600% Markups, However, Have Not Passed The Grade.
We can report that contract attorneys used by law firms have been treated as attorneys for lodestar purposes, subject to reasonable limitations. Two examples in class action cases suggest how they should be presented in order to be compensable in the lodestar analysis as fees rather than just pass-through expenses at much lower hourly rates.
In In re Tyco International Ltd. Multidistrict Litig., 535 F. Supp.2d 249, 272-273 (D.N.H. 2007), the district judge rejected an objector’s argument that contract attorney work should be treated as an expense and not included as a fee submission in the lodestar analysis. Among other things, the district court reasoned that it is “appropriate to bill a contract attorney’s time at market rates and count these time charges toward the lodestar,” even though higher than what those attorneys actually were paid.
However, there are limits, with Tyco counseling that the submissions must be at market rates commensurate with the contract attorney’s experience and which are not exorbitantly in excess of the direct costs to the fee claimant. That was the lesson from In re Weatherford International Securities Litig., 2015 WL 127847 (S.D.N.Y. Jan. 5, 2015), where a district judge rejected a fee submission with rates which were a 600% markup from the direct costs to the firm utilizing certain contract attorneys. (In that case, rates of $375-395 per hour were sought even though the actual direct costs were much, much less, with 45% of the requested time coming from such “profit centers.”)