In 1988, Seventh Circuit Judge Richard Posner observed, with characteristic flair, that litigation over attorneys’ fees “has become a heavy burden on the federal courts...

It can turn a simple civil case into two or even more cases—the case  on the  merits,  the case  for fees,  the case for fees on appeal, the case for fees for proving fees, and so on ad infinitum, or at least ad nauseam.” Ustrak v. Fairman, 851 F.2d 983, 987 (7th Cir. 1988). The financial toll of attorneys’ fees litigation also falls on the party that must pay a fees award covering the opposing party’s lawyers’ fees as well as his or her own. This burden can be alleviated,  to  some  degree,  by  pursuing a  single,  consolidated  appeal  of the  merits and of the attorneys’ fees. But because attorneys’ fees proceedings occur after the merits of litigation have been resolved, and given  that  a  district  court  has  only  limited authority to extend the time for filing a notice of appeal from a merits judgment, the losing party may be required to appeal the merits judgment long before the district court issues an order regarding fees. This “finality gap” between a judgment on the merits and a decision on fees may stretch out  for months, making consolidation  of the merits and fee appeals impractical, if not impossible.

One possible solution is to file an appeal from a merits judgment and then ask the appellate court  to  stay  the  appeal  until the  district  court  resolves  the  pending attorneys’  fees motion.  But  the  court  of appeal will lack the district court’s familiarity with the litigation and have no way of knowing how long it might have to wait for an order on attorneys’ fees, and consequently the appellate court may be reluctant  to grant  such  a motion. Fortunately, the Federal Rules of Civil Procedure provide a mechanism for coordinating appeals of the merits and attorneys’ fees, allowing counsel to bridge the “finality gap.”

The discussion in this article is premised on the following hypothetical scenario: A plaintiff files suit against your client in federal  district  court,  alleging  that  your  client breached a contract with the plaintiff and  also  asserting  a claim  based  on statutory law. Unfortunately, the plaintiff prevails after lengthy litigation and a jury trial. Fourteen days after entry of judgment on the jury’s verdict—while you are still drafting your motion to alter or to amend under Fed. R. Civ. P. 59(e)—the plaintiff’s counsel moves for an award of attorneys’ fees, noting that both the contract and the statute entitle the prevailing party in litigation to an award. See Fed. R. Civ. P. 54(d)(2) (providing  that  a  motion  for attorneys’ fees must “be filed no later than 14 days after the  entry  of  judgment”  and must  “specify the  judgment  and  the statute,  rule, or  other  grounds  entitling  the movant  to the award”).

The  amount  of  fees  requested  by  the plaintiff is astronomical. Given the length of the proceedings, a large fee request is to be expected, but as you review the motion it appears that the hourly rates charged by the plaintiff’s counsel are unjustifiably high. It also appears that the case was overstaffed and that the amount of time devoted to certain tasks was excessive. Your advice to the client, therefore, is to challenge the amount of the fee request, even though there is no question that the plaintiff is entitled to an award of attorneys’ fees in some amount, unless the district court reverses the merits judgment.

Long  before  the  motion  for  attorneys’ fees  is  resolved,  the  district  court  enters an order denying your Federal Rule 59(e) motion, making the merits judgment final and appealable. Your client wants to pursue an appeal of the merits judgment but is also aware that it may be necessary to appeal the attorneys’  fees  award,  which  may not be entered for several more months. Successive appeals of the merits and of the attorneys’ fees would greatly increase the cost of appellate proceedings, however.

The Origin of the “Finality Gap”

The  finality  gap  is  a  natural  consequence of the collateral nature of an attorneys’ fees award. A notice of appeal “must be filed… within 30 days after entry of the judgment or order appealed  from.”  Fed.  R.  App.  P. 4(a)(1)(A).  The  timely  filing  of  a  notice of appeal is a  jurisdictional  requirement. Bowles v. Russell, 551 U.S. 205, 214 (2007). The 30-day clock begins ticking when the district  court  enters  a  final  decision  that “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Catlin v. United States, 324 U.S. 229, 233 (1945).

A  judgment  is  final  even  if  a  collateral issue, such as a motion for sanctions, remains unresolved. The question, then, is whether  an  unresolved  motion  for  attor- neys’ fees is a collateral matter that does not preclude a merits judgment from becom- ing final. The Supreme Court first considered this question in 1988, when it decided Budinich  v. Becton Dickinson  & Co.,  486 U.S. 196 (1988). In Budinich, the Court considered “whether a decision on the merits is  a ‘final  decision’  as  a matter  of federal law  under  §1291 when the recoverability or amount of attorneys’ fees for the litigation remains to be determined.” Id. at 199. Noting that an award of attorneys’ fees to the prevailing party in litigation “does not remedy the injury giving rise to the action, and indeed is often available to the party defending against the action,” the Budinich court thought it “indisputable,” at least “[a]s a general matter… that a claim for attorneys’  fees  is  not part  of the  merits of the action to which the fees pertain.” Id. at 200. The  Court  acknowledged  that  some fee- shifting statutes might characterize attorneys’ fees as part of the merits but declined “to adopt a position that requires the merits or nonmerits status of each attorneys’ fee provision  to be clearly  established  before the time to appeal can be clearly known.” Id.  at 202.  Rather, “[c]ourts  and  litigants are best served by the bright-line rule” that a motion for attorneys’ fees is always col- lateral to the proceeding to which the fees pertain. Id.

