Attorney Fee Awards in FEHA Claims: The Lodestar Analysis
Written by: Neil Pedersen
An employee subjected to workplace harassment, retaliation or discrimination is rarely able to adjudicate his or her rights by hiring an attorney to prosecute a case on an hourly basis – especially if that wrongdoing has resulted in termination or loss of substantial income. Recognizing that the inability to enforce a right is tantamount to not having that right, the California legislature determined that plaintiffs successful in prosecuting such claims should be entitled to attorney fees. California Government Code §12965(b).
In furtherance of those intentions, our California Supreme Court has instructed that when considering an award of attorney fees and costs, it must attempt to fairly compensate attorneys for the work performed, and exercise its discretion with an eye to the public policy behind the statutory attorney fee entitlement – that is to encourage quality attorneys to take on complex and hard fought cases to protect the rights of victims. To achieve this end, the fee is determined through an approach called the “lodestar analysis.” This article will discuss the process and law related to collecting fair compensation in FEHA cases using this lodestar analysis.
The Attorney Fee Entitlement for Successful FEHA Litigants
The Fair Employment and Housing Act is found in the California Government Code at sections 12900 through 12996. Section §12965(b) provides that “[i]n actions brought under this section, the court, in its discretion, may award to the prevailing party reasonable attorney's fees and costs, including expert witness fees…” Although the statute provides that the court “may” award fees, a prevailing plaintiff is entitled to fees “absent circumstances that would render the award unjust.” Stephens v. Coldwell Banker Comm’l Group, Inc. (1988) 199 Cal.App.3d 1394, 1405; see also Chin et al, California Practice Guide: Employment Litigation (The Rutter Group 2009) paragraph 17:647, page 17-99. Thus, the general rule is that fees are awarded to the prevailing plaintiff unless awarding the fees would be unjust.2
The Lodestar Method of Fee Calculation
The determination of prevailing party fees under Government Code section 12965 is based upon a proper utilization of the lodestar method. Vo v. Las Virgenes Municipal Water Dist. (2000) 79 Cal.App.4th 440, 445. This standard was first stated in Flannery v. California Highway Patrol (1998) 61 Cal.App.4th 629, 647, and that determination was expressly affirmed by our California Supreme Court in Ketchum v. Moses (2001) 24 Cal.4th 1122, 1134 (Ketchum), and most recently in Chavez v. City of Los Angeles (2010) 47 Cal.4th 970, 985.
- The “lodestar” method is clearly defined in recent case law. It involves a five step process:
- Step one: Determine the number of hours reasonably worked on the matter.
- Step two: Determine a reasonable hourly rate to apply to the hours worked on the matter.
- Step three: Multiply the number reached in Step one by the number reached in Step two, the sum being what is termed the “lodestar number.”
- Step four: Consider a number of factors to determine if an enhancement or reduction of the lodestar number is appropriate, and if so, what that multiplier is.
- Step five: Multiply the lodestar number times the multiplier (if any) and that number is the attorney fee award.
In re Vitamin Cases (2003) 110 Cal.App.4th 1041, 1052; Consumer Privacy Cases (2009) 175 Cal.App.4th 545, 556-557.
This same approach has been consistently explained and affirmed in a long line of California Supreme Court decisions. Press v. Lucky Stores, Inc. (1983) 34 Cal.3d 311, 322; Maria P. v. Riles (1987) 43 Cal.3d 1281, 1294-1295; PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095-1096; Ketchum, supra, 24 Cal.4th at pages 1131-1132; Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 579-580; Chavez v. City of Los Angeles, supra, 47 Cal.4th at page 985. Ultimately, the purpose for the analysis is to fix a plaintiff’s attorney fee at the fair market value for the legal services provided. PLCM Group, Inc. v. Drexler, supra, 22 Cal.4th at page 1095; Consumer Privacy Cases, supra, 175 Cal.App.4th at pages 556-557; In re Vitamin Cases (2003) 110 Cal.App.4th 1041, 1052.
Each step of the analysis will now be discussed more specifically.
STEP ONE: DETERMINATION OF THE NUMBER OF HOURS REASONABLY WORKED ON THE MATTER
"The starting point of every fee award...must be a calculation of the attorney's services in terms of the time he has expended on the case. Anchoring the analysis to this concept is the only way of approaching the problem that can claim objectivity....” Press v. Lucky Stores, Inc., supra, 34 Cal.3d at page 322.
