Civil Rights Opinion May Affect Attorney's Fees in Bankruptcy

A decision reviewing attorney's fees in a complex Title VII class action may have repercussions for attorney's fees in bankruptcy cases as well. McClain v. Lufkin Industries, Inc., No. 10-40036 (5th Cir. 8/8/11). You can find the opinion here.

What Happened

The Lufkin Industries case appears to be a David v. Goliath case where David decided he needed reinforcements. Timothy Garrigan, an attorney with a three attorney firm in Nacogdoches, Texas filed a class action suit against Lufkin Industries, Inc. under Title VII, alleging disparate treatment and disparate impact theories. While Mr. Garrigan was found to be well-qualified to handle the class-action, he determined that "it was imperative to associate with co-counsel in order to successfully try this case." The Court wryly noted that, "The case's ultimate trajectory, which spanned a decade and involved thousands of attorney hours, confirmed his initial impression."

When Mr. Garrigan went searching for co-counsel, he had to cast a wide net. After being turned down by multiple Texas firms, he ultimately associated Goldstein, Demchak, a firm from Oakland, California. The plaintiffs' team was successful. Although their initial judgment was reversed and paired down, the plaintiff class still recovered $3.3 million in back pay for discriminatorily lost promotions dating back to 1994.

The plaintiff's attorneys sought $7.7 million in fees. The Court allowed $4.7 million in fees. In doing so, they calculated the lodestar for both the Texas and the California lawyers at $400.00 per hour. This displeased the California lawyers who had sought an award based on $650.00 per hour. Specifically, the District Court ruled that fees should be awarded based on the prevailing market rate in the relevant legal market.

The Ruling

On appeal, the Fifth Circuit considered how to calculate the lodestar, that is, the proper hourly rate to be multiplied by the proper number of hours. The Court stated:

The precedents and purposes governing fee-shifting awards in civil rights cases are well established. The awards facilitate plaintiffs’ access to the courts to vindicate their rights by providing compensation sufficient to attract competent counsel. Fee awards must, however, be reasonable. (citation omitted). The linchpin of the reasonable fee is the lodestar calculation, a product of the hours reasonably expended by the law firms and the reasonable hourly rate for their services. (citation omitted). Charges for excessive, duplicative, or inadequately documented work must be excluded. (citation omitted).

Seminal to this case is the principle that “reasonable” hourly rates “are to be calculated according to the prevailing market rates in the relevant community.” (citation omitted). Further, Blum noted, “the burden is on the applicant to produce satisfactory evidence . . . that the requested rates are in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation.” (citation omitted). In an unbroken and consistent line of precedent, this court has interpreted rates “prevailing in the community” to mean what it says. Thus, as early as 1974, this court required district courts to consider the customary fee for similar work “in the community.” (citations omitted). Most telling, perhaps, is this court’s decision in a landmark affirmative action case reducing the fee of plaintiffs’ counsel, a former U.S. Assistant Attorney General and subsequent U.S. Solicitor General, from the rates he charged in Washington, D.C., to the prevailing rate in the forum, Austin, Texas. (citation omitted).

Opinion, pp. 8-9.

In the particular case, the Court found that

(W)here, as here, abundant and uncontradicted evidence proved the necessity of Garrigan's turning to out-of-district counsel, the co-counsel's '"home'' rates should be considered as a starting point for calculating the lodestar amount.

Opinion, p. 11.

What It Means

This conclusion is significant for the opposite of what it says. Out of district rates were allowed as the starting point for the lodestar because there was extensive evidence that no Texas lawyer was willing to touch the case. The converse is that an out-of-district lawyer cannot charge out-of-district rates if there was a qualified, local lawyer who could have taken the case.

The application to bankruptcy cases (which follow the same lodestar approach) is that a New York lawyer cannot charge New York rates in Houston without showing that a similarly qualified Houston lawyer was not available, or that a Houston lawyer could not charge Houston rates in Austin without showing that a similarly qualified Austin lawyer was not available, or that an Austin lawyer could not charge Austin rates in Waco without showing that a similarly qualified Waco lawyer was not available.

If this decision is applied to bankruptcy cases, it could prove to be a boon to local lawyers who are perfectly qualified to handle difficult cases but are willing to charge local rates. After all, if Ted Olson was limited to Austin rates in Hopwood v. State of Texas, why would a bankruptcy court in Austin allow a Washington, D.C. firm to charge D.C. rates in a bankruptcy case in Austin, Texas?

The Concurrences

Almost as interesting as the majority opinion are the concurrences. Chief Judge Jones and Circuit Judge Dennis each wrote separately to discuss aspects of the case. Since Chief Judge Jones authored the majority opinion, her concurrence to her own opinion is interesting to say the least.

Chief Judge Jones wrote to express her concern that the California lawyers were, let's be frank here, being greedy. She stated:

It cannot escape the reader’s attention that the Goldstein Demchak firm has been authorized to receive several million dollars in fees, and a million dollars in expenses, for prevailing in this protracted case. But to them, that’s not enough, and they seek an hourly increase that will add $3 million more to their award. If that happens, the attorneys will have received nearly double the dollar award of the plaintiffs. What has fee shifting come to? This is not an appeal about incentivizing modestly compensated attorneys for pursuing noble goals: the $400 hourly rate awarded to Mr. Garrigan is hardly a day laborer’s fee. This appeal is designed simply to enrich, not to enhance or encourage. The Supreme Court holds that fee-shifting cannot bring a windfall to attorneys. (citation omitted). On remand, the district court should exercise its discretion within the parameters we have set out to prevent a windfall recovery.

Opinion, at pp. 20-21. Do you think that Judge Jones made her feelings about the fees in this case clear enough? While Chief Judge Jones' majority opinion allowed the possibility of higher rates for out of district counsel, her concurrence suggests that she strongly objects to allowing that possibility in practice. Query whether she would show the same scorn for a bank's lawyers who sought to obtain a "windfall recovery"?

Judge Dennis wrote separately to suggest that the "hourly rates charged by the defendant's attorney's provide a helpful guide in determining whether similarly high rates and hours requested by the plaintiffs were reasonable." In the bankruptcy context, if the creditor's lawyers are charging obscene fees, then the debtor's lawyers may charge merely scandalous fees.

I think that this opinion, while affirming national rates in the specific case, is a victory for local rates in general. Of course, it bears mentioning that determining the appropriate market rates to use in the lodestar is only the starting point. Courts are still free to adjust upward or downward based upon the facts of the specific case.