Think going “in-house” means freedom from the painstaking practice of tracking billable hours in tenth-of-an-hour increments and maintaining detailed contemporaneous time records? Not so fast. A recent Massachusetts Appeals Court decision cautions in-house counsel to keep such records.
In Holland v. Jachmann, 85 Mass. App. Ct. 292 (2014), the Massachusetts Appeals Court ruled that companies, at the trial judge’s discretion, can recover attorneys’ fees for legal work performed by in-house counsel for unfair and deceptive trade practice claims brought under Massachusetts General Law Chapter 93A (“Chapter 93A”). This is, of course, good news for companies that use inside lawyers to run or participate in litigation. But with the benefit comes the burden of proving up the correct amount to be awarded.
The plaintiff in Holland, Omniglow LLC (“Omniglow”), sued Cyalume Technologies Inc. (“Cyalume”) for numerous breaches of contract, conversion, and violations of Chapter 93A. On appeal, Cyalume argued that the trial judge erred in awarding Omniglow attorneys’ fees under Chapter 93A for legal work performed by Omniglow’s in-house counsel, George Stanbury. Chapter 93A has a fee-shifting provision that “authorizes the award of attorney's fees ‘incurred in connection with said action’” (i.e., the Chapter 93A action). Id. at 297. Cyalume argued that as a salaried employee, Stanbury did not bill Omniglow for his services, and therefore, no legal expenses were “incurred” by Omniglow for the purposes of Chapter 93A. Not so, found the Appeals Court. In rejecting Cyalume’s position, the Appeals Court reasoned that “to deny attorney’s fees in this case to Omniglow simply because it chose to utilize its own in-house counsel would undercut the deterrent purposes of [Chapter 93A] and would implicitly reward the defendants for their questionable behavior.” Id. at 298.
But then the question arose: how to calculate the attorney fee award amount? Is it based on a portion of in-house counsel’s salary? An implied billing rate based on external counsel rates? What about overhead? Here is what Holland says: the trial judge properly based the award on Stanbury's “demonstrated competence and experience, the length of the trial, the difficulty of the legal and factual issues, the enormous amount of time necessarily expended by Stanbury in trial preparation, and the plaintiffs' degree of success.” Id. at 299.
The notion that a prevailing plaintiff can recover in- house attorneys’ fees is not unique to Ch. 93A or this jurisdiction. For example, a number of federal courts permit the recovery of in-house attorneys’ fees. See e.g., Textor v. Bd. of Regents of N. Ill. Univ., 711 F.2d 1387, 1396 (7th Cir. 1983) (holding that in- house counsel was entitled to share in attorneys’ fees award for opposing counsel’s abuse of the judicial process because “a prevailing party’s decision as to how to engage counsel should have no bearing upon the court’s decision to punish malfeasant counsel”); Video-Cinema Films, Inc. v. Cable News Network, Inc., 2004 WL 213032, at *6 (S.D.N.Y. Feb. 3, 2004) (“It is well-settled that attorneys' fees and costs should be awarded for litigation performed by in-house counsel if such fees would be awarded for the same work performed by outside counsel.”); but see Lake Wright Hospitality, LLC v. Holiday Hospitality Franchising, Inc., 2009 WL 4841017, at *10 (E.D. Va. Oct. 23, 2009) (awarding fees to in-house counsel “lends itself more to situations in which in-house counsel has engaged in tasks that ordinarily would be performed by outside counsel; i.e., when in-house counsel has litigated the case itself instead of retaining outside counsel.”).
But other courts take different approaches to how the fee amount should be calculated. For example, in California, in awarding in-house counsel fees under California Civil Code Section 1717, which provides for uniform treatment of fee recoveries in breach of contract actions containing attorney fee provisions, courts focus on the fair market value of the legal services. PLCM Group v. Drexler, 22 Cal. 4th 1084 (2000). The trial court judge, who has a wide latitude in determining the amount of an award of attorneys’ fees, typically begins by calculating the “‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate.” Id. at 1095. Based on factors specific to the case, the lodestar figure may then be adjusted, in order for the judge to award a fair market value fee for the legal services provided. Id.
Other jurisdictions use the cost-method approach. In an effort to prevent a windfall profit to the prevailing salaried attorney’s employer, the cost-method approach only allows a corporation to recover the actual costs it incurred in receiving services from its in-house counsel. See, e.g., In re Stewart, 2004 WL 3130573 (Bankr. D.D.C. Nov. 10, 2014); Lacer v. Navajo County, 687 P.2d 400, 404 (Ariz.App.1984) (awarding fees for government attorney staff based on the actual costs plus overhead).
Awarding attorneys’ fees for in-house counsel work is welcome news for companies pursuing Chapter 93A claims. But in-house counsel should note the Court’s commentary regarding Stanbury’s “less than ideal” records documenting the amount of time he spent on the case. Holland at 300. In particular, the Court explicitly stated that the “better practice would have been to keep contemporaneous time records.” Id. When actively participating in Chapter 93A claims, in-house counsel may want to consider heeding the Court’s pointed suggestion, and embrace the time keeping habits of an outside law firm in order to ensure the recovery of fees.