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The state Division on Civil Rights has sent an unwelcome message to New Jersey lawyers who hire per diems to assist in Law Against Discrimination cases. Fee awards will be based on the hourly rates the per diem lawyers earned, plus interest, not the current market rates those lawyers charge to clients if they were in a firm, division director J. Frank Vespa-Papaleo ruled in a recent case. He also found that the use of per diems mitigates the financial risks plaintiffs lawyers take when they pursue difficult cases. And if the risks are reduced, there’s less need for the type of generous fee enhancements courts can grant in tough cases that require huge investments of time, he found. “Counsel mitigated his risk by contracting out substantial portions of this litigation, which dramatically reduced the time he personally invested,” the director found on Aug. 30 in Heusser v. New Jersey Highway Authority, EB27HL-33396. Plaintiffs lawyers say the use of per diem or contract attorneys is rare in employment rights cases and that if the decision stands, the practice will be rarer. They echo the assertion by the lawyer subject to the ruling, Hoboken solo Peter van Schaick, that the decision is wrong. He says he plans to appeal. For defense lawyers, who have been fighting a rearguard action against high fee awards in civil rights cases since enhancements became the norm 10 years ago, the ruling makes sense. The fee issue has been bubbling since December 2001, when the Division on Civil Rights awarded Michael Heusser $53,439 in back pay and $15,000 for emotional distress caused by his removal from a maintenance job at the Highway Authority because he had cerebral palsy. The division found that the authority’s failure to accommodate the disability was discriminatory. Heusser had become a toll collector and was satisfied with that new job, so money, not reinstatement, was considered the proper remedy. Like many discrimination cases involving public workers, the value of the legal work dwarfed the damages. How much the state has paid its firm, Florham Park’s Schwartz, Simon, Edelstein, Celso & Kessler, could not be learned, but in 2002, partner Stephen Edelstein said billings had reached $350,000. The central issue now is how much reimbursement for legal work the state owes the plaintiff under the LAD’s fee-switching provisions. Van Schaick asked for more than $1 million, including reimbursement for hourly work by him and five contract lawyers, plus enhancement as authorized by Rendine v. Pantzer, 141 N.J. 292 (1995). That doctrine calls for a 5 percent to 50 percent bonus to reward lawyers for investing in difficult, risky or groundbreaking LAD cases; van Schaick sought an enhancement of 75 percent. BRING ON THE PER DIEMS Unlike the traditional plaintiffs firm, van Schaick relied on contract lawyers, not just for research but to argue motions and try the case. He paid $60 an hour each to Susan Abraham, a Montclair solo admitted in 1983, and Ross London, a Hoboken solo admitted in 1976. Later, he hired Jeffrey Fogel, a well-known civil rights lawyer from Nutley who was admitted in 1969, and Louis Raveson, a professor at Rutgers Law School-Newark, who had been practicing since 1976. It’s not clear from the record how much Fogel and Raveson charged. In most fee-switching decisions, judges award fees based on a partner’s or associate’s billing rate because billing rates generally reflect the lawyer’s experience and how much that experience is worth in the marketplace. What about per diem lawyers? Van Schaick cited precedents, particularly Rendine, that say he was entitled to reimbursement for Abraham and London’s services at market rates, not just for the cost of their services. The market rate for these experienced lawyers was $250 an hour for Abraham and $275 for London, according to an expert opinion on Van Schaick’s behalf by Andrew Dwyer of Newark’s Dwyer & Dunnigan. Van Schaick lost the argument. Administrative Law Judge Thomas Clancy ruled that the $60 rate paid to Abraham and London was a “cost,” not a fee to be included in calculating enhancement. In his review, the director rejected that notion. But he did conclude that the hourly rate van Schaick paid the per diems, not the current rate they could earn in the marketplace, was the appropriate sum for reimbursement. The purpose of paying current market rates in discrimination cases is normally to mitigate the effect of delay in payment on lawyers willing to take long and difficult cases. But Vespa-Papaleo reasoned that van Schaick, by hiring per diems and doing relatively little work himself, “was available to take on other cases which would provide direct payment to him during the pendence of this matter.” In a traditional staffing arrangement, firm owners bear the cost of dedicating billable hours to associates and waiting for payment, he wrote. In contrast, van Schaick bore no lost opportunity cost for the work hours of the per diems, he wrote. “Thus, his arrangement with the per diems preserved van Schaick’s ability to generate income and greatly mitigated the impact of the delay in payment,” the director found. Instead of paying market rates, the better method to reward van Schaick for the effect of delay would be to award him interest on the $60 billings at standard rates set by court rule. Vespa-Papaleo conceded that his method “may appear to stray from the Rendine standard,” which calls for market rate reimbursement. But he added, “The Rendine court did not contemplate this type of attorney staffing arrangement.” The use of per diems also affected the enhancement. ALJ Clancy’s total fee award of $380,000 included a 25 percent enhancement. The director reduced the enhancement to 10 percent. He based his ruling in part upon the contingency agreement with the client, finding that Heusser, by ceding much of the control of the case and its costs to Van Schaick, reduced the financial risks to the lawyer. And, he said, van Schaick mitigated his risk by contracting out a substantial portion of this litigation. As it turned out, though van Schaick isn’t happy about the director’s notions about per diems and his reduction in the enhancement, treating the payments as fees, not costs, and adding interest, bought the total fee award to $456,000, roughly $76,000 more than the administrative law judge awarded. A MERE COORDINATOR? For defense lawyers, the key issue may not be the rates per diems deserve but whether their use inflates the overall cost of the job. Wayne Positan of Roseland’s Lum, Danzis, Drasco & Positan said in an expert opinion for the Highway Authority that van Schaick would have billed fewer hours if he had done the work himself instead of spending time consulting with his per diems. Van Schaick, who has been practicing for 30 years and is a founder of the state chapter of the National Employment Lawyers’ Association, won an award of $350 per hour. That’s worthy of an experienced litigator, says Positan, one of the leading defense lawyers in the state. But as a mere coordinator of the work of contract lawyers, van Schaick deserved $195 an hour, Positan said. Plaintiffs lawyers, however, agree with van Schaick that reimbursement for per diems should be at market rates, not the actual cost. Linda Wong of Princeton’s Wong Fleming and Richard Schall of Moorestown’s Schall & Barasch say they don’t use per diem lawyers and think it’s not a common practice. But the case law says lawyers who do should be reimbursed at community market rates. Courts have consistently awarded fees on that basis, for example, even when the retainer agreement calls for a lower hourly fee, Wong says. Schall says, “Why should there be any distinction between a law firm that uses associates and bills at market rates and an attorney who uses a per diem attorney?” “There’s no logical distinction between those two situations,” he says. “It builds a bias into the system in favor of lawyers who use associates and against lawyers who use per diem attorneys.” He says the enhancement reduction doesn’t make sense because it’s just as risky for a lawyer to pay per diem lawyers as it is to pay associates, whose work covers many cases. Indeed, the reason most plaintiffs employment lawyers don’t use per diems is that they can be very expensive. “After shelling out $60 an hour you get nothing for it if you lose,” he says. “That’s a risky proposition.”

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