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NEW YORK � A federal appeals court has used a Voting Rights Act case to clarify the proper application of the forum rule for calculating attorneys fees. In a case decided with the help of retired U.S. Supreme Court Justice Sandra Day O’Connor, the Second Circuit U.S. Court of Appeals said, “Our fee-setting jurisprudence has become needlessly confused — it has become untethered from the free market it was meant to approximate.” In setting fees, the circuit said that the district courts should consider all “case specific” variables it and other courts have identified as relevant to setting a reasonable rate. “The reasonable hourly rate is the rate a paying client would be willing to pay,” the court held. Justice O’Connor, sitting by designation, was joined by Chief Judge Dennis Jacobs and Judge John Walker in upholding a fee award in Arbor Hill Concerned Citizens Neighborhood Association v. County of Albany, 06-0086-cv. Judge Walker wrote the decision. The appeal came from a decision by Northern District Judge Norman Mordue to apply the forum rule and use the prevailing hourly rate for the district to compensate an out-of-district law firm. The plaintiffs claimed that Albany County’s 2002 legislative redistricting plan violated � 2 of the Voting Rights Act of 1965, 42 U.S.C. � 1973. Judge Mordue enjoined the county from holding a scheduled November 2003 election, but later declined to order the county to hold a special election. The latter ruling was vacated by the Second Circuit on Jan. 28, 2004, and a special election was ordered for March 2, 2004. The circuit then remanded the case for Mordue to determine the appropriate fee for Gibson, Dunn & Crutcher, which represented the plaintiffs along with DerOhannesian & DerOhannesian of Albany and the nonprofit Lawyer’s Committee for Civil Rights Under Law. Mordue, adopting a report and recommendation by Magistrate Judge David Homer, rejected a claim that Gibson, Dunn be compensated at the hourly rates it usually charges in the Southern District, saying it was “undisputed that plaintiffs did not even attempt to contact attorneys or law firms in the Northern District outside of Albany County insofar as obtaining representation in this matter.” He also said it was up to the plaintiffs “to submit factual support for their claim that there were no [law firms in Syracuse, Binghampton, Utica or Kingston] ready, willing or able to take [their] case.” Judge Mordue awarded lead counsel $210 per hour, the maximum in the northern district, and lesser amounts for the associates who worked on the case.
The value of the term ‘lodestar’ as a ‘metaphor has deteriorated to the point of unhelpfulness’ and ‘this opinion abandons its use.’

John Walker Second Circuit judge

Plaintiffs then appealed the judge’s decision to award Gibson, Dunn fees based on Northern District rates. Judge Walker said there has been considerable confusion over the application of the lodestar method for setting fees, (the attorney’s hourly rate times the number of hours worked with an adjustment made by the judge to determine a reasonable fee), and the application of 12 factors outlined by the Fifth Circuit in Johnson v. Ga. Highway Express, Inc., 488 F.2d 714 (1974). Among those factors is the time and labor required, the novelty and difficulty of the questions raised, the attorney’s customary rate, the experience, reputation and ability of the attorney and “undesirability” of the case. “In theory,” Judge Walker said, “a district court that adopted the lodestar method was expected to consider fewer variables than a district court utilizing the Johnson method. In practice, however, both considered substantially the same set of variables — just at a different point in the fee-calculation process.” ‘PRESUMPTIVELY REASONABLE’ The result of the case law in the Second Circuit and at the Supreme Court, Judge Walker said, “is that district courts must engage in an equitable inquiry of varying methodology while making a pretense of mathematical precision.” What the district courts in the Second Circuit “produce is in effect not a lodestar as originally conceived, but rather a ‘presumptively reasonable fee,’” he said. “The focus of the district courts is no longer on calculating a reasonable fee, but rather on setting a reasonable hourly rate, taking account of all case-specific variables.” The value of the term “lodestar” as a “metaphor has deteriorated to the point of unhelpfulness,” he said, and “this opinion abandons its use.” Rather, courts should “bear in mind all of the case-specific variables that we and other courts have identified as relevant to the reasonableness of attorneys fees in setting a reasonable hourly rate,” he said. “The reasonable hourly rate is the rate a paying client would be willing to pay.” And to make that determination, he said, a judge should “consider, among others, the Johnson factors; it should also bear in mind that a reasonable, paying client wishes to spend the minimum necessary to litigate the case effectively,” and that a client might be able to negotiate with their lawyers, whose reputation would be enhanced by taking the case. “The district court should then use that reasonable hourly rate to calculate what can properly be termed the ‘presumptively reasonable fee,’” he said. Judge Walker said the circuit had promulgated in 1983 what came to be called the “forum rule,” whereby the prevailing hourly rate in the district was used to calculate the lodestar. “We now clarify that a district court may use an out-of-district hourly rate — or some rate between the out-of-district rate sought and the rate charged by local attorneys — in calculating the presumptively reasonable fee if it is clear that a reasonable, paying client would have paid those higher rates,” he said. “We presume, however, that a reasonable, paying client would in most cases hire counsel from within his district, or at least counsel whose rates are consistent with those charged locally.” And even though the court agreed with the plaintiffs that Judge Mordue may have applied the forum rule “too strictly,” it found no error on the fee award “even when evaluated under the analysis we use.” Mitchell Karlan, Mark Bini and Michelle Craven of Gibson, Dunn & Crutcher handled the appeal. “I’m very pleased with the decision — the court has clarified the law in the way we asked them to,” said Karlan. Mark Hamblett is a reporter with the New York Law Journal, a Recorder affiliate.

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