Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 73 C 2437 -- Joel M. Flaum, Judge.
Wood and Posner, Circuit Judges, and Gordon, Senior District Judge.*fn*
This case is on appeal from a decision of the district court awarding attorney's fees to plaintiffs*fn1 under 42 U.S.C. § 1988 (1976 & Supp. V 1981) for all time spent in connection with their lawsuit challenging the operation of the Illinois Aid to Families with Dependent Children (AFDC) public assistance program. Defendants*fn2 contend that the district court erred in basing the amount of the award on the total time plaintiffs spent litigating the case in light of plaintiffs' purported failure to prevail on significant issues in the litigation. Although we express no opinion as to the appropriateness of the size of the award in this case, we believe the case should be remanded to the district court for the reasons we explain.
The rather complex issues underlying plaintiffs' lawsuit were litigated over a period of more than eight years, beginning with the filing of the initial complaint in 1973 and culminating in a settlement agreement approved by the trial court on February 8, 1982. In their lawsuit, plaintiffs maintained that the manner in which the Illinois Department of Public Aid (IDPA) changed the method for calculating the "standard of need" it used in determining eligibility and payment levels for AFDC benefits violated section 402(a)(23) of the Social Security Act of 1935, 42 U.S.C. § 602(a)(23), and the equal protection clause of the fourteenth amendment. Plaintiffs argued that the IDPA consolidation methodology adopted in 1973, which altered the method for computing the "standard of need" from an individualized system to a consolidated, flat-grant procedure, improperly obscured the standard for AFDC recipients that existed under the old individualized grant system. Plaintiffs objected to the new consolidation methodology on two principal grounds. They argued that the new Consolidated Standard Plan (CSP) failed (1) to account fully for each of the need items (e.g., food, clothing, rent) included in or that should have been included in the earlier individualized standard of need and (2) to assign fair prices to those items. Plaintiffs sought declaratory and injunctive relief invalidating the consolidated standard and requiring the IDPA to reformulate the standard to correct the alleged errors. After approximately two years of litigation, the district court granted summary judgment to plaintiffs as to certain portions of these objections, denied others, and clarified the issues of fact that remained to be tried. Illinois Welfare Rights Organization v. Trainor, 438 F. Supp. 269 (N.D. Ill. 1977). Thereafter, the parties undertook protracted discovery, and plaintiffs filed an amended complaint and obtained class certification. Just before trial, however, the parties entered into a stipulation and agreement that provided that the IDPA would develop a new definition of "standard of need" that would not be based on the pre-October 1, 1973, data used to construct the CSP, but instead on data developed by the federal government and updated to reflect then-current costs. The stipulation also stated that the parties agreed that plaintiffs were entitled to reasonable attorney's fees pursuant to 42 U.S.C. § 1988 (1976 & Supp. V 1981). Because the parties were unable to negotiate an appropriate amount of attorney's fees, the matter was submitted to the district court for a determination.
On January 23, 1983, Judge Flaum issued a memorandum opinion in which he awarded fees and costs to plaintiffs in the amount of $261,797.88. Illinois Welfare Rights Organization v. Miller, No. 73 C 2437 (N.D. Ill. Jan. 27, 1983). The amount was designed to compensate plaintiffs for all time expended in the litigation, since Judge Flaum concluded that the plaintiffs were "prevailing parties" and that "they succeeded, through settlement, in their overall objective of obtaining a new method of computing the standard of need." Id., slip op. at 5.
Section 1988 of Title 42, 42 U.S.C. § 1988 (1976 & Supp. V 1981), allows courts to award reasonable attorney's fees to "prevailing parties" in federal civil rights actions. A plaintiff will be considered a "prevailing party" and entitled to reasonable attorney's fees if the plaintiff has succeeded " ' on any significant issue in litigation which achieves some of the benefit the part[y] sought in bringing the suit. '" Hensley v. Eckerhart, 461 U.S. 424, 103 S. Ct. 1933, 1939, 76 L. Ed. 2d 40 (1983) (quoting Nadeau v. Helgemoe, 581 F.2d 275, 278-79 (1st Cir. 1978)); Lenard v. Argento, 699 F.2d 874, 899 (7th Cir.), cert. denied, 464 U.S. 815, 52 U.S.L.W. 3262, 78 L. Ed. 2d 84, 104 S. Ct. 69 (1983). To be considered a "prevailing party," a plaintiff need not have succeeded at a trial on the merits, so long as through settlement or otherwise the plaintiff has vindicated his or her rights. Maher v. Gagne, 448 U.S. 122, 65 L. Ed. 2d 653, 100 S. Ct. 2570 (1980); Harrington v. DeVito, 656 F.2d 264 (7th Cir. 1981), cert. denied, 455 U.S. 993, 102 S. Ct. 1621, 71 L. Ed. 2d 854 (1982). The test for whether a plaintiff is a prevailing party in a settled case is two-fold. First, "the plaintiff['s] lawsuit must be causally linked to the achievement of the relief obtained," and second, "the defendant must not have acted wholly gratuitously, i.e., the plaintiff['s] claim, if pressed, cannot have been frivolous, unreasonable, or groundless." Harrington v. DeVito, 656 F.2d at 266-67. Once a plaintiff is found to be a prevailing party, the court then must consider several factors in determining what will constitute a reasonable attorney's fees award.
