No. 92-563
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
MAJORIE IHLER, VICTOR FOURWINDS, JOEL
JOHNSON, KAREN HALLBERG, TOM BRANSTETTER,
DANINE ROSE, SHARON GREGOR, CHARLES KIMBALL,
DAVID MALINGO, BELINDA KITTLE, BYRON MYERS,
and THERESA WHISENNAND,
Plaintiffs, Respondents,
and Cross-Appellants
CURT CHISHOLM, DIRECTOR OF THE DEPARTMENT
OF INSTITUTIONS FOR THE STATE OF MONTANA,
CARROLL SOUTH, INDIVIDUALLY AND AS PAST
DIRECTOR OF THE DEPARTMENT OF INSTITUTIONS
FOR THE STATE OF MONTANA, JANE EDWARDS,
SUPERINTENDENT OF MONTANA STATE HOSPITAL
AND THE STATE OF MONTANA,
Defendants, Appellants,
and Respondents on Cross-Appeal.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Dorothy McCarter, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
P. Keith Keller; Keller, Reynolds, Drake, Johnson
& Gillespie, Helena, Montana
Hon. Joseph P. Mazurek, Attorney General, Kimberly
A. Kradolfer, Assistant Att. General, Helena, Montana
James B. Obie, Dept. of Institutions, Helena, Montana
Bill Gianoulias, Tort Claims Division, Helena, Montana
For Respondents:
Jeffrey T. Renz, Legal Director, American Civil Liberties
Union of Montana, Billings, Montana
Leonard Rubenstein and Ira Burnim, Mental Health Law
Project, Washington, D. C.
Allen Smith, Mental Disabilities Board, Warm Springs,
Montana
Andrea Olsen and Mary Gallagher, Mental Health Protection
and Advocacy, Warm Springs, Montana
Helen Hershkoff and Victor Bolden, American Civil
Liberties Union Foundation, New York, New York
James H. Goetz; Goetz, Madden & Dunn, Bozeman, Montana
r. William Leaphart
; , Attorney at Law, Helena, Montana
Submitted on Briefs: April 30, 1333
Decided: June 29, 1993
Filed:
Justice Karla M. Gray delivered the Opinion of the Court.
Appellants Cinisholm, et al., appeal from findings of fact,
conclusions of law and order of the First Judicial District, Lewis
and Clark County, awarding attorneys' fees. Respondents Xhler, et
al., cross-appeal from the same judgment. We reverse and remand.
The dispositive issue on appeal is whether the District Court
erred in computing the award of attorneys' fees.
The parties are before this Court appealing only the award of
attorneys' fees which followed lengthy and complex civil rights
litigatian, Accordingly, only a hrief recitation of the facts
surrounding the actual litigation is necessary.
On May 16, 1988, twelve patients (the Patients) of the Montana
State Hospital at Warm Springs filed a class action against Curt
Chisholm, Director of the Department of Institutions, Carroll
South, past Director of the Department of Institutions; Jane
Edwards, Superintendent of the Hospital and the State of Montana
(collectively, the Hospital). The Patients sought damages and
injunctive relief for civil rights violations under state and
federal law.
The District Court bifurcated the issue of damages from the
injunctive portion of the case; the damages issue settled. A bench
trial on the injunctive relief began on May 6, 1991, and lasted
three weeks. During trial, the court heard thirty-five witnesses,
toured the hospital and admitted over 100 exhibits.
In its final order issued September 26, 1991, the District
Court determined that the Patients primarily had challenged the
3
following three areas of hospital operation:
.the use of seclusion and restraint against patients
.the condition and treatment of patients at the
Xanthopoulus Treatment Facility (the forensic unit)
athe adequacy and number of professional staff.
Although the District Court concluded that the Hospital had made
great strides in improving the conditions during the three years
after the lawsuit was filed, deficiencies nonetheless remained that
had the effect of depriving the Patients of their civil rights.
The court concluded that the Hospital was deficient in its use of
seclusion and restraint and in keeping patients in the forensic
unit long after they should have been transferred to a less
restrictive environment. It also concluded that the Hospital had
given inadequate treatment and therapy in the forensic unit and
employed insufficient numbers of clinical staff. The court then
ordered the Hospital to correct the deficiencies and submit a
report demonstrating compliance within three months of the order.
Following entry of the District Court's decision and order,
the Patients moved for attorneys' fees and expenses in the amount
of $2,071,856.61 pursuant to § 42 U.S.C. 1988, the Civil Rights
Attorney's Fees Awards Act of 1976. On April 20, 1992, the court
entered an interim order awarding the Patients $415,950.74. The
District Court issued findings of fact and conclusions of law to
support the interim order on August 13, 1992.