The  brightness  of  the  line  drawn  in Budinich  dimmed  considerably  when lower courts began applying it to contractual,  as  opposed  to statutory,  fee-shifting provisions. Despite Budinich’s clear rejection  of a merits  or nonmerits  status  test for  attorneys’  fees  awards, several  circuit courts concluded that the distinction was still  relevant  to  contractual  fee-shifting provisions,  reasoning  that  entitlement  to attorneys’  fees  incurred  for  pre-lawsuit activities, such as sending demand letters or notices of default, were part of a substantive claim. Therefore, even though a court awarded these fees after a judgment, they were  not fees  “for  the  litigation”  and  did not fall within the Budinich rule. See, e.g., Justine Realty Co. v. Am. Nat’l Can Co., 945 F.2d 1044, 1047–48 (8th Cir. 1991). Other circuit courts, in contrast, concluded that Budinich’s “bright-line rule” applied to all unresolved claims  for attorneys’  fees,  including  claims  arising  from  contractual provisions.  See, e.g.,  United  States  ex  rel. Familian Nw., Inc. v. RG & B Contractors, Inc., 21 F.3d 952, 955 (9th Cir. 1994).

In  January  of  this  year,  the  Supreme Court resolved the split among the circuit courts by deciding Ray Haluch Gravel Co. v.  Central  Pension  Fund,  134  S.  Ct.  2205 (2014). The plaintiffs in Ray Haluch, several pension funds, filed suit for unpaid contributions required by federal law and the par- ties’  collective  bargaining  agreements.  In mid-June  2011,  the district  court  granted judgment to the plaintiffs but awarded less than the plaintiffs claimed that they were owed. Roughly six weeks later, the district court granted the plaintiffs’ post- judgment motion for attorneys’ fees, again awarding less than the amount claimed. Within 30 days of the attorneys’ fees order, the plain- tiffs filed a notice of appeal regarding the merits judgment  and  attorneys’  fees.  Be- fore the Supreme Court, the plaintiffs maintained that the notice was timely filed for all the issues because the underlying contract, which permitted recovery of “[a]ny costs, including legal fees, of collecting payments” owed to the plaintiffs, made attorneys’ fees part of the merits. The Court rejected this argument for the “basic reason… that the Court in Budinich rejected the very distinction the [plaintiffs] now attempt to draw.” Ray Haluch, 134 S. Ct. at 780.

The  Supreme  Court  held  that  under Budinich,  it  is  immaterial  “whether  the statutory or decisional  law  authorizing  a particular fee claim treated the fees as part of the merits.” Id. at 780. The Court saw no reason  to  distinguish  between  statutory and contractual fee awards, noting that it made  little  sense  to give  “different  jurisdictional effect to district court decisions that  leave  unresolved  otherwise  identical fee claims based solely on whether the asserted right to fees is based on a contract or a statute.” Id.

The  end  result  of  Budinich  and  Ray Haluch  Gravel  is  that  in  the  vast  majority of cases, a judgment on the merits will become final and appealable before a dis- trict court issues an order resolving a claim by the prevailing party for attorneys’ fees. But this is only one side of the finality gap. After  all,  the  collateral  nature  of  attorneys’  fees proceedings  would  be  of  little concern if district courts could resolve fee motions  relatively quickly  so  that  a  fees appeal  would  follow  closely  behind  and could easily be consolidated with a merits appeal.  But,  as  Judge  Posner lamented  in Ustrak, this is not the case.

