On Appeal from the United States District Court for the District of New Jersey, D.C. Civil No. 83-3047.
Sloviter and Greenberg, Circuit Judges, and Van Antwerpen, District Judge.*fn*
We are faced once again with the elusive task of deciding whether and under what circumstances attorneys for a successful plaintiff entitled to a statutory fee award may augment the lodestar with a multiplier for risk and/or delay. To date, the Supreme Court has been unable to produce a majority opinion on this issue. See 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). This precise case was previously before us, and we remanded the portion of the district court's order dealing with the multiplier with directions to reconsider in light of the Supreme Court's opinion in Delaware Valley II. See Blum v. Witco Chemical Corp., 829 F.2d 367 (3d Cir. 1987) (Blum I). Instead, the district court, without concealing its disapproval of both the Supreme Court's decision and ours, proceeded in accordance with its own views. See Blum v. Witco Chemical Corp., 702 F. Supp. 493, 494 (D.N.J. 1988) ("The Supreme Court has sent a Christmas gift to this court delivered via the Third Circuit Court of Appeals. It is called 'How to Make an Attorney Fee Multiplier.' However, the instructions are so confusing and inconsistent that this court has been unable to put the 'gift' together."). On this appeal, we must thus decide both whether the district court's order is consistent with the law in its present state and whether it is faithful to the mandate.
Facts and Procedural History
The original plaintiffs, three research chemists discharged by Witco Chemical Corporation during a reduction in force, sued under the Age Discrimination in Employment Act and, after a jury trial, received a judgment for front pay (in the form of lost pension benefits), damages for pain and mental suffering (pursuant to a pendent state law claim), and attorneys' fees. On appeal, this court affirmed the front pay award of $58,217.05, but set aside the award on the pendent state claim tort of wrongful discharge for age discrimination. 829 F.2d at 373-77. We also affirmed the lodestar amount of $113,314.50 for attorneys' fees*fn1 but remanded that portion of the order on attorneys' fees granting a 20 percent multiplier for delay and the contingent nature of the lawsuit for reconsideration in light of Delaware Valley II, which was decided after the district court's orders. In the course of our opinion, we stated that "plaintiffs must develop an evidentiary presentation" to justify a contingency multiplier and that the presentation "will most certainly require expert testimony from someone familiar with the economics of the legal profession." 829 F.2d at 380.
On remand, the district court referred the matter to a magistrate. Plaintiffs moved in April 1988 for restoration of the 20 percent multiplier for pre-judgment delay and risk (seeking $22,662.80 computed as $113,314 x 20%), for $10,872.45 for post-judgment interest, and for an additional counsel fee of $3,575.00 for work in post-judgment matters. In support, plaintiffs' counsel, John M. Esposito, filed an affidavit stating that the firm would not have undertaken the matter on the basis of normal hourly rates to be paid more than two years hence and, "[upon] information and belief, no other firm using rational management guidelines could have justified accepting the matter on that basis." App. at 12-13. Esposito attached as an exhibit an affidavit of Judith L. Vladeck, a New York attorney, stating that "the contingency multiplier is appropriate and necessary to attract competent counsel to represent plaintiffs in civil rights cases. . . . Few seasoned and experienced lawyers would be willing, or able, to dedicate themselves to such cases if all that could ultimately be recovered is a base hourly rate." App. at 31-32.
Witco's counsel, Samuel D. Bornstein, filed an affidavit in opposition to a contingency multiplier in which he stated that plaintiffs' attorneys filed an action in a New Jersey state court for four other Witco employees alleging termination as a result of age discrimination and agreed to be paid on a contingency basis notwithstanding that the New Jersey statute under which suit was brought does not authorize contingency multipliers. App. at 41-42. Witco also filed three affidavits from New Jersey attorneys who represent plaintiffs on a contingency fee basis. Each of them, Henry Gurshman, Ronald M. Salzer, and Arnold Shep Cohen, stated that his firm did not refuse meritorious claims because neither a fee-sharing statute nor a multiplier was involved. App. at 36-37, 104-05, 112-13. Esposito filed a reply affidavit which, inter alia, challenged Bornstein's suggestion that the New Jersey Civil Rights Act, which is silent on the issue, does not authorize contingency multipliers. App. at 107.