The considerations for determining the amount of a reasonable attorney's fees award only recently were described by the United States Supreme Court in Hensley v. Eckerhart, 461 U.S. 424, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983), a decision that was handed down after Judge Flaum's opinion in the instant case. In our view, the decision in Hensley affects previous approaches to attorney's fees awards adopted in this circuit in two significant respects. First, it implicitly rejects our opinion in Johnson ex rel. Johnson v. Brelje, 701 F.2d 1201 (7th Cir. 1983) that "attorney's fees should be awarded only for preparation and presentation of those claims on which the plaintiff prevailed." Id. at 1211. Hensley specifically approves awarding attorney's fees for time expended on unsuccessful claims for relief that are related to successful claims. Second, Hensley emphasizes that courts must give considerable attention to the relationship between the extent of the plaintiff's success and the amount of the fee award.
The two-part analysis described in Hensley requires that, once a court has found a plaintiff to be a "prevailing party," it then must consider whether the plaintiff has asserted any unsuccessful claims that are "distinctly different" from the successful claims. Such "distinctly different" claims, which are based on "different facts and legal theories" than the successful claims, should be excluded in determining reasonable attorney's fees. 103 S. Ct. at 1940. See, e.g., Mary Beth G. v. City of Chicago, 723 F.2d 1263, slip op. at 28-30 (7th Cir. 1983). If, however, the plaintiff has asserted unsuccessful claims related to the successful claims by a "common core of facts" or that are based on "related legal theories," 103 S. Ct. at 1940, time spent on these related but unsuccessful claims should not automatically be excluded in arriving at a reasonable attorney's fees award. Instead, the court is to undertake a second analysis and focus on the overall results obtained to determine whether it should compensate the plaintiff for the hours spent on the related but unsuccessful claims. Generally, if the results obtained are excellent, the "[plaintiff's] attorney should recover a fully compensatory fee," which will "normally . . . . encompass all hours reasonably expended on the litigation . . . ." Id. If the plaintiff has achieved only partial success, however, compensating the plaintiff for all hours expended on the litigation may be excessive. In such a situation, the court may adjust the award either by identifying specific hours that should be eliminated or by simply reducing the overall award to reflect the plaintiff's limited success. Id. 103 S. Ct. at 1941.
Defendants concede that plaintiffs have met the threshold requirements to be considered "prevailing parties" but maintain that the case must be remanded because the district court never addressed the questions whether the plaintiffs failed to prevail on certain claims that were unrelated to or severable from their successful claims and whether they achieved a level of success that makes all of the hours reasonably expended a satisfactory basis for making the fee award. The problem with applying the analyses in Hensley to the present case, however, is that Hensley involved fully litigated claims and not a settlement agreement. Although some settlement agreements may be structured so that they dispose of the original claims in a way that allows the court to decide whether a particular claim has been ultimately successful or unsuccessful, this will not always be the case. Indeed, many settlements will be informally structured with an eye toward the achievement of overall objectives, rather than the disposition of discrete claims. With these more general settlements, the analysis in Hensley regarding successful and unsuccessful claims may be unworkable, although the central teaching of Hensley will still apply. That teaching is that in every case the court must explicitly consider whether the fee is a reasonable one in light of the level of the plaintiff's success.
The case before us is unusual in that some of the issues were decided on summary judgment and one was severed for separate consideration before the parties entered into the settlement agreement. It is even more unusual in that the settlement agreement arguably resolved some issues differently than the way these issues had been disposed of on summary judgment. For example, although plaintiffs lost on summary judgment on their claim that the IDPA erred in not incorporating the amount actually paid by the recipients for shelter and certain other items into its consolidation, Illinois Welfare Rights Organization v. Trainor, 438 F. Supp. 269, 275-77, 283 (N.D. Ill. 1977), the new standard of need adopted as part of the settlement agreement arguably secured for plaintiffs the relief they sought on the claim; the new standard is based on the expenses a poor family in Illinois actually incurs for shelter, as well as for other needs. See IDPA's Rules 3.516, 3.517, published at 6 ...