Williams, Bax & Saltzman, P.C. v. Boley International (H.K.) Ltd , 806 F.3d 414 ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13-2434
ANDREW GOESEL and CHRISTINE GOESEL,
individually and as next friend to
COLE GOESEL, a minor,
Plaintiffs,
v.
BOLEY INTERNATIONAL (H.K.) LTD., et al.,
Defendants.
Appeal of: WILLIAMS, BAX & SALTZMAN, P.C.,
Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 09-cv-4595 — Milton I. Shadur, Judge.
____________________
ARGUED OCTOBER 29, 2014 — DECIDED NOVEMBER 5, 2015
____________________
Before RIPPLE, KANNE, and SYKES, Circuit Judges.
SYKES, Circuit Judge. The law firm of Williams, Bax &
Saltzman, P.C., represented Cole Goesel and his parents in a
personal-injury suit that settled prior to trial. Because Cole
2 No. 13-2434
was a minor, the law firm needed judicial approval to final-
ize the settlement. The parties’ contingent-fee agreement
entitled the firm to one-third of the gross settlement, while
all litigation expenses would be covered by the Goesels’
share.
The district court refused to approve the settlement un-
less litigation expenses were deducted off the top and one-
third of the net settlement was allocated to the firm. The
judge also rejected the firm’s attempt to count the cost of
computerized legal research as a separately compensable
litigation expense rather than rolling it into the fee recovery.
The firm appealed the judge’s order limiting its fees. The
Goesels declined to participate, so we appointed an amicus
to argue in support of the decision below.
We now reverse. Though the district court enjoys sub-
stantial discretion to safeguard the interests of minors in the
settlement of litigation, this discretion is not boundless.
Here, the judge criticized aspects of the firm’s contingent-fee
agreement that have received the express blessing of Illinois
courts. Once these improper reasons are stripped away, the
only rationale that remains—namely, that “fairness and right
reason” require that the Goesels receive 51% of the gross
settlement amount rather than 42%—is insufficient to justify
discarding a reasonable contingent-fee agreement.
I. Background
In 2007 five-year-old Cole Goesel was injured when a toy
robot shattered and punctured the lens of his right eye.
Cole’s parents, Andrew and Christine Goesel, retained the
law firm of Williams, Bax & Saltzman, P.C., to sue on Cole’s
No. 13-2434 3
behalf. The retainer agreement between the parties stipulat-
ed that the firm would receive one-third off the top of any
gross settlement or judgment and the Goesels would be
responsible for litigation expenses; but in the event of no
recovery, the Goesels were off the hook for both expenses
and attorney’s fees.
In 2009 the firm filed a lawsuit on the Goesels’ behalf in
Illinois state court, which the defendants removed to federal
court based on diversity jurisdiction. Nearly four years of
contentious litigation ensued, ultimately focusing on two
issues: (1) the appropriateness of the material used in the
shattered part of the toy, and (2) the severity of Cole’s inju-
ries. These questions necessitated the retention of multiple
expert witnesses, including chemists, toy-safety specialists,
ophthalmologists, and rehabilitation counselors. The liti-
gants also conducted extensive discovery, including deposi-
tions in seven states and a videoconference with deponents
in Hong Kong.
The parties settled on the eve of trial. The defendants
agreed to pay $687,500. Under the retainer agreement, the
firm’s one-third of the gross settlement amount was
$229,166.67, and litigation expenses totaled $172,949.19,
leaving the Goesels with $285,384.14, or roughly 42% of the
total recovery.
Because Cole was a minor at the time of the litigation, the
federal court’s local rules and the Illinois Probate Act re-
quired court approval before the settlement could be final-
ized. N.D. ILL. L.R. 17.1; 755 ILL. COMP. STAT. 5/19-8. At a
hearing to determine whether to place the settlement details
under seal, the district judge launched sua sponte into his
objections to the contingent-fee agreement. He noted first
4 No. 13-2434
that the case required “a very large amount of out-of-pocket
expenditure,” and those costs were “certainly expended
reasonably here.” He also acknowledged that the firm had
done “a terrific job for the client.” But the judge was “very
troubled” by the clients’ bottom line—specifically, that the
Goesels would “end[] up with something like 40 percent of
the total recovery,” the rest having been eaten up by litiga-
tion costs and the law firm’s fee.
