Recovery of Legal Fees
Wednesday, June 18, 2008
On June 2, 2008, the Supreme Court issued its decision in Richlin Security Service Co. v. Chertoff, 553 U.S. _______, Case No. 06-1717 (Slip. Op.). Overturning the Federal Circuit, the Supreme Court held that the Equal Access to Justice Act (EAJA) permits paralegal fees recovery at market rates, and not just at the actual costs to the attorney.
Richlin, the petitioner, was hired in the early 1990s by the former Immigration and Naturalization Service (INS) to provide security guard services at Los Angeles International Airport. After the Department of Labor determined that employees under this INS contract were being underpaid, Richlin filed a claim before the Department of Transportation Board of Contract Appeals seeking reformation of the contract so that INS was liable for the back pay owed. After extended litigation, Richlin prevailed before the Board.
Richlin then petitioned the board for award of attorneys’ fees and costs under EAJA, including paralegal fees for paralegals employed by Richlin’s Washington, DC-area outside counsel. The Board partially granted Richlin’s petition, but awarded paralegal fees at the constructive “reasonable cost to the firm” ($35/hour) rather than at the actual cost which Richlin’s outside counsel charged Richlin for those paralegal services ($50/hour-$95/hour). Richlin Security Service Co. v. Department Of Justice, 2005 WL 1635099 (June 30, 2005). The Board calculated this constructive rate based on the prevailing paralegal salaries appearing in contemporaneous Internet help wanted ads for paralegals in the Washington, D.C., area.
Richlin appealed the Board’s award to the Federal Circuit which affirmed the Board’s award on a split decision. Richlin Security Service Co. v. Chertoff¸ 472 F.3d 1370 (2006). The Federal Circuit refused to follow the contrary interpretation of the 11th Circuit, instead relying on an interpretation of EAJA’s legislative history to find that paralegal fees are “other expenses” compensable at “reasonable cost,” rather than “fees” compensable at “prevailing market rates” under the statute.
The Supreme Court reversed. The majority held that the clear dichotomy between “fees” and “expenses” drawn by the Federal Circuit was not reflected in the statute, noting that the terms were on occasion used interchangeably. The court found that calculation of “costs” in the EAJA context is properly understood as costs to the litigant, not costs paid by counsel. The majority further noted that, under Missouri v. Jenkins, 491 U.S. 274 (1989), the statutory term “attorney’s fee” was held to encompass work from paralegals as well as members of the bar. The touchstone for the court’s opinion was prevailing practices in the relevant legal market as to whether the paralegal fees can be separately recoverable (as opposed to being an overhead expense collapsed into the attorney’s fee); if prevailing market practice in the pertinent legal market allows for separate billing of paralegal services at market rates to litigants, then such paralegal fees are recoverable under EAJA at market rates as well. The court further noted that the methodology used by the board (examination of classified ads) is faulty, as failing to take into account nonsalary compensation and benefits payable to the paralegal.