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Supreme Court Clarifies Fee Bonuses for Underdogs’ Lawyers

Conditions in Atlanta’s foster care system were atrocious in 2002 when a nonprofit advocacy group and a local law firm sued the state on behalf of the 3,000 children in the system.

Children weren’t getting the medical and mental health services they needed. Many were being bounced from foster home to foster home and spending too much time in overcrowded, rat-infested shelters. There, residents were physically assaulted by staff and locked outside at night as punishment. Shelter residents beat and sexually abused more vulnerable children. Some 750 residents tried to escape each year; others attempted suicide.

After a lengthy court battle, the two sides reached a settlement that brought sweeping reforms to the system. The court ordered Georgia to pay the children’s advocates, who had been working without pay, $6 million in legal fees—based on the number of hours worked and reasonable hourly rates. The judge, noting that he hadn’t seen such skillful lawyering in his 27 years on the bench, also ordered the state to pay a $4.5 million bonus to the children’s attorneys for their extraordinary work on the case.

The U.S. Supreme Court threw out that extra payment on April 21, saying the lower court judge did not do enough to establish why an increase was deserved in the case, or why it should be so large. Such bonus payments—known as “enhancements” in legal circles—are rare, and the new ruling is expected to make them even less common.

Raising the bar on attorneys’ fees

The decision leaves public interest advocates worried that it will become more difficult to find attorneys willing to take on important—but often far less lucrative—cases in a wide range of areas, from disability coverage, veterans’ benefits and consumer issues to civil rights and employee benefit plans. (AARP filed a friend of the court brief in this case, on behalf of the Atlanta foster care children and their attorneys.) As Laura Beth Nielsen, a sociology professor and director of legal studies at Northwestern University, explains it, “The more restricted their ability to get fees becomes, the less likely lawyers are to take a case.”

The decision is the first the Supreme Court has issued in three cases involving attorneys’ fees that it is considering this term. In most legal disputes, each side pays its own lawyers for their work. But the cases before the Supreme Court all involve “fee shifting,” an approach designed to ensure lawyers are paid for work on certain kinds of cases, even if the dollar value of the disputes is small. Under more than 100 federal laws, the attorney fees of a prevailing plaintiff in a lawsuit are paid by the opponent, with the possibility for the kind of bonus the children’s lawyers received.

In the Georgia case, Perdue v. Kenny A., the state, led by Gov. Sonny Perdue, balked at the fee increase and challenged it in court. With the support of the federal government and 30 other states, all of which share an interest in limiting the fees they may have to pay out, lawyers for Georgia told the Supreme Court that such bonuses for good performance should never be allowed because they essentially amount to paying lawyers twice for the same work.

Middle ground

The Supreme Court didn’t go quite that far. In its 5-4 decision, written by Justice Samuel Alito, the court ruled that in almost all cases, the basic fee calculation is sufficient. While bonuses may be awarded for “superior performance,” the court’s conservative bloc plus Justice Anthony Kennedy said that could only be the case in “extraordinary circumstances.” The justices set out tougher guidelines for that standard than anything the court has said previously on this issue.

The opinion described several circumstances in which an enhancement may be appropriate: if the method used to calculate the hourly rate for the underlying fee “does not adequately measure the attorney’s true market value”—for example, if the formula relies on just one factor, such as the number of years the lawyer has been practicing law; if the lawyer’s work includes “an extraordinary outlay of expenses” and the case is exceptionally long, in which case interest could be applied to the amount spent on expenses; or if there is an “exceptional delay in the payment of fees,” which could also justify an added interest payment.

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