UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION
August 19, 1991
SHERRY EIRHART, Plaintiff,
LIBBEY-OWENS-FORD COMPANY, Defendant; EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff, v. LIBBEY-OWENS-FORD COMPANY, Defendant
Milton I. Shadur, United States District Judge.
The opinion of the court was delivered by: SHADUR
MEMORANDUM OPINION AND ORDER
MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE
This Court's May 22, 1991 memorandum opinion and order as supplemented June 7 (collectively "Opinion 1"), coupled with its June 12 "Opinion 2," found that plaintiffs were entitled to an award of attorneys' fees for part (though not all) of the matters covered in their November 7, 1990 petition for fees (the "Fee Petition"). Both plaintiffs and Libbey-Owens-Ford Company ("LOF") have submitted memoranda on the remaining questions relevant to quantifying the fee award.
In a number of areas the parties have no quarrel: the basic hourly rates to be ascribed to plaintiffs' lawyers in calculating the "lodestar" figure and the reasonableness of the hours spent on Fee Petition categories A, G, H and K -- four of the five categories that this Court found compensable in Opinion 1. What remain open are these issues that are now ripe for decision:
1. what portion of the Petition F
hours are compensable;
2. what calculations are appropriate to adjust for delay in payment; and
3. whether a multiplier should be applied to the lodestar figure and, if so, how much.
Petition F covers plaintiffs' lawyers' services that are compensable in some areas as well as services in other areas that are not. One of plaintiffs' lawyers (Lynn Sara Frackman) has submitted an affidavit stating that just 10% of the 35 hours spent on Petition F matters (more than one-half of those total Petition F hours were put in by Ms. Frackman) actually related to the non-compensable matters. LOF counters by arguing that just two of the four subcategories in Petition F were compensable, so that LOF calls for a 50% reduction in the requested time.
It would be overly simplistic to adopt LOF's suggested approach. As with Animal Farm, some of the issues subsumed within Petition F were far more equal than others. Certainly the most time-consuming of them had to be the sharp dispute -- presenting a serious and complex legal question that this Court was required to resolve -- over LOF's reporting of the payment of class counsel's attorneys' fees as income to the class members. Because both sides recognize that the two noncompensable issues were joint efforts of the parties (LOF Mem. 3, P. R. Mem. 3) and therefore necessarily involved much less time, clearly only a minor fraction of the Petition F time should be disallowed.
It might perhaps be arguable that 10% is a bit too modest a discount, but this Court has no real way to go behind the records to make an assuredly accurate hindsight calculation. With just 35 hours having been spent on all of the Petition F matters, the numbers suggested by plaintiffs' counsel Frackman could arguably be off by only a few hours at most. This Court accepts the sworn estimate of Ms. Frackman -- the lawyer who did most of the work -- as a knowledgeable and credible characterization.
Delay in Payment
This Court has had many occasions to deal with the subject of attorneys' fee awards -- as a frequent lecturer or seminar participant, as well as in numerous oral rulings and written opinions. On the more focused question of how it is most appropriate to compensate for delay in payment, the availability of three of its written opinions ( Fleming v. County of Kane, 686 F. Supp. 1264, 1272-75 (N.D. Ill. 1988); Lippo v. Mobil Oil Corp., 692 F. Supp. 826, 838-42 (N.D. Ill. 1988); In re Telesphere International Securities Litigation, 753 F. Supp. 716 (N.D. Ill. 1990)) obviates the need for a great deal of discussion here.
As those opinions make plain, the goal of the fee award should be to place the lawyer in the same economic position as if the matter had been billed and paid like any regular component of the lawyer's practice for a paying client, rather than having to wait for payment at the end of the litigation ( Fleming, 686 F. Supp. at 1272). That goal is best attained in this manner:
1. Historical hourly rates should be used rather than employing today's billing rates -- really an arbitrary (though simple) method that unfortunately sometimes provides a windfall for the payor and sometimes provides a windfall for the payee. It is sheer accident when the changes in billing rates from the time the services were rendered to the time they are paid for mirror the true economic cost of the delayed payment ( Lippo, 692 F. Supp. at 838-39).
