BARBARA BLUM, PETITIONER V. ELLEN STENSON No. 81-1374 In the Supreme Court of the United States October Term, 1983 On Writ of Certiorari to the United States Court of Appeals for the Second Circuit Brief for the United States as Amicus Curiae Supporting Reversal TABLE OF CONTENTS Interest of the United States Statute involved Statement Summary of argument Argument: I. A bonus award of attorney's fees, in addition to compensation at a reasonable rate for hours reasonably expended by counsel, is ordinarily improper A. A bonus is appropriate only in exceptional circumstances B. The bonus award in this case was improper II. The district court erred in awarding fees based on hourly rates unrelated to the costs of a non-profit legal services organization Conclusion STATUTE INVOLVED 42 U.S.C. 1988 provides in pertinent part: In any action or proceeding to enforce a provision of sections 1981, 1982, 1983, 1985, and 1986 of this title, title IX of Public Law 92-318 (20 U.S.C. 1681 et seq.), or title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.), the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs. QUESTIONS PRESENTED The United States will address the following questions: 1. Whether, and in what circumstances, the "reasonable attorney's fee" that may be awarded to the prevailing party under 42 U.S.C. (Supp. V) 1988 should include a "bonus" or "multiplier" in addition to an amount based upon the number of hours reasonably expended on the claim assessed at a reasonable hourly rate. 2. Whether an award of attorney's fees under 42 U.S.C. (Supp. V) 1988 for the benefit of a non-profit legal services organization should be calculated on the basis of prevailing market rates for services of retained counsel. INTEREST OF THE UNITED STATES This case presents important recurring questions concerning the determination of the amount of attorney's fees that may be awarded to a prevailing party under the Civil Rights Attorney's Fees Awards Act of 1976, 42 U.S.C. (Supp. V) 1988. /1/ It is arguable that, pursuant to 28 U.S.C. (Supp. V) 2412(b), as added by the Equal Access to Justice Act, attorney's fees under the Civil Rights Attorney's Fees Awards Act may, in certain circumstances, be awarded against federal officials. Accordingly, the United States has a substantial interest in ensuring that fee awards are not excessive or contrary to Congress' intent. On the other hand, because private enforcement of the civil rights laws provides an important supplement to federal enforcement, the United States is vitally concerned that "fully compensatory fee(s)" (Hensley v. Eckerhart, No. 81-1244 (May 16, 1983), slip op. 11) be awarded in appropriate cases. The government's interest in striking this balance is not limited to cases arising under 42 U.S.C. 1988, because the Court's decision undoubtedly will affect the computation of attorney's fees under other fee-shifting statutes as well. See Hensley v. Eckerhart, supra, slip op. 8 n.7. STATEMENT 1. Respondent, a former recipient of assistance under the Medicaid program, 42 U.S.C. (& Supp. V) 1396 et seq., brought this action pursuant to 42 U.S.C. 1983 in the United States District Court for the Southern District of New York in 1978. She alleged that procedures employed by the State of New York to terminate Medicaid benefits for certain persons were contrary to federal statutes and regulations and violated her constitutional rights. The district court ultimately certified a class of persons affected by the disputed procedures, dismissed respondent's claim against federal and New York City officials who had been joined as defendants, and entered judgment granting declaratory and injunctive relief against petitioner, the New York State Commissioner of Social Services. Stenson v. Blum, 476 F. Supp. 1331 (S.D.N.Y. 1979), aff'd, 628 F.2d 1345 (2d Cir.), cert. denied, 449 U.S. 885 (1980). 2. Respondent's counsel, the New York Legal Aid Society, sought an award of attorney's fees pursuant to the Civil Rights Attorney's Fees Awards Act of 1976, 42 U.S.C. 1988. /2/ The Legal Aid Society requested a basic award of $79,312 for 769 3/4 hours devoted to the case by three of its staff attorneys. The hourly rates imputed to those attorneys were $95 per hour for a 1977 law school graduate, $100 per hour for a 1976 graduate, and $105 per hour for a 1975 graduate, the most senior member of the litigation team. In addition, the Legal Aid Society sought a bonus award equal to 50% of the basic amount. The total fee request was thus $118,968 (Pet. App. 6a, 12a). The district court awarded the entire amount sought by respondent's counsel (Pet. App. 4a-13a). The court approved the hourly rates requested for the time spent by the three Legal Aid Society attorneys, stating that the rates were "consonant with fee awards in cases of similar complexity and difficulty" (id. at 8a). The court also ruled that the out-of-court work performed by the Legal Aid Society attorneys was properly divided so as to avoid duplication of effort and that their team appearances in court were not unjustified (id. at 11a). In addition, the district court granted the Legal Aid Society's request for a bonus of 50% over and above the basic award for time expended (id. at 12a; citations omitted): On the facts of this case, I deem an upward adjustment of the lodestar amount appropriate. The quality of representation was high. The litigation was complex. The issues presented were novel, and the undertaking therefore risky. Finally, the outcome was of great benefit to a large class of needy people. All of these factors render an incentive award appropriate. Plaintiffs request a bonus of 50% of the lodestar amount. Particularly in view of the complexity of the litigation and the benefit to the class, I find such an award appropriate. Accordingly, the court entered a judgment for attorney's fees against petitioner in the full amount of $118,968. /3/ 3. The court of appeals affirmed in a brief unpublished memorandum (Pet. App. 1a-2a). The court of appeals held that the district court's review of time records submitted by respondent's counsel was sufficient to support the determination that the hours billed were neither duplicative nor unreasonable and that the hourly rates were fixed pursuant to the proper standard. In addition, the court of appeals upheld the bonus award, echoing the justifications given by the district court. SUMMARY OF ARGUMENT I A. The Civil Rights Attorney's Fees Awards Act of 1976 was enacted in response to Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240 (1975). There, the Court declined to fashion a "private attorney general" exception to the "American Rule" under which parties to civil litigation generally bear their own attorney's fees. Accordingly, the measure of the fee to be awarded in cases arising under the Act must be determined by the statutory standard of "reasonableness," viewed in light of the congressional intent. Congress described "a reasonable attorney's fee" as one that is "adequate to attract competent counsel, but * * * do(es) not produce windfalls to