The most credible way to establish this element is through generating a fee invoice contemporaneously with the work performed in the ordinary course of business by the law firm. This requires prudent counsel to keep accurate time records to present to the court in the fee application process. Any method short of contemporaneous time records (such as post trial re-creation of time based on review of files) runs the risk of losing actual time spent, or presenting less than credible time records to the court. Thus, counsel must be diligent in keeping time records, or fees may be limited where the court finds that “there is no way on earth this case justified the hours purportedly billed by [plaintiff’s] lawyers.” Harrington v. Payroll Entertainment Services, Inc. (2008) 160 Cal.App.4th 589, 594.)
One issue that arises when establishing this first element is the important distinction in the law between hours spent procuring the judgment, versus hours spent procuring the attorney fee award. Plaintiff is undoubtedly entitled to compensation for both categories of attorney fees. However, case law indicates that a proper “lodestar” analysis should treat fees incurred to procure attorney fees different from fees incurred to procure the underlying award. “While fees for attorney fee litigation under section 1021.5 may be enhanced under some circumstances, that enhancement should generally be lower than fees awarded in the underlying litigation.” Graham v. DaimlerChrysler Corp., supra, 34 Cal.4th at page 579.
Therefore, attorneys are advised to clearly segregate the hours incurred to procure the underlying damages from those hours incurred to prepare and present the fee application. A failure to do so may well infect the overall lodestar calculation as it did in the Graham matter, where no segregation occurred and the entire award was overturned.
Another issue that arises in determining the number of hours to include in this step is where plaintiff alleges several causes of action in the complaint, yet only one or two specifically and directly cite to FEHA as their basis. The court dealt with this issue in Greene v. Dillingham Construction N.A., Inc. (2002) 101 Cal.App.4th 418 (Greene). In Greene, the plaintiff prevailed on his FEHA discrimination claim and received a compensatory award of $490,000 for emotional distress. He also sought damages for retaliation and punitive damages, but they were rejected by the jury. The court ultimately awarded plaintiff $1,095,794.55 in attorney fees. On appeal, defendant argued that the plaintiff did not prevail on all of his claims and therefore was not entitled to fees related to those claims. The court agreed with Greene's contention that the harassment and discrimination claims were so intertwined that a further allocation of fees between successful and unsuccessful claims was not possible because the claims were based on the same set of facts and course of conduct.
The trial court was in the best position to understand the relationship between the claims and to determine whether time spent on a related claim contributed to Greene's objectives at trial. (See Downey Cares v. Downey Community Development Com.  196 Cal.App.3d [983,] 997.) ‘Where a lawsuit consists of related claims, and the plaintiff has won substantial relief, a trial court has discretion to award all or substantially all of the plaintiff's fees even if the court did not adopt each contention raised.’ (Ibid.)… That he prevailed on only one theory under that claim is not dispositive. ‘Attorneys generally must pursue all available legal avenues and theories in pursuit of their clients' objectives; it is impossible, as a practical matter, for an attorney to know in advance whether or not his or her work on a potentially meritorious legal theory will ultimately prevail.’ (Sokolow v. County of San Mateo  213 Cal.App.3d [231,] 250.) In light of the strong interrelationship between Greene's claims, the court did not err in not further reducing its award of fees.
Greene, supra, 101 Cal.App.4th at pages 423-424.
Applying the Greene analysis, it becomes important for the plaintiff to demonstrate that any non-FEHA causes of action were interlinked with the fundamental FEHA issues, or that the prosecution of the other theories benefited the FEHA prosecution at the same time it benefited those other alternative theories, and therefore no reduction should be applied to the fees.
The court in Wysinger v. Automobile Club of Southern California (2007) 157 Cal.App.4th 413, 431 further explained: “To reduce the attorneys' fees of a successful party because he did not prevail on all his arguments, makes it the attorney, and not the defendant, who pays the costs of enforcing” the plaintiff's rights (citation omitted).
However, if plaintiff cannot demonstrate that the FEHA claim is so intertwined with the other causes of action on which plaintiff did not prevail, a court is unlikely to allow plaintiff to recover the attorney fees for those claims. “Because this single successful claim apparently was not closely related to or factually intertwined with plaintiff's many unsuccessful claims, the trial court reasonably could and presumably did conclude that plaintiff was not entitled to attorney fees for time spent litigating those unsuccessful claims.” Chavez v. City of Los Angeles (2010) 47 Cal.4th 970, 990.
STEP TWO: DETERMINATION OF THE REASONABLE HOURLY RATE TO APPLY TO THE HOURS WORKED ON THE MATTER.
