Perdue v. Kenny A. Keeps On Punishing Class Action Lawyers

I complained back when the Supreme Court’s Perdue v. Kenny A. opinion first came out more than a year ago, knocking down attorney’s fees awarded to a set of extraordinary children’s rights lawyers:

It’s no stretch to say those lawyers single-handedly reformed the foster care system in metropolitan Atlanta.

And they did that by spending their own money and putting in their own time, with no guarantee they would recoup any of their out-of-pocket costs, much less get paid a fee for their services. Had they been paid by the hour as they went along, their services would have been worth more than $7 million.

But they weren’t paid by the hour to pursue the case. They were paid nothing at all; instead, they paid money — $1.65 million — for the privilege of cleaning up abuse and neglect in the foster care system.

As Blawgletter explains, there’s a big difference between getting paid to defend a case and paying to pursue one. The former is safe and simple and can be done in perpetuity. The latter is risky and complicated and can only be done for as long as funds are available.

Class actions are, by their nature, extraordinary, more expensive and riskier than even ordinary contingent fee representation. The District Court that oversaw the Perdue litigation recognized that and awarded the plaintiffs’ attorneys their costs, their $7 million or so in hourly fees, and then gave them an “enhancement” of $4.5 million.

The Supreme Court — the Justices of which have a combined experience in contingent fee litigation of exactly 0.0 hours — reversed, holding the plaintiffs’ lawyers, who fought for years without being paid a dime and indeed paying out their own money to fund the case, were entitled only to a fee “that roughly approximates the fee that the prevailing attorney would have received if he or she had been representing a paying client who was billed by the hour in a comparable case.”

It was a phony and vindictive legal fiction designed to dissuade plaintiffs’ lawyers from taking these cases, part of a long campaign against class actions in general that culminated in the Wal-Mart v. Dukes opinion.

Last week, the opinion came back around again to bite a group of employment discrimination lawyers who had been litigating a Title VII class action since 1997. Via the Workplace Class Action Blog comes McClain, et al. v. Lufkin Industries, Inc., No. 10-40036 (5th Cir. Aug. 8, 2011). As they describe:

Plaintiffs had filed a class action in the U.S. District Court for the Eastern District of Texas under Title VII alleging that defendant engaged in unlawful employment practices, including disparate treatment and disparate impact. Id. at *2. The district court certified a class. Id. at *3. After realizing that defendant was not going to settle the case and that they did not have the resources to prosecute an employment class action through trial, plaintiffs’ counsel sought the assistance of another law firm. Id. However, plaintiffs’ counsel was not able to find another law firm in Texas that was willing or able to commit the time and resources necessary to assist in the prosecution of the class action, so plaintiffs’ counsel was forced to turn to an Oakland, California firm with a nationwide reputation as a plaintiffs’ employment discrimination class action firm. Id. at *3-5.

The opinion (here’s the copy at the Workplace Class Action Blog) includes at footnote 4 some remarkable comments about how risky and unprofitable it is to take on these types of cases:

J.  Derek Braziel,  an  experienced Texas litigator in  labor and
employment law, explained: “I do not work on employment discrimination class action cases for largely financial reasons, even though I am competent and have the resources to do so. . . . Employment discrimination class actions usually take much longer to litigate than the average employment discrimination  or wage and hour  case.  Defendant companies often use their substantial  financial advantage  to  outstaff  and  outwork plaintiffs with  limited  personal resources.  …

Steven B. Thorpe, an experienced litigator in Dallas, declared: “My practice focuses in large part on employment civil rights cases in which I represent plaintiffs. . . . [T]he greatest portion of my practice prior to approximately 1985 was in the representation of plaintiffs in class action discrimination suits.  At that time I and the firm with which I was associated largely abandoned that area of practice because we found it to be financially infeasible. At this time and for more than a decade I have done no class action employment litigation.

All of that hesitation despite the extraordinary facts that the plaintiff’s lawyer, Timothy Garrigan, had discovered and proven in front of the court during class certification:

During the class certification hearing, one allegation was that African American employees were disproportionately sent to Lufkin’s foundry to work under horrible conditions. The company officials were testifying that the conditions there weren’t so bad. Judge [Howell] Cobb immediately recessed the class certification hearing and ordered everyone to take a tour of the foundry when no one was expecting us to be there.

It was actually the first time I’d been there. The descriptions I’d heard of the place were like something out of Charles Dickens or the Dark Ages, and they turned out to be accurate. It was hot, dark, dirty, ankle deep in dust, with flames leaping out of the darkness just a few feet away from you. It was everything the plaintiffs had been describing. I do think that was a significant point in the case. It confirmed what many of the plaintiffs had been saying and contradicted much of what the company had been saying.

Literally unable to find anyone in Texas willing to take the case, Garrigan reached out across the nation and found Goldstein, Demchak, Baller, Borgen & Dardarian in California, which has long fought these sorts of battles. As Garrigan described back in 2008, while the case was still going on:

I do want to gush about the help that we received from Goldstein Demchak. They’ve been real heroes, great people to work with, and they put a lot of resources into this case. From a settlement perspective, having them at the table changes the dynamics a lot. Without them, there’s a good chance Vinson and Elkins would have buried me a long time ago.

“Resources” includes not just thousands of hours of attorney time, but also over $1 million in out-of-pocket cases. Multi-decade class actions don’t come cheap.

With those resources, they won the case and filed for their attorney’s fees, as they’re entitled to do under Federal Rule of Civil Procedure 23 and under Title VII.