The District Court first determined the reasonable hourly
rates for ten attorneys that had represented the Patients during
the litigation; the rates ranged from $75 per hour to $110 per
hour. In making this determination, the court concluded that the
4
Patients had not established that out-of-state counsel was
necessary and based its rates on Montana standards. The court then
found that the Patients had significantly overstaffed the case with
counsel, and reduced each attorney's compensable hours by varying
percentages due to duplication and excessive travel time. The
District Court also excluded all hours of attorney Mary Gallagher
(Gallagher) for the period she was employed by the State of
Montana.
By multiplying the reasonable hourly rates by the reasonable
compensable hours, the District Court reached the "lodestar"
attorneys' fees amount. The "lodestar" expression was adopted by
the United States Supreme Court as the correct method for
calculating attorneys' fees under federal fee-shifting statutes; it
consists of the multiplication of a reasonable hourly rate by the
number of hours reasonably expended on the litigation. See Audit
Services, Inc. v. Frontier-West, Inc. (i992), 252 Mont. 142, 153,
827 P.2d 1242, 1250.
The District Court then reduced the lodestar amount by 25%
based on its finding that the Patients did not prevail on many of
the issues in their original complaint and had achieved limited
success on the issues narrowed for trial. Lastly, the District
Court declined to increase the lodestar by 150% for "risk of
contingency," as requested by the Patients. Instead, the court
concluded that the Patients had failed to show that no Montana
attorneys would have taken the case, but did show that Montana
attorneys are at least reluctant to accept civil rights cases
without the prospect of an enhanced fee. Based on that conclusion,
the District Court increased the lodestar amount by 50% for risk of
contingency. The court also awarded the Patients their attorneys'
fees incurred in preparing the motion for fees and their costs for
the lawsuit. Entry of judgment was filed on September 1, 1992.
The Patients then moved to amend the order on attorneys' fees,
contending that the District Court should have allowed the hourly
rates of the out-of-state attorneys instead of increasing the
lodestar by 50% for contingency, In the Hospitalf response to the
s
motion, it also urged the District Court to reconsider its order
due to the recent United States Supreme Court decision in City of
Burlington v. Dague (19921, 505 U.S. , 112 S.Ct. 2638, 120
L.Ed.2d 449, which held that enhancement of attorneys' fees awards
for contingency was not permitted under federal fee-shifting
statutes. The District Court denied the motion to amend without
explanation on October 7, 1992. Both parties appeal.
Did the District Court err in computing attorneys' fees?
The Hospital contends that the District Court erred in its
computation of attorneys' fees by refusing to reconsider its order
in light of m. Neither party disputes the applicability of
Qg.ggg to the present case, and we agree that a change in the law
between the trial court decision and the appellate decision
requires the appellate court to apply the new law. Haines Pipeline
Constr., Inc. v. Montana Power Co. (1991), 251 Mont. 422, 433, 830
P.2d 1230, 1238. Further, the Patients cross-appeal several issues
regarding the District Court's computation of the attorneysr fees
6
award. As the majority of the Patients' concerns will be resolved
based on our discussion of Daque, we initially examine Daque's
effect on the award of attorneys' fees in this case.
In m, the plaintiff prevailed in a suit under the Solid
Waste Disposal Act, which allows the substantially prevailing party
to recover attorneysi fees under 42 U.S.C. 5 6972 (e). In computing
the award of attorneys' fees, the federal district court determined
the lodestar amount by multiplying the reasonable hours expended by
the reasonable hourly rate. It then concluded that a 25%
contingency enhancement of the lodestar amount was appropriate,
stating:
[the plaintiff's: risk of not prevailing was substantial
and that absent an opportunity for enhancement, [the
plaintiff: would have faced substantial difficulty in
obtaining counsel of reasonable skill and competence in
this complicated field of law.
m,505 U.S. at , 112 S.Ct. at 2640, 120 L.Ed.2d at 455. The
Second Circuit Court of Appeals affirmed.
The United States Supreme Court first explained that there is
a "strong presumption" that an award of attorneys' fees figured
using the lodestar approach, without any adjustments, is a
reasonable fee. w ,U.S.
505 at , 112 S.Ct. at 2641, 120
L.Ed.2d at 456. The Supreme Court then concluded that contingency
enhancement would likely duplicate, in substantial part, factors
already subsumed in the lodestar.
