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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.

Alito wrote that the Atlanta judge had not shown that the case under review qualified as such a “rare” and “exceptional” situation, nor did the judge explain his reasoning for boosting the basic pay award by $4.5 million, or 75 percent of the underlying fee. “[T]his figure appears to have been essentially arbitrary,” Alito wrote. As a result, the Georgia case will be sent back to a lower court judge, who must address those issues if any bonus is to be awarded.

The result was welcomed by lawyers for the state, who say Alito’s opinion leaves little room for the judge to award an enhancement. The decision also pleased Richard Samp, chief counsel at the Washington Legal Foundation, a conservative group that filed a brief in the case on behalf of the state of Georgia. The fee-shifting rules aren’t intended to yield “windfalls” for lawyers who take these cases, he says, but to ensure that people are able to get lawyers to represent them. “The promise of payment at normal hourly rates should be more than adequate to attract competent attorneys,” Samp says.

Advocates for the children see a mixed result in the decision. Marcia Robinson Lowry, executive director of Children’s Rights, the national watchdog group that helped bring the case, is relieved that the Supreme Court didn’t completely wipe out the possibility of a bonus, as she feared it could. While she is unsure what the opinion will ultimately mean for her payment until a lower court issues a ruling, she holds out the possibility that it will pass the new test set out by the court’s decision.

“This was an unusual case,” Lowry says, pointing out the many years it went on, the novel legal issues it raised, and the $1.8 million in out-of-pocket expenses that her group and the Atlanta firm spent on the case. “Since 2002, not a penny has been paid for any of these costs,” she says.

Increasingly tough environment

While she awaits the next step in the case, Lowry worries the decision could have a broader impact. While such lawsuits are central to her group’s work, it’s essential that private law firms also take on these kinds of public interest cases. “One of the things that weighs on a law firm’s calculation,” she says, is “the possibility that if we really do an outstanding job, we may get a bonus.” The fee structure in these cases must make this work competitive for private firms, Lowry says, “so they will divert some of their resources away from their regular money-making cases.”

Lawyers already hesitate to take such cases, says Nielsen, the Northwestern professor, and the Perdue ruling could exacerbate that situation. She points to a 2007 UCLA Law Review article she coauthored, based on a national survey of more than 200 public interest organizations from across the political spectrum. That research was conducted in the wake of an important 2001 Supreme Court ruling that sharply limited the ability of attorneys to recover their fees in these kinds of civil rights cases. The survey found that the decreased likelihood of collecting fees affects the willingness of lawyers to take on such work.

“There are cases they would have taken before, that now they aren’t taking,” says Nielsen, who is also a research professor at the American Bar Foundation. “It means more people are going into public interest law firms, and they get told, ‘Yes, we think your civil rights were violated, but we can’t do anything about it.’ ”

Small comfort

While it may be little consolation, Lowry and other advocates for children in Atlanta’s foster care system had their own backers on the high court. In a minority opinion written by Justice Stephen Breyer, the court’s four liberal justices agreed that enhancements should be permitted. But they went further, arguing that the Atlanta foster care case showed just the kind of exceptional work that merits a bonus for attorneys. Breyer’s dissenting opinion pointed to the eight years spent on the case and noted that “transcripts of hearings and depositions, along with other documents, have produced a record that fills 20 large boxes,” making it unwise to “second-guess” the district court judge who followed the case closely and awarded the bonus.

With such a long, complicated and important case, prompting improvements in a troubled foster care system, Breyer asked, “If this is not an exceptional case, what is?”

Holly Yeager lives in Washington, D.C.

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