The judge asked the firm whether the approach of de-
ducting the contingent fee prior to expenses comported with
industry practice. In response the firm amended its initial
submission to address the judge’s inquiry as well as to argue
more vigorously that Cole’s ultimate recovery was “suffi-
cient to not only cover any future medical needs but … also
sufficient to compensate him for his pain and suffering.” The
judge bristled at this, calling it a “subjective comment on the
asserted value of the minor child’s pain and suffering.” But
the judge acknowledged “that the terms in contingent fee
agreements are not of a one-size-fits-all nature.” He also
noted that Rule 1.5(c) of the Illinois Rules of Professional
Conduct expressly permits “litigation and other expenses to
be deducted from the recovery” and expenses may be “de-
ducted before or after the contingent fee is calculated.”
Accordingly, the judge concluded that “counsel’s request …
certainly cannot be characterized as per se unreasonable.”
Still, the judge remained concerned about the child’s re-
covery. Invoking “fairness and right reason,” the judge
modified the fee structure so that the litigation expenses
were deducted off the top, prior to the one-third allocation to
the law firm. He also excluded the firm’s Westlaw charges
from reimbursable litigation expenses. The judge according-
No. 13-2434 5
ly authorized fees in the amount of $174,730.47; reimburse-
ment of litigation expenses in the amount of $163,308.59; and
disbursement of $349,460.94 to Cole.
The law firm appealed in its own right, as it is entitled to
do. See In re Trans Union Corp. Privacy Litig., 629 F.3d 741, 743
(7th Cir. 2011). Though informed of their pecuniary stake in
this appeal, the Goesels declined to participate. We appoint-
ed an amicus to argue in support of the district court’s
decision. 1
II. Discussion
A. Applicable Law
A threshold question is whether state or federal law gov-
erns this appeal. The district court cited both Local Rule 17.1
and the Illinois Probate Act as controlling authority. Local
Rule 17.1 requires “written approval by the court” before a
“proposed settlement of an action brought by or on behalf of
an infant or incompetent … become[s] final.” The rule also
states that the district court may “authorize payment of
reasonable attorney’s fees and expenses from the amount
realized in such an action.” But the rule is silent as to the
substantive criteria governing the reasonableness inquiry.
Under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938),
and its progeny, federal courts sitting in diversity apply state
substantive law using federal procedural rules. For federal
rules to apply, “[t]he test must be whether a rule really
1The court thanks Thomas L. Shriner, Jr., and Eric G. Pearson of Foley &
Lardner LLP for their amicus curiae brief in support of affirmance.
6 No. 13-2434
regulates procedure—the judicial process for enforcing
rights and duties recognized by substantive law and for
justly administering remedy and redress for disregard or
infraction of them.” Sibbach v. Wilson & Co., 312 U.S. 1, 14
(1941). This approach serves “the twin aims of the Erie rule:
discouragement of forum-shopping and avoidance of inequi-
table administration of the laws.” Hanna v. Plumer, 380 U.S.
460, 468 (1965).
“[I]n a diversity suit, the damages rules of the state
whose law governs the substantive issues in the case bind
the federal court; damages law is substantive law.” Arpin v.
United States, 521 F.3d 769, 776 (7th Cir. 2008). Since a contin-
gent fee is calculated as a proportion of the damages to
which successful plaintiffs are entitled—or, here, a portion of
a settlement meant to preempt a jury’s award of damages—
we see no reason why laws permitting the modification of
this payment should be considered merely procedural rather
than substantive. We join our colleagues in other federal
courts in characterizing judicial approval of settlements
involving minors as a matter of substantive law. See, e.g.,
Burke v. Smith, 252 F.3d 1260, 1265–66 (11th Cir. 2001); Eagan
v. Jackson, 855 F. Supp. 765, 775 (E.D. Pa. 1994). Local
Rule 17.1 applies to require the district court’s review, but
the substantive standard for that review is informed by
Illinois law.