attorneys." S. Rep. No. 94-1011, 94th Cong., 2d Sess. 6 (1976). Compensation based upon a reasonable number of hours assessed at a reasonable hourly rate ordinarily should meet the statutory standard. The award of a bonus or multiplier over and above this amount is accordingly suspect; such an enhanced award exceeds the sum necessary to attract competent counsel and thus represents a windfall to attorneys. The Court's recent decision in Hensley v. Eckerhart, No. 81-1244 (May 16, 1983), reinforces this conclusion. The Court observed that a "fully compensatory fee" based on hours reasonably expended generally provides complete compensation even when counsel obtains "excellent results" for his client. Slip op. 11. Moreover, the Court precluded compensation for unsuccessful claims unrelated to those upon which the party has prevailed and directed that the fee be adjusted to exclude compensation for hours that are disproportionate to the results achieved. Use of bonuses and multipliers to enhance fees in circumstances that are anything short of extraordinary would effectively negate Congress' judgment that only prevailing parties are to recover fees. B. Under these principles the bonus award in this case should be set aside. The amount of the bonus alone -- 50% -- far exceeds the amount that Congress could have expected in litigation of this type. More important, the district court relied upon inappropriate considerations in bestowing the bonus. First, the novelty and complexity of the issues should have been fully reflected in the hours reasonably devoted to the litigation, and perhaps in the hourly rate as well. The high quality of the representation likewise should have been taken into account in the hourly rate awarded. Moreover, the extent of the benefit conferred on respondent's class was a function of the cause of action pleaded, the relief requested, and the skill with which litigating objectives were pursued -- all factors that should have been measured by the determination of hours reasonably expended and the appropriate hourly rate of compensation. The final basis for the bonus was the risk that respondent might not have succeeded in this action and that her counsel accordingly would have gone uncompensated. But multiplication of a compensatory award to adjust for the risk of non-success is inconsistent with Congress' judgment that only prevailing parties should be awarded fees and then only to the extent of their success. The effect of a contingency bonus is to underwrite the unsuccessful litigation activities undertaken by counsel and, in conflict with the decision in Hensley, to compensate counsel, albeit indirectly, for services rendered "whenever it was reasonable for a plaintiff to bring a lawsuit." Slip op. 11. This approach changes the statutory provision for recovery of attorney's fees by prevailing parties into a supplemental funding mechanism for non-fee-generating legal services. A contingency bonus is especially inappropriate when awarded to a non-profit legal services organization that does not accept fee-generating cases. Such an organization experiences no special risk of non-payment when it undertakes litigation of uncertain prospects. Thus, a bonus should not be needed to induce counsel to assume the risk of nonpayment in such cases. II The high hourly rates awarded to respondent's counsel in this case do not conform to the statutory standard. The rates reflect market levels of compensation (including profit) for profit-making attorneys and incorporate overhead and salary costs that are likely to exceed greatly those incurred by non-profit legal services organizations. Thus, these rates confer an unjustified windfall or subsidy upon legal services organizations. Moreover, because legal services organizations exist to provide legal services in cases such as those covered by a fee-shifting statute, the market rate does not provide a reliable measure of the fee needed to attract these organizations to undertake such representation. ARGUMENT I. A BONUS AWARD OR ATTORNEY'S FEES, IN ADDITION TO COMPENSATION AT A REASONABLE RATE FOR HOURS REASONABLY EXPENDED BY COUNSEL, IS ORDINARILY IMPROPER The court of appeals upheld the district court's augmentation -- by a bonus of 50% -- of a fee award that was based upon hours reasonably expended at a hourly rate determined to be reasonable. This multiplier was based upon (1) novelty and complexity of the issues, (2) quality of the representation, (3) quantity of the benefit conferred and the size of the beneficiary class, and (4) uncertainty of the outcome (Pet. App. 12a). We submit that, on the record of this case, the award of such a bonus conflicts with Congress' intent in authorizing an award of attorney's fees under 42 U.S.C. 1988. A. A Bonus Is Appropriate Only in Exceptional Circumstances 1. The backdrop for analysis of attorney's fee issues is Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240 (1975). There, the Court reaffirmed the continuing vitality of the "American Rule," holding that, absent a recognized common law exception or an Act of Congress directing otherwise, each party to civil litigation must bear its own legal fees. The Court thus rejected the "private attorney general" doctrine that had been advanced by some lower courts as a basis for awarding attorney's fees to prevailing plaintiffs in litigation deemed to further the public interest. In response to the Court's invitation in Alyeska to make explicit provision for an award of attorney's fees in appropriate cases (421 U.S. at 263-264, 271), Congress enacted the Civil Rights Attorney's Fees Awards Act of 1976, 42 U.S.C. 1988. That statute grants the courts discretionary authority to award "a reasonable attorney's fee as part of the costs" to any prevailing party other than the United States in civil rights litigation arising under specified statutes, including 42 U.S.C. 1983. Because Congress enacted the fee award provision as a result of the decision in Alyeska, the legislative history of 42 U.S.C. 1988 is focused primarily upon the availability vel non of attorney's fees, rather than the measure of those fees. See S. Rep. No. 94-1011, 94th Cong., 2d Sess. 1-5 (1976); H.R. Rep. No. 94-1558, 94th Cong., 2d Sess. 1-8 (1976); Awarding of Attorneys' Fees: Hearings Before the Subcomm. on Courts, Civil Liberties, and the Administration of Justice of the House Comm. on the Judiciary, 94th Cong., 1st Sess. (1975) (passim) (hereinafter "Awarding of Attorney's Fees"). Nevertheless, the Senate and House reports clearly identify the touchstone for determining the amount of a "reasonable" award of attorney's fees: "fees (should be) adequate to attract competent counsel but (should) not produce windfalls for attorneys." S. Rep. No. 94-1011, supra, at 6. See also H.R. Rep. No. 94-1558, supra, at 9 (fees awarded should be sufficient "to attract competent counsel in cases involving civil and constitutional rights, while avoiding windfalls to attorneys"). Congress thus directed the courts to ensure that fees are sufficiently compensatory that civil rights plaintiffs will be able to obtain representation, without being excessively generous. An award of attorney's fees computed by applying a reasonable hourly rate to the number of hours reasonably expended upon a successful claim should, by definition, be sufficient to attract competent counsel. Accordingly, absent exceptional circumstances, further enhancement of such an award -- particularly enhancement by an arbitrary, large multiplier such as the district court chose in this case -- suggests that a windfall is being provided to the prevailing party's counsel. 