The Second Circuit today vacated an order that forced a law firm to share part of its contingent fee with other firms.
The case involved claims against the Republic of Libya for its role in the mid-air bombing of Pan Am Flight 103 on December 21, 1988. The crash near Lockerbie, Scotland, killed all 259 people on board and 11 on the ground. Emery Celli Brinckerhoff & Abady represented six plaintiffs. After many twists and turns, including passage of a law to allow suit against Libya, the massive litigation settled for $2.7 billion, or $10 million per plaintiff.
A committee that the district court created to oversee the cases demanded that each firm pay three percent of its fee to compensate the committee for its work. The Emery firm refused, citing as an offset the value of its key role in lobbying Congress to pass the law that stripped Libya of its sovereign immunity for involvement in terrorist acts. The district court ordered Emery to contribute the funds anyway. Emery appealed.
The Second Circuit vacated the order. Emery Celli Brinckerhoff & Abady LLP v. Plaintiffs' Committee, No. 06-4564-cv (2d Cir. June 5, 2009). It held that the district court made several errors, including in its reliance on a settlement offer by Emery, and remanded the case for more work by the district court.
But the panel rejected Emery's complaint that the district court should have let it (Emery) look at the committee's time records. It said:
In assessing the award of attorneys’ fees, we have authorized the use of two methods: (i) the lodestar method, focusing on the hours expended in the case, and (ii) the percentage-of-the-recovery method, focusing on the value of the attorneys’ contribution. Goldberger v. Integrated Res., Inc., 209 F.3d 43, 47 (2d Cir. 2000). The district court chose the latter approach. The time records accordingly had no relevance to the court’s determination.
Id., slip op. at 17.
The ruling strikes Blawgletter as at least unusual. Courts that allow the percentage-of-the-recovery method often also run a "lodestar cross-check" to compare hourly rates times hours (the lodestar) with the percentage fee. E.g., In re AT&T Corp., 455 F.3d 160, 164 (3d Cir. 2006) (noting that "we have recommended that district courts use the lodestar method to cross-check the reasonableness of a percentage-of-recovery fee award"). While we agree that courts may forego a lodestar cross-check, we wonder how that makes the lodestar irrelevant. Perhaps the court could explain why, in the particular case, it regards a cross-check unhelpful.