B. Guideposts for the Exercise of Discretion
Less clear-cut is what exactly Illinois law prescribes as
the appropriate analytical framework in the minor-
settlement context. We review a court’s award of attorney’s
No. 13-2434 7
fees under a “highly deferential abuse of discretion stand-
ard,” but even this “‘wide latitude’ is not unlimited latitude,
and the district court still bears the responsibility of justify-
ing its conclusions.” Pickett v. Sheridan Health Care Ctr.,
664 F.3d 632, 639 (7th Cir. 2011) (quoting Sottoriva v. Claps,
617 F.3d 971, 975 (7th Cir. 2010)). The Illinois Probate Act
does not expressly channel the trial court’s discretion. Rather
it simply requires that the minor’s representative obtain
“leave of court” before “compound[ing] or compromis[ing]
any claim or any interest of the ward.” 755 ILL. COMP. STAT.
5/19-8.
Even though the statute itself doesn’t specify limits on
the court’s discretion, “[w]e have it on good authority that ‘a
motion to [a court’s] discretion is a motion, not to its inclina-
tion, but to its judgment; and its judgment is to be guided by
sound legal principles.’” Martin v. Franklin Capital Corp.
546 U.S. 132, 139 (2005) (quoting United States v. Burr,
25 F. Cas. 30, 35 (No. 14692D) (C.C. Va. 1807)) (second altera-
tion in original). “Discretion is not whim, and limiting
discretion according to legal standards helps promote the
basic principle of justice that like cases should be decided
alike.” Id. Although “the text of the provision does not
specify any limits [on] the district court[’s] discretion to
allow or disallow fees, in a system of laws discretion is
rarely without limits.” Indep. Fed'n of Flight Attendants v.
Zipes, 491 U.S. 754, 758 (1989). Our challenge is determining
where those limits lie.
The law firm contends that any judicial review of attor-
ney’s fees begins and ends with reasonableness, which
should be determined by reference either to the market rate
for the services rendered or to the factors enumerated in the
8 No. 13-2434
Illinois Rules of Professional Conduct. However, at oral
argument the firm conceded that it was unable to locate any
Illinois cases applying these tests to litigation involving
minors. The amicus argues that the trial judge enjoys broad
discretion to safeguard the interests of minors but likewise
acknowledges that Illinois caselaw offers no “detailed
instructions” to structure this discretion.
Neither approach in isolation provides an appropriate
framework for the trial judge’s determination, much less for
appellate review. But reading Illinois caselaw on attorney’s
fees together with cases involving minor settlements yields
some appropriate criteria. There’s no dispute that minors
receive at least as much protection as adult litigants, so the
court’s review of attorney’s fees in minor-settlement cases
can be no less searching than in cases involving adults. Thus,
the reasonableness of the fee structure serves as the floor for
judicial review of minor settlements—and the appropriate
starting point for our inquiry.
1. Reasonableness
The first measure of the objective reasonableness of an
arrangement for attorney’s fees is its consistency with the
prevailing market rate. See Palm v. 2800 Lake Shore Drive
Condo. Ass'n, 988 N.E.2d 75, 86 (Ill. 2013) (“The phrase
‘reasonable attorney fees’ has generally been interpreted to
require use of the prevailing market rate in calculating a fee
award.”). In the contingent-fee context, this inquiry can take
the form of a side-by-side comparison between the fee
ultimately recovered and the lodestar, or what the client
would have been charged under a fixed hourly billing
No. 13-2434 9
arrangement. Watson v. S. Shore Nursing & Rehab. Ctr., LLC,
965 N.E.2d 1200, 1213 (Ill. App. Ct. 2012) (“Under the lode-
star approach, the starting point for calculating the amount
of a reasonable attorney fee is the number of hours reasona-
bly expended on the litigation multiplied by a reasonable
hourly rate.” (citing Hensley v. Eckerhart, 461 U.S. 424, 433
(1983))).
