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Student Public Interest Research Group of New Jersey Inc. v. at & T Bell Laboratories

filed: March 24, 1988.

STUDENT PUBLIC INTEREST RESEARCH GROUP OF NEW JERSEY, INC. AND FRIENDS OF THE EARTH, APPELLANTS IN 86-5927,
v.
AT & T BELL LABORATORIES, APPELLANTS IN 86-5895



On Appeal From the United States District Court for the District of New Jersey, D.C. Civil No. 84-1087.

Becker, Scirica, Circuit Judges and Farnan, District Judge*fn*

Author: Becker

Opinion OF THE COURT

BECKER, Circuit Judge.

This case, which involves an appeal and cross appeal from an order of the district court awarding counsel fees to prevailing parties (two public interest groups) pursuant to the fee shifting provisions of the Clean Water Act, 33 U.S.C. §§ 1251, 1365(d) (1982), raises the interesting and difficult question (on which the circuits are sharply divided) of how to calculate the counsel fees for attorneys who operate a for-profit law firm that handles only public interest cases and therefore bills significantly less than a traditional law firm. In litigating this case the firm had no traditional fee arrangement with its clients but pinned all hope of repayment on the fee shifting statute. The firm has a billing rate ($60-$80 per hour) which it applies in certain cases, but did not apply in this one. In cases where the firm has a fee arrangement with its client, it concedes that it receives the $60-$80 rate, but only if it does not prevail and hence is not eligible for a court-awarded fee. Where, as in this case, the firm has no fee arrangement it receives no compensation whatsoever if it loses. In either case, when it does prevail, it receives a fee from the court. The question here is: what should that fee be?

The district court calculated the firm's lodestar by multiplying the number of hours times the prevailing rate for equivalent legal services in Washington, D.C., where the firm's offices are located. It found as fact that conventional firms performing work of equivalent complexity in the city bill at $85-$185 per hour rather than the firm's $60-$80 billing rate. In reviewing the district court's order, we must determine whether the factual findings were clearly erroneous, and also evaluate the legal standard the district court applied.

For the reasons discussed below, we affirm the district court's decision as to calculation of the lodestar. We hold that its calculation of the market rate was not clearly erroneous and that it did not apply the wrong legal standard by employing the prevailing "market rate" for equivalent legal services rather than the plaintiff's normal billing rate. We find the determination of the legal standard to be a difficult one with no clear solution. However, after reviewing various approaches employed by other courts of appeals, we reach the conclusion that the method for calculating fees for this unique genre of attorneys, who operate for profit but essentially rely on fee shifting statutes, must depend on local rates for similar work. In coming to this conclusion we rely both on the Supreme Court's holding in Blum v. Stenson, 465 U.S. 886, 79 L. Ed. 2d 891, 104 S. Ct. 1541 (1984) (non-profit legal aid society is entitled to market rates even though it possessed no conventional hourly billing rate and would have received no fee from its clients), and on our assessment that this rule is the fairest, least burdensome way to calculate a reasonable fee.

The appeal and cross appeal raise five additional fee-related questions. First, we must determine whether the district court abused its discretion in failing to award plaintiffs an enhancement for contingency. This inquiry requires us to interpret the Supreme Court's recent opinion in Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 483 U.S. 711, 107 S. Ct. 3078, 97 L. Ed. 2d 585 (1987) (Delaware Valley II), which was decided after the district court issued its opinion in this case. We are doubtful, in light of Delaware Valley II, that this case could qualify as "risky." Although the firm relied exclusively on fee shifting statutes, which indicates the existence of risk of non-payment, their chances of losing were small. Even if this case could be labelled as risky, we would decline to grant a contingency multiplier. Not only would computing the appropriate contingency multiplier in light of Delaware Valley II be a most burdensome task for the district court and an expensive one for the parties under these circumstances, but we are also convinced that the hourly rate used by the district court in this case will be sufficient to attract competent counsel, thus satisfying the raison d'etre of the fee shifting statute as explicated by Delaware Valley II. Therefore, any further enhancement is unnecessary.

Second, we must determine whether the district court abused its discretion in denying the plaintiffs an enhancement for quality. The district court did not award a quality multiplier because it found that plaintiffs' attorneys' performance, though excellent, was not so extraordinary as to deserve such enhancement. Given that quality multipliers are appropriate only in rare cases, and that we agree with the district court that this is not one of them, we conclude that the district court did not abuse its discretion in denying a quality multiplier.