2. a. Hensley v. Eckerhart, No. 81-1244 (May 16, 1983), decided after the court of appeals' summary affirmance in the instant case, points in the same direction. The Court observed that the "most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation, multiplied by a reasonable hourly rate." Slip op. 9. The Court emphasized that under 42 U.S.C. 1988 -- and other similar statutes authorizing an award of attorney's fees to a prevailing party (see slip op. 8 n.7) -- no award is due for attorneys' time devoted to an unsuccessful claim not related to the one on which the party has prevailed, even though both are raised in a single lawsuit (slip op. 10; footnote omitted): The congressional intent to limit awards to prevailing parties requires that these unrelated claims be treated as if they had been raised in separate lawsuits, and therefore no fee may be awarded for services on the unsuccessful claim. Moreover, even when the various claims pursued by a prevailing party are intertwined, the fee award must be reduced if the hours expended are not justified by the results actually achieved, because "Congress has not authorized an award of fees whenever it was reasonable for a plaintiff to bring a lawsuit or whenever conscientious counsel tried the case with devotion and skill." Id. at 11. On the other hand, "(w)here a plaintiff has obtained excellent results, his attorney should recover a fully compensatory fee(,)" and "in some cases of exceptional success an enhanced award may be justified." Ibid. (emphasis added). The Court thus made clear in Hensley that the award of a fee embracing compensation for all hours reasonably expended at a reasonable hourly rate -- "a fully compensatory fee" -- is complete compensation for legal services rendered even in litigation in which the plaintiff has as a practical matter wholly prevailed in its objectives. Enhancement of this "fully compensatory fee" is presumptively unnecessary and may be warranted only in the event of truly extraordinary achievements through litigation. This suggests that it will be a rare case indeed that warrants any enhancement of the basic compensatory fee award. And even in such exceptional cases the amount of any bonus should be relatively slight. The Court recognized in Hensley (slip op. 10-11) that any deviation from the success criterion in computing the amount of any attorney's fee would effect a fundamental departure from the congressional mandate and would risk converting 42 U.S.C. 1988 into a subsidy mechanism for all nonfrivolous civil rights litigation. b. To be sure, the Court also indicated in Hensley (slip op. 9 n.9) that, in adjusting the amount of a fee award, the district courts might consider, in addition to the "results obtained," the other factors discussed by the Fifth Circuit in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-719 (1974). /4/ In Johnson the court reviewed numerous factors, derived from the provisions of the American Bar Association's Code of Professional Responsibility, that govern determination of a permissible fee for retained counsel. The considerations discussed were grouped under 12 headings: (1) The time and labor required; (2) The novelty and difficulty of the questions; (3) The skill requisite to perform the legal service properly; (4) The preclusion of other employment by the attorney due to acceptance of the case; (5) The customary fee; (6) Whether the fee is fixed or contingent; (7) Time limitations imposed by the client or the circumstances; (8) The amount involved and the results obtained; (9) The experience, reputation, and ability of the attorneys; (10) The "undesirability" of the case; (11) The nature and length of the professional relationship with the client; (12) Awards in similar cases. The Johnson court did not suggest, however, that any of these factors should serve as a bonus or multiplier mechanically applied to augment a basic award computed by reference to the number of hours reasonably expended and a reasonable hourly rate. Moreover, as the Court observed in Hensley (slip op. 9 n.9), many of the additional factors mentioned in Johnson are typically "subsumed within the initial calculation of hours reasonably expended at a reasonable hourly rate." A review of the Johnson factors bears out the Court's warning against double counting. For example, time and labor required, time limitations imposed by the client, and the novelty and difficulty of the questions are all factors subsumed within the number of hours reasonably expended on a claim. Similarly, the skill of the lawyer, the preclusion of other employment, the customary fee, and the experience, reputation and ability of the attorney generally are taken into account by the hourly rate determination. See Northcross v. Board of Education, 611 F.2d 624, 642-643 (6th Cir.), cert. denied, 447 U.S. 911 (1980); Ramos v. Lamm, Nos. 82-1531 and 82-1544 (10th Cir. June 15, 1983), slip op. 23 n.10. Accordingly, any enhancement of a fee award by a bonus or multiplier must be carefully scrutinized to ensure that the award conforms to the standard announced by Congress and does not represent an impermissible windfall to a prevailing party's counsel. 3. The legislative history of the attorney's fees provisions of 42 U.S.C. 1988 further supports the view that any bonus component of a fee award should be modest in size. In addition to citing Johnson (see page 9 note 4, supra), the Senate Report cited three district court decisions said to "correctly appl(y)" the Johnson standards in fixing a fee award. S. Rep. No. 94-1011, supra, at 6; see Hensley v. Eckerhart, supra, slip op. 5 & n.4. In Davis v. County of Los Angeles, 8 Empl. Prac. Dec. (CCH) Paragraph 9444, at 5047 (C.D. Cal. 1974), the district court added a "Result Charge" of $7,193.32 to the basic award of $39,868.00 for "Attorney's Time" at the "normal hourly rates," commenting that counsel had "achieved excellent results for the plaintiffs and the represented class" and that "(t)he nature of the case made it difficult to litigate" (8 Empl. Prac. Dec. at 5048). In Stanford Daily v. Zurcher, 64 F.R.D. 680 (N.D. Cal. 1974), aff'd, 550 F.2d 464 (9th Cir. 1977), rev'd on other grounds, 436 U.S. 547 (1978), the district court ruled that "the contingent nature of compensation, the quality of the attorneys' work, and the results obtained by the litigation warrant(ed) increasing the base fees figure (hours worked times average billing rate)" of $37,500 by $10,000. 