No one contends that the firm’s fee exceeded the market
value of its services. Before the district court intervened, the
firm would have been entitled to $229,166.67. The firm pegs
the relevant lodestar comparator at $283,554, calculated by
multiplying the 1,194.9 hours billed at a rate of $300 for
partners and $180 for associates. The amicus did not contest
this figure, which the firm asserts is actually “below the
market for Chicago.” The judge acknowledged that he had
“looked at the lodestar” and on that basis concluded that the
attorney’s fee “would be justified in ordinary terms.” Thus,
as a purely empirical matter, there was nothing unreasona-
ble about the fee as calculated under the terms of the retainer
agreement.
Nor was the fee excessive under the second, more quali-
tative test of reasonableness. Rule 1.5 of the Illinois Rules of
Professional Conduct lists eight “factors to be considered in
determining the reasonableness of a fee”:
(1) the time and labor required, the novelty and
difficulty of the questions involved, and the
skill requisite to perform the legal service
properly;
10 No. 13-2434
(2) the likelihood, if apparent to the client, that
the acceptance of the particular employment
will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality
for similar legal services;
(4) the amount involved and the results ob-
tained;
(5) the time limitations imposed by the client or
by the circumstances;
(6) the nature and length of the professional re-
lationship with the client;
(7) the experience, reputation, and ability of the
lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent.
The Illinois courts have largely incorporated these factors
into their reasonableness analysis, suggesting on multiple
occasions that
the trial court should consider a variety of ad-
ditional factors such as the skill and standing
of the attorneys, the nature of the case, the
novelty and/or difficulty of the issues and
work involved, the importance of the matter,
the degree of responsibility required, the usual
and customary charges for comparable ser-
vices, the benefit to the client, and whether
there is a reasonable connection between the
fees and the amount involved in the litigation.
No. 13-2434 11
LaHood v. Couri, 603 N.E.2d 1165, 1171 (Ill. App. Ct. 1992)
(citations omitted); accord 1010 Lake Shore Ass'n v. Deutsche
Bank Nat’l Trust Co., 19 N.E.3d 1, 9 (Ill. App. Ct. 2014); Jacobs
v. James, 574 N.E.2d 1292, 1296 (Ill. App. Ct. 1991).
On this analysis, the firm’s fee easily passes muster. At
the initial hearing regarding the settlement, the judge
acknowledged that the firm “did a terrific job for the client.”
In his final order, the judge took note of “the extensive time
spent by plaintiffs’ counsel in the hard-fought battle.” There
is no disagreement about the complexity of the litigation,
which necessitated expansive discovery and the retention of
numerous expert witnesses. After all, it was this degree of
time-consuming and labor-intensive preparation that drove
the litigation expenses deeply (in the district court’s view, too
deeply) into the Goesels’ share of the recovery. It’s ironic,
then, that the “difficulty of the question[] involved”—which
should work in the firm’s favor here—served as a basis for
the judge to reduce the firm’s fee.
Without either a quantitative or qualitative basis for ob-
jection, the firm’s bargained-for compensation cannot be
called unreasonable.
2. Interests of the Minor
Having cleared the standard hurdle for judicial review of
attorney’s fees, the firm must now contend with Illinois’s
“strong public policy of protecting the interests of [the]
minor.” First Nat’l Bank of LaGrange v. Lowrey, 872 N.E.2d 447,
486 (Ill. App. Ct. 2007). As relevant here, Illinois courts
conceptualize the interests of minor litigants in two ways.
12 No. 13-2434
The first is the tangible well-being of the particular minor
involved in the litigation. Leonard C. Arnold, Ltd. v. N. Trust
Co., 506 N.E.2d 1279, 1281, 1283 (Ill. 1987) (“Courts are
imbued with both the power and the duty to protect minors
involved in litigation. … Simply because an attorney may
not be subject to discipline for entering into a contingent
agreement for a particular fee, it does not follow that the
courts—which have a special duty to protect minors—must
permit him to enforce an agreement for representing a minor
in that amount.”). To that end, the firm advised the court
that “the portion of the settlement proceeds which Cole will
receive after payment of attorney’s fees and expenses … is
sufficient to not only cover any future medical needs but is
also sufficient to compensate him for his pain and suffering.”
