Richlin Security Service Co. v. Chertoff (06-1717)
Oral argument: March 19, 2008
Appealed from: United States Court of Appeals, Federal Circuit (April 3, 2007)
EQUAL ACCESS TO JUSTICE ACT, PARALEGAL FEES, ATTORNEY'S FEES
Richlin Security Service Company entered into two contracts with the Immigration and Naturalization Service, now part of the Department of Homeland Security, to provide security guard services for detainees being held at the Los Angeles International Airport. Due to a mutual mistake, Richlin's employees were misclassified as "Guard I" instead of "Guard II" in the contracts, which resulted in their underpayment. Richlin litigated this case four times before the Department of Transportation Contract Appeals Board, which awarded Richlin payment for worker's compensation premiums, payroll taxes, and wages. Richlin then applied pursuant to the Equal Access to Justice Act for reimbursement of attorney fees, expenses and costs associated with the underlying litigation. Although Richlin was fully compensated for attorney's fees, the Board only awarded Richlin reimbursement of paralegal services at cost rather than the amount billed, resulting in a $40,000 deficiency in recovery. Richlin appealed the decision to the United States Court of Appeals for the Federal Circuit, which affirmed the Board's decision. Richlin argues that paralegal services should be reimbursed under "attorney's fees" because paralegals perform substantive work which contributes to attorney work product. The United States contends that Congress intended for paralegal services to be considered "expenses" under the EAJA, which are reimbursed at cost. The outcome of this case will impact citizens and organizations that rely on the EAJA to bring claims against the government for vindication of rights.
Under the Equal Access to Justice Act (EAJA), 5 U.S.C. § 504(a)(l) and 28 U.S.C. § 2412(d)(1)(A), may a prevailing party be awarded attorney fees for paralegal services at the market rate for such services, as four circuits have held, or does EAJA limit reimbursement for paralegal services to cost only, as the Federal Circuit panel majority below held?
Whether prevailing parties in actions brought against the United States under the Equal Access to Justice Act are entitled to receive reimbursement for paralegal services at their market value, or only at the cost to legal counsel for whom the services were provided.
In 1990 and 1991, Richlin Security Service Company entered into fixed-price contracts with the Immigration and Naturalization Service to provide security guard services for detainees at the Los Angeles International Airport. Richlin Sec. Svc. Co. v. Chertoff, 472 F.3d 1370, 1371-72 (Fed. Cir. 2006). The contracts erroneously classified Richlin's employees as "Guard I" rather than "Guard II" which resulted in Richlin's employees receiving lower than expected wages. Id. at 1372. In 1995, the Department of Labor determined that Richlin owed its employees back pay under the Service Contract Act, 41 U.S.C. § 351, et seq. (2000) ("SCA"). Id. A year later, Richlin filed a claim against the government for the wages, but the claim was denied. Id. Richlin appealed to the Department of TransportationContract Appeals Board ("Board") who decided that reformation of the original contract was an appropriate remedy. In re Richlin Sec. Serv. Co., 98-1 BCA 29651, 1998 WL 151064 (D.O.T.B.C.A. 1997). The Board awarded Richlin payment of worker's compensation premiums, payroll taxes and wages. Richlin Sec. Serv. Co., 03-2 BCA P 32301, 2002 WL 31909212 (D.O.T.C.A.B. 2002). After the federal court affirmed the Board's decision, Richlin applied for reimbursement of attorney's fees, expenses and costs pursuant to his rights under the Equal Access Justice Act ("EAJA"). Richlin Sec. Serv. Co. v. United States Dep't of Justice, 05-2 BCA P 33021, 2005 WL 1635099 (D.O.T.C.A.B. 2005).
Gilbert J. Ginsberg became Richlin's attorney after the underlying case had been litigated but while Richlin was appealing to the Board. Richlin, 472 F.3d at 1372. Throughout the nine years Ginsberg represented Richlin, from 1994 to 2003, he issued itemized bills charging for paralegal services at prevailing market rates. Id. Richlin was charged $50 per hour for those services in 1994, and the services gradually increased in price to $135 an hour by the end of the proceedings. Id. After initially applying for full reimbursement, Richlin amended to cap its fee request at $95 an hour for paralegal services. Id. at 1373. Richlin applied under the EAJA for $45,141.10 to cover 523.8 hours of paralegal services used in connection with the underlying cases, and $6,760 for preparing the EAJA application. Id. The Board awarded Richlin the amount requested for attorney's fees for the underlying cases and the EAJA application, but decided to award Richlin only $35 an hour for paralegal services. Id. at 1374.On appeal, the Federal Circuit Court of Appeals awarded Richlin payment for paralegal services at $35 an hour, a rate which the court found to be reasonable based on paralegal salaries in the Washington D.C. area. Richlin, 472 F.3d at 1374.