The McClain opinion is, in part, a “win” for specialized class action lawyers, or at least “not a loss.” The District Court ruled that Garrigan should have used lawyers in rural Texas, and so Goldstein Demchak had to bill rural Texas, not urban California, rates. The Fifth Circuit reversed, noting the obvious: Garrigan tried to find lawyers in Texas and no one would bite. Too expensive. Too risky.

And then Perdue v. Kenny A reared its head:

Although  we  have  concluded  already  that  remand  is  necessary,  it  is  appropriate to address and  firmly reject plaintiffs’ other challenge to the  fee  award, arising from the Supreme Court’s recent opinion in Perdue v. Kenny A.  ex rel. Winn, 130 S. Ct. 1662 (2010). In Perdue, the Court approved, only “in  extraordinary circumstances,” an increase in the attorneys’ fee lodestar “due to  superior  performance  and  results.”  Id. at  1669.  Two  Justices  specially concurred in emphasis of the rarity of such cases.  See id. at 1677 (Kennedy, J,  concurring);  id. at  1677-78  (Thomas,  J.,  concurring).  True, Perdue notes  in  passing that “the lodestar method produces an award that roughly approximates  the fee that the prevailing attorney would have received if he or she had been  representing a paying client who was billed by the hour in a comparable case.”   Id. at 1672 (emphasis in original).  But Perdue never requires or even hints at  the  plaintiffs’  proposition:  that  their  hourly  rates  should  approximate  those  charged by the defense counsel.

The plaintiffs persuaded the district court to allow discovery of defense  counsel’s  fees  and  to  write  on  the  question  of  parity between  plaintiff  and  defense counsel.  No prior Fifth Circuit authority requires this comparison, nor  does common experience, because the tasks and roles of counsel on opposite sides  of a case vary fundamentally.  If there were logical comparability, this court’s  decisions would have recognized it in the Johnson factors or in past lodestar  decisions.  And if, perchance, defense counsel  had charged less in the course of  this litigation, plaintiffs would have avoided any paean to comparability.  See  Graves v. Barnes, 760 F.2d 200 (5th Cir. 1983).  To top it off, opposing counsel’s  total charge for the litigation was $4,864,923.37 – only $124,728 more than the  court awarded to plaintiffs.  That difference is just 2.63% of plaintiffs’ total fee  award (and 2.15% of plaintiffs’ total award including costs).  One would suppose  a 2.63% disparity falls within a “rough approximation,” but this leads plaintiffs down a new rabbit trail, and they begin to argue about the higher time-value of money for fees paid during the litigation than at its conclusion.

Indeed, it would be absurd to compare defense counsel’s fees to plaintiff’s attorney’s fees: defense counsel is paid in full every 30 days and pays no expenses in the case, whereas the plaintiff’s attorneys must advance every cost of the case and aren’t paid unless the case is won and then aren’t paid until the case is concluded.

One side takes on risk, the other does not. One gets paid promptly, the other does not. The “rabbit trail” is just Econ 101: a dollar in the bank today is worth more than the possibility of a dollar a decade later.

Paying plaintiffs’ lawyers roughly the same dollar-for-dollar based on attorney time ignores the fact that plaintiffs’ lawyers are not paid for their time. The whole reason a plaintiffs’ lawyer agrees to a contingent fee is because the client can’t pay on an hourly or fixed fee basis.

Adding insult to injury, one judge with 0.0 hours of experience in contingent fee representation filed a concurring opinion arguing:

It cannot escape the reader’s attention that the Goldstein Demchak firm  has  been  authorized  to  receive  several million  dollars  in  fees, and  a million  dollars in expenses, for prevailing in this protracted case.  But to them, that’s not enough, and they seek an hourly increase that will add $3 million more to  their award.  If that happens, the attorneys will have received nearly double the dollar award of the plaintiffs.  What has fee shifting come to? This is not an appeal about incentivizing modestly compensated attorneys for pursuing noble  goals:  the  $400 hourly rate awarded to Mr. Garrigan is hardly a day laborer’s  fee.  This appeal is designed simply to enrich, not to enhance or encourage.  The  Supreme Court holds that fee-shifting cannot bring a windfall to attorneys.  See Rivera,  supra.  On  remand,  the  district  court  should  exercise  its  discretion  within  the parameters we have set  out  to prevent a windfall recovery.  See Hensley, supra.

There is, of course, no doubt that Garrigan and Goldstein Demchak “pursued noble goals” in obtaining just and fair compensation for African American employees who had suffered systematic discrimination, as recognized by the Republican-appointed federal District Court judge who conducted the class certification and the trial.

And why did the plaintiffs’ lawyers spend so much time on the case, warranting “nearly double the dollar award of the plaintiffs?” Because the discriminating employer — which, the court established, repeatedly broke the law — spared no expense in avoiding accountability and responsibility. Garrigan tried again and again to settle the case and they refused.

There’s no “windfall” in plaintiffs’ lawyers receiving fees that reflect the risk and expense of taking a meritorious case on a contingent fee. Ignoring those factors — as Perdue implies, and as the Fifth Circuit has applied — amounts to a penalty against plaintiffs’ lawyers, a far cry from an “encouragement” or an “incentive” to fight cases that need to be fought, like McClain, et al. v. Lufkin Industries, Inc.

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  • John Day

    Only a fool would accept representation on a contingent for basis in the expectation of earning, if successful, the hourly rate he or she would have earned working by the hour and billing monthly.

    You are absolutely correct: paying contingent fee lawyers at the same rate at hourly rate lawyers is nothing more than a effort to discourage litigation by contingent fee lawyers. It is judge-made tort reform. And it is wrong.

    • Anonymous

      I wasn’t sure how to conclude the post, but your description of “judge-made tort reform” hit the nail on the head.