By Will Tomlinson
Published in Santa Barbara Lawyer Magazine, October 2012.
Steven J. Horn might be the unluckiest attorney in California.
Horn sued a couple, whom he had represented in a lot-line dispute for unpaid fees. To no one’s surprise, the couple cross-complained for malpractice and related torts. Horn hired Nemecek & Cole to represent him in the lawsuit.
The jury awarded Horn $42,000 and change on his claim for fees, but awarded his former clients the identical amount on their cross-complaint. The former clients appealed. The Second Appellate District, Division 8, determined that the former clients were entitled to attorneys’ fees, because they were prevailing defendants on Horn’s complaint. The case was remanded to the trial court, which ordered Horn to pay his former clients approximately $380,000 in attorneys’ fees. The former clients eventually accepted $250,000 in settlement.
Horn then sued Nemecek & Cole, alleging that the firm’s negligence caused the “disastrous results” in the original action against the former clients for unpaid fees. Nemecek & Cole cross-complained against Horn for unpaid fees. The matter went to arbitration, pursuant to the parties’ fee agreement.
The arbitrator ordered that the parties take nothing on their respective claims, but allowed each side to request attorneys’ fees. Each side did so. The arbitrator awarded Nemecek & Cole approximately $289,000 in fees.
The trial court confirmed the arbitration award, and awarded Nemecek & Cole more than $42,000 in additional fees for handling the petition to confirm the award. All told, the amount of attorneys’ fees that Horn paid in settlement and for which he was held responsible in the second lawsuit exceeded $580,000.
Horn appealed, raising two issues, one concerning an alleged conflict of interest on the part of the arbitrator, and the other concerning the amount of fees that the trial court awarded in connection with the petition to confirm the arbitrator’s award. The Second Appellate District, Division 8, affirmed.
Although the conflict-of-interest issue takes up more of the opinion, the fee issue is more interesting, because, as far as the author can tell, it’s the first California state appellate decision – published or unpublished – approving (or even discussing) use of a table called the “Laffey Matrix” as a baseline for setting reasonable hourly attorneys’ fees. Federal courts in California have used the Laffey Matrix since 2005; federal courts in other jurisdictions have used it for about as long. The opinion in Nemecek & Cole gives trial courts an appellate-court-approved objective measure of the reasonableness of an attorney’s hourly rate.
The Laffey Matrix is used by the U.S. Department of Justice for assessing attorney-fee claims in the Washington, DC, area, based on the attorney’s years of experience. Adjusting for differences between rates in DC and rates in the forum locale is discussed below (the HPL Technologies case).
In seeking fees, Nemecek & Cole “presented a general schedule and pay table for attorneys put out by the Department of Justice, called the Laffey Matrix” (Slip op. at 10), and urged the court to award fees based on a rate of approximately $420 an hour. The firm did not specify its actual hourly rate in the matter, but Horn presented the declaration of an expert in billing and fee disputes who estimated that the firm’s actual hourly rate was likely less than half the requested rate. Thus, “[c]ontending the amount awarded was more than double the amount actually incurred, Horn claims the trial court abused its discretion. In short, Horn urges us to cap the attorney fee award to that which was actually incurred. We decline to do so.” (Slip op. at 10, internal quotation marks omitted.) Nemecek & Cole sought attorneys’ fees of $45,759.81; the trial court awarded (and the appellate court upheld) fees of $42,207.31. The opinion doesn’t state whether the trial court used a lower hourly rate, or cut the number of hours requested, but it can be inferred from Horn’s opening brief on appeal that the trial court used the hourly rate that the firm requested.
“The reasonable market value of the attorney’s services is the measure of a reasonable hourly rate. This standard applies regardless of whether the attorneys claiming fees charge nothing for their services, charge at below-market or discounted rates, represent the client on a straight contingent fee basis, or are in-house counsel. The amount to be awarded as attorney’s fees is left to the sound discretion of the trial court, which is in the best position to evaluate the services rendered by an attorney in his [or her] courtroom.[Citation.]” (208 Cal.App.4th at p. 651.)
“Cases have affirmed an award of attorney fees that were not actually incurred.” (208 Cal.App.4th at p. 651 (internal quotation marks omitted).) Thus, the court was “not persuaded by Horn’s argument that the rate billed by [Nemecek & Cole] represent[ed] the maximum reasonable hourly rate. … Neither do we accept a rule that requires a trial court to limit its fee award to the amount incurred in all circumstances except under unique factual circumstances…Additionally, there is no support for Horn’s argument that [Nemecek & Cole] cannot be reimbursed for attorney fees which were not actually paid.” (Slip op. 11, internal quotation marks omitted.) Finally, the court “reject[ed] Horn’s contention that the attorney fee request should have been denied because the fees were paid by [Nemecek & Cole’s insurer] rather than [the firm] itself.” (Slip op. 12, citing Staples v. Hoefke (1987) 189 Cal.App.3d 1397, 1410, for the proposition that a party is “not entitled to avoid [its] contractual obligation to pay reasonable attorney fees based on the fortuitous circumstance that [it] sued a defendant who obtained insurance coverage providing a defense”)
In In re HPL Technologies, Inc. Securities Litigation (N.D. Cal. 2005) 366 F.Supp.2d 912 – the first California federal case to use the Laffey Matrix to determine reasonable attorneys’ fees (and referring to the matrix as a “well-established objective source for rates that vary by experience,” id. at p. 921) – the court adjusted the Laffey Matrix’s Washington, DC, figures for the Bay Area as follows:
These figures are, however, tailored for the District of Columbia, which has a somewhat lower cost of living than the San Francisco Bay area (in which lead counsel’s firm operates); the court will adjust these figures accordingly. The locality pay differentials within the federal courts – which, like law firms, employ lawyers and legal support staff – can approximate this difference. See http://jnet.ao.dcn/Human_Resources /Pay_Tables/2005_Pay Tables/Judiciary_ Salary_Plan _Pay_ Tables_ 2005.html. The Washington-Baltimore area has a +15.98% locality pay differential; the San Francisco-Oakland-San Jose area has a +26.39% locality pay differential. Thus, adjusting the Laffey matrix figures upward by approximately 9% will yield rates appropriate for the Bay area.
(Id. at pp. 921-922 (footnote omitted).)
The current website for locality pay differentials within the federal courts is http://www.uscourts.gov/Careers/Compensation.aspx
The tables show that the Washington-Baltimore area has a +24.22 percent “locality pay differential,” and that the Los Angeles-Long Beach-Riverside area has a +27.16 percent “locality pay differential.” (The LA-Long Beach-Riverside “combined statistical area” consists of Los Angeles, Orange, Riverside, San Bernardino, and Ventura Counties.) Using the methodology of the court in HPL Technologies, the reasonable hourly rate for attorneys in the LA-Long Beach-Riverside area would be 2.94 percent higher than the rates given in the Laffey Matrix (i.e., the LA locality pay differential of 27.16 percent, minus the DC locality pay differential of 24.22 percent). The tables also contain a “Rest of the United States” category, which has a locality pay differential of +14.16 percent. If the Central Coast is considered to be in “the Rest of the United States,” then under the HPL Technologies methodology, the reasonable hourly rate would be 10.06 percent less than Laffey Matrix rates (i.e., the DC locality pay differential of 24.22 percent, minus the “Rest of the U.S.” locality pay differential of 14.16 percent).
Trial courts will probably continue to look at the actual rate the attorney charged and decide whether that was reasonable. But, particularly when an attorney has charged a flat fee or a below-market fee for his or her work, the new case gives trial courts a basis for making a more objective calculation of what a “reasonable” rate is.