Fee-shifting statutes, such as the EAJA, are enacted to encourage vindication of rights by parties who are otherwise unable to afford to challenge the government's decisions. See Pennsylvania v. Delaware Valley Citizen's Council for Clean Air, 478 U.S. 546, 559-60 (1986); Hensley v. Eckerhart, 461 U.S. 424, 429 (1983); New York Gaslight Club, Inc. v. Carey, 447 U.S. 54, 63 (1980). The Court's decision in this case will impact citizens with meritorious claims against the United States for a variety of causes including the denial of Social Security and Veteran's benefits, and failure to uphold contractual obligations. Brief of National Association of Legal Assistants, Paralyzed Veterans of America and National Organization of Social Security Claimants' Representatives as Amici Curiae at 6. If the Court agrees with the Federal Circuit, paralegal services will be classified as "expenses" under the EAJA which are reimbursed at actual cost to the provider, as opposed to being reimbursed as attorney fees at prevailing market rates. Richlin, 472 F.3d at 1375.
Fee-shifting statutes effectively shift the burden of rising litigation costs onto taxpayers in litigation to which the United States is a party. Nonetheless, Congress had enacted over 100 fee-shifting statutes providing for awards of attorney's fees in 1985, and currently has enacted nearly 200. See Marek v. Chesny, 473 U.S. 1, 43 (1985) (Brennan, J. dissenting); Equal Access to Justice Reform Act Hearing Before the Subcommittee on Courts, The Internet, and Intellectual Property: Hearing on H.R. 435 Before the H. Committee on the Judiciary, 109th Cong. (opening statement of Honorable Lamar Smith, Subcommittee Chairman) at 12. In an opposing brief, the National Association of Legal Assistants ("NALA"), the Paralyzed Veterans of America ("PVA") and the National Organization of Social Security Claimants' Representatives ("NOSSCR") reason that the use of paralegals should be encouraged because it would result in lower reimbursement requests under the EAJA, and the resulting cost savings is passed onto the taxpayers. Brief of National Association of Legal Assistants, et al. as Amici Curiae at 6. These amici also point out that paralegals have become an integral part of legal practice, as evidenced by their rapidly expanding employment opportunities. Id. at 2, 4. According to the Bureau of Labor Statistics, paralegal and legal assistant employment is projected to grow 22% between 2006 to 2016, a much faster rate than the national average for all occupations. U.S. Department of Labor, Occupational Outlook Handbook, 2008-09 Edition, Paralegals and Legal Assistants. The Bureau attributes the growth to employer's efforts to reduce costs, and increase efficiency because paralegals "perform tasks once done by lawyers." Id.
The Supreme Court recently expressed interest in limiting the scope of fee-shifting statutes in Arlington Central School District v. Murphy, 548 U.S. 291 (2006). In Murphy, the Court decided that the fee-shifting provision in the Individuals with Disabilities Education Act which provides for recovery of "reasonable attorneys' fees" to prevailing parties does not encompass recovery for experts' fees. Murphy, 548 U.S. at 297. Although fee-shifting is the exception to the general rule in the United States that litigants bear their own legal expenses, fee-shifting is the norm in other common law countries, such as the United Kingdom.
