Statutes and contracts often permit a prevailing party to recover “reasonable” attorneys’ fees. But what is “reasonable”?
Many attorneys in the enviable position of filing fee-shifting motions believe their own fees to be reasonable, and thus reflexively ask the court or arbitrator to award the amount their client actually paid them. Alas, this often results in an award of less than what the attorney charged because courts and arbitrators often apply a “haircut” to such requests.
As it turns out, “reasonable” fees can be—and often are—higher than the amount paid by the client.
Under California law, the “reasonableness” of attorneys’ fees in a given situation is driven not so much by the specific terms of the fee arrangement between the attorney and client, but rather, by the fair market value of the legal services rendered in that case. See Syers Props. III, Inc. v. Rankin, 226 Cal. App. 4th 691, 701 (2014). “There is no requirement that the reasonable market rate mirror that actual rate billed.” Id. Consequently, courts will consider the complexity of the case, the skill and experience of the attorneys, and the prevailing market rates in deciding what a reasonable fee should be. “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.” Charon v. Litke, 181 Cal. App. 4th 1234, 1260 (2010).
Reasonable Fees are Set by the Market—Not by Clients
This focus on market value of services rather than specific arrangement makes good sense. Attorneys have all kinds of arrangements with clients, including many that don’t involve any express, hourly fees at all. Consider contingency arrangements, pro bono arrangements, and even cases litigated by in-house counsel; attorneys perform valuable services in such cases, and awards of attorneys’ fees are available in them even if no money at all changes hands between client and attorney. See, e.g. Nemecek & Cole v. Horn, 208 Cal. App. 4th 641, 652 (2012). Indeed, even in cases litigated by outside counsel charging by the hour, attorneys can and do often provide discounts to clients for all sorts of reasons, including the client’s ability to pay, the attorney’s prior relationship with the client, demands by the client’s insurance carrier, and more. None of these reasons suggest that the attorney’s work is somehow rendered less valuable than it would have been if they had charged full price.
The Prevailing Party Should Benefit from a Discount on Attorneys’ Fees, Not the Losing Party
Of course, the reader may be thinking: That’s not fair! Why should the prevailing party get more money in a fee award than they paid their attorneys in the first place? The answer is that the alternative—reducing a fee award simply because the prevailing party paid their attorney less than market—would be a windfall to the non-prevailing party. After all, if legal services have a determinable value independent of what someone pays for them in one instance, why should the party who loses the case be the party that reaps the benefit of the discount?
Takeaways
Attorneys seeking fee-shifting should seriously consider whether, under the unique circumstances of their case, “reasonable fees” means something more than what they charged their client in that case. Even if the tribunal disagrees, such a request, if supported by evidence, may result in an award of actual fees paid, without any further “haircut” that the Tribunal might otherwise have been inclined to impose.
Simply put: Don’t sell yourselves (or your clients) short.
For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Joshua Korr, or Kevin O’Brien.
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