court has implied that district courts should adjust the hourly rate of comparable attorneys to reach an hourly rate for a contingent-fee-earning attorney. Despite recognizing the lodestar method as not perfect, the Supreme Court recently extolled its virtues and reaffirmed its dominant role in federal fee-shifting cases. See Perdue, 130 S.Ct. at 1672. The Court observed that the lodestar method: (1) produces an award that roughly approximates the fee that the prevailing attorney would have received if he or she had been representing a paying client who was billed by the hour in a comparable case, (2) is readily administrable, and (3) is `objective' and thus cabins the discretion of trial judges, permits meaningful judicial review, and produces reasonably predictable results. Id. (citation omitted) (quoting Hensley, 461 U.S. at 433, 103 S.Ct. 1933). The Court contrasted the lodestar method with the earlier approach from Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974), which had provided twelve (largely subjective) factors to consider when determining a reasonable fee. See Perdue, 130 S.Ct. at 1671-72. The Court criticized the Johnson approach for yielding minimal guidance, disparate results, and unlimited discretion. See id. The Court had similarly relied on the virtues of the lodestar method when the Court ruled out contingency enhancements to the lodestar. See City of Burlington v. Dague, 505 U.S. 557, 566, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992) (citing interests of ready administrability and the avoidance of burdensome satellite litigation, which arise when contingency enhancements make fee determinations more complex and arbitrary). The Supreme Court has balanced the advantages and disadvantages of using the lodestar approach and has concluded that the lodestar's imperfect estimate is preferable to a multifactor, case-by-case attempt to more accurately determine the fee. The district court in this case went beyond the bounds of the lodestar method when it reduced Rossiello's hourly rate by a factor that has no bearing on the prevailing market rate. We recognize the district court's desire to craft a more accurate award, but the Supreme Court adopted the lodestar approach to prevent this type of unbounded discretion. Moreover, a fee applicant need only offer third party affidavits attesting to billing rates that truly are comparable to meet her burden, see Spegon, 175 F.3d at 556she does not need to establish that her attorney would receive this hourly rate on top of a contingent fee. Cf. Dague, 505 U.S. at 566-67, 112 S.Ct. 2638 (It is neither necessary nor even possible for application of the fee-shifting statutes to mimic the intricacies of the fee-paying market in every respect.). The court is to consult the same market when determining a reasonable hourly rate for contingent fee cases and non-contingent fee cases. See id. at 564, 112 S.Ct. 2638 (rejecting an approach that would require courts to look to a market of contingent-fee cases). Here, the district court reduced the hourly rate established by the comparators based on a presumption that those attorneys are able to bill at the high rates only because hourly billing represents their sole form of remuneration. But the opposite argument also has merit: the hourly rate could be adjusted upward because hourly-billing attorneys have the security of knowing that, win or lose, they will receive that rate, whereas contingent-fee-earning attorneys actually need to recover above their market rate in cases they win to balance out cases where they lose and recover nothing. [2] Cf., e.g., Medders v. Autauga Cnty. Bd. of Educ., 858 F.Supp. 1118, 1125-26 (M.D.Ala.1994) (argument made by counter-plaintiffs). There is thus no guarantee that the district court's downward adjustment yields a more accurate rate, and this approach conflicts with the Supreme Court's guidance. [3] Further, when a district court deems a third party affidavit to carry less persuasive value because the affiant bills by the hour, the court erects an obstacle to the recovery of statutory fees by contingent-fee-earning attorneys. This is particularly problematic given that many civil rights plaintiffs cannot afford to pay attorneys by the hour. See City of Riverside v. Rivera, 477 U.S. 561, 576-77, 106 S.Ct. 2686, 91 L.Ed.2d 466 (1986). The contingent fee arrangement creates the need to look to evidence of comparable lawyersbut these comparable lawyers must bill by the hour in order to help with the lodestar calculations. The Supreme Court has recognized that private fee arrangements and statutory fee awards can coexist. See Venegas, 495 U.S. at 88, 110 S.Ct. 1679. The Court has repeatedly distinguished between the statutory fee award, which compels the losing party to compensate the prevailing party for the attorney's services, and the contingent fee, which the plaintiff may contract to pay her attorney. See id. at 90, 110 S.Ct. 1679. This perspective conveys to district courts that they should view these fees as distinct and not allow a contingent fee to influence the determination of the reasonableness of an hourly rate. When a district court reduces an attorney's hourly rate because the attorney also stands to receive a contingent fee from the plaintiff, the defendant is no longer paying the attorney's full market value (i.e., reasonable hours spent multiplied by a reasonable hourly rate). The district court has essentially determined that the reduced statutory fee combined with the contingent fee will yield the market value. But this formulation is not what Congress or the Supreme Court intended. This attempt to prevent the plaintiff's attorney from recovering a windfall causes the defendant to receive a windfall benefit as it avoids its full fee-shifting obligation. Moreover, the Supreme Court has repeatedly emphasized that a plaintiff is free to contract with her attorney to pay a contingent fee in addition to assigning rights to the statutory fee. See Gisbrecht v. Barnhart, 535 U.S. 789, 806, 122 S.Ct. 1817, 152 L.Ed.2d 996 (2002) (stating that, in fee-shifting cases, nothing prevents the attorney for the prevailing party from gaining additional fees, pursuant to contract, from his own client.); Venegas, 495 U.S. at 86-89, 110 S.Ct. 1679 ([T]here is nothing in the section to regulate what plaintiffs may or may not promise to pay their attorneys if they lose or if they win.). The Court has stated that, if civil rights plaintiffs are permitted to waive their causes of action entirely, there