64 F.R.D. at 688. /5/ And in Swann v. Charlotte-Mecklenburg Board of Education, 66 F.R.D. 483 (W.D. N.C. 1975), the district court did not explicitly compute a fee award based upon hours reasonably expended, nor was a separate bonus or multiplier employed. Rather, the court simply reviewed nine factors, similar to those listed in Johnson, and reduced the fee award requested by the prevailing party by roughly 15%. The court stated that the amount requested "would be reasonable" but that it "would prefer to err on the conservative side in dealing with any fee question" rather than "contribute unnecessarily to the overpricing of litigation in this or any other court." 66 F.R.D. at 486. It is, of course, perilous to attribute great weight to the particular circumstances of district court cases mentioned in passing in a legislative report. But it is significant that, in the three cases cited by the Senate Report, one lowered the fee award requested by counsel and the other two added bonuses of only 20% or 25%. Thus, in approving the results in Swann, Davis and Stanford Daily, the Senate Report conveyed Congress' desire that bonus awards of attorney's fees should not be automatic and that any bonus component should be modest in amount so as to prevent "windfalls to attorneys" (S. Rep. No. 94-1011, supra, at 6). B. The Bonus Award In This Case Was Improper 1. The bonus award in this case is inconsistent with the foregoing principles. The amount ($39,656) and size (50%) of the bonus award is itself entirely at odds with Congress' expressed intention to avoid excessive payments to attorneys. /6/ Whatever may be the justification for some adjustment of an award in a proper case, nothing in the district court's findings suggests that the presentation in this case was so extraordinary as to warrant payment of attorney's fees to respondent's counsel representing nearly 400 hours of time that was not in fact expended. In any event, the factors cited by the district court in bestowing the 50% bonus do not support that part of the fee award, because they either give double weight to factors already accounted for in the determination of the reasonable hourly rate and the hours reasonably expended, or are otherwise impermissible. a. For instance, the novelty and complexity of the issues should be fully reflected in the amount of time expended. If the issues were genuinely complex or difficult the amount of hours reasonably devoted to the matter would increase. If, on the other hand, it could credibly be determined that, because of the special skill, experience, or insight of counsel, complex issues were digested, researched, and presented in less time than a competent advocate would be expected to take, that fact might properly be reflected in the determination of the reasonable hourly rate. Here, however, the court made no finding that the number of hours for which fees were allowed failed to reflect fully the burdens assumed by counsel, or that counsel, possessed special ability that was not considered in the hourly rate assigned -- a rate, it is worth repeating, that was 100% of the rate requested by respondent's counsel. b. Nor do the district court's findings justify enhancement of the basic fee award to reflect the quality of respondent's counsel's performance. The district court did remark that "(t)he quality of representation was high" (Pet. App. 12a). But given the hourly rates awarded, averaging nearly $100 per hour for relatively junior attorneys, such high quality representation may not properly be deemed an exceptional factor that warrants augmentation of the award. Assuming that quality of representation is reflected in the extent to which the prevailing party achieves its litigating objectives, a "fully compensatory fee" award is adequate even for excellent results; only "exceptional success" may justify an "enhanced award." Hensley v. Eckerhart, supra, slip op. 11. And assuming further that the skill of counsel determines whether his client either succeeds in some measure or fails entirely, in some class of cases, the skill that permits such success is amply rewarded by the fact that an award of counsel fees is based on the time expended on successful claims. In any event, upon no view of the law could "(a) quality adjustment (be) appropriate (unless) the representation is unusually good or bad, taking into account the level of skill normally expected of an attorney commanding the hourly rate used to compute" the basic fee award. Copeland v. Marshall, 641 F.2d 880, 893 (D.C. Cir. 1980) (en banc) (emphasis in original). /7/ The district court did not find that respondent's counsel's special skill either made possible a victory that otherwise would not have been attainable or was responsible for a greater degree of success than merely competent counsel could have achieved. A fortiori, there was no finding that respondent's counsel's skill was not fully reflected in the rates at which their hours were compensated. c. A third factor cited by the district court to support the substantial bonus award was the extent of the "benefit to a large class of needy people" (Pet. App. 12a). Again, to the extent that this factor has any bearing upon the determination of a proper attorney's fee, it should be fully accounted for in the award of fees at a reasonable hourly rate for time reasonably devoted to the successful claim. The extent of the benefit conferred on the respondent and her class may be relevant in determining how many hours it was appropriate to expend upon the matter. See Hensley v. Eckerhart, supra, slip op. 11-12. This factor may also shed light upon the type of attorney resources it was appropriate to employ -- and thus upon the hourly rate at which it is reasonable to compensate counsel. It does not follow, however, that the benefit conferred should be recognized a second time in the form of a multiplier. The extent of the benefit conferred by litigation may fairly be regarded as the product of two factors: the nature and magnitude of the relief sought in the complaint and subsequent pleadings (including any class-wide relief) and the party's success in achieving his stated objectives. If a demand for elaborate or class-wide relief complicates the litigation, it should be fully reflected in the hours expended thereon. The skill of counsel in bringing litigation objectives to fruition is likewise already reflected in the basic award; if the degree of success is "exceptional" it may warrant some modest degree of "enhance(ment)" of the award, but no more. See Hensley v. Eckerhart, supra, slip op. 11. Moreover, as this Court is aware, a party's success in litigation all too often is attributable neither to counsel's decisions in framing his objectives nor to the quality of the advocacy employed in achieving those objectives. There is no reason to provide counsel extra compensation in those circumstances. Such an unearned increment is precisely the kind of windfall that Congress forbade in prescribing the standard for attorney's compensation. See pages 7-8, supra. The benefit conferred on the prevailing party accordingly provides no basis for multiplication of a reasonable attorney's fee under the statutory standard. Indeed, the legislative history of the Civil Rights Attorney's Fee Awards Act indicates that Congress intended to divorce the amount of attorney's fees from a district court's often subjective assessment of the benefit conferred. /8/ Congress directed that fees not be reduced because the rights involved are nonpecuniary in nature (S. Rep. No. 94-1011, supra, at 6) or because the award of money damages makes recovery of fees superfluous (H.R. Rep. No. 94-1588, supra, at 8-9). Plainly, Congress did not want the courts to attempt assigning a dollar value to nonmonetary relief for purposes of determining a commensurate fee award. /9/ Thus, it is inappropriate to award attorney's fees on the basis of the benefit conferred, whether the case involves monetary or nonmonetary relief. 