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Pickett v. Sheridan Health Care Ctr., No. 11-2146 (7th Cir. Dec. 15, 2011)

Last year, in Pickett v. Sheridan Health Care Ctr., 610 F.3d 434 (7th Cir. 2010), the Seventh Circuit affirmed a jury verdict and judgment in favor of the employee in a Title VII retaliation lawsuit. In the follow-on litigation over the award of attorney's fees, the Seventh Circuit vacates the district judge's nearly 50% reduction of the plaintiff lawyer's lodestar amount, creating splits with other circuits about the (ir)relevance of contingency-fee contracts and the so-called "Laffey Matrix" in determining the lodestar rate.

Pickett v. Sheridan Health Care Ctr., No. 11-2146 (7th Cir. Dec. 15, 2011): In this case, the district court - with a $65,000 damage award in the background - refused to award the plaintiff's attorney (Rossiello) his requested $131,665.88 fee, instead entering a fee of $70,000. The judge also entirely zeroed-out a $9,268.79 award for co-counsel (Abrahamson). The reduction of Rossiello's demand was based both on billing-judgment issues (the petition supposedly included time spent on an unsuccessful harassment claim) and an allegedly-inflated lodestar rate (he was knocked down from $592.50/hour to $400/hour).

The Seventh Circuit, vacating, issues a 41-page opinion spelling out important principles for the filing and granting of fee petitions in the circuit, and creates splits with several other circuits in the course of its analysis. The panel accepts, with modest comment, the judge's trims to the lawyer's hours for various reasons. The panel turns most of its attention to the latter issue, lodestar.

1.  Contingency-fee contract: According to the panel, "Plaintiff's contract with her attorneys requires her to pay a 33.33% contingent fee and a $7,500 flat fee, in addition to assigning her statutory right to fees."

While the panel expressed serious reservations about a contract that appeared to "unfairly take advantage of Pickett" by requiring her to pay three kinds of fees, it also held that the district court committed legal error by using the contingent contract as a reason to ratchet down the lodestar rate. "The contingent fee that an attorney earns from his client and the statutory fee that an attorney recovers from the losing party represent distinct entitlements." Indeed, "the Supreme Court has repeatedly emphasized that a plaintiff is free to contract with her attorney to pay a contingent fee in addition to assigning rights to the statutory fee."

The panel holds that the lodestar rate must be measured solely by the reasonable market rate, and there is no judicial discretion under the lodestar method to reduce that rate "by a factor that has no bearing on the prevailing market rate. We recognize the district court's desire to craft a more accurate award, but the Supreme Court adopted the lodestar approach to prevent this type of unbounded discretion."

In so holding, the panel recognized that its decision conflicted with Eighth Circuit case law that permits a district court to use its "supervisory powers" to police statutory fees awarded to an attorney who also has a contingency fee, to prevent a windfall. "[We conclude that a district court may not reduce an attorney's hourly rate or disregard third party affidavits based on the existence of a contingent fee agreement."

2.  "Laffey Matrix": The district court relied in part, without notice to the parties, on evidence of a table of customary attorney's rates in common use in the D.C. Circuit, the "Laffey Matrix," and a table of the Consumer Price Index (CPI) to set the lodestar amount. The judge exercised "judicial notice" of these tables.

The panel holds that the district court's failure to notify the parties that it intended to consult the Laffey Matrix and CPI violated the notice requirements of Federal Rule of Evidence 201(e). The panel holds that the parties were entitled to rebut those tables with other data. In particular, "[t]he Laffey Matrix is not without its critics, and plaintiff should have had the opportunity to contest its value in general and as applied to him." The panel notes, though, that the D.C. and Third Circuits have permitted district courts to rely in part on this table as evidence of reasonable and customary rates.

3.  Evidentiary support for lodestar rate: The attorney furnished affidavits from three local practitioners who averred that a $592.50 rate was market rate for a lawyer of his experience; the affiants' rates themselves ranged from $450 to $700.

The panel essentially upholds the district court judge's finding that the affidavits did not support the lawyer's rate, though with reservations. The panel notes that this particular practitioner had received a lower rate (even adjusted for inflation) in a number of prior cases, which was a relevant factor. Moreover, neither the affiants nor the lawyer himself presented evidence that they had actually billed and been paid at the hourly rates stated in their papers.

The panel holds, though, that the district court abused its discretion by (1) discrediting the affidavits to the extent that the testifying practitioners did not use contingency fees, and (2) knocking down the hourly rate based on "plaintiff's failure to introduce evidence of fee awards in contested cases that approach the rate requested here."

4.  Clear and Concise Explanation: The panel holds that the district court's opinion, absent the impermissible factors, does not reflect how the court reached a $400/hour rate. "Although the district court's opinion sufficiently describes its assessment of the evidence presented, the opinion does not sufficiently explain its reasons for selecting $400 as the hourly rate. In the absence of this explanation, we are unable to determine whether the district court's conclusion rests on a sound analysis."

5.  Co-counsel services: The panel holds the lining-out the Abrahamson award was error as well, because the judge did not make a finding on the lawyer's reasonable market rate, did not adequately explain its decision (which reversed a prior order allowing the fee), may have relied on an erroneous belief that the fee to co-counsel had already been paid, and mistakenly believed that the law "requires a party in a fee-shifting case to have prepaid the fees incurred by an outside firm as a precondition for recovery."

6.  Testimonial hearing: Finally, in light of the many factual disputes, the district court erred by not granting the plaintiff's counsel motion for a testimonial hearing.

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