Pennsylvania v. Valley Citizens’ Council, 483 U.S. 711 (1987)

JUSTICE O’CONNOR, concurring in part and concurring in the judgment.

For the reasons explained by the dissent I conclude that Congress did not intend to foreclose consideration of contingency in setting a reasonable fee under fee-shifting provisions such as that of the Clean Air Act, 42 U.S.C. § 7604(d), and the Civil Rights Attorney’s Fees Awards Act, 42 U.S.C. § 1988. I also agree that compensation for contingency must be based on the difference in market treatment of contingent fee cases as a class, rather than on an assessment of the "riskiness" of any particular case. But, in my view, the plurality is also correct in holding that the "novelty and difficulty of the issues presented, and . . . the potential for protracted litigation," ante at 726, are factors adequately reflected in the lodestar, and that the District Court erred in employing a risk multiplier in the circumstances of this case.

The private market commonly compensates for contingency through arrangements in which the attorney receives a percentage of the damages awarded to the plaintiff. In most fee-shifting cases, however, the private market model of contingency compensation will provide very little guidance. See Riverside v. Rivera, 477 U.S. 561, 573-576 (1986). Thus, it is unsurprising that, when courts have enhanced fee awards to compensate for risk,

[p]inpointing the degree of risk [has been] one of the most subjective and difficult components of the fee computation process, and one which [has been] apt to lead to imprecision in the final award.

2 M. Derfner & A. Wolf, Court Awarded Attorney Fees, ¶ 16.04[c][i], p. 1688 (1986). Although the dissent suggests a method of calculating compensation for contingency that is theoretically more satisfying than the practice of speculating on the riskiness of each case, the dissent does not explain how the theory should be put into practice. For example, how should a court translate the extra economic risk endured by smaller firms, see post at 750-751, or by firms that take unpopular cases, see post at 751, n. 15, into a percentage enhancement?

Moreover, although the dissent offers no defense of this method of compensating for risk, it leaves the door open for "extra enhancement" for "exceptional cases" that pose great "`legal’ risk." Post at 751-752. The "extra enhancement" presumably would be calculated based on the likelihood at the time the litigation was commenced that the particular legal claims raised by the prevailing party would have been rejected by the court. This type of enhancement clearly is subject to the many difficulties described by the plurality. Ante at 721-723. The dissent suggests that the plurality’s objections "lose much of their force" because the cases in which "extra enhancement" is granted will be rare. Post at 752, n. 16. But an arbitrary or unjust result is no less so for its rarity. Furthermore, the difficulties created by this type of enhancement will arise not only when the enhancement is granted, but also whenever it is sought.

To be "reasonable," the method for calculating a fee award must be not merely justifiable in theory, but also objective and nonarbitrary in practice. Moreover, if the concept of treating contingency cases as a class is to be more than symbolic, a court’s determination of how the market in a community compensates for contingency should not vary significantly from one case to the next. I agree with the plurality that, without guidance as to the trial court’s exercise of discretion, adjustment for risk could result in "severe difficulties and possible inequities." Ante at 728. In my view, certain constraints on a court’s discretion in setting attorney’s fees are appropriate.

First, district courts and courts of appeals should treat a determination of how a particular market compensates for contingency as controlling future cases involving the same market. Haphazard and widely divergent compensation for risk can be avoided only if contingency cases are treated as a class; and contingency cases can be treated as a class only if courts strive for consistency from one fee determination to the next. Determinations involving different markets should also comport with each other. Thus, if a fee applicant attempts to prove that the relevant market provides greater compensation for contingency than the markets involved in previous cases, the applicant should be able to point to differences in the markets that would justify the different rates of compensation.

Second, at all times the fee applicant bears the burden of proving the degree to which the relevant market compensates for contingency. See Blum v. Stenson, 465 U.S. 886, 898 (1984) ("The burden of proving that such an adjustment is necessary to the determination of a reasonable fee is on the fee applicant"); Hensley v. Eckerhart, 461 U.S. 424, 437 (1983) ("Where settlement is not possible, the fee applicant bears the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates"). I would also hold that a court may not enhance a fee award any more than necessary to bring the fee within the range that would attract competent counsel. I agree with the plurality that no enhancement for risk is appropriate unless the applicant can establish that, without an adjustment for risk, the prevailing party "would have faced substantial difficulties in finding counsel in the local or other relevant market." Ante at 731.

Finally, a court should not award any enhancement based on "legal" risks or risks peculiar to the case. The lodestar -- "the product of reasonable hours times a reasonable rate," Hensley v. Eckerhart, supra, at 434 -- is flexible enough to account for great variation in the nature of the work performed in, and the challenges presented by, different cases. "The novelty and complexity of the issues" raised in a case "presumably [would be] fully reflected in the number of billable hours recorded by counsel." Blum, 465 U.S. at 898. The same can be said for most other problems posed by the litigation, such as the tenacity of the defendant. The "special skill and experience of counsel should be reflected in the reasonableness of the hourly rates." Ibid. Thus, it is presumed that, when counsel demonstrates considerable ability in overcoming unusual difficulties that have arisen in a case, counsel will be compensated for those accomplishments by means of an appropriate hourly rate multiplied by the hours expended.

