Civil- and employee-rights litigants take it in the neck again, as the Supreme Court (in 5-4 and 5-3) decisions reverse decisions (1) from the Eleventh Circuit, that allowed a fee-enhancement in fee-shifting cases for extraordinary results; and (2) from the Second Circuit, that ratcheted-up judicial review of ERISA plan administrator claims decisions in cases where the administrators’ original decisions were found judicially to be unreasonable. Message to the lower courts: don’t get too creative.
Perdue v. Kenny A., No. 08-970 (U.S. S. Ct. Apr. 21, 2010): Federal civil rights litigants and their counsel who prevail in their claims may — under a variety of statutes — obtain a judicial award of attorneys’ fees. The calculation of such fees begins with the lawyers’ reasonable hourly (market) rates and the number of hours reasonably expended (the lodestar), which then can be adjusted depending on different factors.
The Supreme Court has said in the past, without elaboration, that one valid enhancement factor may be whether the attorney gave superior performance. See, e.g., Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air, 478 U. S. 546, 565 (1986); Blum v. Stenson, 465 U. S. 886, 897 (1984). In this case, the district court agreed that the lawyers’ eight-year effort on behalf of over 3000 foster children against the State of Alabama warranted just such an enhancement, tacking on a 75% increase on a $6 million lodestar. The Eleventh Circuit affirmed this order as within the district court’s discretion.
The five-justice majority remands, and — in an opinion by Justice Alito — sets the bar for “superior performance” enhancements high. He envisions “rare” and “extraordinary” circumstances where such an enhancement: (1) where “the method used in determining the hourly rate employed in the lodestar calculation does not adequately measure the attorney’s true market value, as demonstrated in part during the litigation,” which must be supported by “specific proof linking the attorney’s ability to a prevailing market rate”; (2) where an “attorney’s performance includes an extraordinary outlay of expenses and the litigation is exceptionally protracted,” essentially a reasonable interest rate on top of the market rate; or (3) where “an attorney’s performance involves exceptional delay in the payment of fees” (see (2)).
The majority in each instance points to the need to establish specific, verifiable benchmarks to justify the enhancement. It rejects any analogy to increasingly common, alternative lawyer billing strategies, such as reduced hourly rates with a performance bonus for excellent results. The majority rejects the 75% enhancement here as, essentially, a “know-it-when-you-see-it” standard that was an abuse of discretion. The majority places emphasis on sufficient findings:
“Determining a ‘reasonable attorney’s fee’ is a matter that is committed to the sound discretion of a trial judge, see 42 U. S. C. §1988 (permitting court, “in its discretion,” to award fees), but the judge’s discretion is not unlimited. It is essential that the judge provide a reasonably specific explanation for all aspects of a fee determination, including any award of an enhancement. Unless such an explanation is given, the adequate appellate review is not feasible, and without such review, widely disparate awards may be made, and awards may be influenced (or at least, may appear to be influenced) by a judge’s subjective opinion regarding particular attorneys or the importance of the case. In addition, in future cases, defendants contemplating the possibility of the settlement will have no way to estimate the likelihood of having to pay a potentially huge enhancement.”
Justices Kennedy and Thomas offer terse concurrences; Justice Breyer, with whom Justice Stevens, Justice Ginsburg, and Justice Sotomayor join, concur in part (on the availability of enhancements) and dissent in part (on the strict limits set by the majority).
Conkright v. Frommert , No. 08-810 (U.S. S. Ct. Apr. 21, 2010): The Supreme Court has emphasized under ERISA that a plan settlor may confer discretion to a plan administrator (as trustee) to interpret a plan, and such interpretations are judicially reviewable only for abuse of discretion. See, e.g., Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008); Firestone Tire & Rubber Co. v. Bruch, 489 U. S. 101 (1989). The Second Circuit had recently carved out an exception to this standard, though: when the plan administrator’s original interpretation denying a benefit claim is rejected as unreasonable by a court, subsequent interpretations do not warrant Firestone discretion.
The five-justice majority opinion, penned by Chief Justice Roberts, reverses and holds that the same standard of review applies to subsequent interpretations, in the absence of proof of bad faith or other unfairness by the trustee. Surveying the available trust law treatises and case law and finding that “trust law does not resolve the specific issue before us,” the majority holds that as a matter of ERISA substantive law that it would inequitable in most cases to strip the plan administrator of discretion as the penalty for a single good-faith mistake:
“Firestone deference protects these interests and, by permitting an employer to grant primary interpretive authority over an ERISA plan to the plan administrator, preserves the “careful balancing” on which ERISA is based. Deference promotes efficiency by encouraging resolution of benefits disputes through internal administrative proceedings rather than costly litigation. It also promotes predictability, as an employer can rely on the expertise of the plan administrator rather than worry about unexpected and inaccurate plan interpretations that might result from de novo judicial review. Moreover, Firestone deference serves the interest of uniformity, helping to avoid a patchwork of different interpretations of a plan, like the one here, that covers employees in different jurisdictions — a result that ‘would introduce considerable inefficiencies in benefit program operation, which might lead those employers with existing plans to reduce benefits, and those without such plans to refrain from adopting them.’ Fort Halifax Packing Co. v. Coyne, 482 U. S. 1, 11 (1987).”
The case is not a total loss by plan participants though. Even the majority allows, though, that a remand to the administrator or deference may not be required where a trustee “does not exercise his discretion ‘honestly and fairly'” citing 3 A. Scott, W. Fratcher, & M. Ascher, Scott and Ascher on Trusts §18.2.1, pp. 1348 (5th ed. 2007). “Applying a deferential standard of review does not mean that the plan administrator will prevail on the merits. It means only that the plan administrator’s interpretation of the plan ‘will not be disturbed if reasonable.'” Justice Breyer, with whom Justice Stevens and Justice Ginsburg join, dissent.