Attorney Fees Get A Win In The Ninth Circuit

16 Aug Attorney Fees Get A Win In The Ninth Circuit

The Southern District of California Bankruptcy Court borders the Central District Bankruptcy Court, yet the Chapter 13 Fees have over a 20% difference.  Each district has its own presumed acceptable fees known as RARA fees (Rights and Responsibilities Agreement).

Of course, such a difference in presumed fees has its impact on where cases are filed since some attorneys, with debtors who qualify to file in either jurisdiction, may file their client’s case in the higher paying district.  And so long as the attorney agrees to representation complying with RARA, these “no look” fees are deemed proper without objection.  But what happens if the attorney provides substantial services beyond what the RARA fees will compensate?

If an attorney provides additional services wherein RARA might not fully represent the full compensation of the attorney, then the attorney is entitled to submit a fee application for all fees incurred in the case, subject to court approval.  At least in theory this is the law and how its suppose to be.

In the Southern District of California, the RARA “no look” fees are $3,300.00 for consumer cases and $4,000.00 for those involving non-self employed debtors (sole proprietorships).  Walk one foot across the County Line from San Diego to Orange County and the attorney gets $4,000.00 for consumer cases and $4,500 for non-self employed.

Why over a 20% difference? Cost of living?  Not according to studies.  Rather, it’s real simple.  Each district’s judges have different opinions on the value of the services provided by practitioners before them.  The Central District places greater value on the services their attorneys provide than the Southern District.  Accordingly, fee applications may be filed where such “no look” fees do not fully compensate the attorney.

However, from this practitioner’s standpoint, there have been many fee applications submitted that have been substantially reduced, due solely to the opinion or “gut feeling” of the Bankruptcy Judge.  No other evidence substantiated such reductions from the Court, and one Judge even claimed that RARA fees are essentially mandatory in all but complex cases.  Of course, such is not the law in the Ninth Circuit.

Despite the forgoing, the Ninth Circuit has recently corrected the improper course District Judges have been taking with random and conclusory statements on fee reductions and have clarified the proper methods District Judges must now employ should they desire to reduce attorney fees.  Specifically, District Court Judges can no longer arbitrarily reduce attorney fees based upon their “gut feelings.”  Instead, they must carefully articulate with sufficient specificity should they choose to cut attorney fees.

On July 28, 2008, in the case of Moreno v. City of Sacramento, 2008 U.S. App. LEXIS 15951 (9th Cir. Cal.) the Ninth Circuit remanded that case back to re-determine attorney fees which were previously reduced by the District Court from $704,858 to $428,053, or about 40%.  The Ninth Circuit Court of Appeals disagreed with the District Court since it failed to reasonably explain its basis for the fee reduction (while the district court cut fees citing duplication, excessive hourly rates beyond the norm 10 years ago, law firm staffing policies, too much time spent on certain tasks, etc., the Ninth Circuit Appeals Court found that the District Court Opinion was still deficient in its findings).  These fees were requested by the Attorney for the prevailing party in a Civil Rights proceeding against the City of Sacramento.   Specifically, the Ninth Court of Appeals did not agree with the District Court and stated,

The district court has discretion to determine the appropriate fee award, because its familiarity with the case allows it to distinguish reasonable from excessive fee requests. But gut feelings are not enough; if the district court is going to make substantial cuts to a winning lawyer’s fee request, it needs to explain why with sufficient specificity that the lawyer can meaningfully object and we can meaningfully review the objection. We can’t  defer to reasoning that we can’t review; if all the district court offers is a conclusory statement that a fee request is too high, then we can’t tell if the court is applying its superior knowledge to trim an excessive request or if it is randomly lopping off chunks of the winning lawyer’s reasonably billed fees.

The Ninth Circuit went on to state that unless opposing counsel can specify why such a fee request is improper, then the Court should not reduce the fees, or in any case, not reduce the fees by any more than a “haircut.”

We are well aware that awarding attorneys’ fees to prevailing parties in civil rights cases is a tedious business. And it may be difficult for the district court to identify the precise spot where a fee request is excessive. But the burden of producing a sufficiently cogent explanation can mostly be placed on the shoulders of the losing parties, who not only have the incentive, but also the knowledge of the case to point out such things as excessive or duplicative billing practices. If opposing counsel cannot come up with specific reasons for reducing the fee request that the district court finds persuasive, it should normally grant the award in full, or with no more than a haircut.

With respect to the attorney fees rates of 10 years ago that the District Court attempted to apply, the Ninth Circuit stated,
Unless carefully administered and updated, any such policy becomes a strait-jacket. More fundamentally, such a policy—no matter how well intentioned or administered—is inconsistent with the methodology for awarding fees that the Supreme Court and our court has adopted. The district court’s function is to
award fees that reflect economic conditions in the district; it is not to “hold the line” at a particular rate, or to resist a rate because it would be a “big step.” If the lodestar leads to an hourly rate that is higher than past practice, the court must award that rate without regard to any contrary practice.

So this is good news for Debtors and their attorneys.  Contrary to first blush belief, Debtors will not need to pay more.  Instead, they will have much better representation, which in turn, will lead to quicker, more efficient, and less costlier Chapter 13 plans, and assurance that creditors obey the laws and all available paths of relief are available to the debtor.  Such representation saves money for the debtor in the long run.

The previous path wherein some Judges were trying to reduce attorney fees in an attempt to sway certain competent attorneys from representing disenfranchised debtors has ended.  These attorneys will no longer be motivated to change their professions, but rather, will feel confident that their services will be properly compensated.

Thus the Ninth Circuit has ensured that quality representation to debtors by sophisticated attorneys and bankruptcy specialists will continue and District Court Judges must now adequately articulate any fee reduction for appellate review should the prevailing attorney choose to have such a Judge’s decision reviewed.

Written by Michael G. Doan
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