is little reason to believe that they may not assign part of their recovery to an attorney if they believe that the contingency arrangement will increase their likelihood of recovery. Venegas, 495 U.S. at 88, 110 S.Ct. 1679. In attempting to prevent plaintiff's attorney from recovering a windfall, the district court impedes plaintiff's right to contract and plaintiff's ability to attract competent counsel. The Supreme Court has stated that depriving plaintiffs of the option of promising to pay more than the statutory fee if that is necessary to secure counsel of their choice would not further § 1988's general purpose of enabling such plaintiffs in civil rights cases to secure competent counsel. Venegas, 495 U.S. at 89-90, 110 S.Ct. 1679; see also In re Cont'l Ill. Sec. Litig., 962 F.2d 566, 573 (7th Cir.1992) ([T]he purpose of fee-shifting is to assure competent representation for plaintiffs rather than to make the cost of litigation to the successful plaintiff zero.). Reducing the statutory award due to the existence of the contingent fee has a similar effect of preventing a plaintiff from paying a contingent fee on top of a statutory feeboth actions constrain plaintiffs by limiting their contractual options and reducing the incentive for some attorneys to take their cases. We do not intend to minimize the district court's duty to prevent windfall recovery to attorneys in fee-shifting cases. See Rivera, 477 U.S. at 580, 106 S.Ct. 2686 (Congress intended that statutory fee awards be adequate to attract competent counsel but . . . not produce windfalls to attorneys. (internal quotation marks omitted)). However, this duty and its attendant discretion involve only the determination of whether the hours requested and the rate requested are reasonable. See Hensley, 461 U.S. at 433-34, 103 S.Ct. 1933. The very nature of recovery under § 1988 is designed to prevent . . . `windfall' because [f]ee awards are to be reasonable, reasonable as to billing rates and reasonable as to the number of hours spent in advancing the successful claims. Blanchard, 489 U.S. at 96, 109 S.Ct. 939. Fee awards that are properly calculated using the lodestar method by definition will represent the reasonable worth of the services rendered in vindication of a plaintiff's civil rights claim. Id. In this case, the district court reduced the fee award for numerous reasons that fall squarely within its authority and discretion, such as subtracting hours spent on an unsuccessful claim and disallowing duplicative hours spent on fee recovery. The district court could have reduced Rossiello's claimed hourly rate if it found that the evidence did not support the claimed ratee.g., because the third party affidavits are actually from attorneys with dissimilar experience or because the past fee awards support a lower rate. [4] See Mathur v. Bd. of Trustees of So. Ill. Univ., 317 F.3d 738, 743-44 (7th Cir.2003). But the district court's authority to scrutinize the statutory fee award for reasonableness does not permit it to reduce the statutory award based on an additional amount that the attorney stands to recover. The Supreme Court has cautioned that [w]hat a plaintiff may be bound to pay and what an attorney is free to collect under a fee agreement are not necessarily measured by the `reasonable attorney's fee' that a defendant must pay pursuant to a court order. Venegas, 495 U.S. at 90, 110 S.Ct. 1679. Here, the district court erred by extending its reasonableness inquiry beyond the contours of the statutory fee award. We are sympathetic to the court's perception that Rossiello stands to recover an excessive amount. But once the court has determined that the rate claimed and hours spent are reasonable, the district court's supervisory authority over statutory fee awards does not permit it to reduce the lodestar to prevent the attorney from recovering a windfall. [5] See id.; Van Gerwen v. Guarantee Mut. Life Co., 214 F.3d 1041, 1048 (9th Cir.2001) (A district court may not rely on a contingency agreement to increase or decrease what it determines to be a reasonable attorney's fee.). As further support for our conclusion that the district court lacks the authority to lower the hourly rate due to the existence of a contingent fee agreement, the Supreme Court held in Dague that courts cannot enhance the lodestar to account for the risk of nonpayment incurred by attorneys who take cases pursuant to contingent fee agreements. [6] 505 U.S. at 562, 112 S.Ct. 2638. The Court deemed the multiplier impermissible because it would largely duplicate factors already subsumed into the lodestar calculation, since contingent fee cases tend to be difficult cases that require a significant amount of hours or a skilled attorney who commands a high hourly rate. Id. at 562-63, 112 S.Ct. 2638. The Third Circuit has construed the reasoning underlying the Dague 's prohibition on contingent-fee-enhancements to apply equally to reductions. See Guarnieri v. Borough, 364 Fed.Appx. 749, 755-56 (3d Cir.2010), vacated in part on other grounds sub nom., Borough of Duryea, Pa. v. Guarnieri, ___ U.S. ___, 131 S.Ct. 2488, 180 L.Ed.2d 408 (2011). Moreover, the Ninth Circuit has construed Dague as an outright rejection of contingency as a factor relevant to the establishment of a reasonable fee, reasoning that the Court's rejection of contingency as a basis for determining the lodestar multiplier similarly leads to a rejection of contingency as a basis for determining the hourly rate. Davis v. City & Cnty. of San Francisco, 976 F.2d 1536, 1549 (9th Cir.1992), vacated in part on other grounds, 984 F.2d 345 (9th Cir.1993); see also Medders, 858 F.Supp. at 1126 (same); Watkins v. Fordice, 807 F.Supp. 406, 417 (S.D.Miss.1992) (same). These decisions provide further support for our conclusion that a court cannot adjust an hourly rate based on the existence of a contingent fee agreement. For the foregoing reasons, we conclude that a district court may not reduce an attorney's hourly rate or disregard third party affidavits based on the existence of a contingent fee agreement. Here, the district court criticized the contingent fee agreement but did not explain how it reduced the rate to account for the additional recovery. The district court's language leaves us unable to conclude that the contingent fee arrangement played no part in the rate reduction. Thus, we remand to permit the district court to consider whether it would reach the same lodestar calculation in the absence of any consideration of the contingent fee.