Rather than addressing whether the sum was inadequate as
a factual matter, the judge seemed offended that the firm
even offered an opinion on this point. He speculated that in
the event of a trial, “plaintiffs’ counsel would have been
arguing strenuously for a big-ticket figure for that intangible
component of a damages award.” He also criticized the
firm’s “subjective comment on the asserted value of the
minor’s pain and suffering” as “inappropriate[].”
The degree of vexation here is puzzling given that the
judge inquired about this factor in the first place. During the
initial hearing on the settlement, the judge expressed con-
cern about Cole’s “reasonable prospect of having continuing
problems as a result of this terrible accident.” That the firm
addressed this concern in its amended submission is not
only unobjectionable but fully consistent with its responsibil-
ity to advise the court on issues touching the minor’s inter-
ests. It makes little sense to criticize the firm’s opinion
No. 13-2434 13
regarding the settlement’s sufficiency to protect the child
when that’s the very issue at the heart of the court’s inquiry.
Lost in the kerfuffle was any attempt by the judge to engage
substantively with the factual question of the adequacy of
the settlement to protect the child’s interests—which, of
course, leaves it beyond our grasp as a basis for affirmance.
The second, perhaps less obvious consideration is the
court’s duty to safeguard prospectively the interests of minor
litigants as a class; that is to say, the incentives communicat-
ed to the bar by the court’s rewriting of a private contract for
legal representation of a minor. Noting that “[c]ontingent fee
contracts … are the poor man’s key to the courthouse door,”
the Illinois Supreme Court has held that the “duty to protect
minors is consistent with the policy of promoting access to
the courts through reasonable contingent-fee agreements.”
Leonard C. Arnold, Ltd., 506 N.E.2d at 1281 (internal quotation
marks omitted). If these contracts were categorically una-
vailable to minor litigants—or the risk of retrospective
judicial abrogation rendered them so unappealing that the
plaintiffs’ bar would be wary of representing children—then
“the likely result would be to deprive many minors of
quality legal representation.” Id. That outcome would con-
flict with Illinois public policy “that the rights of minors be
guarded carefully.” Villalobos v. Cicero Sch. Dist. 99,
841 N.E.2d 87, 93 (Ill. App. Ct. 2005). Those rights cannot be
safeguarded if minor litigants can’t make it into court in the
first place.
Accordingly, a court should depart from the terms of a
retainer agreement only when it has a good reason for doing
so. Here, the firm’s representation was competent, conscien-
tious, and ultimately successful; the judge made no factual
14 No. 13-2434
findings that the minor’s recovery was inadequate; and the
fee was unquestionably reasonable under both the market-
comparison and professional-responsibility rubrics. Among
the criteria that Illinois courts have enumerated to govern
attorney’s fees in general and minor settlements in particu-
lar, none support abrogating the retainer agreement and
rewriting the terms of the representation after the fact.
C. Improper Bases
The judge relied on additional factors outside the appro-
priate scope of its inquiry. To the extent the judge’s umbrage
at the firm’s pain-and-suffering comment undergirded the
decision, we find that basis neither logically nor legally
compelling. And the judge’s generalized reliance on “fair-
ness and right reason” appears to be a rhetorical flourish.
More problematic, though, is the judge’s apparent as-
sumption that the retainer agreement was essentially a
contract of adhesion. The judge recognized that “under
ordinary circumstances … the sanctity of contracts calls for
approval of [the] outcome.” But this case was not out of the
ordinary; as we’ve explained, the fee structure was not
unreasonable, and nothing suggests that the minor’s recov-
ery was inadequate. Rather, the judge was disquieted by
“the inherent inequality of bargaining power as between
lawyer and client in the initial discussion in which fees are
agreed upon.”