2. The final factor cited by the courts below in justifying the substantial bonus award was the uncertainty (at the outset) whether respondent would prevail in the litigation. Pet. App. 3a, 12a. Although this contingency factor is commonly mentioned as a basis for enhancement of a compensatory fee award, /10/ it is difficult to reconcile with the provisions of the Civil Rights Attorney's Fees Awards Act, especially when the plaintiff is represented by a non-profit legal services organization that does not forego fee-generating work in undertaking litigation covered by the Act. a. The rationale for the use of a contingency multiplier has been stated by the United States Court of Appeals for the District of Columbia Circuit: An attorney contemplating representation of a Title VII plaintiff must recognize that no fee will be forthcoming unless the litigation is successful. An adjustment in the lodestar, therefore, may be appropriate to compensate for the risk that the lawsuit would be unsuccessful and that no fee at all would be obtained. Copeland v. Marshall, supra, 641 F.2d at 892. The problem with this explanation is that awarding extra compensation for the risk of losing a case circumvents Congress' determination that fees should be awarded only to prevailing parties. This Court recently underscored the strength of that policy in Hensley in ruling that no fee award should be made for claims upon which a party does not prevail, if unrelated to successful claims, and that, even when a party succeeds in some measure upon a claim or constellation of related claims, fees must be reduced if the results achieved do not warrant the expenditure of time involved. Slip op. 10-11. And in Ruckelshaus v. Sierra Club, No. 82-242 (July 1, 1983), the Court reaffirmed this strong presumption by holding that "a successful party need not pay its unsuccessful adversary's fees" absent "a clear showing that this result was intended." Slip op. 5. Yet, the effect of compensating a party that prevails for the risk that he might not have done so is indirectly to compensate that party (or, more aptly, his counsel) for unsuccessful litigation. For example, if the chance of success in a particular case in which a party actually prevails were adjudged (with hindsight) to have been 50% at the time the complaint was filed, a risk multiplier of two might be justified on the theory espoused in Copeland. Assuming the risk assessment were accurate, it could be expected that counsel would succeed in one out of every two similar cases filed. The effect of doubling counsel's fee recovery for prevailing in the first case is indistinguishable from paying for the time counsel devotes to its hypothetical unsuccessful twin. See Leubsdorf, The Contingency Factor in Attorney Fee Awards, 90 Yale L.J. 473, 491-493 (1981). /11/ If, as the Court stated in Hensley (slip op. 10; footnote omitted), "(t)he congressional intent to limit awards to prevailing parties requires that (claims) unrelated (to a successful claim) be treated as if they had been raised in separate lawsuits, and therefore (that) no fee may be awarded for services on the unsuccessful claim," it follows that the award made for legal services in connection with a successful claim must not cross-subsidize other unsuccessful litigation. Similarly, indirectly to compensate counsel for their unsuccessful litigation efforts cannot be reconciled with the Court's insistence that "Congress has not authorized an award of fees whenever it was reasonable for a plaintiff to bring a lawsuit * * *." Hensley v. Eckerhart, supra, slip op. 11. Congress was aware of the significant policy choice made in limiting fees to prevailing parties under the Civil Rights Attorney's Fees Awards Act. At the House Hearings covering the bill ultimately enacted (along with other proposed legislative responses to this Court's Alyeska decision), Representative Seiberling remarked: Mr. Chairman, since these hearings do concern circumstances under which it would be appropriate to make one side in a lawsuit pay for the legal expenses of the other side, some people may conclude that the hearings are intended to promote the special interests of lawyers. Perhaps that is so to the extent it promotes the interests of successful lawyers who make the right judgments or who handle a case properly so that they win. But it certainly is not calculated to promote the interests of lawyers who make the wrong judgment or who make an ineffective presentation or who are on the wrong side of a lawsuit * * *. Awarding of Attorneys' Fees, supra, at 8. See also 122 Cong. Rec. 33314 (1976) (remarks of Sen. Kennedy) (lawyer's "fee is contingent not only upon his success, but also upon the discretion of the judge before whom he appears"). Similarly, a representative of the "public interest bar" emphasized that fees would be limited to compensation for litigation that actually succeeds, stressing that the act did not contemplate a system of underwriting civil rights litigation. Peter H. Schuck of the Consumers Union explained (Awarding of Attorneys' Fees, supra, at 166-167 (emphasis added)): (T)he award of fees in the kind of cases we are discussing is both efficient and equitable. It is efficient in a very real sense, because what it does is to award public interest litigation by targeting incentives to a particular service and vindicating a particular Federal law. It does not subsidize public interest groups. It does not give them generalized support for activities, some of which Congress may support and some of which Congress may not. But, as I say, it targets it to a particular objective, upon which Congress has spoken. Mr. Schuck emphasized that the purpose of awarding fees to a prevailing party under the statute is to "reward() a 'public interest law firm' directly for its role in vindicating the law in a particular situation" (id. at 158; emphasis added). Thus, Congress did not intend to relieve counsel of the risk of noncompensation for services rendered in connection with unsuccessful lawsuits. The routine use of contingency multipliers frustrates this feature of Section 1988 by establishing a disguised subsidy for the litigation programs of self-appointed guardians of the public interest. We are not