US Supreme Court Limits Fee Enhancements to "Exceptional Cases"

Posted on April 30, 2010 by Gary A. Bresee

In a much anticipated legal fee decision, the U.S. Supreme Court ruled on April 21, 2010, that trial courts may award fee enhancements above the “lodestar” amount to lawyers for superior performance, but only in rare and well-documented circumstances. 

The case of Perdue v. Kenny A. was one which had been carefully watched by civil rights and public interest groups, many of which rely on fee-shifting statutes when they prevail in litigation. 

The Supreme Court’s 5-4 majority rejected the fee enhancement request of $6 million by plaintiffs’ lawyers in a successful class-action suit on behalf of 3,000 children in Georgia, which the court recognized had helped reform the Georgia foster care system.

The trial judge awarded the lawyers $6 million using the lodestar method of calculating legal fees — hours worked multiplied by the local hourly market rate for lawyers of comparable experience and skill. The judge then added an “enhancement” of $4.5 million for what he said was work of exceptionally high quality.

Justice Alito, writing for the majority, said fee enhancements for superior attorney performance are permissible, but only in exceptional cases. In this case, however, he believed that the trial judge did not provide “proper justification” for the enhancement under a series of factors listed in the opinion. 

Justice Alito made it clear that the purpose of fee enhancements was not to enrich the lawyers.  He said that federal fee-shifting law,

... serves an important public purpose by making it possible for persons without means to bring suit to vindicate their rights.  But unjustified enhancements that serve only to enrich attorneys are not consistent with the statute’s aim. 

In a footnote, Alito added that if the $4.5 million fee enhancement that was awarded by the trial judge had remained in place, the attorneys representing the foster care plaintiffs “…would earn as much as the attorneys at some of the richest law firms in the country.” 

In conclusion, the 5-4 majority opinion overturned the trial court’s award of a $4.5 million lodestar enhancement to plaintiffs’ attorneys and remanded the case back to the district court.

Private Attorney General Fees are Only Available in an Action Against the Opposing Party

Posted on April 9, 2010 by David J. McMahon

By: David J. McMahon and Brendan V. Mullan

In McGuigan v. City of San Diego, 2010 DJDAR 5078 (2010), the California Court of Appeal for the Fourth District rendered a decision in a unique private attorney general case under the provisions of C.C.P. § 1021.5.

A retired employee of the City of San Diego (San Diego) brought an action as a representative plaintiff for a class of similarly situated employees. The lawsuit was brought against San Diego alleging that the City seriously underfunded its retirement plans. The parties settled the lawsuit. The settlement agreement required the class representative to act in a similar capacity in further proceedings. After the settlement agreement was signed, there were extensive court hearings and several challenges raised to the settlement. 

The trial court concluded that the objections submitted had been adequately addressed, and approved the settlement and issued judgment. The settlement agreement included an award of attorney fees to class counsel pursuant to C.C.P. § 1021.5 which the court approved. San Diego subsequently was ordered to pay $1.6 million in attorney fees.

The settlement objectors appealed the court’s ruling approving the settlement. Following successful defense of the settlement on this appeal, the class representative motioned for additional attorney fees from San Diego. The trial court denied the motion. The court stated that C.C.P. § 1021.5 allows a fee award only against an “opposing” party. The court found that on appeal, McGuigan and San Diego were not opposing parties. The class representative appealed that ruling.

The Court of Appeal affirmed, noting that C.C.P. § 1021.5 permits a trial court, in its discretion, to award private attorney fees to a successful party in any appropriate action against only an opposing party. The settlement agreement entered into by San Diego and McGuigan, and the subsequent judgment, altered the parties’ relationship in the litigation. As a settling party and fellow respondent to the third party’s appeal, San Diego was not an “opposing party” to McGuigan, as they were all allied in interest in defending the settlement. 

Therefore, McGuigan was not entitled to attorney fees from the City under C.C.P. § 1021.5.

