United States District Court, N.D. Illinois, Eastern Division
December 15, 2005.
DECARLO TURNER, Plaintiff,
BENEFICIAL NATIONAL BANK and BENEFICIAL TAX MASTERS, INC., Defendants.
The opinion of the court was delivered by: ELAINE BUCKLO, District Judge
MEMORANDUM OPINION AND ORDER
Before the court is the application of Daniel Harris for
attorney's fees in connection with his representation of DeCarlo
Turner, individually, in her case against Beneficial National
Bank and Beneficial Tax Masters, Inc. ("Beneficial"). In February
of 2005 the parties advised me that the matter had been settled.
I dismissed the complaint but reserved jurisdiction over the
question of attorney's fees. Mr. Harris now seeks total fees of
$185,124 for services rendered by him personally and his
employee, Anthony Valach. The actual damages sought in the
complaint were $27.00. Under the settlement agreement, Beneficial
is obligated to pay Ms. Turner $5,000.00 for a release of her
claims and to pay her reasonable attorneys' fees. Beneficial does
not contest the number of hours expended or Mr. Harris's hourly
rate ($475.00). It does, however, contest the application on the
ground that the fees sought are grossly excessive in view of the
small amount at stake in the case. Beneficial also points out
that Mr. Harris bills for Mr. Valach's time at $190 per hour even though Mr. Valach was not
admitted to the bar until after all services to Ms. Turner were
completed and the application for fees was filed. A brief review
of the history of this case and related class actions will serve
to put the fee application in perspective.
In 1998, Mr. Harris filed a putative class action complaint on
behalf of Ms. Turner against Beneficial and the national tax
return preparation firm, H&R Block, Inc. (Block). The complaint
sought relief for breach of contract, deceptive trade practice,
the Truth In Lending Act, 15 U.S.C. § 1601 et seq. (TILA), and
the Racketeer Influence and Corrupt Organizations Act,
18 U.S.C. § 1961 et seq. (RICO). Subsequently, the TILA claim was
Ms. Turner's case was one of a number of class actions that
arose out of the procurement by Block for its customers of
so-called income tax refund anticipation loans ("RAL's") from
Beneficial. Her complaint alleged that the customers were not
advised that Block had a financial interest in the loan fees nor
were they told the actual cost to them of the RAL's.
Certification has been sought for classes of such taxpayers who
are now alleged to number more than 27,000,000. Much of the
factual background and the procedural history of these cases is
detailed in two published opinions, Reynolds v. Beneficial Nat.
Bank., 288 F.3d 277 (7th Cir. 2002) ("Reynolds") and Reynolds
v. Beneficial Nat. Bank, 260 F. Supp.2d 680 (N.D.Ill. 2003). Mr. Harris was one of a group of lawyers who asked the district
court to approve a settlement of the class action cases on terms
which gave class members only minimal damages (well under $100.00
per class member) but provided for payment of millions of dollars
in fees for counsel. Another judge of this court approved the
proposed settlement, but was reversed on appeal by the Seventh
Circuit which observed that the representation of the class by
class counsel "was almost certainly inadequate." Reynolds,
288 F.3d at 284. On remand, the case was reassigned to me. I held a
fairness hearing on the settlement proposal and rejected it. The
evidence revealed that class plaintiffs' counsel had failed to
take any meaningful discovery on the merits and that the proposed
settlement was not fair, adequate and reasonable. On April 15,
2003 I entered a memorandum opinion and order in which I held
that class counsel (including Mr. Harris) had been inadequate
representatives of the plaintiff class and would not be permitted
to represent the class in further proceedings. See Reynolds v.
Beneficial Nat. Bank, 260 F. Supp. 2d 680 (N.D.Ill. 2003).
Thereafter, Ms. Turner decided to opt out of the proposed class
and pursue her individual claims.
In his application, Mr. Harris alleges that he obtained "an
excellent result" for his client. In his reply memorandum in
support of the application, he relates how his "aggressive
position" with respect to prejudgment interest taken in the draft pretrial order hastened the disposition of the case, resulting in
a payment to Ms. Turner much higher than the damages claimed in
T. Robert Scarborogh, one of Beneficial's attorneys, filed a
declaration in support of Beneficial's response to the fee
application. Mr. Scarborough alleges that he and Mr. Harris
discussed settlement multiple times throughout 2003 and 2004, but
Mr. Harris refused to discuss any settlement outside of a six
figure range. It was not until after Mr. Scarborogh set up a
meeting with one of Mr. Harris's colleagues in January 2005 that
Mr. Harris indicated a settlement was likely, and even then
several weeks of negotiation were required to arrive at agreement
on a $5,000.00 payment to Ms. Turner. On May 2, 2005, Mr. Harris
filed his application for fees, alleging that Beneficial had
refused to pay him more than $16,525.00 for his services to Ms.
Turner. Beneficial argues that its decision to settle with Ms.
Turner simply reflects an economic decision that a full-blown
trial of a small stakes case based on a single RAL transaction
could not be remotely cost-justified. It asks that I reduce the
fee award sought to an amount reasonably commensurate with the
value of Ms. Turner's case.