2. For the reasons also explained in Lippo, id. at 839-42, the interest rates used to equate (a) payment today with (b) past payment plus the use of the money since then should be the prime rate from time to time.
3. To equate the deferred-payment calculation to the paradigm of timely billing and payment, the calculation should assume that each monthly payment would have been 30 days after the end of month in which services were rendered ( Fleming, 686 F. Supp. at 1274). To minimize the number of individual calculations that would have to be made on a month-by-month basis, a weighted-average methodology ( id. at 1274 n. 17) ordinarily produces results so close to the model as to serve the purpose satisfactorily.
Plaintiffs had initially sought a combination of current billing rates plus prejudgment interest (P.Mem. 2). LOF had responded quite correctly that any such treatment was wrong -- so LOF instead contended (properly) for the use of historic hourly rates rather than current rates, but its position was that interest on the charges determined with the use of those rates should then be calculated at the prime rate only from the Fee Petition date. Each of those approaches -- that proffered by plaintiff and LOF's response -- thus unduly favors the filing party (something that is never a surprise), but P.R. Mem. 3-5 and its Attachment 3 properly adheres to the principles that this Court has announced in the cited cases. Because this opinion has already ruled in plaintiffs' favor on the first issue dealt with earlier in this opinion, this Court therefore also approves the "lodestar" calculation of $ 30,975.87 as of August 15, 1991.
Plaintiffs urge that a multiplier be applied to that lodestar figure because of the risks that were and are implicit in their representation. LOF responds with three objections. It says a multiplier is contrary to:
1. the agreements between the parties (LOF Mem. 6-7);
2. this Court's rulings (LOF Mem. 7-8); and
3. the relevant case law (LOF Mem. 9-10).
Although LOF's position is certainly arguable on the last of those three points (but clearly not on the first two), it ultimately loses on all counts.
First, all that the parties' Settlement Agreement Art. VII, § 3 says is this:
Defendants shall pay such reasonable attorneys' fees to Plaintiff Eirhart as the Court shall direct or as they shall agree, subject to Court approval. Nothing herein shall affect any party's right to seek attorneys' fees in connection with any action seeking enforcement of or compliance with this Agreement or the Decree.
Nothing there says a word as to the measure of such fees if awardable. Instead, as Opinion 2 at 3 (emphasis in original) says:
By its terms SA Art. VII § 3 both (1) conferred a right on Class Counsel to recover certain fees and (2) confirmed that such rights did not negate the potential for another award of fees under law.
Second and relatedly, the LOF Mem. 7 reference to Opinion 1 as a basis for rejecting a multiplier is equally misconceived. Nothing there speaks to the amount of attorneys' fees either, as distinct from the scope of potentially compensable services.
That then leaves the multiplier issue to be resolved in accordance with the case law on the subject. On that score, as already indicated, LOF certainly cannot be faulted for arguing against the award of a lodestar enhancement -- considerable case law (including the older case law in this Circuit) supports that position, and the question of a risk-reflective multiplier has created the sharpest conceivable split in the Supreme Court in Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 483 U.S. 711, 97 L. Ed. 2d 585, 107 S. Ct. 3078 (1987) ("Delaware Valley II"): actually a 4 to 4 to 1 division, even more splintered than the far more frequently encountered 5 to 4 margin of decision.
But plaintiffs' counsel are correct in pointing out (R. Mem. 9-10) that our own Court of Appeals has more recently rethought the problem and has expressed a different view from its earlier opinions (those relied on by LOF) in Skelton v. General Motors Corp., 860 F.2d 250 (7th Cir. 1988). There the court said ( id. at 257 & n. 9):
The district court recognized that this circuit has in recent years disfavored awarding fee enhancers in statutory fee cases.
As we noted above, however, the Supreme Court has since squarely addressed this issue. In Delaware Valley, a group of citizens had prevailed in an action under the Clean Air Act, 42 U.S.C. § 7410. Fees were awarded to the plaintiffs (not directly to their attorneys) under the fee-shifting provision of the Act, id. § 7604(d). The defendant appealed the district court's enhancement of the fee award to compensate the plaintiffs' attorneys for assuming the risk of loss through nonpayment. Justice O'Connor, casting the deciding vote, agreed with the plurality that the circumstances of Delaware Valley did not warrant the award of a risk multiplier. She agreed with the dissent, however, "that Congress did not intend to foreclose consideration of contingency in setting a reasonable fee under fee-shifting provisions." 107 S. Ct. at 3089 (O'Connor, J., concurring in part and concurring in judgment).