Based on the above guidelines, the enhancement for risk awarded by the District Court in this case must be reversed. The enhancement is not supported by any findings of fact concerning the degree to which contingency is compensated in the relevant market. Neither the findings nor the evidence indicate that the large enhancements in this case were necessary to attract competent counsel in the relevant community. Moreover, it is clear that the District Court based the enhancement on "legal" risks and risks unique to the case. The considerations used by the District Court to justify the enhancement -- the "new and novel issues" raised by the case, and the stubbornness of the defendants, 581 F.Supp. 1412, 1431 (1984) -- should already be reflected in the number of hours expended and the hourly rate, and cannot be used again to increase the fee award.

Accordingly, I concur in Parts I, II, and III-A of the plurality, and concur in the judgment reversing the judgment of the Court of Appeals

1. The concurrence recognizes that Congress did not intend to foreclose enhancements for contingency in the setting of reasonable attorney’s fees. See ante at 731. The plurality also recognizes, after a fashion, that fee-shifting statutes might be "construed to permit supplementing the lodestar in appropriate cases by paying counsel for assuming the risk of nonpayment." See ante at 728. Neither opinion, however, follows through on its analysis by remanding the case to the District Court for application of the proper standards.

2. In Johnson v. Georgia Highway Express, Inc., the court essentially adopted the factors that the ABA Model Code of Professional Responsibility DR 2-106(B) sets forth as guidelines for determining the size of an appropriate attorney’s fee, including "[w]hether the fee is fixed or contingent." 488 F.2d at 718 (emphasis omitted). The other factors cited by the court included: the time and labor required for the case, the novelty and difficulty of the questions, the skill required to perform the legal service properly, the preclusion of other employment, the customary fee, time limitations imposed by the client, the experience of the attorneys, the undesirability of the case, the nature of the relationship with the client, and awards in similar cases. Id. at 717-719. Many of these factors can be included within the "lodestar," in which the reasonable hours worked are multiplied by a reasonable hourly rate. See Blum v. Stenson, 465 U.S. at 898-899.

3. Bills have been introduced in Congress to prohibit "bonuses or multipliers," including adjustments for the risk of nonrecovery, where a suit is brought against the United States, a State, or a local government. See H.R. 5757, 98th Cong., 2d Sess., §§ 6(a)(1) and (2) (1984); S. 2802, 98th Cong., 2d Sess., §§ 6(a)(1) and (2) (1984); H.R. 3181, 99th Cong., 1st Sess., §§ 6(a)(1) and (2) (1985); S. 1580, 99th Cong., 1st Sess., §§ 6(a)(1) and (2) (1985). So far, these efforts to limit recovery of attorney’s fees have been unavailing.

4. Lawyers who are paid on an hourly basis, of course, face some risk of nonpayment, because not all hours worked can be billed. The hourly rate charged may reflect this. See Murray v. Weinberger, 239 U.S.App.D.C. 264, 272, 741 F.2d 1423, 1431 (1984).

5. I therefore have little quarrel with the plurality’s statement that "[n]either the Clean Air Act nor § 1988 expressly provides for using the risk of loss as an independent basis for increasing an otherwise reasonable fee." Ange at 723 (emphasis added). The difficulty is that, on purely economic terms, a statutory attorneys fee is not "otherwise reasonable" if it fails to include some premium for the contingency in payment.

6. After the Court left the issue open in Blum v. Stenson, 465 U.S. at 901, n. 17, almost all Courts of Appeals have upheld enhancements for contingency or have ruled that such enhancements are allowable in appropriate circumstances. See, e.g., Wildman v. Lerner Stores Corp., 771 F.2d 605, 613, (CA1 1985); Lewis v. Coughlin, 801 F.2d 570, 573-574 (CA2 1986); Durett v. Cohen, 790 F.2d 360, 364, and n. 3 (CA3 1986); Vaughns v. Board of Ed. of Prince George’s County, 770 F.2d 1244, 1246 (CA4 1985); Sims v. Jefferson Downs Racing Assn., Inc., 778 F.2d 1068, 1084 (CA5 1985); Kelly v. Metropolitan County Bd. of Ed., 773 F.2d 677, 683, 686 (CA6 1985) (en banc), cert. denied, 474 U.S. 1083 (1986); Moore v. Des Moines, 766 F.2d 343, 346 (CA8 1985), cert. denied, 474 U.S. 1060 (1986); Planned Parenthood v. Arizona, 789 F.2d 1348, 1353-1354 (CA9 1986); Ramos v. Lamm, 713 F.2d 546, 558 (CA10 1983), cited with approval in Jordan v. Heckler, 744 F.2d 1397, 1401-1402 (CA10 1984); Jones v. Central Soya Co., 748 F.2d 586, 591 (CA11 1984); Crumbaker v. Merit Systems Protection Board, 781 F.2d 191, 196 (CA Fed. 1986).

