Opinion
No. X02 CV 00-0159421-S
May 26, 2005
RULING ON MOTIONS FOR ATTORNEYS FEES AND PUNITIVE DAMAGES
The jury in this employment free speech case returned plaintiffs' verdicts, which after a remittitur entered by the court, awarded plaintiff Arthur Rosenfield $3,765,187.50, plaintiff Morton Burrell $1,370,629.20, and plaintiff Robert Smith $158,800. Because the jury found defendant Yale University liable for the entire amount under General Statutes § 31-51q, the court must award "reasonable attorneys fees." In addition, the jury found the defendant liable to all three plaintiffs for punitive damages under the statute. See note 1 supra. The pending motions require the court to set the amount of attorneys fees and punitive damages. In particular, the court must address the reasonableness of an attorneys fee formula that calls for an effective minimum rate of 50% of any jury award.
Section 31-51q provides:
Any employer, including the state and any instrumentality or political subdivision thereof, who subjects any employee to discipline or discharge on account of the exercise by such employee of rights guaranteed by the first amendment to the United States Constitution or Section 3, 4 or 14 of article first of the Constitution of the state, provided such activity does not substantially or materially interfere with the employee's bona fide job performance or the working relationship between the employee and the employer, shall be liable to such employee for damages caused by such discipline or discharge, including punitive damages, and for reasonable attorneys fees as part of the costs of any such action for damages. If the court determines that such action for damages was brought without substantial justification, the court may award costs and reasonable attorneys fees to the employer.
I
In setting attorneys fees when, as here, a contingency fee agreement exists, the trial court must "first analyze the terms of the agreement itself. If the agreement is, by its terms, reasonable, the trial court may depart from its terms only when necessary to prevent `substantial unfairness' to the party, typically a defendant, who bears the ultimate responsibility for payment of the fee." (Footnotes omitted.) Schoonmaker v. Lawrence Brunoli, Inc., 265 Conn. 210, 270-71, 828 A.2d 64 (2003).
A
Analyzing first the fee agreement between plaintiff Rosenfield and the firm of Garrison, Levin-Epstein, Chimes Richardson, the court finds it to be reasonable insofar as it calls for a contingency fee of one-third of the recovery from the jury. In the court's experience, such a one-third contingency fee in an employment case is not unusual. See also id., 267 (contingency fee agreement in employment case of one-third of any gross recovery); Sorrentino v. All Seasons Services, Inc., 245 Conn. 756, 775, 717 A.2d 150 (1998) (noting the plaintiff's representation of "the customary reliance, in tort actions in Connecticut, on contingency fee arrangements of one-third of the plaintiff's recovery . . .") Accordingly, the court awards plaintiff Rosenfield one-third of his adjusted recovery of $3,765,187.50, for a total of $1,225,062.50 in attorneys fees.
The full agreement provides for a fee comprised of compensation at one-half the usual hourly rate with the remainder based on a contingency fee. After credit for the amount paid in, the contingency fee calls for 33 1/3% of any "recovery." It continues: "recovery shall be valued on the basis of the total economic benefit obtained. It shall include, without limitation, gross back pay, bonuses, front pay, and all compensatory and punitive damages." There is no mention of including attorneys fees in "recovery." The agreement additionally provides that the "firm's fee shall be the greater of what the defendant is ordered to pay or agrees to pay, or the contingent fee." The latter clause does not change the firm's fee in this case because the court is not inclined to award more than the contingency fee. Given this language, Rosenfield does not dispute that it is reasonable to interpret his agreement as calling for a contingency fee of a straight one-third of the jury's verdict.
Although the firm of Madsen Prestley, LLC, which has represented plaintiffs Burrell and Smith throughout, represented Rosenfield for three years at the beginning of the case, that fact does not change the outcome here because the court ultimately uses the same approach for all three plaintiffs in setting the fee award.
Because the court finds the straight one-third contingency fee in Rosenfield's agreement to be reasonable, there is no need to consider the lodestar method proposed by the defendant.
B
The agreement between plaintiffs Burrell and Smith and the firm of Madsen Prestley, LLC (now known as Madsen, Prestley Parenteau, LLC) calls for a different result. Like the Garrison fee agreement, the Madsen Prestley agreement initially provides that each plaintiff shall pay a portion of the legal fee on an ongoing basis at one-half the hourly rate of the attorney or paralegal who provides the services with the remainder of the firm's compensation on a contingent fee basis. See also note 11 infra. The Madsen Prestley agreement differs, however, in defining the contingent fee as "one-third of any gross amounts ( including court awarded or allocable attorneys fees) collected less the amount you have already paid us at the one-half hourly rate." (Emphasis added.) Ultimately, the firm's fee is "the larger of any . . . court-awarded attorneys fees, or the one-third contingency fee . . ."