Third, we must determine whether the district court abused its discretion in failing to award plaintiffs an enhancement for delay. We will affirm the district court's denial of an enhancement for delay because plaintiffs waived the point by failing to develop a record on the issue in the district court.

Fourth, we must decide whether the district court abused its discretion by failing to require plaintiffs' attorneys to allocate some of the time spent litigating the attorneys' fees issues to the firm's other cases raising the same issues. The district court did not make factual findings on this issue, hence we will remand for findings as to whether any of the firm's other cases presented sufficiently similar factual issues and arose at such a juncture that the firm should have allocated part of the costs of litigating the fees issues to other cases.

Finally, we must consider whether the district court abused its discretion in refusing to apply a negative multiplier to the lodestar claimed for the attorneys' fees litigation because plaintiffs' attorneys did not meet with complete success in litigating the attorneys' fees issues. Because the district court did not consider this question at all in its disposition of the fees issue, we will remand it to the district court. Hence we affirm in part and reverse in part and remand for further proceedings.

I. PROCEDURAL HISTORY

Plaintiffs, Student Public Interest Research Group of New Jersey and Friends of the Earth, Inc. (hereinafter referred to collectively as SPIRG), sued defendant AT&T Bell Laboratories (Bell) alleging that Bell violated the Clean Water Act by dumping pollutants into the Whippany River in New Jersey in excess of amounts allowed by law. After the district court granted plaintiffs' motion for summary judgment on the question of liability, the parties settled, agreeing that plaintiffs would drop all their claims in exchange for Bell's paying $75,000 to the United States Treasury.

Plaintiffs' attorneys moved for attorneys' fees pursuant to the Clean Water Act.*fn1 The chief recipient of the fees, the Washington, D.C. law firm of Terris, Edgecombe, Hecker & Wayne (Terris), acted as lead counsel in the original litigation and in the litigation over the fee award. Terris is a private, for-profit law firm which specializes in public interest law. It serves as counsel in employment discrimination, civil rights, consumer, and environmental suits. When it charges clients anything at all, its billing rate varies between $60 and $80 per hour for partners' time and between $60 and $70 per hour for associates' time.*fn2 It is uncontested that in this litigation that the Terris firm had no fee arrangement, and would have received no remuneration from SPIRG. Instead, the firm relied entirely on the attorneys' fees provision of the Clean Water Act.

In calculating its requested lodestar (reasonable hourly rate multiplied by number of hours billed), the Terris firm did not use its own billing rate, but rather calculated what a reasonable market rate would have been for legal services of the caliber Terris provided. The firm apportioned part of its time for its work on the merits to twenty-five other cases that the firm was litigating that raised similar Clean Water Act legal issues. Terris subsequently supplemented its fee applications to include time spent on litigating the attorneys' fees issue. In addition, Terris requested a 50% multiplier to the merits lodestar for quality, the contingent nature of the case, and delay in payment.

Bell objected to the hourly rate employed to calculate the lodestar, arguing that Terris was bound by its own billing rate. In addition, Bell complained that Terris did not apportion its hours among the many cases in which it litigated the issue of attorneys fees as it had done with the merits calculation. Finally, Bell opposed requests for enhancement of the merits lodestar for quality, contingency, and delay. Finally, Bell requested that if the district court did not fully grant Terris such multipliers, it reduce the lodestar for the time spent in seeking attorneys' fees on the ground that Terris achieved only partial success in pursuit of its fees.

The district court adopted Terris' lodestar calculation using "the market rate for attorneys of comparable experience in the same city" rather than Terris' actual billing rate. J.A. at 23. The district court, acknowledging that an attorney's regular billing rate is usually the best approximation of the market rate, nevertheless found in this case that Terris' billing rate did not adequately reflect market rates. The court cited Blum v. Stenson, 465 U.S. 886, 79 L. Ed. 2d 891, 104 S. Ct. 1541 (1984), for the proposition that actual billing rates do not always reliably indicate market rates. In Blum, the Supreme Court held that a non-profit legal aid organization deserved market rates if it prevailed under a statute that provided fee shifting. The district court reasoned that the principle of Blum should also apply to "for-profit" public interest law firms that give cut rates to poor people and to litigants raising public interest questions, explaining: "The fact that the plaintiff chose a firm which makes financial sacrifices in the public interest should not result in a windfall for the defendant." J.A. at 28.

