Court-awarded attorney fees should be calculated by determining the reasonable hourly rate multiplied by the number of hours worked, and a trial court can enhance the fee award in rare circumstances, but must provide the reasoning for the modification, the Ohio Supreme Court ruled today.

The Supreme Court unanimously ruled a Summit County Common Pleas Court improperly awarded lawyers $3.98 million in attorney fees in a complex business lawsuit. The trial court first used the reasonable hourly rate multiplied by hours worked, known as the “lodestar,” to establish a $1.99 million award. The trial court then doubled the fees because of the complexity of the case and the success achieved.

Writing for the Court majority, Justice Melody J. Stewart wrote that factors such as the complexity of a case are reflected in the lodestar amount, and that an attorney seeking more than the market-rate fee must provide evidence to justify the amount. An expert witness had testified that $1.99 million was a reasonable rate, and that is the amount attorneys for Phoenix Lighting Group should receive.

Justices Sharon L. Kennedy and Patrick F. Fischer wrote separate concurring opinions suggesting other factors trial courts should consider when calculating the fees.

Commercial Lighting Companies Engaged in Legal Dispute  
Phoenix Lighting sold products made by Acuity Brand Lighting. The owner of Phoenix was approached by two employees about buying Phoenix. At the same time, the employees approached Genlyte Thomas Group, also known as Daybrite, Capri, Omega (DCO) about starting their own sales agency. DCO was a direct competitor of Acuity.

Using information gained from working at Phoenix, and with the financial assistance of DCO, the two employees formed a new sales agency and hired several Phoenix employees. Phoenix eventually went out of business.

Phoenix sued DCO on several grounds, and a jury returned a verdict for Phoenix that awarded $1.68 million in compensatory damages, and $3.66 million in punitive damages.

Regarding attorney fees, Ohio follows the traditional rule that each party is responsible for its own attorney fees. But when a jury finds punitive damages are warranted, a trial court can order the losing party to pay the winning party’s attorney fees.

At a hearing considering the attorney fees, the trial court established the lodestar figure of $1.99 million based on the rate Phoenix would have been charged under a standard hourly rate agreement. It then considered a number of other factors, including the complexity of the case, the time the case took to complete, and that lawyers representing Phoenix had to decline other legal work because of the case. The Phoenix lawyers also charged a “hybrid” fee, in which they received a portion of their income on an hourly rate basis and some on a contingent-fee basis. Because of these factors and others, the trial court doubled the fee award to $3.98 million.

DCO appealed the verdict, the damages, and the fee to the Ninth District Court of Appeals. The Ninth District affirmed the fee award and the verdict, but reduced the punitive damages.

DCO appealed to the Supreme Court, which agreed to hear the attorney-fee portion of the company’s challenge.

Court Guided by U.S. Supreme Court Decision
Justice Stewart explained the Ohio Supreme Court’s decisions on reasonable attorney fees have been guided by U.S. Supreme Court opinions. Today’s ruling follows the U.S. Supreme Court’s 2010 Perdue v. Kenny A. decision, the opinion stated.

Prior to Perdue, the Ohio Supreme Court directed lower courts to use a formula starting with the lodestar calculation, then modifying based on factors listed in what is now the Ohio Code of Professional Conduct. Current Rule 1.5(a) lists eight factors of reasonableness for adjusting the fee, including the time and labor required; the novelty and difficulty of the questions involved; the fee customarily charged in the local area for similar services; the experience, reputation, and ability of the lawyers providing the service; and whether the fee is fixed or contingent.
 
In Perdue, the U.S. Supreme Court found that factors such as the expertise of the lawyers is considered in the fees they typically charge and the complexity of the case is considered in the number of hours of service provided. The Ohio Supreme Court, following Perdue¸ held that most of the factors listed in Ohio Prof.Cond.R. 1.5(a) are already considered in the lodestar.   The high court in Perdue also acknowledged the lodestar can be enhanced, but only in rare and exceptional cases.

“It is simple economics that an attorney charges an hourly rate that takes into account the difficulty of the question involved, the opportunity cost, the time limitations imposed by the client, the skill requisite to perform a legal service, the attorney’s professional relationship with the client, and the fee customarily charged in the jurisdiction for similar legal services,” the opinion stated.

The Court stated that the factors in Rule 1.5(a) are “subsumed” within the lodestar. The opinion stated there is a strong presumption that the lodestar is the proper amount of the attorney fee. To enhance the fee, an attorney must produce “objective and specific evidence” that the enhancement is necessary to account for a factor not considered in the lodestar calculation.

When a trial court agrees to a modification, it must present the rationale for the change, so that a reviewing court has the information it needs to determine if the trial court’s decision was justified, the Court concluded.

The Court found Phoenix’s attorneys did not prove the enhancement was necessary. The Court remanded the case to the trial court to use the original lodestar calculation.

Rate Calculation Should Consider All Ohio Rule Factors, Concurrence Asserted
In her concurrence, Justice Kennedy agreed that the Rule 1.5(a) factors should be considered when calculating the lodestar amount. However, she stated that she is concerned that the majority opinion will encourage trial courts to assume that the factors in the rules are already calculated into an attorney’s hourly rate.

She wrote that she would “make clear that a trial judge determining an attorney fee award should specifically and individually take into account the relevant factors set forth in Prof.Cond.R. 1.5(a) to determine the reasonableness of the attorney’s hourly rate and time expended.”

Time Value of Money Should Be Considered, Concurrence Suggested
Justice Fischer in his concurrence noted that the “time value of money” is not one of the Rule 1.5(a) factors, and is something that trial courts should consider when reviewing enhancements to the lodestar, especially in cases involving contingent fees, to help make the prevailing party whole. He noted that courts consider this factor in compensatory damage awards and in awards for post-judgment interest.  Justice Fischer suggested that trial courts evaluating the “time value of money” enhancement factor should consider the length of the case and any unreasonable delays caused by the parties.

2018-1076. Phoenix Lighting Group, LLC v. Genlyte Thomas Group LLC, Slip Opinion No. 2020-Ohio-1056.

View oral argument video of this case.

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