The first step in computing a fee award was relatively clear: determine the "lodestar" figure by multiplying the lawyer’s reasonable hourly rate by the hours he or she reasonably spent. But the second step — whether to enhance the lodestar with a "multiplier" — became the subject of some uncertainty when the U.S. Supreme Court held in City of Burlington v. Dague, 505 U.S. 557 (1992), that fee enhancements in certain federal fee disputes were forbidden.
Now, thanks to the unanimous California Supreme Court decision two months ago in Ketchum v. Moses, 24 Cal. 4th 1122 (2001), we have some answers.
Nearly a quarter century ago, in Serrano v. Priest, 20 Cal. 3d 25 (1977), the California Supreme Court established the proposition that the lodestar amount anchors the trial court’s analysis to an objective determination of the value of the lawyer’s services. This "anchor" is intended to ensure, in the first instance, that the fee award is not arbitrary.
Serrano then went on to say that trial courts have the discretion to increase or decrease the lodestar figure by applying a multiplier. It then articulated certain factors that the courts may consider in determining whether to apply such a fee enhancement, including the novelty and difficulty of the issues, the skill the lawyer displayed in presenting them, the extent to which the litigation precluded the lawyer from accepting other employment and the contingent nature of the fee award (both from the view of eventual victory on the merits and the view of establishing eligibility for an award).
The Supreme Court revisited fee enhancements twice more after Serrano in Press v. Lucky Stores Inc., 34 Cal. 3d 311 (1983), and Maria P. v. Riles, 43 Cal. 3d 1281 (1987). In both cases, the court underscored the importance of using the lodestar to calculate an objectively reasonable attorney-fee award and again explained that a trial judge may increase or decrease the lodestar figure depending on a variety of factors, including the contingent nature of the fee award.
Serrano, Press and Maria P. all were decided before the U.S. Supreme Court decided Dague. The issue in Dague was whether a federal district court, faced with a fee motion under two federal environmental-protection fee-shifting statutes, could enhance the lodestar amount to account for the fact that the lawyers had been retained on a contingent-fee basis.
Writing for a six–three majority, Justice Antonin Scalia stated that it is improper for a district court to award a fee enhancement merely because a lawyer has accepted the representation on a contingent-fee basis. He noted that the "strong presumption" is that the lodestar represents the "reasonable" fee and that the fee applicant has the burden to show that an upward adjustment "is necessary to the determination of a reasonable fee."
Scalia then rejected the argument that trial courts should enhance the lodestar fee based on contingent risk. He reasoned that the risk of loss in a particular case is the product of two factors: the merits of the claim and the difficulty of establishing the merits. Because the lodestar already reflects the second factor (either in the higher number of hours the lawyer spent to overcome the difficulty or in the higher hourly rate of the lawyer skilled and experienced enough to do so), to use that factor in determining whether to enhance the lodestar constitutes double counting. Thus, he reasoned, to award an enhancement based on the riskiness of the merits of the claim improperly encourages lawyers to bring meritless claims.
So where did this leave Serrano and its progeny, which unambiguously had endorsed fee enhancements based on contingent risk under California attorney-fee statutes? Ketchum answered that question.
Smith Ketchum, a landlord, sued John Moses, his tenant, for allegedly making false statements after Moses complained to inspectors about building code violations. Moses countered with an anti-SLAPP motion to strike the complaint on the ground that Ketchum’s suit was designed to chill Moses’ free-speech right to voice his complaints to government agencies. The trial court granted the motion.
Moses then moved for an award of fees and costs, which the anti-SLAPP statute (Code of Civil Procedure section 425.16) entitles a prevailing defendant to recover. In calculating the award, the trial court used a standard lodestar approach based on the hours Moses’ lawyer spent multiplied by a reasonable rate for his services. The court then enhanced that fee by a factor of 2.0, finding that the contingent nature of the case and the exceptional quality of lawyering warranted that enhancement.
When Ketchum’s lawyer moved for reconsideration of the award, the trial court denied the motion and awarded additional fees, including "fees on fees" — the fees and costs Moses had incurred in bringing the fee motion. The court enhanced the lodestar amount for that award as well. This brought the total attorney-fee award to more than $250,000.
