Setting new precedent on attorney fee recovery in the Third Circuit, the appeals court has ruled offers of judgment in fee disputes that would preclude some recovery in certain circumstances are valid in environmental lawsuits brought by citizens.

In so ruling, the court endorsed a specific method for calculating appropriate rates for Washington, D.C.-area lawyers practicing in the circuit.

The ruling came in the second piece of litigation over attorney fees to follow an already protracted case that, after 10 years of litigation, ultimately ended in 2005 with Honeywell International Inc. being ordered to conduct an extensive cleanup of industrial waste that had been left by a now-defunct company that had occupied a plant on the Hackensack River in Jersey City, N.J., after neighboring residents brought a suit under the federal Resource Conservation and Recovery Act.

The U.S. Court of Appeals for the Third Circuit remanded the current case after it issued an opinion reversing the U.S. District Court for the District of New Jersey on that court’s holding that offers of judgment made under Rule 68 of the Federal Rules of Civil Procedure are null and void in the context of citizens’ RCRA actions. The appeals court, however, agreed with the district court’s application of the LSI-updated Laffey Matrix for calculating the plaintiffs’ attorney fees.

The fees at issue in this action top $3 million and are related to Honeywell’s agreement to pay reasonable future fees and expenses for the monitoring of its cleanup. Honeywell has paid more than $5 million in attorney fees for work leading up to the resolution of the case. Beginning in 2009, Honeywell began to dispute the fee requests for the monitoring work and ultimately issued a Rule 68 offer of judgment to resolve the fee issue. The plaintiffs sought a declaratory judgment that Rule 68 offers of judgment were null and void in the context of citizens’ RCRA suits.

Rule 68 specifies that if a plaintiff rejects an offer of judgment made under the rule and the case goes to trial, resulting in an outcome less favorable to the plaintiff, he or she has to pay the costs from the time the offer was made.

The district court "reasoned that Rule 68 offers would discourage citizens from bringing suit and firms from accepting the cases, because there is no possibility for monetary relief in citizen suits," Third Circuit Judge Thomas Vanaskie wrote on behalf of the three-judge panel, which included Chief Judge Theodore McKee and Judge Dolores Sloviter.

However, the Third Circuit read the law plainly and likened the difficulty faced by plaintiffs weighing Rule 68 offers to the typically difficult decision about settlement in any case.

"Settlement offers often present difficult choices for a plaintiff, but that fact neither abridges nor modifies the substantive rights at issue," Vanaskie said. "Speculation as to the potential ‘chilling’ effect of allowing Rule 68 offers of judgment in citizen suits under RCRA, advanced in Struthers-Dunn and embraced by the District Court in this case, is simply irrelevant to the pertinent inquiry: whether the rules of decision are altered by the offer of judgment," he said, referring to the 1988 opinion from the New Jersey District Court in Public Interest Research Group of New Jersey v. Struthers-Dunn.

Althoughthe U.S. Supreme Court hasn’t specifically considered the issue of Rule 68 as it relates to the RCRA, it has considered an equivalent relationship between Rule 68 and civil rights litigation. That case, Marek v. Chesny, was decided in 1985.

"Notwithstanding the strong policy arguments favoring the encouragement of suits to vindicate important constitutional rights, the court applied the plain meaning of Rule 68 to foreclose recovery of post-offer fees," Vanaskie said of the Marek opinion. "The court concluded that the purpose of § 1988 (to encourage meritorious civil rights claims) was distinct from and compatible with the purpose of Rule 68 (to encourage settlement)."

Vanaskie summed up the effect of the decision this way: "The only impact that Rule 68 has on the ultimate outcome of the attorney’s fee dispute is to require appellees to bear their post-offer costs, including counsel fees, if the fee award is less favorable than the offer of judgment."

The Third Circuit emphasized Rule 68′s merit in encouraging settlement, especially meritorious with regard to settling attorney fee disputes, Vanaskie said.

The Third Circuit also decided that the district court had been correct to allow the public-interest law firm of Terris, Pravlik & Millian, based in Washington, D.C., to be paid according to D.C. rates, rather than New Jersey rates, as Honeywell had advocated. More importantly, it agreed that the district court had chosen the correct method for determining what those rates are.

The district court wasn’t persuaded by Honeywell’s argument that it should apply an updated version of the Laffey Matrix, named for the 1983 case in which it was first used for determining the hourly rates of D.C. lawyers, that would be pegged to the Consumer Price Index. Rather, it chose to update the Laffey Matrix with the Legal Services Index, which was met with praise from Carolyn Smith Pravlik, of Terris Pravlik. She characterized that method as being more tailored to the legal industry than Honeywell’s preferred method.

The two methods result in vastly different rates. The choice favored by Honeywell would mean that D.C. lawyers with 20 years or more of experience would be paid $475 per hour, while the method favored by the plaintiffs would pay the same lawyers $709 per hour.

"The district court, recognizing that ‘our circuit has yet to specifically approve either version of updating the Laffey Matrix,’ was persuaded by the methodology in Salazar," Vanaskie said, referring to the U.S. District Court for the District of Columbia decision in 2011 in Salazar v. District of Columbia.

The Third Circuit agreed that the LSI-adjusted Laffey Matrix is the best option.

The appeals court did, however, rule that the district court hadn’t sufficiently reviewed the number of hours submitted by the plaintiffs lawyers. Honeywell had contested some of the 10,000-plus hours submitted by the Terris firm.

The Third Circuit instructed the district court to scrutinize the hours submitted and suggested in a footnote that the court appoint a special master for the task.

Victoria Streitfeld, spokesperson for Honeywell, said, "This decision relates to a specific dispute over the rates charged for plaintiffs’ attorney fees and has no effect on our reradiation of chrome sites in New Jersey."

The company was represented by Lisa Blatt of Arnold & Porter in Washington, D.C.

Saranac Hale Spencer can be contacted at 215-557-2449 or sspencer@alm.com. Follow her on Twitter @SSpencerTLI.

(Copies of the 30-page opinion in Interfaith Community Organization v. Honeywell International, PICS No. 13-1247, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •