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Improper to use the Lodestar Method to Calculate Fees in a Contractual Debt-Collection Case
(November 2010) By Kevin M. Cox, Associate
For more information, contact Paul Farquharson.
Monmouth Meadows Homeowners Assoc., Inc. v. Tiffany Hamilton,
No. 44 (Md. Oct. 25, 2010)
Three homeowners associations sought review of attorneys'
fee awards in a debt-collection case, where the district court had awarded fees
equal to a flat percentage to amounts in controversy, and the circuit courts had
relied on a reasonableness standard on appeal. The legal services in question,
involved, among other things, the pursuit of delinquent homeowners association
fees from residents living within each association. The associations argued that
the lodestar method was appropriate for calculating fee awards. The Maryland
Court of Appeals held that the district court erred in awarding fees as a flat
percentage of amounts in controversy and that the circuit courts correctly
addressed the fee awards on appeal.
The lodestar method for calculating attorneys' fees takes
as a starting point for a fee award the product of the number of hours
reasonably expended on a legal matter and the reasonable hourly rate for the
type of work performed. This method could allow the associations to recover more
in fees than the amount of the debt owed by the residents. The district court,
in each instance, elected not to calculate attorneys' fees under the lodestar
method, but rather chose to award fees as a flat percentage of the amounts of
principle sought in each case. Notably, the district court informed the
associations that barring a contractual agreement on a percentage fee,
"reasonable [attorneys'] fees will be set at 15% of the principle claimed,
except in extraordinary circumstances." The associations appealed the decisions
to the Circuit Court for Harford and Prince George's Counties.
On appeal, the circuit courts used different approaches
in awarding fees in the respective cases. The Circuit Court for Harford
County awarded the fees that the associations initially requested with the
filing of the Notice of Intent to File a Lien, plus fees incurred in the
district court litigation, but nothing for the appeals. The Circuit Court
for Prince George's County discussed the lodestar method, and found that it
was not bound to use it, and also took into consideration the guidelines
presented by Rule 1.5 of the Maryland Lawyers' Rules of Professional
Conduct. Md. Rule 16-812. The court concluded that the fees requested were
unreasonably high for the work actually required, and accordingly reduced
the fee award to $300.
The Court of Appeals held that it is improper to use
the lodestar method of calculating fees in a contractual debt-collecting
case. The lodestar method is meant to be applied in cases where a statutory
fee–shifting provision encourages litigation in the public interest. An
action for debt-collection on a breach of contract is a strictly private
matter, and does not address any broader or public ills. In such cases, Rule
1.5 of the Maryland Lawyers' Rules of Professional Conduct is the starting
point for considering a fee award. Such awards, including the award of fees
relating to an appeal, still remain within the trial judge's discretion.
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