unaware that "(n)o one expects a lawyer whose compensation is contingent upon his success to charge, when successful, as little as he would charge a client who in advance had agreed to pay for his services, regardless of success" (Cherner v. Transitron Electronic Corp., 221 F. Supp. 55, 61 (D. Mass. 1963)). But the contingency multiplier designed to compensate for the risk of nonsuccess is typically, as in this case, a mechanical and rather arbitrary upward adjustment of an award that already has been determined to be fully compensatory. /12/ It does not represent an attempt to determine the hourly rate of compensation that is reasonable in light of the contingency factor by an objective standard, such as practices in the market regarding fees for contingent representation. See Leubsdorf, The Contingency Factor in Attorney Fee Awards, supra, 90 Yale L.J. at 491. /13/ Of course, to the extent it can be shown that the contingent nature of a fee actually affects the reasonable hourly rate, that factor should be incorporated into the determination of the basic compensatory fee award. We note in this connection that some element of contingency allowance is built into market rates for attorney's services, which necessarily cover hours that cannot be billed for one reason or another directly to a client. See Copeland v. Marshall, supra, 641 F.2d at 917-919 (Wilkey, J., dissenting). Moreover, as the district court observed in Stanford Daily v. Zurcher, supra, 64 F.R.D. at 682, which was cited with approval in the Senate Report, "an increase in the attorneys' fees because the chances of success (and for fees) at the beginning of litigation appeared slight is implicitly if not explicitly an increase due to the high caliber of the attorneys' representation." As explained above (page 13), that quality factor should be fully and fairly reflected in the hourly rate applied to determine the compensatory fee award. But any additional enhancement of the fee award to reflect the risk of non-success is inconsistent with Congress' decision to limit fees to successful claims and to avoid windfalls to attorneys. /14/ Finally, a contingency factor based on the district court's assessment of the plaintiff's chances of success at the outset of the lawsuit has the perverse effect of punishing defendants who have a strong (but ultimately losing) case while rewarding plaintiffs who pursue claims that seem unlikely to succeed. See Leubsdorf, supra, 90 Yale L.J. at 488-491; Note, supra, 80 Colum. L. Rev. at 375. This tends to coerce defendants to settle non-meritorious claims for fear of large attorney's fees and to induce plaintiffs to litigate insubstantial cases in the hope of obtaining awards enhanced by a hefty bonus. Congress could not have intended to encourage this conduct in enacting Section 1988. b. The status of respondent's counsel makes the contingency bonus awarded by the district court particularly inappropriate. Respondent was represented by the Legal Aid Society of New York, presumably without cost to herself or to the members of the class. Respondent's counsel's only hope for compensation, therefore, rested upon the statutory authority for award of a fee against petitioner. Ordinarily, when a lawyer engaged in private practice agrees to represent a client on such terms he may have to forego fee-generating employment. Some adjustment in the hourly rate of compensation to reflect the greater risk of nonpayment as compared to the private attorney's normal practice may be reasonable in such cases. /15/ By contrast, in the case of a legal services organization that does not solicit fee-paying clients, there is no more financial risk in undertaking civil rights litigation than in other work. Therefore, a contingency multiplier cannot be justified on the ground that it is necessary to attract counsel to undertake litigation subject to Section 1988. As the Second Circuit recognized subsequent to the decision below: Although a component of a bonus for risk of failure may be appropriate in some cases to entice private firms to undertake difficult cases in which victory is uncertain, we believe that the promise of such rewards is not needed to induce non-profit organizations like the Legal Aid Society and the Civil Liberties Union to take on such cases. These organizations exist to represent groups like the (plaintiff) class, with constitutional claims at the cutting edge of the law. New York State Ass'n for Retarded Children, Inc. v. Carey, No. 82-7531 (June 15, 1983), slip op. 4598. /16/ II. THE DISTRICT COURT ERRED IN AWARDING FEES BASED ON HOURLY RATES UNRELATED TO THE COSTS OF A NON-PROFIT LEGAL SERVICES ORGANIZATION Petitioner argued below that the hourly rates employed by respondent in computing her request for attorney's fees were exorbitant. The district court concluded, however, that the requested rates, ranging between $95 and $105 per hour, were not excessive, stating that the "rates requested here are consonant with fee awards in cases of similar complexity and difficulty" (Pet. App. 8a). The court gave no consideration to the fact that the legal services were provided by a non-profit organization that unquestionably incurs costs significantly lower than the rates awarded. In our view, this approach affords respondent's counsel an impermissible windfall. 1. As noted earlier in connection with the bonus issue, in enacting 42 U.S.C. 1988 Congress instructed the courts to award "fees (that) are adequate to attract competent counsel, but which do not produce windfalls to attorneys" (S. Rep. No. 94-1011, supra, at 6; see also H.R. Rep. No. 94-1558, supra, at 9). In the case of attorneys engaged in private practice, it may be reasonable to employ the prevailing market rate for legal services provided by retained counsel as a rough and ready measure of the fee that is necessary to induce lawyers to engage in the kinds of litigation covered by Section 1988. The market rate should reflect the opportunity cost to private counsel of accepting civil rights cases in lieu of pursuing other available engagements (see page 21 note 15, supra). It thus serves as a convenient guide to the level of compensation needed to attract competent counsel, as well as the level of compensation that should be regarded as a windfall. Private market hourly rates necessarily include three elements: compensation for the billing attorney, the attorney's share of overhead expenses, and some profit for the attorney's firm. Use of such rates for non-profit organizations necessarily overcompensates the organization, however, because non-profit organizations are, by definition, not profit seekers. As the Second Circuit recently observed, "the profit component is a questionable ingredient in a 'reasonable' fee for a non-profit law firm." New York State Ass'n for Retarded Children, Inc. v. Carey, supra, slip op. 4589. And as the Second Circuit also observed, "the two remaining components of a private firm's billing rate would often reflect much higher expenses than those incurred by a non-profit office." Ibid. An award to a non-profit