Sunday, December 07, 2008, 6:03 PM

4th Circuit Slashes Attorneys' Fee Award

This past week (Dec. 3) the Fourth Circuit in Grissom v. The Mills Corp. vacated a $325,500 award in attorneys' fees and costs that was entered following plaintiff's acceptance of a Rule 68 offer of judgment (for $130,000) in a SOX whistleblower case. First, the Court held that Rule 68 doesn't permit an award of fees/costs incurred after the date of the Rule 68 offer of judgment: Rule 68 says the party who tenders the offer may recover the "costs then accrued." Fed. R. Civ. P. 68 (emphasis added). Thus, the post-offer fees/costs had to be vacated.

Second, applying the lodestar method, the Court held that hourly fee amounts approved by the district court (E.D. Va.) were too high. In support of these rates, plaintiff's counsel, who work at a Reston, Va. law firm specializing in employment litigation, tendered the following: affidavits establishing the hourly rates of lawyers in the firm; fee awards approved by courts in other cases involving these counsel; and a matrix showing prevailing hourly rates for litigation counsel in the D.C. area (the so-called Laffey Matrix, maintained by the U.S. Attorney's Office in D.C.). That wasn't good enough.

There were two main problems. First, counsel didn't provide prevailing market rates for similar work in the relevant community--the Eastern District of Virginia. (The Court said it wasn't persuaded that the Laffey Matrix is a reliable indicator for rates of litigation attorneys in Reston.) Second, the Court was concerned about counsel's billing rate increases. Lead counsel's rate had jumped from $350/hr in 8/04 to $400/hr in 8/05 to $450/hr in 5/06--a total jump of 29% over two years, which, the Court said, far exceeded the annual U.S. inflation rates during that time (less than 4%).

The Fourth Circuit ultimately fixed the maximum allowable rates that the district court could award in this case, and they were were far lower than the lawyers' standard hourly rates. For example, with respect to four associates who billed at $350/hr, $325/hr, and $300/hr over the relevant time period, the Fourth Circuit slashed their maximum recoverable rates to $250/hr, $200/hr, and $180/hr, respectively (reductions ranging from 29%-40%).

The Fourth Circuit also instructed the district court on remand to reconsider whether counsel unreasonably billed too many hours, with particular emphasis on the amount of time they billed on discovery motions. And the Fourth Circuit held that the district court erred in finding that counsel should get special consideration for having to work at a faster pace to meet court-imposed deadlines. These were standard deadlines for litigating in the E.D. Va., the Fourth Circuit held, and therefore they had no basis in determining a reasonable fee award.

It wasn't a total loss for plaintiff, however: the Fourth Circuit rejected defendant's argument that a party accepting a Rule 68 offer of judgment isn't a "prevailing party" for purposes of federal fee-shifting statutes.

The bottom line of this case: if you're moving for attorneys' fees under the lodestar method, (1) you need to corroborate the reasonableness of the rates by showing comparable rates for similar work in the relevant community, and (2) you need to justify your firm's internal rate increases.

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