While the matter was pending before the magistrate, plaintiffs' attorneys filed a supplemental affidavit on June 17, 1988 requesting a fee enhancement of 100%, App. at 114-17, referring to a similar award by an Alabama district court, App. at 154, and also requesting compensation for delay of 16.77%, based on the percentage increase in the cost of living. App. at 116-17. In support, plaintiffs filed seven additional affidavits of New Jersey attorneys. Nancy Erica Smith stated that "[if] fees are subject to the contingency of prevailing in the proceeding, my firm will normally enter an arrangement where the contingent payment will be substantially greater than what our estimated compensation would be at our normal hourly rates." App. at 120. She further stated that in cases where plaintiffs have meritorious claims but limited damages, the only viable method of compensating counsel for the hours, the risk, and the delay would be an award that "would have to be two or three times the normal hourly rate." App. at 121. The only other affidavit to refer to a specific multiplier was that of Peter Vanschaick who attached a New Jersey state court opinion which adjusted the lodestar by 140 percent. App. at 137, 140-42.
Paul Schachter stated that his regular retainer agreement for employment discrimination cases provides "an enhancement of [his] normal rates from the recovery in cases successfully concluded." App. at 123. He stated that because his office does not have the ability to take on every new case which it is requested to take on, "were we to take on cases solely on an unenhanced fee basis, we would be substantially lowering the overall amount of fees we earn on employment cases" and that "[without] the prospect of being awarded an additional enhancement, we would refuse low recovery cases." App. at 122, 125-26. Steven Edelstein and Stephen Blader both stated that without the potential for fees with a multiplier effect, there is less incentive for competent counsel to undertake employment cases dealing with discrimination. App. at 127-28, 129-30. The affidavit of Charles R. Church was similar. App. at 133-35. Ronald S. Levitt, a personal injury lawyer, stated that he was not interested in taking wrongful discharge cases because of the risk involved. App. at 131-32.
The magistrate, at the hearing on June 27, 1988, stated that the affidavits produced by plaintiffs fell "far short" of the expert evidence on the economic analysis of the legal profession that this court required. Report of Magistrate Hedges at 17 (filed Mar. 23, 1989). On July 5, 1988, on the basis of the affidavit evidence and the hearing, the magistrate recommended that "[plaintiffs]' motion for an upward adjustment of the lodestar be denied" but that they be awarded post-judgment interest from April 30, 1986 to November 6, 1987 at the interest rate of 6.31 percent, for a total of $10,872.45, and that they be awarded $1,887.50 for supplemental attorneys' fees for the proceedings on remand. App. at 171. By order of July 28, 1988, the district court, apparently overlooking the extension it had granted to plaintiffs for filing exceptions, adopted and affirmed the magistrate's report. See App. at 174-75.
On July 28, 1988, within the extended period, plaintiffs filed objections to the proposed findings and recommendations of the magistrate. Plaintiffs argued that the magistrate, having rejected their proffer of a delay multiplier based on the cost-of-living multiplier, should have permitted them to produce information based on market rates. They included a chart demonstrating the cost of delay using market interest rates which calculated delay interest as $14,818.63. App. at 181. In addition, plaintiffs now claimed that they were entitled to a 200 percent contingency multiplier because this was the figure awarded in Black Grievance Committee v. Philadelphia Electric Co., 690 F. Supp. 1393 (E.D.Pa. 1988), which had been filed on June 20, 1988. In their objections to the magistrate's proposed findings, plaintiffs argued, "[this] figure is plainly established as a sufficient enhancement which will attract competent counsel to the representation of plaintiffs in these matters." App. at 180.
With respect to the contingency multiplier, the district court, expressing its view "that enhancers should be the rule and not the exception," was concerned that the proof now required to sustain multipliers or enhancers would discourage counsel who otherwise would undertake such matters. 702 F. Supp. at 496. The court noted that plaintiff had consulted an expert in financial modeling, econometrics and computers who had estimated that a model to determine the relationship between hourly rates and contingency compensation rates would cost $17,600. Because the model would not explain to what extent the multiplier would be necessary to attract competent counsel, which is concededly the single most important consideration, the court concluded that an econometric study would not be practicable in this case. Id. at 498.
The district court next applied the two-step inquiry it understood was required by Delaware Valley II. First, looking to the relevant market of "all civil cases", the court concluded that plaintiffs' affidavits demonstrated "that lawyers generally expect and receive a premium for contingency cases." Id. Second, the court concluded from the affidavits submitted on behalf of plaintiffs "that contingency multipliers are necessary to ensure sufficient legal representation in [civil rights and employment litigation]." Id. at 499. The court stated, however, that the affidavits were not specific enough to "provide the court with a basis to make a market-based, quantitative finding. Unlike the record [in the Black Grievance Committee case], the record herein simply does not include any substantiated amount by which fees need ...