The Courts of Appeals for the District of Columbia and the Seventh Circuits have questioned the propriety of risk enhancement. See Laffey v. Northwest Airlines, Inc., 241 U.S.App.D.C. 11, 36, 746 F.2d 4, 29 (1984), cert. denied, 472 U.S. 1021 (1985); McKinnon v. Berwyn, 750 F.2d 1383, 1392-1393 (CA7 1984). The Court repeats the analyses of these cases in some detail. See ante at 719-720, and n. 6. Panels in each of those two Circuits, however, have indicated that enhancements would be appropriate in certain situations. See Murray v. Weinberger, 239 U.S.App.D.C. 264, 272-273, 741 F.2d 1423, 1431-1432 (1984); Ohio Sealy Mattress Mfg. Co. v. Sealy, Inc., 776 F.2d 646, 661 (CA7 1985). Moreover, as the plurality does in this case, the courts in both Laffey and McKinnon misconstrued the nature and purpose of enhancements for contingency.

7. The plurality’s conclusion in Part IV of its opinion is, of course, not the governing law, because five Members of this Court (those who are parties to this opinion and JUSTICE O’CONNOR) believe that an enhancement for contingency is appropriate in specified cases. See ante at 731 (concurrence) ("I conclude that Congress did not intend to foreclose consideration of contingency in setting a reasonable fee under fee-shifting provisions such as that of the Clean Air Act, 42 U.S.C. § 7604(d), and the Civil Rights Attorney’s Fees Awards Act, 42 U.S.C. § 1988").

8. A nonprofit, public interest law firm cannot obtain additional revenue by charging its clients for services (other than expenses) and still retain its tax-exempt status as a charitable organization. See 26 CFR § 1.501(c)(3)-1 (1987); Rev. Proc. 71-39, § 3.02, 1971-2 Cum.Bull. 575; Rev. Proc. 75-13, 1975-1 Cum.Bull. 662; Rev.Rul. 75-74, 1975-1 Cum.Bull. 152; Rev.Rul. 75-75, 1975-1 Cum.Bull. 154. Acceptance of statutory fee awards within limits, however, does not jeopardize that status. See Rev.Rul. 75-76, 1975-1 Cum.Bull. 154. And the public interest firms generally may not use money they receive from the Federal Government, such as the limited public funding received through the Legal Services Corporation, in cases where fees are available. See 42 U.S.C. § 2996f(b)(1); Hensley v. Eckerhart, 461 U.S. 424, 446, n. 6 (1983) (opinion concurring in part and dissenting in part).

9. Such equalization is the result under the plurality’s view of risk enhancement. Under that view, an attorney who takes relatively weak contingent cases would prevail infrequently, but could expect to receive large enhancements. This attorney would thus receive approximately the same compensation as an attorney who takes stronger contingent cases, prevails more often, and accordingly receives smaller enhancements.

10. See, e.g., Hensley v. Eckerhart, 461 U.S. at 449 (opinion concurring in part and dissenting in part) ("Courts applying § 1988 must also take account of the time value of money and the fact that attorneys can never be 100% certain they will win even the best case"); Crumbaker v. Merit Systems Protection Board, 781 F.2d at 197 (argument that no risk enhancement should be allowed, because plaintiff’s attorney must have known, on the basis of law and facts in the case, that the defendant could not prevail, is "inane"; case required the best ability of counsel, defendant vigorously contested the case, and no case is certain to prevail).

11. See Leubsdorf, The Contingency Factor in Attorney Fee Awards, 90 Yale L.J. 473, 501 (1981) (Leubsdorf) ("A contingency award does not require an inquiry into the likelihood of success in each case"); Note, Attorney Fees and the Contingency Factor Under 42 U.S.C. § 1988: Blum v. Stenson, 465 U.S. 886 (1984), 64 Ore.L.Rev. 571, 588 (1986) ("[S]tandard contingency adjustment, unrelated to the risks of any particular case, [should be] used in calculating section 1988 attorney’s fees").