The Supreme Court reasoned that the risk of contingency in a
particular case depends on (1) the legal and factual merits of the
claim and (2) the difficulty in establishing those merits. DaqUe,
505 U.S. a t , 112 S.Ct. at 2641, 120 L.Ed.2d at 456. According
to the Supreme Court, the first factor is not reflected in the
lodestar and should play no part in the calculation of attorneys'
fees. The second factor, however, is ordinarily reflected in the
lodestar--either in the higher number of hours expendedto overcome
the difficulty or in the higher hourly rate of the attorney skilled
and experienced enough to do so. Daque, 505 U.S. at , 112 S.Ct.
at 2641, 120 L.Ed.2d at 456. The Court concluded that taking into
account the difficulty of the case again through contingency
enhancement resulted in double-counting. Daque, 505 U.S. at -,
112 S.Ct. at 2641, 120 L.Ed.2d at 457. On that basis, the United
States Supreme Court held that enhancement for contingency was not
permitted under the fee-shifting statute of the Solid Waste
Disposal Act. m, 505 U.S. at , 112 S.Ct. at 2643-4, 120
L.Ed.2d at 459.
Although m 1 s analysis involved 42 U.S.C. 5 6972(e), the
Supreme Court specifically referred to 42 U.S.C. 5 1988, the fee-
shifting statute at issue here. Daque, 5C5 U.S. at ____I 112 S.Ct.
at 2641, 120 L.Ed.2d at 456. Furthermore, the Ninth Circuit Court
of Appeals has since applied Daqug in a civil rights context, and
concluded that the typical federal fee-shifting statutes do not
allow for upward adjustments of a lodestar amount for contingency.
Davis v. City and County of San Francisco (9th Cir. 1992), 976 F.2d
1536, 1549. Therefore, we apply the Supreme Court's Daaue analysis
to the present case.
Given the Supreme Court's mandate in Daque, we conclude that
the District Court erred in enhancing the Patients' award of
attorneys' fees by 50% for contingency and remand with instructions
to delete this increase from the lodestar amount. Further, as
stated in a,
some accounting for the risk of contingency is
normally figured into the computation of the lodestar, by either
greater hours claimed or higher hourly wages. In this case, we
cannot determine if the District Court would have reached the same
reasonable hourly rates and reasonable compensable hours if it had
not subsequently increased the lodestar amount by 50% for
contingency. On remand, therefore, the District Court should
recompute the lodestar amount--the reasonable hourly rates
multiplied by the reasonable compensable hours--in light of the
principles set forth in w.
Because of our remand, we need not discuss the issues raised
by the Patients regarding hourly rates and compensable hours.
However, the Patients raise two additional concerns which are not
affected by our remand for recalculation of the lodestar. First,
the Patients argue that the District Court erred in subsequently
reducing the lodestar by 25% due to lack of success at trial. They
assert that the District Court improperly "counted claims" instead
of looking at the overall results obtained by the Patients.
We will not reverse a district court's computation of
attorneyst fees under the lodestar approach absent an abuse of
discretion. Audit Services, 827 P.2d at 1250-1, citing Hensley v.
Eckerhart (1983)' 461 U.S. 424, 437, 103 S.Ct. 1933, 1941, 76
L.Ed.2d 40, 52. The "results obtained" by the prevailing party is
an important factor to consider when determining whether a full
compensatory fee is warranted. See Audit Services, 827 P.2d at
1250. For example, if a party has obtained excellent results,
counsel should recover a full compensatory fee. On the other hand,
if a party has achieved limited success, a full compensatory fee
may be excessive even where the claims were interrelated. Audit
Services, 827 P.2d at 1250, citing Henslev, 461U.S. at 435-6, 103
S.Ct. at 1940-1, 76 L.Ed.2d at 52. In its discretion, the district
court may attempt to identify specific hours that should be
eliminated or may simply reduce the lodestar to account for limited
success. Henslev, 461 U.S. at 436-7, 103 S.Ct. at 1941, 76 L.Ed.2d
at 52,
Here, the District Court determined that the Patients achieved
limited success at trial due in part to the improvements made by
the Hospital subsequent to the filing of the complaint. While the
court recognized the Patients' assertion that the lawsuit served as
a catalyst for the changes, it also determined that the Patients
were unsuccessful in two significant areas: their assertion of a
constitutional right to treatment in the community and claims
relating to the physical environment of both the old and new
forensic units. The court concluded, therefore, that a fully
compensatory fee would be excessive and reduced the lodestar by
25%. As Hensley specifically allows for a downward adjustment of
the lodestar for limited success, we find no abuse of discretion in
the District Court's analysis and subsequent 25% reduction of the
lodestar.
Second, the Patients argue that the District Court erred in
denying recovery for Gallagher's attorney's fees while she was
employed by the State of Montana. In its findings and conclusions,
the District Court concluded that because Gallagher was a State
employee from 1987 through April of 1991, the Patients could not
recover attorney's fees for her work during that period from the
State. The Patients assert that the court's conclusion and
resulting reduction in the attorneys1 fees award was an abuse of
discretion. We agree.
