Judge: Mark H. Epstein, Case: 19SMCV00057, Date: 2023-01-20 Tentative Ruling
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Case Number: 19SMCV00057 Hearing Date: January 20, 2023 Dept: R
This is a motion for fees.
The court will discuss it with counsel.
Plaintiff seeks a lodestar fee recovery of $2,901,323.43 (as set forth in reply) plus a 100% enhancement as to fees. Defendant concedes that plaintiff is the prevailing party, but disputes the lodestar amount and the enhancement request.
The lodestar is the first item of inquiry. In a fee recovery motion, the court must first determine the “lodestar” amount, which is defined as the reasonable hourly rate multiplied by the number of hours worked. After that, the court must determine whether an enhancement (or, at least in theory, reduction) is appropriate based on the circumstances of the case. (Hill v. Affirmed housing Group (2014) 226 Cal.App.4th 1192.) No one really disputes that methodology.
Plaintiff seeks hourly rates for the principal lawyers, Musell and Hyams, of $1000 and $1100, respectively. Other lawyers have requested rates of $1200 (Levy), $1100 (Vinick), $1050 (Burrell), $900 (Willits), and $425 (Wightman). Law students are billed at $350 and paralegals are billed at $225. As for the attorneys, these rates are steep (except perhaps for Wightman). That is not to say that they are excessively high, but they are not so low that they are facially proper without more.
In support of the hourly rates, plaintiff has submitted declarations by other lawyers. Those declarations are inadequate. They are from other lawyers who litigate similar sorts of cases. But the declarations are not fully sufficient. The Derubertis declaration is a good start, though. That declaration sets forth other fee awards given. However, while there is evidence that certain fees were awarded, there is no effort to determine whether those fees were at the very highest end of the range or are typical of fees awarded in the Los Angeles (or maybe Bay Area) market. There is also no real discussion as to the experience and details of those attorneys and cases as compared to counsel here. (Derubertis also relies on declarations in the other cases for their truth, which strikes the court as hearsay. While experts can rely on hearsay, under the Sanchez rule they cannot rely on case specific hearsay. Whether this kind of hearsay is case specific or general is an interesting question, but not one that the court must resolve right now. At a minimum, though, to the extent that fees were in fact awarded by a court is not hearsay; the award is a jural act.) The Harrison declaration, in contrast, if far more conclusory and it is hard to say that it truly gives the kind of support needed for these hourly numbers. The Henning declaration provides some support, but it is also somewhat conclusory and relies on surveys about which it is hard for this court to judge. The Alexander declaration is relatively conclusory. The Reinach declaration is also conclusory and of little help. In short, the Derubertis declaration is the one that comes closest to justifying these rates. While not fully sufficient, it does explain the reasoning underlying the conclusion and the bases therefor and has some discussion comparing counsel here to others who were awarded rates that are commensurate with those being sought.
In opposition, defendant submitted a detailed declaration by Schratz, an expert who has set forth credentials in reviewing bills from lawyers. Schratz’s declaration is very detailed, but it also has problems. The court addresses some of the specific ones.
The court disagrees with Schratz that small firms should be presumed to command lesser rates than large ones. The hourly rate to set is based on a myriad of factors, but size of firm is not one that the court believes any firm touts. Rather, the court agrees that the lawyer’s reputation and experience play into the rate, but there is no reason to believe that lawyers at smaller firms have a lesser reputation than lawyers at larger firms. In some cases that may be true, but in others the opposite will be true. The question of the reasonable hourly rate is not, in the court’s view, influenced by firm size, or at least not directly so.
The court agrees with Schratz that the market pressure that exists when a firm charges and collects based on hourly rates is not present here. In other words, a firm that bills by the hour and collects the fees billed from the client on a regular basis has provided some evidence—based on that alone—that the hourly rate is reasonable. Clients, especially sophisticated ones, are not in the habit of paying inflated hourly rates. The market forces at work will therefore compel the firm to bill at a reasonable rate or it will price itself out of the market. On the other hand, a firm that does not bill in that manner—which is the case here—cannot rely on that market check as an indicator of reasonableness. Bronshteyn was not billed by the hour and knew that she would never have to pay counsel their hourly rate out of her own pocket. As such, the court cannot rely on the market to act as a check on the hourly rate.