This overlooks the reality that contingent-fee contracts
play a vital role in our legal system. Declining to enforce
these arrangements because they are “inherent[ly]” unequal
would uproot the contingent-fee mechanism with disastrous
No. 13-2434 15
consequences for those unable to pay lawyers upfront. And
even if attorney-client bargaining may be unconscionable
under certain circumstances, there is no indication that the
Goesels felt that they could not negotiate the terms of their
contract with the law firm or shop their case to other firms in
search of a better deal.
Finally, to the extent that the judge classified the retainer
agreement as a contract of adhesion and on that basis de-
clined to enforce it, this reasoning was unsound. The Illinois
Supreme Court has recognized that “contract[s] of adhe-
sion,” whose “terms … are nonnegotiable and presented in
fine print in language that the average consumer might not
fully understand, … are a fact of modern life.” Kinkel v.
Cingular Wireless LLC, 857 N.E.2d 250, 266 (Ill. 2006). Nothing
suggests that the retainer agreement even fits this descrip-
tion. Moreover, the fact that an agreement is a contract of
adhesion does not automatically defeat enforceability.
Phoenix Ins. Co. v. Rosen, 949 N.E.2d 639, 654 (Ill. 2011)
(“[E]ven if we accept … that [an] … agreement is a contract
of adhesion, such a finding does not render the agreement
unenforceable.”).
Rather, Illinois courts have required “[s]ome added coer-
cion or overreaching” before they will hold a contract of
adhesion unenforceable. Tortoriello v. Gerald Nissan of N.
Aurora, Inc., 882 N.E.2d 157, 175 (Ill. App. Ct. 2008); see also
Abbott v. Amoco Oil Co., 619 N.E.2d 789, 795 (Ill. App. Ct.
1993) (“[U]nfair advantage is the key to differentiating
between the types of adhesion contracts … .”). There’s no
indication here that the retainer agreement was the product
of such gross inequity that it qualifies as procedurally un-
conscionable, which is the standard for non-enforcement
16 No. 13-2434
under Illinois law. 2 See Razor v. Hyundai Motor Am.,
854 N.E.2d 607, 622 (Ill. 2006) (“Procedural unconscionability
refers to a situation where a term is so difficult to find, read,
or understand that the plaintiff cannot fairly be said to have
been aware he was agreeing to it, and also takes into account
a lack of bargaining power.”).
Aside from unconscionability, a contract’s adhesive na-
ture is relevant only in construing its ambiguous terms.
Abbott, 619 N.E.2d at 798. Clauses susceptible of more than
one meaning, particularly those that may prove “onerous” to
one of the parties, should be “construed against the party
with superior bargaining power.” Methodist Med. Ctr. of Ill. v.
Taylor, 489 N.E.2d 351, 356 (Ill. App. Ct. 1986). But the record
is bereft of any suggestion that this retainer agreement was
ambiguous or that the Goesels were hoodwinked into a
compensation arrangement that was unclear on its face. The
judge’s concern that the firm had drawn up a contract of
adhesion was unwarranted.
The core problem with the judge’s ruling in this case is
that it rests on nothing more than a series of unwarranted
criticisms. Had the judge expressed all the same concerns
over adhesive contracts and the lawyers’ subjective views
while still rooting his decision in some genuinely unreason-
able or objectionable aspect of the agreement, the deferential
2The judge appeared more concerned with substantive unconscionability,
which “refers to those terms which are inordinately one-sided in one
party’s favor.” Razor v. Hyundai Motor Am., 854 N.E.2d 607, 622 (Ill. 2006).
But the substantive inquiry is directed to the operation of the contract,
not the process by which it was negotiated and entered; whether an
agreement is an adhesion contract is immaterial to the question of
substantive unconscionability.
