Evaluating Applications for Attorney’s Fees and Costs: What is “Reasonable?”

By on March 13, 2012

On March 7, 2013, the United States District Court for the Eastern District of Virginia issued a detailed legal opinion providing a roadmap for any attorney filing an application for attorney’s fees and costs in federal court.  While the case involved a request for attorney’s fees in connection with a motion for sanctions, the Court’s reasoning and analysis is applicable and instructive when assessing the “reasonableness” of any attorney fee application.

First, the Court recognized that the “reasonableness” of an attorney’s hourly rate does not vary depending upon whether the hourly rate is assessed for compensatory purposes or punitive purposes.

Second, the Court recognized the significance of the recent Supreme Court decision in Perdue v. Kenny A., 559 U.S. 542 (2010).  In Perdue, the Supreme Court stated a clear preference for the “lodestar approach” when determining the “reasonableness” of an award of attorney’s fees, and relegated the familiar twelve-factor test outlined by the Fifth Circuit in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) to the “sidelines.”  The Supreme Court in Perdue stated that the lodestar fee figure, which is determined by multiplying a reasonable hourly rate by the number of hours reasonably and necessarily incurred in performing the services for which the fee application is made, presumptively yields a reasonable fee.

The Supreme Court did leave room for the consideration of four of the Johnson factors in the reasonableness calculus if the facts of a particular case make it appropriate to consider them.  The remaining available Johnson factors are: (i) the amount in controversy and results obtained; (ii) the undesirability of the case; (iii) the nature and length of the relationship between the claiming firm and the client; and (iv) awards in similar cases.

Third, the Court recognized the general rule that the starting point for determining a reasonable rate for the lodestar calculus is the community in which the court sits.  There are two factors that determine whether an exception to the general rule should be permitted.  First, a court should ask “whether services of like quality are truly available in the locality where the services are rendered?” Next, a court should ask “did the party choosing the attorney from elsewhere act reasonably in making that choice?”  The fee applicant bears the burden of establishing the existence of this exception – and must introduce evidence upon which such a conclusion can be founded.  Thus, to justify the retention of extra-jurisdictional counsel in the context of a fee application, the applicant must prove that the services required to deal with the complex and specialized nature of the case were truly not available in the current market.

In the lodestar method of fee determination, the fee applicant must demonstrate that the number of hours for which compensation is sought is reasonable.  To meet this burden, the fee applicant must tender reliable billing records, and it must exercise billing judgment to excise from its fee application “time not properly shown to have been incurred in pursuit of the matter at issue or that is otherwise not reasonable in amount or not necessarily incurred.”

One of the issues the Court addressed in the movant’s fee application was the number of lawyers devoted to the motion for sanctions issue – including the number of lawyers that attended hearings, conducted legal research, attended depositions and drafted pleadings.  Specifically, the Court highlighted two examples: (i) a status conference where seven lawyers (four partners and three associates) appeared on the moving party’s behalf – where total fees claimed for that day were $40,646.48 and (ii) a motion for sanctions hearing where the moving party had ten timekeepers present (five partners, four associates and a paralegal) – where total fees claimed for that day were $92,634.68.  The Court stated that these two examples demonstrated a “lack of billing judgment” on the part of the fee applicant.

Fourth, the Court specifically stated that a prevailing party could not recover the travel time necessary for out-of state lawyers and legal staff to travel to Richmond when the legal services provided were available in Richmond.  Thus, it is not reasonable to require a non-prevailing party to bear the burden of travel costs any more than it is to require a non-prevailing party to pay extra-jurisdictional rates when legal services of like quality are available in the district where the court sits.

Finally, the Court also found that the grouping or “lumping” of several tasks together under a single time entry, without specifying the amount of time spent on each particular task, constitutes “inadequate documentation” for the purposes of a fee application.  Thus, block billing is a legitimate basis for reducing a fee award, because it prevents an accurate determination of the reasonableness of the time expended in a case.

The United States District Court for the Eastern District of Virginia found that the documentation supporting the movant’s fee application was defective because of block billing, and necessitated a substantial percentage reduction in the claimed hours.  The Court reduced the moving party’s actual claimed hours by twenty percent (20%) for block billing and for inconsistent time descriptions.

Summary

The United States District Court for the Eastern District of Virginia made several important observations regarding the analytical framework used to evaluate attorney fee applications.  Below is a summary of the Court’s key findings:

  1. The Supreme Court has stated a clear preference for the lodestar calculation when determining the amount and reasonableness of an attorney fee application.  Moreover, it is the fee applicant’s burden to prove, by clear and convincing evidence, that its requested fee is reasonable.
  2. Although the lodestar calculus is the proper analysis for determining the reasonableness of a fee application, the Supreme Court has left room for using four of the Johnson factors that are not subsumed in the lodestar calculation if the facts of a particular case make it appropriate to consider them.  The remaining available Johnson factors are: (i) the amount in controversy and results obtained; (ii) the undesirability of the case; (iii) the nature and length of the relationship between the claiming firm and the client; and (iv) awards in similar cases.
  3. The starting point for determining the reasonable rate in the lodestar analysis is the community in which the court sits.  The general rule is that the prevailing market rate in the Richmond area provides the appropriate rate component for the lodestar calculus. Of course, extra-jurisdictional rates may be considered if the applicant can establish that a case is so complex that it requires specialized skills that are not available in the Richmond legal market.  However, the fee applicant bears the burden of establishing the existence of an exception to the general rule.
  4. The fee applicant must also demonstrate that the number of hours for which compensation is sought is reasonable.  The Court examined the applicant’s billing records to evaluate the applicant’s billing judgment, including: (i) the number of timekeepers devoted to specific tasks; (ii) the number of lawyers attending hearings and depositions and (iii) the reasonableness of travel time and expenses.  The Court emphasized the importance of the non-moving party providing specific examples of “over-lawyering” when contesting a fee application.
  5. It is vital that the applicant submit adequate billing records to provide a sufficient basis for computing the hours reasonable devoted to a particular case.  Inadequate documentation includes the lumping of several tasks together under a single entry, without specifying the amount of time spent on each particular task.  Thus, block billing is a legitimate basis for reducing a fee award.

This legal opinion is sure to resonate within the Virginia litigation community, as the “reasonableness” of attorney fee applications submitted by litigants becomes more significant.  Given the abundance of fee-shifting statutes inherent in consumer litigation, this issue is of particular importance to banks, lenders and creditors of all types attempting to collect debts from consumers.  The United States District Court for the Eastern District of Virginia certainly provides a fine blueprint for contesting a prevailing party’s application for attorney’s fees

To read the decision in full, click for the 2013 EDVA district court opinion.

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