The district court found as a fact that the market has set no customary hourly rate for Terris' public interest work, and that plaintiffs' attorneys are not in "'customary private practice." J.A. at 26 (quoting Laffey v. Northwest Airlines, Inc., 241 U.S. App. D.C. 11, 746 F.2d 4, 18 (D.C. Cir. 1984), cert. denied, 472 U.S. 1021, 87 L. Ed. 2d 622, 105 S. Ct. 3488 (1985) quoting Berger, Court Awarded Attorneys' Fees: What is 'Reasonable'?, 126 U.Pa.L.Rev. 281, 292 (1977)). Additionally, it found that the firm's billing rates were substantially lower than the market rate. It therefore refused to use Terris' normal billing rates and instead substituted what it found to be market rates for legal work of equivalent complexity and quality in calculating the lodestar figure.

The district court denied SPIRG's request for enhancement multipliers for quality and contingency. Its order did not discuss delay. The court also did not address Bell's claim for apportionment of the hours spent litigating the fee issues to other similar cases. Finally, the district court did not consider whether the lodestar for litigating the fees issue should be diminished in light of SPIRG's failure to prevail on the enhancement multipliers. The parties have stipulated that pursuant to the district court's opinion the total amount due to plaintiffs for attorneys fees and expenses equals $111,877.31. This figure reflects over $56,000.00 for the merits lodestar. The rest is attributable to the fees and expenses surrounding the fee litigation.

II. CALCULATION OF THE LODESTAR

A. Contentions of the Parties

Bell argues that the district court's refusal to apply Terris' normal billing rate derives from clearly erroneous findings of fact and constitutes an abuse of discretion. It argues that there is indeed a market rate for Terris' services: Terris' normal billing rates. Bell contends that Terris' rate is a market rate that reflects the firm's affirmative choice to compete in a less remunerative market. It refers to other for-profit public interest law firms in the Washington, D.C. area to establish that Terris' normal billing rate is about what the market will bear for for-profit public interest lawyers who do Title VII and environmental work. Bell relies on the policy behind the fee shifting statutes, arguing that they are designed for compensation, not reward, and that the best approximation of attorneys ' fair compensation lies in their own billing rates.

Additionally, Bell submits that the appellees' standard would engender an administrative nightmare in that it would force the court to search out equivalent markets and determine their value. Bell convincingly argues via its own litigation experience the administrative hassle and the waste of courts' time in determining fee awards. Bell champions its billing rate rule as simpler, as well as fairer.

SPIRG, in advocating the district court's approach, argues that its case represents an exception to the general rule of applying actual billing rates. SPIRG argues that the Terris firm's billing rates do not reflect independent market rates, but can only be interpreted in light of the existence of fee shifting statutes. It contends that Terris' billing rate does not offer a valid shortcut for determining the market value of SPIRG's services because its rate, when it applies at all, constitutes a form of contingency rates whereby the $60-$80 per hour billing rate applies if the attorneys lose, but court awarded fees are provided if they win.

In advocating a market rate derived separately from actual billing rates, SPIRG points to the anomalous results of refusing to pay attorneys the true market worth of their services. In a public interest case litigated in part by corporate lawyers pro bono publico and in part by attorneys of the Terris firm, the same work of equivalent quality would receive very different compensation.

SPIRG emphasizes that Congress intended the fee shifting statutes to promote attorney representation of legitimate claims that would otherwise go unpursued. At oral argument, counsel pointed to evidence in the record that its contingency billing rates of $60-80 could not support its public interest practice and that the firm depended on ultimately receiving market rates in fee awards to remain viable.

Finally, SPIRG argues that calculating the market rate is not as difficult as Bell would make it seem. It argues that the hourly rate commanded by counsel for Bell of $205 per hour provides a good benchmark.

