Federal Judge Limits Attorneys\' Fee Award to Amount in Retainer Agreement

September 21, 2011

By: Richard G. Kass

In an important victory for defendants, U.S. District Judge Lawrence McKenna of the Southern District of New York recently issued a decision limiting the attorneys' fees awarded to prevailing plaintiffs to the percentage of the recovery stated in the plaintiffs' retainer agreements with their lawyers, Vysovsky v. Glassman. Ordinarily, when a plaintiff wins a case under a statute that permits an award of attorneys' fees, the court will determine the amount of the fee by multiplying the hourly rate charged by lawyers of similar experience in that field (the “lodestar” rate) by the number of hours proven to have been devoted to the successful claims in the case. The result is a "presumptively reasonable" fee. In Vysovsky, the plaintiffs' lawyers submitted affidavits showing that by this method the defendants would owe them $366,716 - a sum far in excess of the $143,203 awarded by the jury to the eight successful plaintiffs in the case.

Judge McKenna refused to use this method. He granted the defendants' demand that the plaintiffs produce copies of their retainer agreements, and agreed with the defendants that the plaintiffs' lawyers should be limited to the percentage fee in those agreements. This resulted in a total attorneys' fee award of $55,885. Instead of the $350 per hour they requested, the plaintiffs' lawyers ended up with approximately $53 per hour.

It seems like common sense that an attorneys' fee award should be limited by the amount set in the attorney’s retainer agreement with the client. However, it is rare to find reported cases decided that way, because defendants rarely demand copies of retainer agreements in discovery, and because judges are so accustomed to using the "lodestar" method they are reluctant to award attorneys' fees in any other way.

The result in Vysovsky, though unusual, is in perfect accord with the policies underlying the "lodestar" method. The statutes that permit attorneys' fees awards provide that the plaintiff should be reimbursed for "reasonable" fees. If a lawyer writes a fee into his own retainer agreement, it should be considered presumptively reasonable. The "lodestar" method is intended to replicate the rate that the free market would award, but there is no better measure of the free market rate than the retainer agreement that was freely negotiated in that very market.

When a court awards attorneys' fees higher than those provided for in the retainer agreement, the plaintiff's lawyers end up with a premium for taking the case to trial instead of settling. This disincentive to settle increases the cost of justice for everyone -- except for the lucky plaintiffs' lawyers. By holding plaintiffs' lawyers to the fees in their retainer agreements, the courts can insure that no lawyer will have an incentive to turn down a reasonable settlement and instead go to trial in the hope of earning an inflated fee.