The District Court's initial assertion that Gallagher was
"employed by the State" for the specified period is not at all
clear-cut. The Montana Advocacy Program (MAP) received a federally
funded grant from the National Institute of Mental Health, which
was administered through the Montana Mental Disabilities Board of
Visitors (the Board), a state agency. Under the agreement between
MAP and the Board, the Board agreed to maintain an attorney at the
Hospital; this position was filled by Gallagher. Therefore,
although the State of Montana disbursed Gallagher's wages, funding
was provided by MAP, through its federal grant. We conclude,
however, that as a matter of law, the source of Gallagher's wages
is irrelevant in determining recoverable attorney's fees.
It is well settled that Congress intended legal service
programs to receive fees under 42 U.S.C. 1 1988. Shadis v. Beal
(3d. Cir. 1982), 685 F.2d 824, 830. It is also clear that Congress
contemplated that states and state officials would often be the
targets of civil rights actions and intended that attorneys' fees
be collected from the funds of the state agency. Shadis, 685 F.2d
at 830. In Shadis, the state argued that because it funded the
legal services program that represented the prevailing party, it
would be unfair to make the state "pay twice." The Third Circuit
Court of Appeals characterized that argument as a rhetorical ploy,
and stated:
The Commonwealth does not pay Wwice" when it violates
someone's civil rights and is then forced to pay
attorneys' fees. It pays only once--as a violator of
civil rights. Its role as a provider of public services
is distinct from its role as a defendant in a civil
rights case and has no bearing on the question of
reimbursing individual citizens for individual wrong
brought against them,
Shadis, 685 F.2d at 833. Addressing an identical argument, the
Ninth Circuit Court of Appeals concluded that the issue of
"fairness" had been resolved by Congress, because awards of
attorneys' fees to state-funded legal services organizations were
contemplated by Congress and serve the purpose for which the Act
was adopted. Dennis v. Chang (9th Cir. 1980), 611 F.2d 1302, 1307.
In the present case, the District Court concluded that
Gallagher was a state employee and, therefore, was not entitled to
an award of attorney's fees from the State. The fact that
Gallagher's wages were disbursed through the State or paid by
public funds is irrelevant in determining whether an award for
attorneys' fees is proper. Leeds v. Watson (9th Cir. 1980), 630
F.2d 674, 677. Because the District Court inappropriately relied
on the source of Gallagher's wages in its decision to deny
attorney's fees for the period she worked for the State, we reverse
that conclusion and on remand, direct the court's attention to the
cases cited herein.
In sum, we remand for redetermination of the lodestar amount
in light of the United States Supreme Court's decision in m.
Although we conclude that the District Court did not err in
reducing the lodestar by 25% for the Patientst limited success, we
conclude that the District Court abused its discretion in denying
recovery of Gallagher's attorney's fees for the period she was
employed by the State.
Reversed and remanded for further proceedings consistent with
this opinion.
We concur:
June 29, 1993
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
P. Keith Keller
Keller, Reynolds, Drake, Johnson & Gillespie
38 South Last Chance Gulch
Helena, MT 59601
Hon. Joseph P. Mazurek, Attorney General
Kimberly A. Kradolfer, Assistant
215 N. Sanders, Justice Building
Helena, MT 59620
James B. Obie
Department of Institutions
1539 1 lth Avenue
Helena, MT 59620
Bill Gianoulias
Tort Claims Division
Room 111, Mitchell Building
Helena, MT 59620
Leonard Rubenstein and Ira B u d
Mental Health Law Project
1101 15th Street, N.W., Suite 1212
Washington, D.C. 20005
Allen Smith
Mental Disabilities Board
P. 0. Box 177
W m Springs, MT 59756
Ms. Helen Hershkoff and Mr. Victor Bolden
American Civil Liberties Union Fd.
132 West 43rd Street
New York, New York 10036
Jeffrey T. Renz, Legal Director
Aterican Civil Liberties Union of MT
724 Grand Avenue
Billings, MT 59101
Ms. Andrea Olsen and Ms. Mary Gallagher
Mental Health Protection and Advocacy
P. 0. Box 177
Warm Springs, MT 59756
W. William Leaphart
Attorney at Law
i No. Last Chance Gulch #6
Helena, MT 59601
James Goetz, Esq.
Goetz, Madden & Durn
35 N. Grand
Bozeman, MT 59715
ED SMITH
CLERK OF THE SUPREME COURT
STATELOF MONTANA