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Column: Civil Rights Attorneys’ Fees Only for Profiteers? (New York Law Journal)

By Christopher Dunn — On April 24 an unusual panel of the Second Circuit issued an opinion suggesting that attorneys or organizations doing pro bono work could be denied attorneys’ fees in civil rights actions because of their willingness to provide free legal services. This position, which is based on a novel free-market approach to civil rights fees, appears to conflict with long-standing Supreme Court law and could have a substantial impact on the availability of pro bono legal services.

The Second Circuit’s ruling came in Arbor Hill Concerned Citizens Neighborhood Association v. County of Albany, and was issued by a panel comprised of current Chief Judge Dennis G. Jacobs, former Chief Judge John M. Walker, and retired Supreme Court Justice Sandra Day O’Connor. The Supreme Court case with which Arbor Hill seems to conflict is Blum v. Stenson, a 1984 decision in which Justice O’Connor joined the Court’s unanimous opinion. An assessment of Arbor Hill must start with Blum.

Civil Rights Fees and the Free Market

In our legal system parties to lawsuits, under what is referred to as the “American rule,” typically bear their owns costs for litigation, including fees paid to their attorneys. In 1976 Congress, in an effort to increase the likelihood that victims of civil rights violations could seek legal redress, enacted the Civil Rights Attorney’s Fees Awards Act. Codified at 42 U.S.C. § 1988 and commonly referred to as “section 1988,” the statute provided, “In any action or proceeding to enforce a provision [of various civil rights statutes, including 42 U.S.C. §1983], the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney’s fee as part of the costs.”

Not surprisingly, substantial litigation ensued over the contours of this important fee-shifting arrangement. And one of the hotly contested issues was how to determine the rates to be used in determining section 1988 fee awards for public-interest lawyers who, by the nature of their practice, had no standard billing rate to use as a reference.

Blum v. Stenson proved to the seminal decision on this point. That case, which started in the Southern District of New York before the venerable Robert W. Sweet, was a public-benefits reform action brought by the Legal Aid Society. Judge Sweet awarded section 1988 fees to Legal Aid using hourly rates derived from the market rates earned by private attorneys practicing in the Southern District. The Second Circuit affirmed in an unpublished oral opinion from the bench, and the Supreme Court granted certiorari “to consider whether it was proper for the District Court to use prevailing market rates in awarding attorneys’ fees to nonprofit legal services organizations.” In an opinion authored by Justice Lewis F. Powell, Jr., a unanimous Court affirmed Judge Sweet’s attorney’s fee rate ruling.

Both the defendants and the United States as amicus curiae argued that using market rates to calculate section 1988 awards to nonprofit organizations would produce a “windfall” for them. More specifically, the Solicitor General argued that “market rates reflect the level of compensation necessary to attract profit making attorneys, but that such rates provide excessive fees to nonprofit counsel.” This is so, he argued, “because market rates incorporate operating expenses that may exceed the expenses of nonprofit legal services organizations, and include an element of profit unnecessary to attract nonprofit counsel.” Given all this, the United States contended that section 1988 awards to nonprofit organizations should be limited to their actual costs of providing such services rather than being set by prevailing market rates.

The Supreme Court squarely rejected this approach, stating that resolution of the matter “begins and ends with an interpretation of the attorney’s fee statute.” Citing to the statute’s legislative history, the Court stated that Congress intended the fees awarded under section 1988 to “be governed by the same standards which prevail in other types of equally complex Federal litigation” and “not be reduced because the rights involved may be nonpecuniary in nature.” Because that legislative history relied on cases that adopted market rates without any mention of a cost-based approach, the Court found no basis for adopting anything other than a market-based approach to fees.

While embracing a market-based approach, the Court expressly rejected the notion that, within this approach, distinctions could be drawn between for-profit and nonprofit providers of legal services in civil rights actions: “It is also clear from the legislative history that Congress did not intend the calculation of fee awards to vary depending on whether plaintiff was represented by private counsel or by a nonprofit legal services organization.” Given this, the Court held that section 1988 awards “be calculated according to the prevailing market rates in the relevant community, regardless of whether plaintiff is represented by private or nonprofit counsel.”

Finally, in a footnote, the Court identified the specific factors that lower courts should use in determining the “prevailing market” rate when calculating fees, without any mention of the nonprofit status or motives of plaintiffs’ counsel:

In seeking some basis for a standard, courts have properly required prevailing attorneys to justify the reasonableness of the requested rate or rates. To inform and assist the court in the exercise of its discretion, the burden is on the fee applicant to produce satisfactory evidence — in addition to the attorney’s own affidavits – that the represented rates are in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation. A rate normally determined in this way is normally deemed to be reasonable, and is referred to – for convenience – as the prevailing market rate.

