“We agree with the reasoning in Perdue and hold that there is a strong presumption that the reasonable hourly rate multiplied by the number of hours worked, which is sometimes referred to as the “lodestar,” is the proper amount for an attorney-fee award.”

Justice Stewart, opinion of the Court

On March 25, 2020, the Supreme Court of Ohio handed down a merit decision in Phoenix Lighting Group, L.L.C. v. Genlyte Thomas Group, L.L.C, 2020-Ohio-1056. In a unanimous opinion written by Justice Stewart, in which Justices Kennedy and Fischer each concurred, but each added a separate opinion, the Court held that in making an award of attorney fees, the lodestar amount is presumptively reasonable. Enhancements to the lodestar should rarely be granted and only when the prevailing party presents evidence that the enhancement is necessary because the lodestar hasn’t taken a proper factor into consideration in determining a reasonable fee.  The case was argued September 10, 2019.

Case Background

Patrick Duffy owned Phoenix Lighting Group L.L.C. and Jack Duffy and Associates (collectively, “Phoenix”). Phoenix sold lighting products manufactured by Acuity Brand Lighting. Two Phoenix employees began negotiations with Duffy to buy Phoenix. At the same time these two employees were negotiating with Duffy, they approached Genlytle Thomas Group L.L.C. a.k.a. Daybrite, Capri Omega (“DCO”)—a direct competitor of the Acuity Brand lighting products sold by Phoenix—about starting their own sales agency and representing Acuity products.  With financial help from DCO and using information they got from their employment at Phoenix, the two employees started Intelligent Illuminations to rep DCO products. Intelligent Illuminations hired several Phoenix employees, and Phoenix eventually went out of business.

Phoenix filed suit against DCO and its two former employees for a number of business torts. The two former employees settled during trial. The jury returned a verdict finding DCO liable for tortious interference with a business relationship, misappropriation of trade secrets and engaging in a civil conspiracy with the two former Phoenix employees. The jury awarded Phoenix $1,680, 970 in compensatory damages, and in a separate proceeding, punitive damages later capped at $3,661,940, and reasonable attorney fees.  

In a posttrial hearing on the attorney fees, the trial court established a lodestar amount of $1,991,507 as a reasonable attorney fee to Phoenix under a standard hourly rate agreement, to which the court added a multiplier of two, awarding a total amount of $3,983,014 in attorney fees. The court based the multiplier on the complexity of the case, the amount of time it took, keeping the lawyers from accepting other cases, the highly favorable outcome, the hybrid fee agreement between the parties forcing the lawyers to assume a large financial risk, and the excellent reputation of the lawyers involved.

The Ninth District Court of Appeals affirmed the verdict and the compensatory damages award, but found that the damages awarded for the misappropriation of trade secrets claim was subject to the punitive-damages cap. Pertinent to this appeal, the Ninth District found no abuse of discretion by the trial court in applying a multiplier of two to the lodestar amount.

Read the oral argument preview here and an analysis of the argument here.  

Key Statutes and Precedent

Ohio Prof. Cond. Rule 1.5(a)(1)-(8) (Factors to be considered in determining reasonableness of attorney fee.)

N.Y., Chi. & St. Louis RR. Co. v. Grodek, 127 Ohio St. 22 (1933) (holding that attorney fees awarded incident to punitive damages are compensatory damages.)

Hensley v. Eckerhart, 461 U.S. 424 (1983) (holding that the starting point for determining attorney fees is the lodestar, calculated by multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate. However, “the product of reasonable hours times a reasonable rate does not end the inquiry. There remain other considerations that may lead the court to adjust the fee upward or downward, including the important factor of the ‘results obtained.’”)

Blum v. Stenson, 465 U.S. 886 (1984) (holding that the novelty and complexity of the case, any special skill of counsel, the quality of representation, and the results obtained are all subsumed in the lodestar computation.)

Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air, 478 U.S. 546 (1986) (“[T]he lodestar figure includes most, if not all, of the relevant factors constituting a ‘reasonable’ attorney’s fees, and it is unnecessary to enhance the fee for superior performance in order to serve the statutory purpose of enabling plaintiffs to secure legal assistance.”)