The general rule in American state and federal courts is that,
except for those cases that fall under a statute or contract
which authorizes the award of attorneys' fees, each party bears his own
costs incurred in the prosecution or defense of a claim. Matter
of Sheridan, 105 F.3d 1164, 1166 (7th Cir. 1997). The settlement
agreement between the parties contains a valid contractual
undertaking by Beneficial to pay Mr. Harris a "reasonable"
attorney's fee. The issue here is how such a fee should be
calculated in the circumstances of this case.
The starting point for determination of reasonable fees, the
so-called lodestar amount, is calculated by multiplying the
number of hours of work spent on the matter by the hourly market
rates of the individuals. The lodestar amount is then subject to
such adjustment as facts and circumstances may require. Hensley
v. Eckerhart, 461 U.S. 424, 430 (1983); Blanchard v. Bergeron,
489, 494 (1989). Of paramount concern is whether the claimed
hours were "reasonably expended." Hensley, supra, at 434
("Counsel for the prevailing party should make a good faith
effort to exclude from a fee request hours that are excessive,
redundant, or otherwise unnecessary, just as a lawyer in private
practice is obligated to exclude such hours from his fee
Mr. Harris gives a number of reasons why an attorney's fee 37
times greater than his client's recovery and more than 6,800
times her actual loss is warranted here. I find none of his
arguments persuasive. Mr. Harris cites Hensley, supra, for the
proposition that "[G]iven the excellent result achieved for Ms.
Taylor and given defendant's promise to pay counsel his reasonable
attorney's fees, counsel is entitled to payment in full for time
spent on plaintiff's individual claim." He contends that he is
entitled to be compensated at market rates for all time he and
his employee spent on the matter without regard to whether the
expenditure of time was reasonable and with no downward
adjustment for time spent in advancing theories the court
rejected. Neither the Supreme Court nor our court of appeals
concurs in this view. What Hensley actually holds is that an
attorney should not bill for his services without taking into
consideration the amount of the claim and the results obtained.
Hensley, 461 U.S. at 439n. 3.
In Strange v. Monogram Credit Card Bank of Georgia,
129 F.3d 943 (7th Cir. 1997), counsel who had represented an individual
client with minimal damages in a consumer credit case sought
$21,743.75 in fees. I granted the request only to the extent of
$3,000.00. The stated reason for the reduction was that "It was
absurd for [counsel] to spend 123 hours to establish a $54 (or
even $328) claim." The Seventh Circuit upheld the reduction in
fees, stating that, "[the trial judge] took into account both the
result [counsel] actually obtained and the maximum amount he
could have hoped for . . ." Strange, 129 F.3d at 946.
Mr. Harris argues that he is not seeking fees for his work on
behalf of the class, but only for the services provided to Ms.
Turner in connection with her individual claim. The chart he submits in his fee application refutes his argument. As an
example, the first entry on the chart is for work done by Mr.
Harris between June 27, 1997 and May 4, 1998. Under the rubric
"Task" the chart states: "Meeting with client, preliminary
research. Drafting complaint." The time allocated to this work is
31.75 hours which, at Mr. Harris's claimed hourly rate, would
alone generate $15,081.25 in fees. Clearly, Ms. Turner's
individual claim was not uppermost in Mr. Harris's mind when he
interviewed her, researched the law, and drafted a class action
complaint. The same holds true for the 36.05 hours that Mr.
Harris spent in 2003 "drafting Motion for Partial Summary
Judgment and related research and planning", not to mention 43.3
hours spent on additional summary judgment papers and 23.2 hours
spent on a response to a motion to dismiss, all in 2003 and 2004.
The legal work for which counsel seeks fees can only be
justified on the basis of what was at stake for Ms. Turner
individually and by the result obtained for her. Mr. Harris also
seeks fees for Mr. Valach's services. Mr. Harris represents that
Mr. Valach graduated from law school in 2004, and that the market
rate for lawyers who graduated in that year, as evidenced by the
billing of Beneficial's own counsel, is $190.00 per hour. While
an affidavit in support of the application does state in passing
that Mr. Valach "will be sworn in to the Illinois Bar in May
2005", the fee application itself does not dwell on his status at
the time he performed services. The chart shows that Mr. Valach worked on
the case from October 9, 2002 through April 8, 2005. Obviously,
he was acting as a paralegal or student intern rather than as a
lawyer, and the market rate for 2004 graduates already admitted
to the bar is irrelevant. The chart of services and the petition
for fees are, in that respect, misleading. For the foregoing
reasons I find the pending fee application excessive.
Nevertheless, there was an offer on the table to Mr. Harris
from Beneficial which in my view would have compensated him
reasonably for the services he did perform on behalf of Ms.
Turner. The offer was a payment in the amount of $16,525.00. I
regard that amount as a far more realistic assessment of the
market value of Mr. Harris's services in this case than the
$185,124.00 he seeks.
I award $16,525.00 in fees to Mr. Harris for all of the
services performed by him and Mr. Valach on Ms. Turner's behalf.
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