B. The "Lodestar" Principle; Scope of Review

The Supreme Court in Blum v. Stenson, 465 U.S. 886, 79 L. Ed. 2d 891, 104 S. Ct. 1541, (1984), explained that the "initial estimate of a reasonable attorney's fee is properly calculated by multiplying the number of hours reasonably expended on the litigation times a reasonable hourly rate." Id. at 888 (citing Hensley v. Eckerhart, 461 U.S. 424, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983)). Courts refer to the product of this equation as the lodestar. See Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 478 U.S. 546, 106 S. Ct. 3088, 3096-99, 92 L. Ed. 2d 439 (1986) (Delaware Valley I) (explaining the genesis of the lodestar approach and nomenclature). In evaluating the district court's calculation of the hourly rate for Terris' lodestar, we must determine: (1) whether the district court committed clear error in its factual findings, Black Grievance Committee v. Philadelphia Electric Co., 802 F.2d 648, 652 (3d Cir. 1986) ("the question of an attorney's marketplace billing rate . . . is a factual question which is subject to a clearly erroneous standard of review") (citing In re Fine Paper Antitrust Litigation, 751 F.2d 562, 591 (3d Cir. 1984), vacated on other grounds 107 S. Ct. 3255 (1987); and (2) whether the district court used the proper standard to calculate the lodestar. See Blum v. Stenson, 465 U.S. 886, 79 L. Ed. 2d 891, 104 S. Ct. 1541 (1984) (without so articulating, reviewing de novo the standard for determining the appropriate hourly rate).*fn3

C. The District Court's Factual Findings

We are satisfied that the district court's factual determinations that: (1) Terris does not engage in customary private practice; (2) Terris "uniformly charges its clients rates dramatically lower than the market rate," J.A. at 26; and (3) the appropriate market figure for equivalent legal work in Washington, D.C. by attorneys of comparable ability is between $85 and $185 per hour, were not clearly erroneous. The court carefully assembled and weighed evidence that the Terris firm performed excellent work, the value of which significantly exceeded the firm's normal billing rates. The court relied upon affidavits from numerous attorneys in the District of Columbia to determine the community market rate for legal service of equivalent quality and complexity performed by attorneys with similar education, experience, and skill.*fn4 We turn to the appropriate legal standard.

D. The Legal Standard: Possible Approaches

Market rates have served as the prime focus of our inquiry in ascertaining reasonable attorneys' fees. See, e.g., Black Grievance Committee, 802 F.2d at 652 (restating inquiry to be the "attorney's marketplace billing rate" (emphasis added)); In re Fine Paper, 751 F.2d at 590 (referring to this court's approach as the "market standards rule"); Hall v. Borough of Roselle, 747 F.2d 838, 841 (3d Cir. 1984) ("[a] reasonable attorney's fee is one that compensates a lawyer for the fair market value of his time, experience, and effort").

The most important apposite case on market rates is Blum. In Blum, a unanimous Court rejected the petitioner's argument that non-profit legal organizations with salaried attorneys deserved only their litigation costs because awarding market rates would constitute a windfall for such organizations. The Court held that even though counsel for the Legal Aid Society of New York would not have received a fee from their clients, they were nevertheless entitled to a fair market rate under fee shifting statutes. 465 U.S. at 892-94. It held that reasonable awards under fee shifting statutes "are to be calculated according to the prevailing market rates in the relevant community, regardless of whether plaintiff is represented by private or non-profit counsel." Id. at 895.*fn5

The Court observed that resolution of the question of how to calculate attorneys' fees "begins and ends with an interpretation of the attorney's fee statute." 465 U.S. at 893, and discussed at length the Senate Report on § 1988 of the Civil Rights Act that addressed the question of fee shifting. S. Rep. No. 1011, 94th Cong., 2d Sess. 5 Cong. Rec. 5908 (1976) [hereinafter referred to as Senate Report]. Quoting both from the Senate Report and from cases cited with approval by the Report, the Court stressed that Congress envisioned employment of market rates in calculating attorneys' fees. It quoted the Senate Report's language that: "It is intended that the amount of fees awarded under [§ 1988] be governed by the same standards which prevail in other types of equally complex Federal litigation, such as antitrust cases." 465 U.S. at 893 (quoting Senate Report at 6.) Furthermore, Blum noted that the Senate Report cited with favor Stanford Daily v. Zurcher, 64 F.R.D. 680, 681 (N.D. Cal. 1974), which held that courts "must avoid . . . decreasing reasonable fees because the attorneys conducted the litigation more as an act of pro bono publico than as an effort at securing a large monetary return." See 465 U.S. at 895. ...


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