Achieving  a  quick  disposition  of  a claim for attorneys’ fees is, at least according to the Supreme Court, the ideal. The goal  of  an  attorneys’  fees  award  “is  to do rough justice, not to achieve auditing perfection,”  Fox  v.  Vice,  131  S.  Ct.  2205, 2216 (2011), and therefore “[a] request for attorneys’ fees should not result in a second  major  litigation,” Hensley  v.  Eckerhart, 461 U.S. 424, 437 (1983). The reality, however, is that proceedings regarding a motion  for  attorneys’  fees  may  drag  on for months. Under the “lodestar” method used  in  federal  court  to  determine  the amount  of  an  attorneys’  fees  award, the appropriate fee is the product of the number of hours reasonably spent litigating a case and a reasonable hourly rate charged by the attorney. The burden is on a plain- tiff,  in  the first  instance,  to  support  the reasonableness of its claimed hourly rates and time. Although this is the exception, rather  than  the  rule,  some  jurisdictions have recognized, by local rule or custom, presumptively reasonable rates based on a counsel’s years of practice. See, e.g., D. Md. Local Rule App. B. In most cases, an attorney will have to provide a court with evidence, usually in the form of affidavits from counsel of record attesting that the rates claimed  are  the  counsel’s  custom- ary rates for similar work, and from other attorneys attesting that the rates claimed are  consistent  with  the  market.  Second, an attorney must support the reasonable- ness of the time expended by submitting detailed billing  records—records,  which in a long- running case, may occupy hundreds of pages.

Once a fee movant has submitted a properly supported request for attorneys’ fees, the party opposing fees must present evidence and analysis of its own to challenge the movant’s figures. Such challenges may involve  countering  affidavits  regarding appropriate  hourly rates  or minute  parsing  of time  records  to identify  improprieties or inefficiencies. In some cases, it may be necessary to conduct limited discovery regarding  attorneys’  fees. See,  e.g.,  Nat’l Ass’n of Concerned Veterans v. Sec. of Def., 675 F.2d 1319, (D.C. Cir. 1982) (holding that discovery  regarding  “the  justification  for the claimed billing rate and the nature and extent of the work done … is essential in the calculation of the fee award”).

Moreover,  in  some  cases,  it  may  not be  clear  that  the  movant  is  entitled  to an award  of  attorneys’  fees.  In  the  area of  patents  and  trademarks,  for  example, attorneys’ fees are available only for “exceptional” cases. See 15 U.S.C. 285; 15 U.S.C. 1117(a).  In  other  circumstances, the  decision  whether  to  award  fees  rests in  the district  court’s  discretion.  Questions regarding entitlement to fee awards add yet another layer of complexity to the proceedings,  requiring  briefing  by  the involved  parties  and decisional analysis by a court.

When briefing is finally complete, a district  court  must  review  the  parties’  sub- missions, possibly hear oral argument, and conduct  a meaningful  analysis  of the  fee request and issue a decision that adequately explains the basis for the award. See Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 558 (2010) (“It is essential that the judge provide a reasonably specific explanation for all aspects of a fee determination, including any award of an enhancement.”).

All  things  considered,  therefore,  a motion  for  attorneys’  fees  may  remain unresolved by  a  district  court  for  many months  after  a  merits  judgment  becomes final  and appealable.  In  the  meantime, however, the appeal of the merits judgment will  presumably move along  in  the  usual course.  It is  thus  possible,  or even  likely, that  the  parties will complete  the  appellate briefing before the district court rules on  attorneys’  fees,  making consolidation impractical  and  requiring  the  parties  to brief two appeals rather than one.

Bridging the Finality Gap: Federal Rule 58(e)

The Federal Rules of Civil Procedure give the parties and the district court a means of avoiding successive appeals of the mer- its and of attorneys’ fees. Federal Rule 58(e) gives a district  court  discretion  to  delay entry of final judgment to resolve a pend- ing claim for attorneys’ fees:

Ordinarily, the entry of judgment may not be delayed, nor the time for appeal extended, in order to tax costs or award fees.  But  if  a  timely  motion  for attorneys’ fees  is  made  under  Rule  54(d) (2), the court may act before a notice of appeal has been filed and become effective  to order that  the  motion  have the same  effect under  Federal  Rule  of Appellate Procedure 4(a)(4) as a timely filed motion under Rule 59.

In  other  words,  provided  that  the  rule requirements  are  met,  a  district  court can effectively delay the finality of a merits  judgment,  thereby  facilitating  a single appeal of the merits and attorneys’ fees.In  other  words,  provided  that  the  rule requirements  are met,  a  district  court can effectively delay the finality of a merits  judgment,  thereby facilitating  a single appeal of the merits and attorneys’ fees.In  other  words,  provided  that the  rule requirements  are  met,  a  district  court can effectively delay the finality of a merits  judgment,  thereby  facilitating  a single appeal of the merits and attorneys’ fees.

There are good reasons to prefer a single  appeal  of  merits  and  attorneys’  fees. First,  a single  appeal  of  the  merits  and attorneys’ fees promotes the purpose of the final judgment rule, which “is to combine in one review all stages of the proceeding that effectively may be reviewed and corrected if and when final judgment results.” Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546 (1949).