In the twenty-three years since the Court decided Blum, attorney’s fees in civil rights actions have generally been calculated using this approach. Fee applications in cases involving public-interest organizations routinely contain affidavits attesting to prevailing market rates for private lawyers of similar expertise and reputation doing similarly complex work, and attorneys’ fees routinely have been awarded following that approach.

The New Market of Arbor Hill

The Second Circuit’s ruling in Arbor Hill suggests a very different approach to the role of the marketplace in setting attorneys’ fees for nonprofit organizations. Arbor Hill was a voting rights case brought in the Northern District of New York in which the plaintiffs were represented by a Manhattan-based private law firm and a public-interest organization from Washington, D.C. After prevailing on the merits, the plaintiffs sought attorneys’ fees, and the Manhattan-based firm premised its fee request on prevailing market rates in the Southern District of New York, where it is located. The District Court denied this request and instead awarded fees based on rates prevailing in the Northern District. The plaintiffs then appealed.

In the Second Circuit the primary question before the court was application of the so-called “forum rule,” which stands for the general proposition that fee awards should be based on local prevailing rates even when plaintiffs’ counsel come from outside the district in which the case is brought. The Court of Appeals held that strict application of the forum rule was inappropriate and instead that district courts could use out-of-forum rates “to account for a plaintiff’s reasonable decision to retain out-of-district counsel.” The Court, however, did not limit itself to the forum issue in the case but used that as an opportunity to address the much broader issue of the role of the market in setting all hourly rates:

Moreover, this dispute concerning the “forum rule” is but a symptom of a more serious illness: Our fee-setting jurisprudence has become needlessly confused – it has become untethered from the free market it is meant to approximate. We therefore suggest that the district court consider, in setting the reasonable hourly rate it uses to calculate [a presumptively reasonable fee award], what a reasonable, paying client would be willing to pay.

“Bearing these principles in mind,” the panel then identified various factors that would affect an appropriate hourly rate, including “whether the attorney had an interest (independent of that of the client) in achieving the ends of the litigation or initiated the representation himself, whether the attorney was initially acting pro bono (such that a client might be aware that the attorney expected low or non-existent remuneration), and other returns (such as reputation, etc.) the attorney expected from the representation.”

Though this issue of the interaction between market factors and setting in-forum rates was not even part of the case, the Court’s came back to the point twice again. Later observing that “[b]y asking what a reasonable, paying client would do, a district court best approximates the workings of today’s market for legal services,” the Court noted that “a reasonable, paying client might consider whether a lawyer is willing to offer his services in whole or in part pro bono, or to promote the lawyer’s own reputations or societal goals.” Finally, despite having rejected the lower court’s inappropriately rigid adherence to the forum rule, the panel invoked this market view to affirm the District Court’s award:

We are confident that a reasonable, paying client would have known that law firms undertaking representation such as that of plaintiffs often obtain considerable non-monetary returns – in experience, reputation, or achievement of the attorneys’ own interests and agenda – and would have insisted on paying his attorneys at a rate no higher than that charged by Albany attorneys . . . .

The Ramifications of Arbor Hill

The plaintiffs have filed a petition for rehearing of the Arbor Hill ruling (supported by an amicus brief filed by public-interest organizations, including the NYCLU). Should the ruling stand, however, and should its suggested approach to setting fee awards for pro bono civil rights attorneys become the law governing such awards, that could dramatically change civil rights practice.

By definition, public-interest organizations do not initiate litigation to make money. Rather, they do it to provide public service, to assist people who cannot afford to hire lawyers, and to advance causes that have no potential for financial profit. Because their clients pay no money for this representation, fees recovered under section 1988, through court awards or settlements, provide important support for the work of public-interest organizations. Indeed, that was the purpose of enacting the Civil Rights Attorney’s Fees Awards Act in 1976, as reflected in the Supreme Court’s ruling in Blum v. Stenson.

Not only does Arbor Hill seems to conflict with the purposes of section 1988 and the holding of Blum, it creates the seemingly anomalous situation of exalting making money over doing good in the realm of civil rights. Under Arbor Hill as it stands, those who will be entitled to the largest awards may be the lawyers who take on civil rights litigation only for financial gain. Meanwhile, those so committed to defending civil rights that they are prepared to represent clients for free may get what the Arbor Hill panel suggests is the market value of that work: zero.