Bittner v. Tri-County Toyota, Inc., 58 Ohio St.3d 143 (1991) (The lodestar amount is calculated by multiplying the number of hours reasonably spent on the case by a reasonable hourly fee. The trial court should decide whether to adjust the amount based on factors such as the time and labor involved in the litigation, the novelty and difficulty of the questions involved; the professional skill required to perform the necessary legal services; the attorney’s inability to accept other cases; the fee customarily charged; the amount involved and the results obtained; any necessary time limitations; the nature and length of the attorney/client relationship; the experience, reputation, and ability of the attorney; and whether the fee is fixed or contingent.)

Burlington v. Dague, 505 U.S. 557 (1992) (holding that the contingency factor is already incorporated into the lodestar and that enhancing a fee on that basis would result in “double counting” that could encourage attorneys to bring meritless claims.)

Yee v. Escondido, 503 U.S. 519 (1992) (Once a “claim is properly presented, a party can make any argument in support of that claim; parties are not limited to the precise arguments they made below.”)

Gulfstream III Assocs., Inc. v. Gulfstream Aerospace Corp., 995 F.2d 414 (3d Cir. 1993) (“[T]he prevailing market rate can often be calculated based on a firm’s normal billing rate because, in most cases, billing rates reflect market rates, and they provide an efficient and fair short cut for determining the market rate.”)

Pugliese v. Pukka Dev., Inc., 550 F.3d 1299 (11th Cir. 2008) (“[N]ew arguments relating to preserved claims may be reviewed on appeal.”)

Perdue v. Kenny A., ex rel. Winn, 559 U.S. 542 (2010) (presumption that lodestar yields a sufficient fee; enhancements are for rare and exceptional cases and must be supported by specific evidence.)

In re Sears, Roebuck & Co. Front-Loading Washer Prods. Liab. Litigation, 867 F.3d 791 (7th Cir. 2017) (noting that “novelty and complexity influence the base fee—the more novel and complex a case, the more hours will be billed and the higher the hourly billing rates will be.”)

State ex rel. Harris v. Rubino, 2018-Ohio-5109 (“A reasonable hourly rate is the prevailing market rate in the relevant community . . . given the complexity of the issues and the experience of the attorney.”)

DCO’s Proposition of Law Accepted for Review

Because there is a strong presumption that the lodestar method yields a sufficient attorney fee, enhancements should be granted rarely and only where the applicant seeking the enhancement can produce objective and specific evidence that an enhancement is necessary to compensate for a factor not already subsumed within the Court’s lodestar calculation. (Perdue v. Kenny A., ex rel. Winn, 559 U.S. 542 (2010), followed.)

Does the Court adopt DCO’s Proposition of Law?

Not only does the Court adopt this proposition of law, it turns it into the first paragraph of the case syllabus.

Merit Decision

Analysis

Lodestar is Starting Point

The starting point for determining attorney fees is the lodestar, which means “the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate.” But that does not end the matter. Other considerations can lead the trial court to adjust the result upward or downward.

Adjustment Factors

The lead case on factors involved in the modification of an award of attorney fees is Bittner v. Tri-County Toyota, Inc., which addressed an award of attorney fees under Ohio’s Consumer Sales Practices Act.  The enhancement factors were taken from what was then DR 2-106(B), now Prof. Cond.R. 1.5(a) and include the time and labor involved, the novelty and difficulty of the questions involved, the skill required, the likelihood that taking the case would preclude other employment by the lawyer, the fee customarily charged in the locality for similar services, the amount involved and the results obtained, the time limitations imposed by the client or other circumstances, the nature and length of the professional relationship with the client, the experience, reputation and ability of the lawyers involved, and whether the fee was fixed or contingent.  These are the factors the trial court considered in this case.

U.S. Supreme Court Backs way from Enhancements

In a series of cases the U.S. Supreme Court has backed away from enhancements. Since Hensley, the Court has held that instead of being considered as enhancements, novelty and complexity, any special skill of the lawyers involved, the quality of representation and the results obtained are all taken into account in the initial lodestar computation. The U.S. Supreme Court has also stated that the lodestar accounts for most, if not all, of the relevant factors constituting a reasonable fee, but it has also rejected the argument that upward adjustments to the lodestar are never permissible.  And finally, the Court has rejected enhancements to a fee award based on the contingent nature of payment, finding that the contingency factor is already included in the lodestar and that to enhance a fee based on that factor would be “double counting” which could encourage lawyers to bring meritless claims.