Different approaches to attorney's fees reflect different principles. For example, scholar David Root points out that the English rule requiring the losing party to cover the prevailing party's costs underscores the principle that victory is incomplete if the winner is left with substantial out-of pocket expenses. See David Root, Attorney Fee-Shifting in America: Comparing, Contrasting and Combining the "American Rule" and "English Rule", 15 Ind. Int'l & Comp. L. Rev. 583, 589 (2005). Another scholar, Matthew Wilson, observes that the contrasting American rule eliminates some of the risk associated with losing and therefore may encourage litigation. See Matthew Wilson, Failed Attempt to Undermine the Third Wave: Attorney Fee Shifting Movement in Japan, 19 Emory Int'l L. Rev. 1457, 1471 (2005). Both the American and English approaches to allocating litigation costs have benefits and shortcomings. According to Root's article, the English "loser pays" system provides greater compensation to prevailing parties and deters frivolous claims. But on the other hand, Wilson argues, a "loser pays" system may have a chilling effect on litigation and unfairly deter lower and middle class potential litigants from bringing meritorious claims because of potentially unjust financial detriment. The American rule, Root argues, provides "all American citizens and opportunity to have their day in court," but also results in many frivolous claims which adversely impact the efficiency of the judiciary.
By imposing an English fee-shifting system, courts would inevitably reduce caseload backlog, but also might atrophy access to judicial remedies, which may be considered a pillar of the American legal system. If the Court in the instant case decides that "attorney fees" under the EAJA includes paralegal services, the Court would expand the statutory fee-shifting exception to the American rule, and begin to move closer to a "loser pays" system. On the other hand, the Court may decide to limit the financial burden the EAJA has on the government by limiting reimbursement for paralegal services to cost for the provider. In doing so, the Court would strike a balance between the American system which requires each party to bear its own legal costs, and the fully compensatory fee-shifting system employed in England.
Statutory Text of the Equal Access to Justice Act
The Equal Access to Justice Act ("EAJA") authorizes reimbursement of fees and expenses to parties who prevail in administrative proceedings or law suits against the United States if the government's position was not "substantially justified." Equal Access to Justice Act, 5 U.S.C. § 504. The portion of the EAJA at issue in this case requires reimbursement at "prevailing market rates" up to a statutory maximum of $125 an hour for "reasonable attorney or agent fees" but is silent on the calculation of "reasonable expenses." 5 U.S.C. § 504 (b)(1)(A) (emphasis added).
This case turns on whether paralegal services should be classified as "fees" or "expenses." Richlin argues that the Court's definition of the term "reasonable attorney's fee" in Missouri v. Jenkins, 491 U.S. 274 (1989), should control in the instant case in the interest of consistency. Brief for Petitioner at 15-16. In Jenkins the Court decided that the term "reasonable attorney's fee" in the Civil Rights Attorney's Fees Awards Act referred to attorney work product, and thereby included work completed by paralegals. 491 U.S. at 285. Richlin cites West Virginia University Hospitals v. Casey, 499 U.S. 83 (1991)as further support because in Casey, the Court held that "attorney's fees" included paralegal services. Brief for Petitioner at 18. In Casey, the Court was interpreting 42 U.S.C. 1988, a fee-shifting statute covering various civil rights actions, including those brought under Title VI. Casey, 499 U.S. 83. The government argues that Richlin's reliance on Casey is misplaced because the case underscores the importance of reading fee-shifting statutes in their full statutory context which, in this case, would result in paralegal services being classified as separate litigation costs, not attorney fees. Brief for Respondent at 26. Furthermore, the government contends that Jenkins involved a "distinct statutory scheme" and thus, should not be applied to cases involving statutes other than the Civil Rights Attorney's Fees Awards Act ("CRAFAA") which was at issue in that case. Id. at 19. The CRAFAA, the government argues, differs from the EAJA because the CRAFAA did not permit recovery of paralegal services as "costs," and provided reimbursement of "reasonable attorneys' fees" only as part of costs, not separately as "expenses." Id. Therefore, under that statutory scheme the Court had to classify paralegal services as "attorney's fees" to provide any reimbursement for them. Id. In contrast, the EAJA provides for reimbursement of both attorney's fees and reasonable expenses. Id. The government also contends that the CRAFAA was designed to fully compensate successful litigants for all of their legal fees, unlike the EAJA which has statutory limits on reimbursement. Id. at 23. Richlin responds that Jenkins should apply "with full force to the EAJA" because fee-shifting statutes have consistently been interpreted to be consistent with each other. Brief for Petitioner at 16. It argues courts should interpret similar statutory terms alike to advance the common purpose of fee-shifting provisions, to reduce legal costs of challenging unlawful government action. Id. at 18.
Legislative History of the Equal Access to Justice Act
In order to determine Congressional intent behind the reimbursement of fees in the Equal Access to Justice Act, the Court will likely look to the legislative history at the formation of the Act.