The initial difficulty in determining the reasonableness of this agreement is that its terms are circular. The contingency fee definition depends in part on the court award, which the court cannot determine without assessing the reasonableness of the contingency fee.
The even more troublesome difficulty is the undisclosed but excessive real rate of recovery that Madsen Prestley builds into its attorneys fees formula. Assuming that the court were to award attorneys fees under this formula of one-third of the jury's verdict, as it does in the case of the Garrison fee agreement, the net result under the Madsen Prestley formula is that the firm would actually bill attorneys fees at the rate of 44%. Alternatively, assuming the court were to award the lodestar figure based on the number of hours worked times the applicable hourly rate — a figure of $475,800 in Burrell's case — the net result is a rate of 45%.
Plaintiffs' attorneys would receive 1/3 (verdict + 1/3 verdict) = 4/9 verdict = 44%.
Most of the work, including the trial, was handled by Mr. Parenteau, who bills at the rate of $300 per hour. Using the $475,800 lodestar figure, Madsen Prestley would receive: 1/3($1,370,629.90 + $475,800) = 1/3($1,846,242.90) = $615,476.40 = 45% of the verdict.
Not satisfied with these unusually high rates, Burrell asks for an award of $685,314.60, which results in a rate of 50%. Relying on Schoonmaker v. Lawrence Brunoli, Inc., supra, 265 Conn. 266-73, Burrell claims that an award of $685,314.60 is necessary to "comply with the Connecticut Supreme Court's direction to 'protect' the plaintiff's award in all cases" by insuring that the plaintiff receives the full amount of the jury award after payment of fees. (Emphasis in original.) (Plaintiff's brief at 15.) The plaintiff however, misreads Schoonmaker. In Schoonmaker, the Supreme Court concluded that the trial court abused its discretion in awarding attorneys fees based on a lodestar formula when the contingency fee agreement called for a payment of one-third of the gross recovery, which would have resulted in a much smaller award. In that context, the court observed that the one-third contingency fee was "sufficient to cover [the] plaintiff's financial obligations to his or her attorney." Id., Schoonmaker, supra, 273. Thus, the court cited the notion of protecting a plaintiff's ability to receive the full amount of a jury verdict as a basis for justifying a lower award of attorneys fees in that case. The court did not, however, make the notion of protecting a jury verdict either an absolute requirement or even a necessary consideration in every case. Clearly, it makes little sense to focus solely on the goal of protecting a jury verdict when the attorneys fee agreement results in an unreasonably high payment to counsel. But that is what the plaintiff attempts to do here. Under the Madsen Prestley formula of receiving what the firm labels a one-third contingency fee that protects the verdict, both the plaintiff and his counsel will in reality always receive an award or an attorneys fee of at least 50% of the verdict. Here, as in Schoonmaker, the plaintiff's argument "incorrectly confuses adequate compensation [for the plaintiff] with windfall compensation for [plaintiffs'] attorneys." Id., 272. Stated differently, the 50% minimum rate seems more designed to protect the plaintiff's counsel than to protect the plaintiff's verdict. Although Burrell's counsel argues that the award goes to the client rather than the attorney, the reality is that their fee agreement insures that counsel can charge at least as much as the court-awarded fee.
$685,314.60 ÷ $1,370,629.90 = 50%.
If "V" is the amount of the verdict and "X" the percentage of the verdict awarded by the court in attorneys fees, then the following equation expresses the proposition that the court-awarded attorneys fees in a contingency fee case must always equal the fees payable to counsel under the Madsen Prestley formula, so that the client will retain the full verdict after paying the fee:
XV = 1/3(V + XV).
Calculating out:
XV = V/3 + XV/3
2XV/3 = V/3
2XV = V
2X = l
X= 1/2 = 50%
Moreover, in a case in which a plaintiff asks for the lodestar amount, such as the case of plaintiff Smith, which is discussed below, the requested rate will necessarily exceed the 50% contingency fee-based rate, because the Madsen Prestley formula guarantees the attorney the greater of the court-awarded fee (here, the lodestar) or the 50% contingency fee under the formula.
The 50% minimum rate is unprecedented in the court's experience. It is based on a crumbling, two-part foundation: 1) the questionable notion that the attorney should receive fees on a portion of the attorneys fees award, and 2) the invalid proposition that Schoonmaker requires protection of the verdict in every case. The 50% rate is dramatically different from the approach mandated by the legislature in personal injury cases, which establishes a sliding scale beginning with 33 1/3% on the first $300,000 and ending in 10% for amounts that exceed $1,200,000. See General Statutes § 52-251c(b). Even in this case, which was unquestionably long, difficult, and contentious, the 50% minimum rate results in a fee that significantly exceeds Burrell's costs of representation under the lodestar formula.
