It’s an often-repeated adage of high school math teachers:  show your work.  In three decisions in 2013, the Ninth Circuit has demonstrated that Courts must follow this principle in calculating awards of attorneys’ fees.

It’s All About the Math

Earlier this year, the Ninth Circuit established that merely “identifying the legal rules that guide the calculation of fees, and then producing a number that is purportedly a result of that calculation, does not allow [the appellate court] to review the decision for an abuse of discretion.”  Padgett v. Loventhal, 706 F.3d 1205, 1208 (9th Cir. 2013).  The Ninth Circuit emphasized that a court must not only identify the applicable rules, but also provide the rationale for “how it applied those rules in calculating” reasonable attorneys’ fees.

In Padgett, the district court reduced the attorneys’ fees in a civil rights case from $3.2 million to $500,000, and reduced the costs from $900,000 to $100,000, without providing any explanation for the amounts deducted.  The Ninth Circuit vacated the district court’s fee determination and remanded for further explanation, stating that “’[s]ince [the district court] is already doing the relevant calculation, it is a small matter to abide by the injunction of the arithmetic teacher:  Show your work!’”

In another recent civil rights case, the Ninth Circuit struck down the district court’s 40 percent reduction in attorneys’ fees because the lower court did not provide adequate explanation for reduction.  In Barnard v. Theobald, the Ninth Circuit criticized the district court for failing to explain math behind the 40 percent reduction:

Failure to thoroughly explain the basis for an attorney fees award is problematic because without such an explanation, “it is simply not possible for this court to review such an award in a meaningful manner. Absent some indication of how the district court’s discretion was exercised, this court has no way of knowing whether that discretion was abused.”

721 F.3d 1069, 1077 (9th Cir. 2013).  Although the district court explained that the number of hours were excessive based on the lack of complexity and relatively minimal motions practice, the court failed to place a numerical value on the number of hours it believed to be excessive.  Indeed, the district court stated that “over 600 attorney hours and 200 paralegal/assistant hours” were excessive for a “trial [that] itself took roughly fifty hours,” but failed to calculate the number of hours it believed to be unreasonable.  Instead, the district court took a 40 percent reduction off the total requested fees.

The Ninth Circuit vacated the reduced award and remanded for “a more complete explanation,” observing that “while the district judge explained why he thought the award was excessive, he failed to explain why he thought that a 40 percent reduction would be an appropriate remedy.”

Finally, in Kassebaum v. Colvin, the Ninth Circuit provided an example of an acceptable calculation by the district court in the context of a fee application for a social security disability case.  No. 11-35998, 2013 WL 1224624 (9th Cir. Mar. 27, 2013).  There, the district court found that approximately 20 to 40 hours was reasonable for a “social security disability case that [did] not present particular difficulty.”  Kassebaum v. Astrue, No. 6:08-cv-00433, Order at 2 (D. Or. Aug. 23, 2011).  The plaintiff’s attorneys sought $12,332.91 in fees based on 70.9 hours of work.

The district court reasoned that because the fee request of 70.9 hours was approximately twice the acceptable average of 20 to 40 hours, and in light of duplicative work of multiple attorneys briefing nearly identical issues in separate proceedings, a 50 percent reduction was necessary.  The court reduced the supervising attorney’s hours by half—from 45.95 to 22.97—and subtracted this amount from the total of 70.9 hours to reach a total of 47.92 hours.  The court then averaged the hourly rate for the three-year time period encompassed in the fee request, and multiplied the average hourly rate by the number of reduced hours to determine the final fee award.

In reviewing this fee award, the Ninth Circuit acknowledged that the district court’s explanation that was “not ‘elaborate,’ [but] was ‘comprehensible.’”  Kassebaum, 2013 WL 1224624, at *1.  The Ninth Circuit affirmed the fee award because the district court described the rationale behind the fee award, noting that the “district court’s reasoning was sufficient to ‘show [its] work when calculating attorney’s fees.’”  Id.

What This Means for Policyholders

In light of these Ninth Circuit decisions, policyholders should consider several strategies to protect themselves in a potential coverage dispute:

• Prior to initiating a coverage action, policyholders should track all of the attorneys’ fees associated with the defense of the underlying claims or lawsuits.  This will allow the policyholder to quickly have available the total fees expended, and allow for a reasoned analysis of potential liabilities to the insurer in any pre-litigation settlement discussions. In addition, if coverage litigation ensues, these detailed records will allow the policyholder a reasoned, mathematical analysis of the defense fees for the court.

• Work with your insurer before a dispute arises to understand their requirements for the approval of fees.  Determine whether the insurer adjusts these requirements based on the complexity of the underlying claims or lawsuits.

• Work with inside and outside counsel to understand the case law in your jurisdiction and how it applies to disputes regarding different types of fees or fees for various types of legal work.