Second,  appellate  review  of  an  attorneys’  fees  award  is  inevitably  and  inextricably tied  to  the  merits  of  litigation. In  most  cases,  an  appellate  court  can- not  properly review  a  fee  award  without at least some knowledge of the merits of the case. For example, an appellate challenge  to  a  prevailing  party’s  entitlement to attorneys’ fees may require a court to consider the relative merit, or lack of it, of the losing party’s claims. See, e.g., Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014) (holding that determining entitlement to attorneys’ fees under  the  Lanham  Act  involves consideration  of  “the  substantive  strength  of  a party’s  litigating  position”).  Even  when entitlement to fees is not disputed, an appellate  court  must  have  some  familiar- ity with the merits to review the district court’s  determination  of  the  number  of hours reasonably spent litigating the case adequately.  In  view  of  these  considerations, it will often be preferable to combine a merits appeal with a fees appeal.

In some cases, however, it may be better to delay an appeal of an attorneys’ fees award until  the  appeal  of the  merits  has been  resolved.  Guttieriez  v.  Wells  Fargo Bank, N.A.,  2013  WL  4013494  (N.D.  Cal. Aug. 5, 2013), was one such case. Guttierez was  a long- running  class  action  that  had already made one trip to the Ninth Circuit by the time that the district court entered a final judgment on the merits of the case, granting  an injunction  and  restitution  to the  plaintiff  class.  In  the  cited  order, the district  court denied  the  plaintiff  class’ Rule  58(e)  motion  to defer entry  of judgment  until  after  the court  had  ruled  on attorneys’ fees.

The  court  reasoned  that  the  primary benefit of a Rule 58(e) order—the efficiencies attendant to a single appeal of merits and  fees—would  only  be  obtained  if  the plaintiff class “score[d] a complete victory on  appeal.”  Any  other  result  could  materially alter the mix of issues on which the plaintiff  class  had  prevailed,  necessitating recalculation of the fee award. In that case, not only would further proceedings, including a successive appeal of attorneys’ fees, be all but inevitable, but the time and effort already expended for the now-moot fees appeal would have been wasted.

Crossing the Bridge: A Few Practice Pointers

Federal  Rule  58(e)  provides  a  limited period  of  time  during  which  a  district court has discretion to enter an order defer- ring  finality  of  a  judgment.  The  window opens upon the filing of a motion for attorneys’ fees “under Rule 54(d)(2)” and closes once a notice of appeal “has been filed and become  effective.”  The  language  of  Rule 58(e) has given rise to a number of questions regarding the temporal scope of a district court’s discretion.

The  first  question  is  when  the  window opens—if it opens at all. By its terms, Fed- eral Rule 58(e) applies only to motions for attorneys’ fees “made under Rule 54(d)(2).” Although this language implies that some motions for attorneys’ fees are not “made under Rule 54(d)(2)” and therefore are not subject to a motion under Rule 58(e), the case law indicates that this is not so. Appellate courts applying Federal Rule 58(a) (3), under which the “separate document” requirement for judgments does not apply to an order on a motion for attorneys’ fees “under Rule 54,” have rejected the notion “that  some  motions  for  awards  of attorneys’  fees  are  ‘under’  Rule  54  and  others are  ‘under’  something  else  and therefore require  a  separate  judgment  document to start the 30-day appeal time running.” Feldman  v. Olin  Corp.,  673 F.3d  515, 517 (7th  Cir.  2012).  The court  explained  that it could not think of any reason why some attorneys’  fees  orders  should  be  exempt from the separate document rule and others should not. See id. At least one court has adopted this reasoning in a case under Federal Rule 58(e). See Nasser v. White Pages, Inc., 2014 WL 3058570, at *8 (W.D. Va. July 2, 2014).

The  second  question  is  when  the  window closes. A district court loses jurisdiction to enter a Rule 58(e) order once a notice of appeal “has been filed and is effective.” Mendes  Junior Int’l  Co.  v. Banco  de  Brasil, S.A., 215 F.3d 306, 313 (2d Cir. 2000). Importantly, the mere filing of a notice of appeal does not necessarily deprive a district  court  of jurisdiction to enter a Rule 58(e) order. In some circumstances, there will  be  a  period  during  which  a notice of  appeal  is  on  file  but  is  not  yet  “effective,” meaning that jurisdiction has not yet vested in the court of appeals. For example,  a notice  of appeal  filed  while  a Rule 59(e) motion is still pending only “becomes effective” when a court has disposed of the motion. Fed. R. App. P. 4(a)(4)(B)(i).

Conclusion

While  there  may  be  circumstances  in which it is preferable to appeal an award of attorneys’ fees separately from the merits, in most cases a client would no doubt pre- fer to pay for one appeal rather than two. A robust challenge to a motion for attorneys’ fees at the district court level, however, may create a substantial “finality gap” between a  merits judgment  and  an  attorneys’  fees order. A timely and well- considered motion under Federal Rule 58(e) provides a way to bridge this gap.