Discretion to Deny Costs and Attorney Fees to FEHA Plaintiffs Rests with the Trial Courts

Posted on April 9, 2010 by David J. McMahon

In a recent California Supreme Court decision, the court determined that trial courts have the discretion to deny costs and attorney fees to a plaintiff alleging violations of the FEHA who recovers damages that could have been recovered in a limited civil case

By: David J. McMahon and Brendan V. Mullan

 In Chavez v. City of Los Angeles, 47 Cal. 4th 970 (2010), the California Supreme Court was presented with yet another claim brought under the Fair Employment and Housing Act (FEHA) in which the plaintiff’s attorney requested fees far in excess of the minimal damages recovered by the plaintiff. The issue before the court was whether C.C.P. section 1033(a) gives courts the discretion to award attorney fees to a prevailing party under the FEHA when the judgment is less than the jurisdictional amount of limited civil cases ($25,000 or less).

In Chavez, the plaintiff was a police officer who sued the city of Los Angeles alleging claims of employment discrimination, harassment and unlawful retaliation in violation of the FEHA; defamation; intentional infliction of emotional distress; invasion of privacy; civil rights violations; trespass, inverse condemnation; nuisance and intentional infliction of emotional distress. 

After seven years of convoluted litigation in state and federal court, the plaintiff prevailed on one claim, retaliation, and received a judgment in the amount of $11,500. Plaintiff’s other causes of action were all dismissed or found without merit. 

After the jury returned its verdict, the plaintiff’s attorney filed a motion for attorney fees under Government Code section 12965(b) for $436,602.75. Two months later, the attorney filed an amended motion for attorney fees, adding a “2x” multiplier to the lodestar calculation, increasing the amount of fees requested to a total of $870,935.50. 

Defendants opposed the motion asserting that the plaintiff’s attorney had overreached and outrageously inflated the fee request.

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Court Decides Novel Issue Concerning Priority of a Contractual Lien for Legal Services

Posted on April 1, 2010 by David J. McMahon

In Pou Chen Corp. v. MTS Products, 2010 DJDAR 4577 (March 26, 2010), the California Court of Appeal, 2nd District, decided a novel issue concerning the priority of a contractual lien for legal services.

Background

GBMI entered into a contract with MTS whereby GBMI would buy products that MTS intended to sell to Wal‑Mart. Subsequently, the parties negotiated and entered into as a joint venture and formed a new entity named BHE. A third entity, Pou Chen Corp., contributed $10 million for purchase of a 70 percent interest in the new entity, BHE. MTS began withholding payments from BHE due to a business dispute. BHE and GBMI sued MTS to recover the withheld funds. At trial, the jury awarded BHE and GBMI $46,485,578 and awarded MTS $11,476,877 against Pou Chen on its cross‑complaint.

Subsequently, two law firms entered into a joint retainer agreement with MTS to collect MTS’s judgment against Pou Chen. 

The law firms negotiated a contractual lien on any recovery obtained against Pou Chen. Later, BHE and GBMI obtained a writ of execution and levied on MTS’s bank accounts, resulting in payment to BHE and GBMI of $24,813,458. Thus, approximately $23,643,689 was unpaid on the BHE judgment. BHE and GBMI then assigned the unpaid judgment to Pou Chen for $100,000 and Pou Chen moved to offset the judgments.

MTS briefed the issue, arguing that the lawyers had contractual liens that were senior to Pou Chen’s right to offset the judgment. Nonetheless, the trial court granted Pou Chen’s offset motion. The result was that Pou Chen had a remaining judgment against MTS of $11,249,864.

MTS pursued an appeal of the trial court’s ruling and the Court of Appeal affirmed, stating: 

The offset of a judgment against judgment is a matter of right absent the existence of facts establishing competing equities.

The Court of Appeal stated that an attorney’s lien is superior to any right to offset judgments obtained in independent actions. 

The court noted, however, that the lien is subordinate to an adverse party’s right to offset judgments in the same action or in an action based on the same transaction. In this case, the BHE and GBMI judgment obtained by Pou Chen related to the same transaction as the MTS judgment. The court entered the judgment at the same time and in the same action as the MTS judgment. 

The law firms’ contractual liens were thus subordinate to Pou Chen’s right to offset the judgment.