organization of fees computed at the prevailing market rate thus results in grossly excessive compensation -- a result "explicitly proscribed in the legislative history of section 1988." Id. at 4590. Moreover, in the case of a non-profit organization created to provide the kind of legal services covered by a fee-shifting statute, the private market rate for legal services does not reflect accurately either the level of fees needed to attract competent counsel or the level that will constitute a windfall. Precisely because such organizations do not accept conventional fee-generating engagements, the market rate does not measure their opportunity costs. See page 22, supra. And because of the non-profit status of the organization, any amount by which the fee awarded exceeds the cost of delivering the service is impermissible. The purpose of the Civil Rights Attorney's Fees Awards Act, after all, is simply to ensure that "citizens * * * have the opportunity to recover what it costs them to vindicate (their) rights in court" (S. Rep. No. 94-1011, supra, at 2; emphasis added). We do not suggest that a non-profit legal services organization is barred from receiving a reasonable attorney's fee. See New York Gaslight Club, Inc. v. Carey, 447 U.S. 54, 70 n.9 (1980); cf. Washington v. Seattle School District No. 1, No. 81-9 (June 30, 1982), slip op. 30 n.31. But in such cases the statutory standard of reasonableness must be applied with an appreciation that the law "does not require things which are different in fact * * * to be treated * * * as though they were the same." Tigner v. Texas, 310 U.S. 141, 147 (1940). Legal services attorneys are as competent and qualified as attorneys in the private sector, and their work is plainly important; but the undeniable fact is that the costs of such organizations fall far below the fees of private attorneys, and it is the latter that determine the market rate. Accordingly, Section 1988 should be interpreted to mean that a legal services organization may fully recover its costs of undertaking the representation -- that is, an award of attorney's fees should be based upon the average salary and overhead expenses of the organization, rather than market rates for legal services. /17/ Payment of fees at unrealistically high hourly rates is particularly indefensible to the extent that legal services organizations are supported by public funds. /18/ To be sure, awarding fees to such organizations based on market rates will free public resources for other organization activities. /19/ But this device arrogates to the courts a decision that belongs to Congress and state legislatures. Assuming that additional funding of legal services organizations is desirable, it is not appropriate for courts to mandate such funding by awarding fees far in excess of the costs of counsel. This is especially true with respect to public defendants: in that situation, fees for non-profit organizations based on market rates essentially represent a public subsidy for legal services groups beyond that voted by the legislature. 2. Nothing in the legislative history of the Civil Rights Attorney's Fees Awards Act of 1976 sanctions the award of fees that produce a windfall for non-profit legal services organizations. We are aware that the Senate Report cited Davis v. County of Los Angeles, supra, as "correctly appl(ying)" the "appropriate standards" for determining the amount of a fee (see pages 10-11, supra), and that the court in Davis held that "(i)t * * * is not legally relevant" that counsel there were employed by a "privately funded non-profit public interest law firm." 8 Empl. Prac. Dec. at 5048-5049. But Davis did not focus upon the question whether fees should be awarded at market rates even where those rates substantially exceed the legal services organization's actual cost of services. Moreover, the Senate Report also cited Swann v. Charlotte-Mecklenburg Board of Education, supra, as applying the correct standard. In Swann the district court indicated (66 F.R.D. at 486) that the fee awarded to a non-profit firm representing the prevailing plaintiff was less than that charged by the defendant's private firm for similar services that were not even successful. See New York State Ass'n for Retarded Children, Inc. v. Carey, supra, slip op. 4587. The court in Swann reduced the plaintiff's fee request to avoid "contribut(ing) unnecessarily to the overpricing of litigation." 66 F.R.D. at 486. Accordingly, these cases do not provide a reliable guide to congressional intent on this issue. /20/ Indeed, the House Hearings on the fee-shifting bills that led to enactment of the Civil Rights Attorney's Fees Awards Act contain several statements that would have given Congress reason to expect that the fees awarded under the Act generally would be less than prevailing market rates for commercial legal services. For instance, Representative Wiggins suggested that the "reasonable attorney's fee fixed should be reduced to accommodate the professional duty which the bar holds to a certain class of litigants." Awarding of Attorney's Fees, supra, at 76. A "public interest" lawyer who handled fee-generating cases testified that "(m)y office bills at between $30 and $40 an hour, which is far below the market rate in the District of Columbia." Id. at 140 (testimony of Bruce J. Terris). And another witness associated with a non-profit legal organization remarked: "I do not think I have seen anyone writing in this area who contemplates the situation in which Covington & Burling simply sends its bill to the losing party in a case in which its client won. I think the judge would have to retain some discretion to determine the degree to which the fees were reasonable." Id. at 227 (testimony of Philip J. Mause). Mr. Mause recognized that private agreements as to a suitable rate of compensation would not be controlling, adding: "(p)resumably the winning party might, under a contract with his own attorney, pay money in addition to that which was awarded from the loser." Ibid. This testimony undercuts any suggestion that Congress mandated an inflexible market rate approach to computing attorney's fees that must be applied to a non-profit organization without regard to its costs. And when the costs of such an organization diverge significantly from the prevailing market rate for private legal services, as there is ample reason to believe they frequently do, only a cost-based approach to fee awards can assure that the award made is "fully compensatory" (Hensley v. Eckerhart, supra, slip op. 11) without conferring a windfall or subsidy upon the plaintiff's counsel. 