Star Scientific, Inc. is back in the legal news, but this it has nothing to do with Jonnie Williams and the McDonnell trial (Star Scientific, Inc. did not disappear, but instead changed its name to Rock Creek Pharmaceuticals). In August 2016, Judge Anthony Trenga ruled on Plaintiffs’ Motion for an Award of Attorneys’ Fees in In re Star Scientific, Inc. Derivative Litigation, Case No. 1:13-cv-0550 (AJT/JFA). Plaintiffs’ counsel asserted that their fees exceeded $1.6 million, but petitioned for $975,000. Judge Trenga, however, awarded only $488,062.
The ruling is significant not because of the outcome as to total fees awarded, but because of two points: (1) Judge Trenga’s clear analysis applying McAfee v. Boczar, 728 F.3 81, 88 (4th Cir. 2013), and (2) his finding that reasonable attorney’s fees in this district are $400/hour for partners, $200/hour for associates, and $100/hour for paralegals. These rates are far below the rates approved multiple times by this Court under the Vienna Metro matrix standard, and they represent further divide among the judges of the Eastern District regarding reasonable hourly rates.
Derivative Action Claims
In re Star Scientific involved several derivative actions filed in both state and federal courts on behalf of the shareholders of Star Scientific, Inc. The primary claims in the litigation were that the Board of Directors breached their fiduciary duties and also violated section 14 (A) of the Securities Exchange Act. The combined cases arrived in Judge Trenga’s court. The claims eventually settled, and part of the settlement agreement was that plaintiffs’ lead counsel would apply to the Court for award of fees and expenses with respect to both the federal and state actions.
The Court approved the settlement in accord with Fed. R. Civ. P. 23.1 and took the Fee Application under advisement. Judge Trenga then directed the parties to mediate the issue of fees before Magistrate Judge Anderson, but that mediation was unsuccessful.
The district court applied the three–step procedure for determining the proper award of attorney’s fees in the Fourth Circuit as set forth in McAfee v. Boczar. Under McAfee, a court first determines the lodestar figure by multiplying the number of reasonable hours expended times a reasonable rate. To ascertain reasonable hours and rates under this analysis, a court applies the 12 factors set forth in Johnson v. Georgia Highway Express Inc., 480 F.2d 714, 717-19 (5th Cir. 1974). The second step is to subtract fees for time spent on unsuccessful claims unrelated to the successful ones. And third, the Court then awards some percentage of the remaining amount depending upon the degree of success enjoyed by the plaintiff.
In In re Star Scientific, plaintiffs’ counsel submitted hourly attorney rates ranging from $775/hour down to $275/hour. Using the time records and applying these rates, the total fees added up to $1,672,000. On their own, counsel slashed this sum down to $975,000. Judge Trenga then determined that the reasonable rates in the Eastern District are $400/hour for partners, $200/hour for associates, and $100/hour for paralegals. Applying these rates to the claimed hours yields a total of $976,125.
Billable hours – Total Work and 50% Reduction
The District Court seemed frustrated by the lack of specificity in the billing records: “[T]he Court is unable to assess with any accuracy the number of hours reasonably and effectively devoted to legal work.” The court opted for a 50% reduction in the hours claimed, which resulted in a total fee award of $488,062 (half of the $976,125). This 50% figure appears to be a combination of the court’s frustration with the billing records but also recognition of the results obtained in the nature of the litigation.
Star Scientific Rates versus Vienna Metro Rates
In June 2014, we posted on this Blog about the Vienna Metro matrix. In the Vienna Metro v. Pulte Home Corp., Case No. 1:10-cv–0052, Judge Lee approved attorneys’ fees ranging from $250/hour to $820/hour. In his award, Judge Lee applied a 50% across-the-board reduction to the plaintiff’s fees recovery because the plaintiff prevailed on only one of several counts in the complaint. In the Blog post, we observed that “Judge Lee make clear that the reduction was due to limited success in the litigation and not due to the hourly rates charged by counsel.”
Now in In re Star Scientific, Judge Trenga is clear about his overall 50% reduction in the fee award, but he is also extremely clear as to what are reasonable hourly rates. The judge could reached the same overall result using other avenues, but he chose to employ a simple fee matrix that seemingly is not tied closely to the facts of the case but instead has broad application.
The differences between the two cases as to what are reasonable hourly rates in the Eastern District are huge — the Vienna Metro rates are roughly double the rates recognized in In re Star Scientific. After Vienna Metro and its progeny, it seems that several judges on the Eastern District are uncomfortable with the approval of comparatively high hourly rates. Judge Trenga’s decision in In re Star Scientific will no doubt be frequently cited in future disputes over what are reasonable rates in this district.