The court disagrees with Schratz that the lack of sending out actual bills that must be paid encourages counsel to over work or over bill. (The court recognizes that this goes more to the number of hours than the hourly rate, but the court discusses it here because the court is discussing the Schratz declaration.) Plaintiff’s counsel here appears to have kept contemporaneous billing records to reflect the time actually spent. The court has no reason to believe that the records are false. True, in the case of actual bills there is a client looking at the bills in real time and able to question any time that appears excessive—something that is not present here. But that does not translate into any reason to doubt that the work was actually done. That is, the court rejects the notion that there were entries for time not actually spent. To be clear, Schratz does not accuse plaintiff’s counsel of including any time not actually spent. The court wants to make it clear that while the market does not impose an independent dis-incentive for that, neither does the lack of a market cause the court to question the entries in that way. The other side of that coin is that plaintiff’s counsel has an incentive to bill time unnecessarily—that is, counsel can add a bunch of time doing tasks that might not need to be done because no one will actually be looking over the bill in real time. But in fact, the court suspects that the opposite is true. Unless the lawyers here simply have nothing better to do, plaintiff’s counsel in a contingency case has every incentive not to do unnecessary work. If the additional work will not translate into a greater recover for the client, then the additional work may not lead to a greater fee at all. (That is more obviously true in a regular contingency case, where the fee comes solely from the recovery and not from a fee-shifting statute, but even in the fee-shifting context, plaintiff’s counsel takes a greater risk doing unnecessary work because in the event the contingency does not come to pass, the work is for naught and no compensation for it will be paid.) In other words, the court is of the view that the hours billed are reliable given that the records are contemporaneous. That is not to say that they are conclusively reasonable; it is only to say that the court does not look at them askance.
The court also disagrees with Schratz’s use of hourly rates in other contexts. Again, the court must look at rates in Los Angeles, and the evidence as to Los Angeles rates has to be granular enough so that the rates relate to attorneys similarly situated to those here. Schratz does not really do that.
Schratz also attempts to use rates that were awarded to these lawyers in the past and simply move them forward using the average rate increase of 4%. That is too simplistic. Even assuming that the 4% number is correct as a general matter to account for hourly rate inflation, it does not answer the question. Hourly rates also change due to experience. The easy example, though not really applicable here, is the increase in rates between a first year lawyer and a second year lawyer. A law firm might well increase its hourly rate by 4% in January of a given year. But the specific attorney’s rate will increase by more than that because the specific attorney will not longer be billed at first year levels. Thus, the increase will account for both the general 4% increase and the increase in experience and will thus likely be more than 4%. Of course, that stark example is less telling with senior lawyers. There is a great difference between an attorney who passed the bar last week and one that passed the bar a year ago. There is far less of a difference between an attorney who passed the bar 26 years ago and one who passed the bar 27 years ago. But there can still be differences. Thus, an attorney awarded a specific hourly rate in 2014 might have had a lot of additional experience in the 8 years after; that attorney may have won a major and notorious case during that time; that attorney may have received impressive accolades. All of those things can easily cause the reasonable hourly rate to climb by far more than the 4% that Schratz uses. Schratz makes no effort here to determine whether any such factors might apply to counsel, although plaintiff makes no effort to do so either to explain why the much larger hourly rate increases are justified.
The court also disagrees with Schratz in terms of the contingent effect. Schratz essentially opines that the lodestar should be calculated independent of the contingent nature of the fee, and that no enhancement is appropriate either. Plaintiff, on the other hand, seems to argue that the contingent nature of the fee justifies a higher hourly rate and an enhancement. The court is in the middle. The contingent nature of the fee must be incorporated into the calculation, but once and not twice.
Thus, one could argue that the reasonable hourly rate for a contingent fee is higher than for a non-contingent one. By way of example, the court has seen fee agreements where the hourly rate is billed at a premium to the lawyer’s regular hourly rate but the lawyer agrees to collect any fees only from a recovery. (That is usually done by firms that generally bill by the hour, but the court has seen such agreements and the increase is expressly tied to the contingent nature of the fee.) One could argue that the higher hourly rate is the “reasonable” rate given the increased risk of non-payment. If that is the case, however, an enhancement would not be appropriate, for the increased risk was incorporated into the hourly rate. However, the opposite is also true. One could look at the hourly rate as being the same whether collection is contingent or not, but then add an enhancement to deal with the added risk. In theory, the total fee ought to be about the same either way; it is just where in the calculation the risk is placed. Here, plaintiff’s evidence does not explain whether the supporting hourly rates were then subject to enhancement or not, so the court cannot tell whether it is double-counting or not. The court is aware that plaintiff also seeks an enhancement due to the result obtained and the skill brought to bear. The court disagrees. As to the skill brought to bear, that ought to be considered in setting the hourly rate. And, while the case was certainly significant and hard fought, the court does not see any truly cutting-edge issues that would warrant an enhancement on this basis nor does the court see a basis for an enhancement based on the quality of the work. By that, the court does not mean to disparage the quality of the work. Far from it. But at the hourly rates counsel seeks, that kind of quality is assumed. As for the result obtained, the court is not of the view that this factor translates into an enhancement. The court is also aware that there were a lot of hours and that this plainly had an impact on counsel’s ability to take on other matters. Even so, that is adequately reflected in the hourly rate and the contingent nature of the case (in other words, if the contingent nature yields an enhancement, then enhancing it again based on the same risk is double-counting; and if the contingent nature yields a higher hourly rate, then again enhancing it again is double counting.)