Indeed, it is ironic that the Court draws as heavily as it does on the article by Professor Leubsdorf, see ante at 721-722 -- an article on which the Court of Appeals for the District of Columbia Circuit in Laffey, and the Court of Appeals for the Seventh Circuit in McKinnon likewise rely. In his article, Professor Leubsdorf clearly sets forth the difficulties that arise when contingency enhancements are based on the relative likelihood of success in particular cases, Leubsdorf, at 482-497 -- an approach that he terms "the Lindy-Grinnell approach" because of two leading cases in the area, id. at 478-482. But Professor Leubsdorf begins his analysis with a recognition thatsome enhancement for contingency is necessary if attorneys are to receive the fair market value of their work. Id. at 480 ("A lawyer who both bears the risk of not being paid and provides legal services is not receiving the fair market value of his work if he is paid only for the second of these functions. If he is paid no more, competent counsel will be reluctant to accept fee award cases"). Thus, as the professor explains:

Although economic reasoning justifies a contingency bonus, it does not by itself explain the Lindy-Grinnell approach to calculating the size of the bonus

(first emphasis added). Ibid. Professor Leubsdorf subsequently offers alternative approaches for calculating and awarding contingency enhancements. Id. at 501-512.

12. Thus, contrary to the implication in the Court’s opinion, ante at 717-718, the Court of Appeals in Wildman did not approve of contingency enhancements based on the likelihood of success in particular cases. Rather, the court vacated the multiplier granted by the District Court -- which had held, without elaboration, that the contingent nature of the case and the quality of the attorney’s work warranted an enhancement -- and remanded the case for the District Court to determine whether an enhancement for contingency was warranted. 771 F.2d at 613-614. Among the factors to be considered on remand were: what, if any, payment the attorneys would have received had the suit not been successful; what, if any, costs or expenses the attorneys would have incurred if the case had been lost; the extent to which the attorneys were required to compensate associates and to carry overhead expenses without assurance of compensation; and whether other attorneys refused to take the case because of the risk of nonpayment. Id. at 614. All these factors focus solely on the extent of contingency in payment, and not on the likelihood of success based on the law or facts in the particular case.

13. Although the Court errs in not viewing delay as an integral component of contingency, it is gratifying to note that the Court does "not suggest . . . that adjustments for delay are inconsistent with the typical fee-shifting statute." Ante at 716.

14. See, e.g., Brewer v. Southern Union Co., 607 F.Supp. 1511, 1532 (Colo.1984) (small firm); Uzzell v. Friday, 618 F.Supp. 1222, 1227 (MDNC 1985) (solo practitioner). A case to which a substantial percentage of an attorney’s law practice is devoted, see, e.g., Craik v. Minnesota State University Bd., 738 F.2d 348, 350-351 (CA8 1984), or in which additional personnel must be hired without assurance of compensation, may also be riskier than an ordinary contingent case.

15. Economic risks might also be increased if a case foreclosed participation in otherwise available business because of potential conflicts of interest, or if the case was so unpopular as to risk loss of other business. See, e.g., Johnson v. Georgia Highway Express, Inc., 488 F.2d at 719 (one of the factors to consider is the "`undesirability’ of the case" because of the effect it may have on obtaining other business) (emphasis omitted); York v. Alabama State Board of Education, 631 F.Supp. 78, 85 (MD Ala.1986) (successful plaintiffs’ civil rights lawyers often not hired for other types of sophisticated federal litigation). Although these circumstances probably will exist in comparatively few cases, attorneys should nonetheless be compensated if they have undertaken representation despite such risks.

16. The cases in which an extra enhancement is granted for the low likelihood of success and for the importance of the result achieved will be sufficiently rare that the plurality’s concerns lose much of their force. Moreover, those cases will tend to be the important test cases that should be encouraged through an award of attorney’s fees.

17. The justification for a contingency premium call be explained either as an inducement to persuade an attorney to invest his time in a matter that may be unproductive -- even a lawyer who has all the hourly fee work that he can handle may be willing to accept a contingency if he concludes that the value of the potential premium justifies the risk of nonpayment -- or as a means of providing a level of compensation that will offset the losses on other cases that fail. Either explanation is simply a reflection of how the private market compensates for contingency. See, e.g., Berger, Court Awarded Attorney’s Fees: What is "Reasonable"?, 126 U.Pa.L.Rev. 281, 325 (1977).

18. Both the District Court and the Court of Appeals relied heavily on the fact that respondent faced serious and persistent opposition in this case. See 581 F.Supp. at 1431; 762 F.2d 272, 281 (1985). The fact that an attorney faces strong opposition by a well-funded opponent should certainly be given significant weight by a court. This factor, however, ordinarily becomes relevant in the assessment of the reasonableness of the hours expended by the attorney in preparing and litigating the case. Like the novelty or difficulty of a case, a strong and persistent opponent usually demands a significant increase in the hours devoted to a case. In the few cases in which an extra enhancement is justified for significant legal risks faced at the outset of litigation, a court may take into account as well the perceived strength of the opposition at the outset. A court, however, should grant such extra enhancement only if it determines that the attorneys have not already been adequately compensated through the number of reasonable hours that constitute the lodestar.