On August 8, 2011, the Fifth Circuit held in McClain, et al. v. Lufkin Industries, Inc., No. 10-40036 (5th Cir. Aug. 8, 2011), that where the record unequivocally shows that it was necessary for plaintiffs’ counsel to retain co-counsel from outside their local district, the district court abused its discretion in refusing to use the out-of-district co-counsel’s home rates as the starting point for the calculation of attorneys’ fees. In essence, the ruling supports the notion that plaintiffs-side class action specialist firms are entitled to be paid their customary rates from large metropolitan areas, as opposed to typical rates in the locale where they file and prosecute their class action lawsuit.
Plaintiffs had filed a class action in the U.S. District Court for the Eastern District of Texas under Title VII alleging that defendant engaged in unlawful employment practices, including disparate treatment and disparate impact. Id. at *2. The district court certified a class. Id. at *3. After realizing that defendant was not going to settle the case and that they did not have the resources to prosecute an employment class action through trial, plaintiffs’ counsel sought the assistance of another law firm. Id. However, plaintiffs’ counsel was not able to find another law firm in Texas that was willing or able to commit the time and resources necessary to assist in the prosecution of the class action, so plaintiffs’ counsel was forced to turn to an Oakland, California firm with a nationwide reputation as a plaintiffs’ employment discrimination class action firm. Id. at *3-5.
Plaintiffs ultimately won their lawsuit and were awarded extensive back pay, attorneys’ fees, and injunctive relief. Id. at *5. The district court issued a 24-page ruling addressing plaintiffs’ counsel’s application for more than $7.7 million in attorneys’ fees. The district court ruled for plaintiffs’ counsel on nearly all issues, but refused to order payment to the partners of the California firm at a rate of $650 per hour, which was the prevailing rate in the San Francisco Bay area. Id. at *6. The district court based its ruling on the fact that plaintiffs’ counsel had not shown that attorneys from outside the Eastern District of Texas were necessary for the representation of the class; that the Fifth Circuit requires that attorneys’ fees be awarded at locally prevalent rates; and that the California attorneys performed second-chair duties and were therefore not entitled to fifty percent higher rates than local counsel who shouldered more of the responsibility at trial. Id. at *6-7, 11.
The Fifth Circuit reversed, holding that where abundant and uncontradicted evidence proved the necessity of hiring out-of-district counsel, the co-counsel’s “home” rates should be considered as a starting point for calculating the lodestar amount. Id. at *11. The Fifth Circuit acknowledged that the general principles governing the award of attorneys’ fees required that they be calculated according to the prevailing market rates in the local community, and that district courts are required to consider the customary fee for similar work in the same community. Id. at *8-9. However, the Fifth Circuit noted that other circuits allow out-of-district specialist attorneys to be compensated at rates prevailing in their home districts if the hiring of the out-of-town specialist was reasonable and if the rates sought were reasonable for attorneys of the same degree of skill, experience, and reputation. Id. at *9-10 (citing and quoting Hadix v. Johnson, 65 F.3d 532, 535 (6th Cir. 1995)).
As a result, the Fifth Circuit held that the district court erred when it found that there were local counsel who were available to assist on the trial, noting that the record was replete with affidavits from experts attesting to the contrary. Id. at *12. The Fifth Circuit also expressly adopted the rule that rates for out-of-district attorneys can be calculated according to the rates prevailing in their home district: “[I]n the unusual cases where out-of-district counsel are proven to be necessary to secure adequate representation for a civil rights plaintiff, the rates charged by that firm are the starting point for the lodestar calculation.” Id. at *12-13. The Fifth Circuit cautioned that those rates were only the starting point; they could be revised to account for the second chair role played by the firm, to account for travel time, to remove duplicative work, and to discount time spent on unsuccessful claims in the litigation. Id. at *13.
With McClain, the Fifth Circuit joins the Sixth, Seventh, Third, Fourth, and D.C. Circuits in recognizing an exception to the general rule that attorneys’ fees are to be calculated according to the rates that prevail in the local district. Where out-of-district counsel is reasonably necessary to the prosecution of an action, and where they do not charge fees that are unreasonable considering their degree of skill and experience, then the starting point for the calculation of their fees will be the rates prevailing in their home district.
McClain removes a barrier for experienced class action counsel in higher-rate jurisdictions to join in the prosecution of class action employment litigation in the Fifth Circuit. Where previously such counsel may have been deterred from joining an class action in the Fifth Circuit by the large amount of work necessary to take these cases through trial coupled with the uncertainty of obtaining a final fee award in their favor, the Fifth Circuit's ruling provides an incentive for class action counsel to branch out to handle cases outside of their home district. When coupled with similar case law precedent in the Sixth, Seventh, Third, Fourth, and D.C. Circuits, employers should be mindful of the fact that class actions often attract the best and brightest of the plaintiffs’ bar.