In this step, the judge must determine the “reasonable hourly compensation of each attorney” involved in the matter. Ketchum, supra, 24 Cal.4th at page 1131-1132. “In determining the reasonable rate for the attorney’s services, courts usually consider: the prevailing rate charged by attorneys of similar skill and experience for comparable legal services in the community; the nature of the work performed; [and] the attorney’s customary billing rates.” Chin et al, California Practice Guide: Employment Litigation (The Rutter Group 2009) paragraph 17:691, page 17-110.
This process is not necessarily the court’s adoption of the attorney’s present billing rate, although it could be. “Requiring trial courts in all instances to determine reasonable attorney fees based on actual costs and overhead rather than an objective standard of reasonableness, i.e., the prevailing market value of comparable legal services, is neither appropriate nor practical; it "would be an unwarranted burden and bad public policy." PLCM Group, Inc. v. Drexler, supra, 22 Cal.4th at page 1098 (quoting Shaffer v. Superior Court, supra, 33 Cal.App.4th at p. 1003).
Ultimately, appellate opinions have consistently held that, regarding the application of the lodestar analysis, “[t]he ‘experienced trial judge is the best judge of the value of professional services rendered in his [or her] court.” See, e.g., Thayer v. Wells Fargo Bank N.A. (2001) 92 Cal.App.4th 819, 832; see also, Press v. Lucky Stores, Inc., supra, 34 Cal.3d at page 322 (“ultimately, the trial judge has discretion to determine ‘the value of professional services rendered in his [or her] court ....’”); Wysinger v. Automobile Club of Southern California, supra, 157 Cal.App.4th at page 430 (“the amount of fees is within the sound discretion of the trial court and the trial judge is in the best position to evaluate the quality of legal services at trial.”)
The judge usually possesses a great wealth of knowledge about reasonable attorney rates in the subject legal community, based on his or her years of experience as an attorney and trial judge, and the case law appears to give the judge great discretion in using that knowledge to reach an appropriate conclusion in this step of the lodestar analysis.
Nonetheless, it is still a good idea to provide the court with evidence of the prevailing rate you seek. This should be done with a declaration by you, as well as declarations from other attorneys in your geographic locale and practice area, whose testimony will richly enhance your evidence. In short, you want to provide competent, persuasive evidence sufficient enough for the court to grant the fee rate you seek.
STEP THREE: MULTIPLY THE NUMBER REACHED IN STEP ONE BY THE NUMBER REACHED IN STEP TWO.
This step is simply an arithmetical calculation, without any adjustment to the number. The resulting sum is what is termed the “Lodestar” number.
STEP FOUR: DETERMINE IF A MULTIPLIER IS TO BE APPLIED TO THE LODESTAR AMOUNTS, AND IF SO, WHICH MULTIPLIER TO APPLY.
Our California Supreme Court instructs: “the lodestar is the basic fee for comparable legal services in the community; it may be adjusted by the court based on factors including, as relevant herein, (1) the novelty and difficulty of the questions involved, (2) the skill displayed in presenting them, (3) the extent to which the nature of the litigation precluded other employment by the attorneys, (4) the contingent nature of the fee award. [citation omitted] The purpose of such adjustment is to fix a fee at the fair market value for the particular action.” Ketchum, supra, 24 Cal.4th at page 1132. See also Center for Biological Diversity v. County of San Bernardino 185 Cal.App.4th 866, 899.
The trial judge is uniquely qualified to assess each of the first two factors that go into determining whether a multiplier should be used to fix the fee at the fair market value. Firstly, the novelty and difficulty of questions involved in the trial should be apparent to the trial judge. Nonetheless, the plaintiff should highlight any factors about the case that made it novel or difficult. Some aspects of FEHA litigation are inherently difficult, such as the usual dynamic of evidence being your client versus an army of company-loyal employees. Any dynamic such as this that complicates the case is strong evidence of difficulty under this element.
Second, as to the skill displayed in presenting the evidence and argument, the prevailing plaintiff simply must ask the court to recollect the events of the case and apply this factor in its sound discretion. However, in arguing this element, it is important to understand that plaintiffs run a risk of infecting the award with reversible error: “A trial court should award a multiplier for exceptional representation only when the quality of representation far exceeds the quality of representation that would have been provided by an attorney of comparable skill and experience billing at the hourly rate used in the lodestar calculation. Otherwise, the fee award will result in unfair double counting and be unreasonable.” Ketchum, supra, 24 Cal.4th at page 1139. Unless plaintiff can make a clear case for a multiplier on this factor, it is advisable to inform the court of this limitation and seek a higher hourly rate under step two.
The third factor – the extent to which the nature of the litigation precluded other employment by the attorneys – is a factual issue to be determined by the court by referenc to declarations provided by plaintiff’s counsel. In preparing the declaration, counsel should think about how much time was involved in litigating the matter, both pretrial and in trial. If counsel’s other clients or business development suffered as a result of participation in the case, he/she must provide the court with evidence of that interference through his orher declaration.
