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Attorneys’ Fees Awarded To Prevailing Party Based On Contingency Fee Agreement

Published by on March 14, 2011

In June 2010, Dovetails, Inc. made an “unconditional payment” of approximately $7,770 to Christopher Walker, a Dovetail employee who claimed that he was entitled to unpaid overtime.  Walker then filed a lawsuit in July 2010 against Dovetail in the United States District Court for the Eastern District of Virginia, seeking to recover unpaid overtime wage […]

In June 2010, Dovetails, Inc. made an “unconditional payment” of approximately $7,770 to Christopher Walker, a Dovetail employee who claimed that he was entitled to unpaid overtime.  Walker then filed a lawsuit in July 2010 against Dovetail in the United States District Court for the Eastern District of Virginia, seeking to recover unpaid overtime wage under the Fair Labor Standards Act (FLSA).  How do you think this played out?  More after the break.

In August 2010, Walker accepted Dovetail’s Offer of Judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure in the amount of $10,000, subject to a credit for the $7,770 already paid to Walker.  Walker accepted the Offer of Judgment (which ended the case) and filed a Motion for Award of Attorneys’ Fees and Costs.  Walker calculated that his attorneys’ fees were $8,010, but sought only $4,000 (40 percent of the judgment) because Walker’s Retainer Agreement stated that his attorneys would be paid 40 percent of any recovery obtained in the case.  Dovetail opposed the motion for attorneys’ fees, arguing that the lodestar amount, not the contingency-fee agreement, is critical when calculating reasonable attorneys’ fees. 

The Magistrate Judge calculated the lodestar amount to be $7,061, but decreased the amount awarded to Walker to $4,000 because of the counsel’s own expectations as evidenced by the contingency fee percentage in Walker’s Retainer Agreement.  Dovetail objected to the Magistrate Judge’s recommendation, arguing that the forty percent contingency fee should be calculated from $2,230, not $10,000, because Dovetail paid $7,770 of the judgment before Walker instituted the action. 

The district court adopted the Magistrate’s recommendation.  The district court rejected Dovetail’s argument that the 40 percent contingency fee should be calculated from $2,230 — the amount that plaintiff allegedly “gained” as a result of the lawsuit — and not the judgment of $10,000.  Dovetail argued that its payment of $7,770 in June 2010 was not in settlement of the lawsuit, but rather an independent and unconditional payment to Walker.  The district court held that the Retainer Agreement evidenced that Walker’s attorneys expected to receive 40 percent of “any recovery” obtained by Walker, regardless of whether the case proceed to litigation.  Accordingly, the judgment amount of $10,000 was the appropriate measure of “recovery” for purposes of calculating the contingency fee.    

To read the district court’s memorandum opinion, click here.

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