The Perdue Decision

In 2010 the U.S. Supreme Court decided Perdue v. Kenny A., ex rel. Winn. The district court in that case had established a 6 million dollar lodestar attorney-fee award in a civil rights class action case against the state of Georgia, and then enhanced the lodestar by 75 percent based on the quality of the representation, including its contingent nature and the fact that counsel had advanced the costs of the litigation and had not been paid while the lawsuit was going on.  The enhancement increased the attorney fees to about $10.5 million.

The U.S. Supreme Court acknowledged that the lodestar could be enhanced but only in rare and exceptional circumstances, and not based on factors subsumed in the lodestar element. For example, the complexity of a case is already reflected in the elements of hours and rates. An enhancement can still be permitted where the hourly rate used in the lodestar calculation doesn’t adequately reflect the lawyer’s true market value.

So, while the trial court still has the discretion to enhance an attorney fee award, that discretion is limited, and must be accompanied by a reasonably specific explanation for the enhancement. Without such an explanation there can be no meaningful appellate review.

Agreeing With and Applying Perdue

The Supreme Court of Ohio agrees with the reasoning in Perdue and expressly holds that “there is a strong presumption that the reasonable hourly rate multiplied by the number of hours worked, which is sometimes referred to as the ‘lodestar,’ is the proper amount for an attorney-fee award.” And any enhancement must be made “in accordance with specific proof linking the attorney’s ability to a prevailing market rate.” A trial court still has the discretion to enhance that lodestar amount, but any such modification must come with a rationale justifying the modification.

Tweaking Bittner

The Bittner case has long been the law on awarding attorney fees. The Supreme Court of Ohio now modifies Bittner to the extent that it was viewed as routinely allowing enhancements to the lodestar amount.

The Enhancement in this Case

The Court finds that Phoenix did not meet its burden of showing that the attorney-fee enhancement was necessary.

Reliance on Perdue not Waived

Phoenix argued that DCO never argued to the trial court that Perdue should be applied, and therefore waived that argument.  The Court handles this by finding that while normally arguments not raised below are waived, once a claim is properly presented, new arguments can be made to support that claim.  Parties aren’t limited to the exact arguments they made below. DCO undeniably objected to any enhancement of the lodestar during the attorney-fee hearing and on appeal. Adding reliance on Perdue is just supplementing a preserved claim.

Phoenix’s Remaining Arguments Addressed

Phoenix argued that the Court should not apply Perdue to all fee-shifting cases because it eliminates a trial court’s discretion, and that in this case the facts supported an enhancement because of DCO’s malicious litigation behavior.  The Court rejects this argument because even if DCO’s conduct did make the litigation more protracted, the number of hours billed by Phoenix’s lawyers should take that into account. Furthermore, using a lodestar enhancement for an attorney-fee award incident to punitive damages misunderstands the nature of the fee award, which is compensatory in nature.

Phoenix argued that it should have been entitled to attorney fees based on the jury finding that DCO violated the Uniform Trade Secrets Act. But the Court finds that the attorney fees awarded in this case were awarded solely because of the punitive damages award, not on the violation of that act.

Where the Trial Court Should Have Stopped in this Case

Once the trial court heard all the evidence about the fees, the court determined that the lodestar amount of $1,991,507 accurately represented the attorney fees Phoenix would have been charged by all the firms involved under a standard hourly fee agreement. The trial court should have quit there instead of considering the factors in Prof. Cond. R.1.5(a) as enhancements, because those factors were subsumed within the rates charged and hours billed.  And Phoenix’s own expert addressed the one factor not included in that rule—results obtained— when he opined that the $1.9 million fee was reasonable.

Justice Kennedy’s Concurrence

Justice Kennedy agrees with the majority that the factors determining the reasonableness of an attorney fee set forth in Prof. Cond.R 1.5(a) should be considered in determining the lodestar amount, not in any adjustment to that amount. She writes separately to express her concern that trial courts will now assume that those factors are already incorporated into a lawyer’s hourly fee.  She would make it clear that when making an attorney-fee award, the trial judge should “specifically and individually take into account” the factors set forth in that rule to determine the reasonableness of the lawyer’s hourly rate and time expended. She also agrees that properly calculated lodestar amounts will rarely require adjustments.