In short, the court does not believe that plaintiff has made out its case justifying the hourly rates of its lawyers (except Wightman, whose rate does not appear to the court to be excessive based on the court’s own experience). But defendant has not really done the job either. The difference is significant, as Schratz is proposing about a 1/3 reduction in the hourly rate. Based on this evidence, the court is reluctant to set its own rate.
As to the number of hours billed, the court notes with some satisfaction that Schratz actually has only minimal disputes with the number of hours. Generally, the court agrees with plaintiff as to the number of hours billed. There is one exception, though, and that is travel time. Plaintiff was, of course, entitled to choose out of town lawyers to run the case. The court has no quarrel with it, and plainly plaintiff’s lawyers did their job. The court has also agreed to award as costs the various travel expenses. However, billing for travel time is a bridge too far. Note that this is not time that a lawyer was travelling but also working—that time can be billed because of the work done, not the travel. The court is aware that many clients refuse to pay for travel time, even where the travel is to locations outside the lawyers’ home and outside the jurisdiction where the case is pending. It is far from clear that such time—especially at these rates—is appropriate. In other words, the court agrees with Schratz that plaintiff could retain out of town lawyers, but it is unreasonable to include as part of the lodestar their hourly rate to get to the jurisdiction or for travel generally.
A quick note on additional costs in reply. Plaintiff added some additional requests to which defendants have objected. Because (as discussed below) the court believes more needs to be done, the court is disinclined to strike those requests on the theory that they were brought forward in reply. There is an additional question whether plaintiff’s declarants are truly “experts.” Given the abbreviated nature of the declarations they submitted thus far, the court is not inclined to include their fees as experts. However, if plaintiff chooses to employ an expert as discussed below, that cost is properly sought. While the court understands that these experts are not the typical experts in that their testimony does not go to anything decided at trial, to the extent that they are needed to support the hourly rates here, the court at least tentatively agrees that they come within Government Code section 12965.
So where does that leave us? There is a pretty large difference. In terms of lodestars, Plaintiff is at $2.9 million and defendant is at $1.7 million. And, of course, plaintiff wants an enhancement. That is a $1.2 million difference in lodestar plus the enhancement. For that kind of money—which is more than most cases in the Superior Court all in—a little more evidence and a little more process is appropriate. The court is inclined to allow both sides to supplement their supporting papers as to hourly rate (only). The court is also inclined to allow those who submit expert declarations to be deposed. The court is inclined to follow the federal practice here: the experts ought to exchange reports setting forth the hourly rate to which they opine and the reasoning therefor, to be followed by depositions. Plaintiff’s expert(s) ought to be deposed first, as plaintiff ultimately has the burden here. While the court is reluctant to add yet more briefing to an already large docket, the amount in controversy is between $1.2 million and about $3.5 million (depending on the enhancement), and that is worth taking the time to do right. The court will not likely base its decision on the number of declarations; rather it will be the strength of the declarations. Plaintiff might well prevail with just one expert declaration.
The court also does not mean to suggest that it views the rates sought as unreasonable. The court notes that this was hard fought litigation and counsel were experienced and able. The rates here may well fall within the range of reason and be approved. The court is merely saying that before awarding millions in fees or ordering over $1 million in fee reductions and denying any enhancement, more is needed.
The court also suggests that the parties might want to see if they can settle this aspect of the case. That is, to avoid risk and uncertainty, the parties might be able to reach an agreement as to a reasonable fee amount. In so agreeing, defendant would not be agreeing to waive any rights it has to appeal the judgment on any ground (other than the amount of fees), nor would defendant be agreeing to waive a challenge to the amount of fees if there is a material change in the underlying judgment. But if the judgment stands, defendant would agree that the agreed-upon fee is proper. The court is not (of course) ordering the parties to agree; it is merely saying that because the largest two issues are the hourly rate and how to deal with the contingent nature of the case, it might be something to which an agreement can be had. If not, then not.
The court will discuss an appropriate schedule with the parties.