In Gionfriddo v. Avis Rent A Car System, Inc., CT Page 9974 192 Conn. 280, 293-96, 472 A.2d 306 (1984), cited by the plaintiffs, the parties agreed that the fee agreement in question called for a straight one-third contingency. The disputed issue that involved a proposed fifty percent rate concerned the method of determining exemplary damages.
In the court's view, Madsen Prestley's formula, when fully exposed for what it is, represents the type of matter that makes the public cynical about the legal profession. The court has examined the factors governing the reasonableness of an attorneys fee in Rule 1.5(a) of the rules of Professional Conduct and finds nothing there to justify such exorbitant rates. Because there is no justification for the 50% minimum rate, the court finds that the agreement is not "reasonable" and rejects it. It is therefore unnecessary to decide whether the agreement results in "substantial unfairness" to the defendant or to the plaintiff himself See Schoonmaker, supra, 265 Conn. 270-271.
Although the plaintiff contends that the case was fraught with difficulty and risk, plaintiffs' counsel was protected all along by the provision in the fee agreement requiring the clients to pay one-half of the normal hourly rate on an ongoing basis.
The court notes, however, that the 50% minimum rate might well impose an undue burden on the defendant who, although clearly liable for the verdict and "reasonable attorneys fees" under the statute, would have to pay an additional 50% or more of the jury verdict solely to compensate the plaintiff for the unreasonable rates charged by his lawyers.
The court instead relies on the 33 1/3% rate used by plaintiff Rosenfield. Under this reformation of plaintiff Burrell's fee agreement, the court awards Burrell attorneys fees in the amount of $456,876.40.
C
At the excessive 50% Madsen Prestley rate, client and plaintiff Robert Smith would receive $79,400 in attorneys fees. But Smith, through his counsel, abandons even this pretense of reasonableness and asks instead for attorneys fees in the amount of $642,330 based on the lodestar amount added to a 35% "enhancement." The court rejects this contradictory and unseemly demand. Madsen Prestley clients cannot honestly rely on the contingency fee method as reasonable in one case and then complain that the same formula is not reasonable in the second case. The Schoonmaker court specifically disagreed with the notion that the "reasonableness analysis is applicable to the fee amount that results from the contingency fee agreement, and not to the terms of the contract itself." Id., 270 n. 75. Further, there is no valid reason why Smith, who received by far the smallest award at trial, should benefit from the highest attorneys fee rate or an enhancement of any kind.
Smith contends that his fee agreement is different because of a handwritten provision purportedly waiving the "retainer and all other fees" if Smith subsequently enters into a retainer agreement for a proposed qui tam action, which would apparently address some of the same issues involved in the present case. But even if the provision waiving "the retainer and all other fees" increased the risk of nonpayment in this case, the concomitant proposal to file a companion law suit provided counsel another, possibly offsetting opportunity for recovery.
Applying the same 33 1/3% rate applicable to the other plaintiffs, plaintiff Smith is entitled to an attorneys fees award of $52,933.33.
II
The court previously held that the availability of both attorneys fees and punitive damages under § 31-51q calls for "an initial award of attorneys fees, mandatory upon prevailing, and the possibility of a second award of attorneys fees, contingent upon the jury finding that the defendant acted with `reckless indifference to the rights of others or [based on] an intentional and wanton violation of those rights.'" (5/10/04 Ruling on Motion Concerning Punitive Damages, page 3.) The jury has made the additional finding of reckless indifference or intentional and wanton violations. Accordingly, the court makes a second award of attorneys fees to plaintiff Rosenfield in the amount of $1,225,062.50, to plaintiff Burrell in the amount of $456,876.40, and to plaintiff Smith in the amount of $52,933.33. In addition, punitive damages, under the common law standard that the court has applied, includes other nontaxable litigation costs. See Berry v. Loiseau, 223 Conn. 786, 827, 614 A.2d 414(1992). In this case, those costs total $26,531.16 for Rosenfield, $31,521.87 for Burrell, and $31,521.87 for Smith. Accordingly, the court awards Rosenfield a total of $1,251,593.66 in punitive damages, Burrell a total of $488,398.27, and Smith a total of $84,455.20.
As the court stated in its earlier ruling, the notion that punitive damages are primarily compensatory, see id., is somewhat of a legal fiction. In this case, the attorneys fee second award of attorneys fees, denominated punitive damages, goes well beyond compensation and serves primarily to punish the defendant for the wrongful conduct that the jury found.
III
The defendant shall pay plaintiff Rosenfield attorneys fees in the amount of $1,225,062.50 and punitive damages of $1,251,593.66, plaintiff Burrell attorneys fees of $456,876.40 and punitive damages of $488,398.27, and plaintiff Smith attorneys fees of $52,933.33 and punitive damages of $84,455.20.
It is so ordered.
Carl J. Schuman Judge, Superior Court