Justice Fischer’s Concurrence

Justice Fischer wrote separately because he thinks the time value of money (referred to in one case as a “delay-enhancement”) should be identified and considered as an additional factor that may be considered in addition to those listed in the professional conduct rule when deciding whether an enhancement to the lodestar is necessary.  He thinks the lodestar may not adequately take this factor into account, especially in cases that take years to resolve, or cases that involve contingent or hybrid fee agreements. In considering this factor, which he encourages courts to do, courts should take into account the period of time lawyers worked on the case, any unreasonable delays caused by the parties, and the type of fee agreement in the case. Taking this additional factor into account would make the prevailing party truly whole, he notes, because prevailing plaintiffs with contingent fee agreements are deprived of the use of their money during the lawsuit.

But even thought the lower courts did not consider this additional factor in this case, Fischer would not remand the case to add this factor because he also finds that even considering this extra factor, Phoenix did not meet the burden of providing the necessary evidence to prove that an enhancement was necessary.  

Case Syllabus

Really? When’s the last time we’ve seen one of these?

1. There is a strong presumption that the reasonable hourly rate multiplied by the number of hours worked, which is sometimes referred to as the “lodestar,” is the proper amount for an attorney-fee award. Enhancements to the lodestar should be granted rarely and are appropriate when an attorney produces objective and specific evidence that an enhancement of the lodestar is necessary to account for a factor not already subsumed in the lodestar calculation. (Perdue v. Kenny A., 559 U.S. 542, 130 S.Ct. 1662, 176 L.Ed.2d 494 (2010), followed; Bittner v. Tri-County Toyota, Inc., 58 Ohio St.3d 143, 569 N.E.2d 464 (1991), modified.)

2. A trial court has discretion to modify the presumptive calculation of attorney fees—the reasonable hourly rate multiplied by the number of hours worked—but any modification must be accompanied by a rationale justifying the modification.

Case Disposition

The portion of the court of appeals’ judgment affirming the award of  attorney fees is reversed and the case is remanded to the trial court to enter final judgment granting Phoenix attorney fees in the amount of $1,991, 507.

Trial Judge

Summit County Common Pleas Court Judge Alison McCarty 

Ninth District Panel

Opinion Author: Judge Julie Schaffer joined by Judge Lynne Callahan. Judge Donna Carr dissented from the judgment, but not on grounds relevant to the issue before the Supreme Court.

Concluding Observations

This was a grand slam home run for Mr. Sassé on behalf of DCO. Go back and review his oral argument and then compare it with the Court’s decision in the case. And compare DCO’s proposed proposition of law with the case syllabus. Talk about doing a persuasive job! Hats off to Mr. Sassé for outstanding advocacy, which I characterized after the argument as “elegant and flawless.” This is also a very nicely written opinion by Justice Stewart.

Student contributor Maria Ruwe and I both agreed that Phoenix’s counsel was never able to answer the many questions from the justices about why the trial judge chose a multiplier of two to enhance the lodestar amount, but we both incorrectly thought the case would be remanded for that purpose. From what I read, I understood why the trial court thought an enhancement was justified, but then again, I have a notorious plaintiff’s heart. And while I incorrectly thought the Court might not specifically adopt Perdue (which Mr. Sassé conceded was not specifically relied on below), I also correctly thought one of the Court’s holdings would be to require more specificity to justify any enhancements to the lodestar and give guidance on when enhancements would be appropriate. Maria correctly thought the court would specify that that Perdue applies when determining attorney fees. 

Two final observations.  I agree with Justice Fischer that the time value of money should be a factor in considering an enhancement, but unlike him, it sure sounded to me like it was a factor that really did come into play here. Phoenix’s brief contains many examples of why. My other thought is the Court’s handling of the waiver argument—that by citing Perdue which DCO concededly never argued below DCO was supplementing a preserved claim— could open a wide door as an exception to the waiver doctrine.  Time will tell.