Factor four – the contingency risk – makes a multiplier not only appropriate, but necessary to fairly compensate plaintiff’s counsel. Most FEHA cases are prosecuted by attorneys working on a contingency basis because FEHA plaintiffs simply cannot usually afford to pay competent counsel by the hour to adjudicate their rights. Therefore, this last factor frequently applies in the lodestar analysis, and provides the most compelling reason for the judge to apply a healthy multiplier.
A discussion of this fourth factor must start with the axiom that fee awards should be fully compensatory. Ketchum, supra, 24 Cal.4th at page 1133. To that end, it is error for a court to refuse to consider contingent risk as a factor in deciding whether to apply a multiplier. Greene v. Dillingham Construction N.A., Inc., supra, 101 Cal.App.4th at page 426. The Supreme Court has reaffirmed that contingent risk is a valid consideration in determining whether to apply a fee enhancement in cases where attorney fees are authorized by statute. Id. at 428-429 (citing Ketchum, supra, 24 Cal.4th 1122). “As we explained in Rader v. Thrasher (1962) [57 Cal.2d 244, 253]: ‘[a] contingent fee contract, since it involves a gamble on the result, may properly provide for a larger compensation than would otherwise be reasonable.’ The purpose of a fee enhancement, or so-called multiplier, for contingent risk is to bring the financial incentives for attorneys enforcing important constitutional rights…” Ketchum, supra, 24 Cal.4th at page 1132; see also People v. Millard (2009) 175 Cal. App. 4th 7, 32.
The court recognized the truism that drives contingency fee attorneys to represent plaintiffs wronged by institutional defendants: "The experience of the marketplace indicates that lawyers generally will not provide legal representation on a contingent basis unless they receive a premium for taking that risk." Ketchum, supra, 24 Cal.4th at p. 1136. Further, “California courts may consider the contingency fee risk as a factor to enhance the lodestar amount where deemed appropriate to attract attorneys to cases of significant public interest and to compensate for the risk of loss and delay in payment inherent in contingency fee cases.” Horsford v. Board of Trustees of Calif. State Univ. (2005) 132 Cal.App.4th 359, 395; see also Chin et al, California Practice Guide: Employment Litigation (The Rutter Group 2009) paragraph 17:707, page 17-112.
The California Supreme Court has explained that in the court’s endeavor to find an amount that would fairly and fully compensate a contingency attorney, it must consider the contingency risks and compensate the attorney for agreeing to take on those risks. “The economic rationale for fee enhancement in contingency cases has been explained as follows: ‘A contingent fee must be higher than the fee for the same legal services as they are performed. The contingent fee compensates the lawyer not only for the legal services he renders but for the loan of those services. The implicit interest rate on such a loan is higher because the risk of default (the loss of the case, which cancels the debt of the client to the lawyer) is much higher than that of conventional loans.’ Posner, Economic Analysis of Law (4th ed. 1992) pages 534, 567. ‘A lawyer who both bears the risk of not being paid and provides legal services is not receiving the fair market value of his work if he is paid only for the second of these functions. If he is paid no more, competent counsel will be reluctant to accept fee award cases.’ [citations omitted]” Ketchum, supra, 24 Cal.4th at pages 1132-1133; see also Pellegrino v. Robert Half Internat., Inc. (2010) 182 Cal. App. 4th 278, 292-293. (emphasis added)
Although defense counsel may try to imply otherwise, the application of a multiplier to the lodestar is not a windfall, as explained by the California Supreme Court and recent California appellate authority. It is, instead, an appropriate adjustment to the lodestar number to make the fee award fully compensable. “Under our precedents, the unadorned lodestar reflects the general local hourly rate for a fee-bearing case; it does not include any compensation for contingent risk, extraordinary skill, or any other factors a trial court may consider under Serrano III. The adjustment to the lodestar figure, e.g., to provide a fee enhancement reflecting the risk that the attorney will not receive payment if the suit does not succeed, constitutes earned compensation; unlike a windfall, it is neither unexpected nor fortuitous. Rather, it is intended to approximate market-level compensation for such services, which typically includes a premium for the risk of nonpayment or delay in payment of attorney fees.” (italics in original) Ketchum, supra, 24 Cal.4th at page 1138; Center for Biological Diversity v. County of San Bernardino, supra, 185 Cal.App.4th at page 899.
