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The 2d U.S. Circuit Court of Appeals has ruled that federal courts may not set a “blended hourly rate” based on what a hypothetical large firm with partners and associates might charge in determining attorney fees for a solo practitioner. McDonald v. Pension Plan, nos. cv-05-1435, 1630, 1749, 4140, 4288. New York attorney Edgar Pauk successfully represented James McDonald in a suit charging that the former longshoreman’s union pension plan had failed to calculate properly the years in which he accrued benefits. Pauk requested $425 an hour for his work, but judges Naomi Reice Buchwald and Kevin P. Castel of the Southern District of New York, who presided over different portions of the case, set hourly rates of $325 and $390, respectively. The 2d Circuit affirmed Buchwald’s award but vacated Castel’s. In an unsigned opinion, the panel, comprising judges Guido Calabresi, Jose A. Cabranes and Richard C. Wesley, pointed out that in calculating attorney fee awards, district courts use the lodestar method: hours reasonably expended multiplied by a reasonable hourly rate. However, a district court may exercise its discretion and use a percentage deduction as a way of trimming “fat from a fee application.” Buchwald had reduced Pauk’s hours expended based on three factors: reduction for work on unsuccessful claims not sufficiently related to the claim on which McDonald ultimately prevailed (25%); reduction for record-keeping that did not adequately indicate what work was legal and what work was administrative (5%); and a reduction for unnecessarily multiplying the proceedings (5%). The panel endorsed her reduction of attorney hours expended by 35%, and also her estimate of $325 per hour as a reasonable rate for Pauk. She made two findings in reaching the $325-per-hour figure. First, “though effective, [Pauk's performance] was less than stellar: He was often inefficient and occasionally vexatious.” Second, Pauk was a solo practitioner with lower overhead costs than attorneys associated with large firms. However, the panel vacated Castel’s award, on the ground that he had inappropriately applied a blended rate. Such a rate supposedly takes into account the different billing rates of partners and associates within a firm. To determine his fee award, the panel noted, Castel had “analogized Pauk’s situation to that of a large law firm” and “created the hypothetical ‘Pauk & Associates’-comprised of one experienced ERISA litigation attorney and a hypothetical group of inexperienced associates-and decided on [his] own which tasks should have been done by respective members of the hypothetical firm.” Thus, though all of the work was performed by Pauk, Castel decided that some of the work merited a “partner” rate of $500 an hour, while work that would have been delegated to junior associates in a larger firm merited a lower rate. “There is simply no support for the proposition that a district court can decide what legal tasks could have been done by a hypothetical associate attorney working for or with Pauk in order to calculate a blended hourly rate of $390.” Though the 2d Circuit did not reject Buchwald’s award, it cautioned in a footnote “that district courts should not treat an attorney’s status as a solo practitioner as grounds for an automatic reduction in the reasonable hourly rate.” The panel said that overhead was not in itself a valid reason for courts to assign higher or lower rates, though overhead could be considered a valid explanation as to why some lawyers charged more for their services. But the appellate court said solos with presumably lower administrative costs could also merit a high hourly rate. Indeed, high overhead costs may explain why “attorneys of the highest ‘skill, expertise and reputation’ have decided to maintain a solo practice instead of affiliating themselves with a firm.”

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