There is hope for Third Wave lawyers that their fees under a will not be cut just because they are a solo practitioner or work at home under the Lodestar analysis.
In a key decision out of the United States Court of Appeals, Second Circuit, the panel ruled in a federal fee-shifting case that courts (1) cannot apply a fictional blended billing rate to a solo practitioner who assists his client in prevailing in the case, and (2) should not reduce fees from the prevailing rate because the attorney is a solo practitioner or a member of a smaller firm.
In McDonald v. Pension Plan, 450 F.3d 91 (2nd Cir. 2006), New York attorney Edgar Pauk successfully represented James McDonald in a suit charging that the former longshoreman's union pension plan failed to properly calculate the years in which he accrued benefits.
Pauk had requested $425 an hour for his work, but Southern District of New York Judges Naomi Reice Buchwald and Kevin P. Castel, who presided over different portions of the case, set respective hourly rates of $325 and $390. The 2nd Circuit panel vacated Castel's award on the grounds that he inappropriately applied a blended rate. Such a rate is intended to take into account the different billing rates of partners and associates within a firm, but the appeals court said it had never before seen a blended rate applied in the case of a solo practitioner.
In other words, to determine his fee award, the panel noted, the District Court Judge "analogized Pauk's situation to that of a large law firm" and "created the hypothetical 'Pauk & Associates' -- comprised of one experienced ERISA litigation attorney and a hypothetical group of inexperienced associates -- and decided on [his] own which tasks should have been done by respective members of the hypothetical firm."
Thus, though all of the work was performed by Pauk, Castel decided some of the work merited a "partner" rate of $500 an hour while work that would have been delegated to junior associates in a larger firm merited a lower rate.
The 2nd Circuit said determined that playing this type of fiction was just wrong.
"There is simply no support for the proposition that a district court can decide what legal tasks could have been done by a hypothetical associate attorney working for or with Pauk in order to calculate a blended hourly rate of $390," the court said in its unsigned opinion.
The panel approved Buchwald's award and agreed with her reduction of Pauk's requested rate based on her finding that his performance "though effective, was less than stellar." The trial judge had found the lawyer frequently inefficient and "occasionally vexatious."
The appeals court also noted that Buchwald felt it was "of great significance" that Pauk was a solo practitioner with lower overhead costs than a firm.
Though the 2nd Circuit did not reject this finding, it cautioned in a footnote "that district courts should not treat an attorney's status as a solo practitioner as grounds for an automatic reduction in the reasonable hourly rate."
The panel said overhead was not in itself a valid reason for courts to assign higher or lower rates, though it said overhead could be considered as a valid explanation of why some lawyers charged more for their services. But the appellate court said solos with presumably lower administrative costs could also merit a high hourly rate.
"Indeed, it may be that in certain niche practice areas, attorneys of the highest 'skill, expertise and reputation' have decided to maintain a solo practice instead of affiliating themselves with a firm," the court wrote. "The reasons for doing so may be numerous, including the inherent problems of high overhead, fee-sharing and imputed conflicts of interest."
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