In many cases of this sort, the contingency risk is palpable. The plaintiff’s lawyers agree to advance every minute of their time and every penny of costs incurred on the chance that they can prove plaintiff was wronged. To assist the court in its analysis, and provide sufficient evidence upon which the court may make appropriate findings, counsel should include in his or her declaration specific facts that establish the contingent risks. Consider including evidence of loans taken to finance costs or overhead associated with the litigation, specific risks of loss presented to counsel in the particular litigation, and inherent risks associated with FEHA-type litigation. All these factors of risk of loss, or risk of a low judgment amount, militate toward a multiplier to effectuate a fully compensatory award.
An additional important contingent-risk factor is the tremendous delay in payment for the attorney’s efforts. Counsel will advance hundreds (or thousands) of hours into a case over a period of one to three years (or more) without pay. If plaintiff’s counsel was paid simply their hourly rate, or even the reasonable value of their services and nothing more, there is still no compensation for the significant payment deferral over a period of several years. Thus, a multiplier not only addresses the risk of no payment, but also the agreement to defer fees, even assuming there was no risk of non-payment. The two factors put together cry out for an appropriate multiplier greater than one.
The amount of the multiplier is within the sound discretion of the trial judge or arbitrator. However appellate cases offer some guidance.
Several recent California cases have upheld a 1.5 multiplier. See, e.g., Downey Cares v. Downey Community Development Com. (1987) 196 Cal.App.3d 983, 993-994; Beasley v. Wells Fargo Bank (1991) 235 Cal.App.3d 1407, 1419; Edgerton v. State Personnel Bd. (2000) 83 Cal.App.4th 1350, 1363; Center for Biological Diversity v. County of San Bernardino, supra, 185 Cal.App.4th at p. 902. However, it appears valid argument can be made for more. See Consumer Privacy Cases, supra, 175 Cal.App.4th 545 which upheld a 1.75 multiplier.
The California Supreme Court has implicitly approved up to a 2.25 multiplier. Graham v. DaimlerChrysler Corp., supra, 34 Cal.4th 553, dealt with a trial court judgment that included a 2.25 multiplier to the lodestar amount. The trial court based the enhancement on “the contingency nature [of the litigation], the delay in payment and the quality of the result.” Graham, supra, 34 Cal.4th at p. 578-579. However, a great deal of the fees that constituted the lodestar amount in that case were fees incurred not in the procurement of the compensatory award, but instead in litigation to procure fees. Graham was remanded because the court applied that 2.25 multiplier to the fees litigation that followed the underlying litigation. Id. at p. 584. It did not criticize the 2.25 multiplier except to explain that the factors used in a “fees for fees” situation should be different.
The important point to stress in making your argument for a healthy multiplier is, even if the judge were to simply take the fee invoices provided and multiply the hours reflected therein by appropriate hourly rates, the resulting figure would not accomplish the well-established intent of the fee entitlement of Government Code §12965(b). When the Ketchum court stated that “a lawyer who both bears the risk of not being paid and provides legal services is not receiving the fair market value of his work if he is paid only for the second of these functions,” it was stating, in essence, that a failure to adjust the award when the contingent risk factors are great would be a failure to achieve the primary goal: that fee awards be fully compensatory.
Based on this case law and statutory intent, a very good case can therefore be made that all contingency attorneys are entitled to some multiplier greater than one to make their fee award fully compensatory.
STEP FIVE: MULTIPLY THE LODESTAR NUMBER TIMES THE MULTIPLIER (IF ANY) TO DETERMINE THE ATTORNEY FEE AWARD
This last step is simply an arithmetical calculation. Multiply the lodestar number determined in step three with the multiplier, if any, determined by the court in step four. This number will be the amount of the attorney fee award.
No prevailing plaintiff attorney should be timid about asking for the enhanced fee provided for under the lodestar analysis. Not seeking an enhancement of the hourly rate multiplied by the number of hours actually worked leaves competent counsel conceptually working for less than his or her opposing counsel, who gets paid by the hour as the work is being performed, and who does not advance tens of thousands of dollars of their own money to litigate the case. A lodestar multiplier is not a reward, or a prize, or a windfall. It is a calculation of fair compensation for the hard work performed by competent counsel to protect the rights of those who otherwise would have been without representation.
1 Neil Pedersen is principal of Pedersen Heck McQueen, APLC, in Irvine, California. His firm represents employees who have been subjected to significant workplace discrimination, harassment and retaliation.
2 An example of a situation where a court might find a fee award to the prevailing plaintiff to be unjust may be found in Chavez v. City of Los Angeles (2010) 47 Cal.4th 970 where the court determined the prevailing plaintiff could have filed the matter in a limited jurisdiction court. Id. at p. 991.