No. 13-2434 17
standard of review would require us to affirm on the legiti-
mate ground alone. What we’re left with, however, is the
judge’s invocation of “fairness and right reason,” and that
incantation cannot support an exercise of discretion where
no argument for unfairness or wrong reason survives. The
district court abused its discretion not by relying on several
bad reasons but by relying on no good one.
D. Computerized Research
The firm sought to include as a recoverable litigation ex-
pense nearly $10,000 for computerized legal research. The
judge excluded this expense from the firm’s recovery, hold-
ing that electronic research merely “cuts down on a lawyer’s
expenditure of his or her more tedious research time” for
which the firm was already compensated as part of the
contingent fee.
Whether computerized legal-research expenses are re-
coverable is a question relevant to the calculation of damag-
es. As we’ve explained, this is a matter of substantive law
and thus is governed by state law. Conveniently, on this
question the Illinois courts have adopted our rule. Guerrant
v. Roth, 777 N.E.2d 499, 506 (Ill. App. Ct. 2002) (“[F]ederal
courts in Illinois have more thoroughly addressed the issue
of reimbursement of computer-assisted legal research charg-
es.”).
The firm argues that there is tension in our caselaw on
the question whether these research expenses should be
separately recoverable. That’s not accurate. Our circuit’s rule
is straightforward: In fixed-fee cases, these charges are not
18 No. 13-2434
separately recoverable; in lodestar cases, they are. 3 See, e.g.,
Montgomery v. Aetna Plywood, Inc., 231 F.3d 399, 409, n.3 (7th
Cir. 2000) (“When a court uses the percentage-of-recovery
method of calculating attorney’s fees, such charges are
simply subsumed in the award of attorneys’ fees. … When a
court uses the lodestar method of calculating attorney’s fees,
computer research charges are separately recoverable, but
(and this is the important point) only as a type of attorneys’
fee, not as an expense.”).
Here is how the Illinois Appellate Court has explained
the rationale for treating computerized research differently
in fixed-fee and lodestar cases:
3 That our caselaw is consistent is not to say that the distinction we’ve
drawn continues to make sense. The background assumption is that
lawyers are mainly reliant on non-computerized research methods—or,
at the very least, that an entirely offline research system remains a viable
option for practicing law in 2015. It strikes us as anachronistic to concep-
tualize computerized legal research as a mere time-saving shortcut
deviating from the standard practice of leafing through copies of caselaw
reporters. To the extent this logic was ever compelling, it has long since
fallen out of step with prevailing legal practice.
However, this case is not the proper vehicle for revisiting our rule on
the separate recoverability of these expenses. The retainer agreement was
concluded under the rule distinguishing between lodestar and fixed-fee
arrangements; abruptly shifting the legal landscape now would have the
collateral effect of disrupting one of the presumptions that may have
guided the contracting parties (if only marginally). And as a procedural
matter, we are sitting in diversity and applying Illinois law. Consequent-
ly, we leave for another day the question whether, decades into the
digital age, there remains any logical rationale for treating computerized
legal research as a novel indulgence.
No. 13-2434 19
Where the attorney’s fee is a contingent one or
is otherwise fixed so as not to reflect the actual
time spent on a cause of action, the rationale
that the computer expense is counter-balanced
by a benefit to the attorney in saving time
holds water because the fee remains un-
changed, while the time expended on research
is reduced. On the other hand, where an attor-
ney works on a per diem basis, the time he saves
does not inure to his economic benefit because
he will simply be paid for fewer hours, while
nevertheless incurring the expense of computer
assistance. Under these circumstances, the ra-
tionale for attorney advantage falls away, and
the attorney should not be required to absorb
the additional expense engendered by comput-
er research fees in light of the diminished billa-
ble hours that result from such computer assis-
tance.
Johnson v. Thomas, 794 N.E.2d 919, 935 (Ill. App. Ct. 2003)
(internal citations and quotation marks omitted). Applying
this rule here, it was not error to exclude the firm’s comput-
erized-research costs from the recoverable litigation expens-
es.
For the foregoing reasons, the district court’s judgment is
REVERSED, and the case is REMANDED for further proceedings
consistent with this opinion.