In an unpublished opinion, the Court of Appeal upheld the lodestar amount but disallowed the enhancement. Relying on Dague, which it found persuasive, the Court of Appeal concluded that the trial court lacked authority to award a fee enhancement based on the contingent risk associated with the litigation.
Even though the opinion was unpublished, the Supreme Court granted review and disagreed with the Court of Appeal’s reliance on Dague. The Supreme Court noted that Dague was not binding insofar as California attorney-fee statutes are concerned and that the Legislature has "presumptively acquiesced" in the Serrano enhancement approach in enacting numerous fee-shifting statutes since Serrano, including the anti-SLAPP fee provision at issue in Ketchum.
Ketchum also rejected the notion that the lodestar amount necessarily reflects the contingent nature of the risk that a lawyer undertakes. To the contrary, the court explained, an unadorned lodestar amount generally reflects the fee in a noncontingent case. In other words, that base figure usually includes no compensation for contingent risk, extraordinary skill or any other factors a trial court can consider under Serrano.
Ketchum also rejected the view that an enhancement for contingent risk necessarily duplicates factors already subsumed in the lodestar. Rather than looking at the risk factor merely in terms of the number of hours or level of skill required to overcome the risk of loss, as Dague did, Ketchum focused on how the market for legal services operates.
According to Ketchum, the "experience of the marketplace indicates that lawyers generally will not provide legal representation on a contingent basis unless they receive a premium for taking that risk." As a result, and because the unadorned lodestar does not reflect that premium, a contingency fee enhancement merely brings the fee award in line with fees for comparable legal services.
In spite of Ketchum’s rejection of Dague and its ringing endorsement of Serrano’s lodestar adjustment principles, Ketchum issued a significant cautionary admonition: A trial court may not consider any enhancement factor if it has already used that factor in calculating the lodestar. While trial courts retain discretion to make an upward adjustment in a fee award, the Supreme Court counseled them to consider the degree to which the relevant market — and, therefore, the lodestar — already compensates for contingency risk, extraordinary skill or the other Serrano factors.
Ketchum’s facts illustrated that point well. Because the purpose of a fee enhancement for contingent risk is to compensate for the risk of loss, the enhancement issue in Ketchum turned on whether there was a risk that Moses’ lawyer would not be compensated for his work on both the anti-SLAPP motion and the motion for fees and costs.
Noting that the entitlement to fees on the anti-SLAPP motion was subject to the risk that Moses and his lawyer might not prevail and, thus, not be entitled to fees, the court concluded that a multiplier was permissible. In other words, because the lodestar there was based on the local community rate for legal services in a non-contingent matter and the market rate for contingency-fee cases is higher, a contingency risk enhancement was appropriate for the work in bringing the anti-SLAPP motion.
However, the court continued, an enhancement was not appropriate for any alleged contingent risk as to the "fees on fees" that Moses incurred after the trial court granted the anti-SLAPP motion. Once that occurred, because Moses was entitled to fees under the anti-SLAPP statute, the contingency was eliminated and the fee became non-contingent. As a result, to the extent that the multiplier on that piece of the fee award was based on the alleged contingent risk, it represented a windfall, requiring a recalculation of the award on remand.
The court then turned to whether the trial court was justified in awarding a "substantial enhancement" of 2.0 based on the exceptional quality of Moses’ lawyer’s services. Even though the court recognized that the unadorned lodestar figure does not include compensation for extraordinary skill, it found that the enhancement based on that factor may have represented improper double counting.
Accordingly, the court concluded, by using the lawyer’s qualifications to justify both the hourly rate and a multiplier, the trial judge appeared to have counted the same factor twice. This fact also required a remand.
Undoubtedly, parties will continue to seek fee enhancements under California’s attorney-fee statutes. Ketchum gives a green light to the claim that a court may award a fee that reflects the gamble the lawyer took in accepting the engagement on a contingent-fee basis. At the same time, Ketchum provides some needed guidelines for courts to follow in ensuring that a multiplier does not represent a "multiplication" of factors already taken into consideration in calculating the lodestar amount.