The government contends that Congress's omission of a statutory cap on reimbursement of paralegal fees, and its inclusion of such a cap on attorney's fees, is proof of its intent to provide only at-cost reimbursement for paralegal services. Brief for Respondent at 7. The government bolsters this claim by citing a Senate Report written contemporaneously with the EAJA which states that reasonable expenses including "paralegal time (billed at cost)" should be compensated. Id. at 29. In response, Richlin asserts that the Senate Report should be readto compensate paralegal services at cost only when the standard market procedure is to bill clients at cost. Brief for Petitioner at 19. Furthermore, Richlin contends that the Senate Report should not be replied upon because it was written concurrent with a previous version of the EAJA which was vetoed by the president, and therefore, does not constitute "legislative history" for purposes of statutory construction. Id. The government responds that the Senate Report should be relied on because the majority of the EAJA, including the portion at issue in the instant case, remained the same after Congress responded to the President's objections. Brief for Respondent at 8.
The government makes an ancillary argument that the EAJA contains an exclusive list of reimbursable fees which includes fees of attorneys, agents, and expert witnesses, but not paralegals. Brief for Respondent at 6. Any decision expanding the list, the government argues, would unlawfully enlarge the waiver of sovereign immunity. Id. at 36. Under this doctrine, the government generally has a right to immunity from law suits unless it expressly waives its right in a statute. The government contends than any ambiguity in a statute, such as the term "attorney fee" in the EAJA, in which the government waives sovereign immunity, must be construed in favor of the government. Id. "Attorney fee" should be construed, the government maintains, to exclude paralegal services which should properly be classified as "expenses," reimbursable at cost to the provider. Id. at 38.
Policy Behind the EAJA
The Federal Circuit Court of Appeals suggested that awarding paralegal fees at market rates would provide incentive for attorneys to shunt their cases to paralegals in order to maximize compensation under the EAJA. Richlin, 472 F.3d at 1380-81. Richlin and some of the amici reject this conclusion, stating that the uncertainty of receiving compensation under the EAJA and attorneys' ethical and professional responsibility for the work performed deter them from delegating their cases to paralegals. Brief for Petitioner at 22-23; Brief of National Association of Legal Assistants, et al. as Amici Curiae at 10. The amici NALA also argue that the Court would create an administrative burden by interpreting the EAJA to reimburse parties for paralegal services at cost because law firms typically bill clients for paralegals services at prevailing market rates. Brief of National Association of Legal Assistants, et al. as Amici Curiae at 10. Ordering reimbursement for paralegal services at cost, NALA asserts, would be require law firms to overhaul their existing billing practices to include the costs of benefits, such as health care, into the price of paralegal services. Id. A decision in favor of the government, argues NALA, would effectively discourage the use of paralegals which would be at odds with the goals of fee-shifting statutes. Id. at 12.
Richlin argues in the alternative that if the Court classifies paralegal services as "expenses" under the EAJA, they should be awarded at cost to the client, not cost to the lawyer. Brief for Petitioner at 24. The government responds that the issue in this case does not permit the Court to decide the proper calculation of "expenses" under the EAJA. Brief for Respondent at 39. But if the Court decides to take on the "expenses" issue, the government echoes its sovereign immunity argument, asserting that the term must be construed in the manner most favorable to the government, which in this case would require expenses to be reimbursed at cost. Id. at 40-41. Also, the government refutes Richlin's administrative burden argument, asserting instead that itemization of paralegal costs would not pose an unreasonable burden because law firms routinely record and bill for time in intervals. Id. at 43. It argues that this practice could be extended to paralegal services without much difficulty. Id. at 43-44.
The Court's decision in Richlin Security Service Company v. Chertoff will determine whether paralegal services are fully compensable under the Equal Access to Justice Act. A decision for Richlin would assure citizens, non-profit organizations and small businesses of full compensation for legal services used in connection with litigation against the government. A decision forthe government would increase the deterrent effect that cost has on potential cases against the government for vindication of rights. The Supreme Court's decision in this case will affect thousands who rely on the reimbursement of legal fees under the EAJA to bring meritorious claims against the United States.
Prepared by: Debbie Faulkner
Edited by: Cecelia Sander Cannon