In light of the Delaware Valley decision, we cannot adopt the position that risk multipliers are prohibited in all statutory fee-shifting cases.
* * *
Having concluded that plaintiffs' counsel are not precluded from seeking a fee enhancer to compensate for contingency we turn to the question whether under the circumstances of this case they are entitled to the risk multiplier they seek.
To the extent that this circuit has previously taken a position disfavoring risk multipliers in fee-shifting cases, see, e.g., McKinnon v. City of Berwyn, 750 F.2d 1383, 1392 (7th Cir. 1984), we appear to be withdrawing from that position. See Kirchoff v. Flynn, 786 F.2d 320, 326 (7th Cir. 1986) ("Increasing hourly rates for risk and delay is one way of restoring the hourly rate a lawyer could obtain from a paying client, and a necessary way when the base of the fees must be the hourly rate."); Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 776 F.2d 646, 661 (7th Cir. 1985) ("We do not mean to imply that a multiplier for the contingent nature of success is inappropriate when lawyers bear the risk of nonpayment and the delay in payment."). But see Hagge v. Bauer, 827 F.2d 101, 111 (7th Cir. 1987) (risk of loss is not a basis in this circuit for enhancing lodestar; Supreme Court has yet to decide this issue).
Skelton went on to "remand this case to the district court to consider whether class counsel are entitled to compensation for incurring the risk of nonpayment" (id. at 258). It discussed in some detail the justifications for the risk-based multiplier, referring in part to a Yale Law Journal article's suggestion that "lawyers in successful cases receive a fee twice what they would have received from clients whose payment is not contingent on success." It then emphasized the discretion vested in the district court, "familiar as it is with the nature of the litigation, . . . to decide if and to what extent the plaintiffs' counsel should be compensated for risk," and concluded the discussion with this thought (but not decision) (id. at 258):
It may be that a doubling of the lodestar would provide a sensible ceiling. It would certainly address the concern that extremely risky cases (those bordering on the frivolous) not warrant extremely large risk multipliers.
This case seems the model candidate for application of a multiplier -- and a substantial one. Class counsel here are not in the same position as a lawyer who decides whether or not to accept a case in the first instance -- and who can at that time make a market decision about the case's strengths and weaknesses (the risk of loss) and about whether accepting the case on a contingency is worth that risk. Instead the class counsel in this instance have ongoing responsibilities to the class whom they have represented so well over a period of many years -- rendering services that culminated in the Settlement Agreement and Consent Decree. As and when post-Decree issues arise now, counsel's obligations to their class-member clients may well include the duty to assert many arguments that can be advanced in objective good faith on behalf of their clients (that is, arguments that do not involve risks of sanctionability under Rule 11) but that ultimately prove to be losers. In that respect class counsel are much like in-house counsel or regular corporate counsel -- captive in the sense of being bound to represent the client -- but
they do not have the same assurance as those types of lawyers of receiving regular payment for all their services regardless of the outcome.
Where as here a lawyer has affirmative responsibilities to handle matters that can be compensated for only if he or she wins, it is an intolerable system that would pay for the ultimately successful components of the ongoing representation only at the straight hourly rates that apply to the lawyer's representation of clients with advance assurances of payment. That would put the lawyer in the no-win situation in which the only possibility of adequate compensation would be the attainment of a 100% success rate -- an extraordinarily unlikely (if not downright impossible) prospect for even the most skillful advocate. This Court will instead follow the lead of the Skelton remand -- and it accordingly finds that the requested doubling of the lodestar figure requested by plaintiffs' counsel, under the circumstances of this case, is really reasonable as an a fortiori conclusion from the reasons stated here.
Plaintiffs' counsel have the better of the argument on each of the contested issues here. This Court has approved both the lodestar calculation of $ 30,975.87 as of August 15, 1991 and the doubling of the lodestar figure as a multiplier to compensate for the risks of nonpayment.