A signal from the Federal Circuit that it will overturn a $185 million legal fee award highlights a long-running dispute in the judiciary over the best way to pay lawyers for winning contingency fee settlements.
Quinn Emanuel Urquhart & Sullivan won the nine-figure fee for representing 153 health plans that were awarded $3.7 billion in an Obamacare lawsuit against the federal government. Quinn Emanuel was the first firm to sue the US for not fulfilling an obligation that insurers be paid about $12 billion under an Affordable Care Act program geared toward covering sicker, uninsured people.
The case pits the approach of paying lawyers a flat percentage of the total award against a more complicated approach, known as the lodestar cross-check, that is based on how much those lawyers would have been paid on a billable hour scale. The court can multiply that rate to account for the risk an attorney takes if they work on a contingency fee basis.
Oral argument on Monday at the US Court of Appeals for the Federal Circuit demonstrated how heated these legal fee discussions can be. At one point, Chief Judge Kimberly Moore said Quinn Emanuel partner Derek Shaffer was being “aggressive” and “pointing your finger at us” while arguing the case.
“If I had $187 million on the line, I’d probably lose my cool a little bit too, so please go for it,” Moore said.
At the end of his arguments, Shaffer offered an apology: “I apologize if my tone or my gesticulation is in any way offensive to the court.”
The lower court granted Quinn Emanuel the full amount it requested, which is 5% of the settlement. The $185 million legal fee represents a multiplier of 18 times the firm’s average hourly rates (around $1,000) and the 10,000 hours it said it spent on the matter—which would amount to more than $18,000 an hour.
Quinn Emanuel had told its clients it would request “up to 5%" of the award, and argued it was owed that full amount considering it recovered 100% of the insurers’ claims against one of the toughest adversaries, the US government.
“All of the evidence of record suggests that the typical multiplier is in the one-to-two range, with a presumptive cap at four,” Moore said Monday during oral argument.
The $185 million in legal fees would represent about 10% of Quinn Emanuel’s gross revenue in 2021.
“The Supreme Court has been talking about fee applications since the 1880s. Not a single court of appeals decision in the history of the United States has ever awarded a multiple this high. Ever,” Moe Keshavarzi, a partner at Sheppard, Mullin, Richter & Hampton, told the court Monday, defending the health insurers.
‘Higher Than Usual’
The lodestar method has had a somewhat controversial history since its origins in the 1970s.
It was dealt a blow in a 1984 Supreme Court ruling, Blum v. Stenson, that stated lawyers in contingent fee cases should be compensated based upon a percentage of a settlement. Then in 1985, a task force commissioned by the US Court of Appeals for the Third Circuit criticized the lodestar approach.
But it has endured as at least part of some judges’ analysis of contingency fee awards.
Courts considered lodestar multiples to determine lawyer fees in about 49% of cases, according to a 2010 study by Brian Fitzpatrick, a Vanderbilt Law School professor who’s studied contingency fees and filed a brief supporting Quinn Emanuel’s award.
The 2010 study looked at two years’ worth of settlements and found lodestar multiples ranged from .07 to 10.3, with an average of 1.65. But lodestar multiples have been much higher in some cases, he said.
One of the largest on record is 66, according to Fitzpatrick’s brief. That award came in the Delaware Court of Chancery in a 2012 case that awarded lawyers more than $800 million in fees, valued at $35,000 per hour worked.
Still, Fitzpatrick noted Quinn Emanuel’s lodestar multiplier would be “higher than usual” even for a case with a large settlement, which tends to result in larger multiples.
The federal claims judge didn’t demonstrate that she analyzed the typical range of multipliers before approving the fee, Moore said. “We need to vacate and remand because she didn’t do what she was required to do,” Moore said of the lower court ruling.
But “it is settled law in this circuit” that the firm can request a fee of 5% of the health plans’ recovery, regardless of the lodestar, Shaffer said at argument.
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