3. In Johnson v. Georgia Highway Express, Inc., supra, 488 F.2d at 719, the Fifth Circuit warned against the corrosive effects of excessive attorney's fees awards in terms that bear repetition: (C)ourts must remember that they do not have a mandate under (a fee-shifting statute) to make the prevailing counsel rich. Concomitantly, the (statute) should not be implemented in a manner to make the private attorney general's position so lucrative as to ridicule the public attorney general. The statute was not passed for the benefit of attorneys * * *. To appreciate the significance of this reminder, it should be noted that, at the time the legal services in this case were rendered, the average cost to the taxpayer of United States Department of Justice legal services (including attorneys' salaries, support staff salaries, and other overhead) ranged from $27.48 per hour for a newly hired attorney without experience to $48.28 per hour for the most senior litigating personnel. See Copeland v. Marshall, supra, 641 F.2d at 912 n.10 (Wilkey, J., dissenting). The disparity between these cost levels and the market rates awarded by the district court to relatively junior legal services attorneys -- that is, the disparity between the compensation awarded the public and private attorneys general -- suggests that the courts below failed to fulfill their obligation to limit fees to the level needed to attract competent counsel and to avoid windfalls to attorneys. CONCLUSION The judgment of the court of appeals should be reversed. Respectfully submitted. REX E. LEE Solicitor General J. PAUL MCGRATH Assistant Attorney General KENNETH S. GELLER Deputy Solicitor General CAROLYN B. KUHL Deputy Assistant Attorney General JOSHUA I. SCHWARTZ Assistant to the Solicitor General WILLIAM KANTER MARK W. PENNAK Attorneys AUGUST 1983 /1/ We will omit "Supp. V" in subsequent references to this section. /2/ We follow the usage of the district court in stating that the fee application was made on behalf of respondent's counsel. Pursuant to 42 U.S.C. 1988, the award is actually made to the prevailing party. We assume that respondent has agreed to pay any award to her counsel and that respondent is not otherwise obligated to the Legal Aid Society for the cost of her representation. /3/ The district court also rejected petitioner's contentions that the fee award should be reduced on the ground that respondent did not prevail on all issues or in all procedural phases of the litigation (Pet. App. 9a-11a). This contention was not pressed on appeal and is not before this Court. /4/ The House and Senate Reports on the Civil Rights Attorney's Fees Awards Act cite Johnson as listing the factors to be considered in fixing a fee award. H.R. Rep. No. 94-1558, supra, at 8; S. Rep. No. 94-1011, supra, at 6. /5/ Although the district court did not explain how it had translated these factors into the stated dollar amount, it emphasized that the various Johnson factors overlap and that "recognition of their overlap (is needed to avoid) unnecessary inflation of the attorneys' fees award." 64 F.R.D. at 682. /6/ See, e.g., New York State Ass'n for Retarded Children, Inc. v. Carey, No. 82-7531 (2d Cir. June 15, 1983), slip op. 4597 (reducing bonus award from 25% to 10% despite the "high quality of (counsel's) work and the inherent complexity of the litigation"). /7/ See A. Miller, Attorneys' Fees in Class Actions 374-377 (1980) (skill and experience should determine hourly rate and "quality adjustment" should only reflect unusual performance in particular case). /8/ The statutory basis for attorney's fees under Section 1988 differs in this respect from the "common fund doctrine," which constitutes a judge-made exception to the American Rule. Under the common fund doctrine, a court may permit a party that "preserv(es) or recover(s) a fund for the benefit of others in addition to himself, to recover his costs, including his attorneys' fees, from the fund or the property itself or directly from other parties enjoying the benefit." Alyeska Pipeline Co. v. Wilderness Society, supra, 421 U.S. at 257 (footnote omitted); see also Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980); Trustees v. Greenough, 105 U.S. 527, 533 (1881). Courts have considered the amount of the benefit in awarding fees under the common fund doctrine, although it is doubtful that the amount of the benefit is relevant to the calculation of a reasonable fee even in this context. See Berger, Court Awarded Attorneys' Fees: What is "Reasonable?", 126 U. Pa. L. Rev. 281, 298-300, 316-318 (1977). It is notable that recent decisions awarding attorney's fees in class actions under Fed. R. Civ. P. 23 evince a trend away from basing fees on the amount of the benefit; the courts instead have looked increasingly to the product of a reasonable rate and the hours expended. See A. Miller, Attorneys' Fees in Class Actions 13-14, 60-61 (1980). /9/ Determining the fee award on the basis of the extent of the benefit is inherently arbitrary in many cases covered by Section 1988. There is no principled way to measure the dollar value of nonmonetary relief in civil rights cases, see Berger, supra, 126 U. Pa. L. Rev. at 316, and ad hoc evaluation of the magnitude of the benefit conferred and the commensurate fee provides no guidance to courts or litigants in subsequent cases. /10/ See, e.g., Copeland v. Marshall, supra, 641 F.2d at 892-893; Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 540 F.2d 102, 116-117 (3d Cir. 1976) (en banc). Lindy Bros. is one of the leading cases endorsing the use of contingency multipliers and bonuses generally. But it was decided under the common fund exception to the American Rule, not Section 1988 or any other fee-shifting statute. See Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161, 165 (3d Cir. 1973). See page 15 note 8, supra. /11/ Laffey v. Northwest Airlines, Inc., No. 2111-70 (D.D.C. July 29, 1983), offers a good illustration. In that case, the district court found that plaintiffs' counsel had reasonably expended approximately 11,100 hours pursuing a sex discrimination claim. Slip op. 33-34. This led to a "lodestar" attorney's fee of approximately $1.48 million. Id. at 81. The court then approved a "risk adjustment" of 100% after determining that plaintiff's chances of prevailing were approximately 50% when the case was filed. Id. at 55, 83. By doubling the attorney's fees to account for this contingency factor, the court compensated plaintiffs' counsel for the equivalent of more than five years of attorney's time spent on unsuccessful cases. /12/ District courts face nearly insurmountable difficulties in determining what the chance of success was at the outset of a lawsuit. Leubsdorf, The Contingency Factor in Attorney Fee Awards, supra, 90 Yale L.J. at 485-488; Note, Promoting the Vindication of Civil Rights Through the Attorneys' Fees Awards Act, 80 Colum. L. Rev. 346, 375 (1980). See also page 14, supra. Thus, it is doubtful that this factor can help determine a "reasonable fee" with any degree of accuracy, objectivity, or consistency. /13/ As the District of Columbia Circuit acknowledged in Copeland v. Marshall, supra, 641 F.2d at 893: "Contingency adjustments of (the) sort (it prescribed) are entirely unrelated to the 'contingent fee' arrangements that are typical in plaintiffs' tort representation." /14/ Congress' endorsement (see page 9 note 4, supra) of the factors discussed by the court of appeals in Johnson v. Georgia Highway Express, Inc., supra, does not indicate support for the kind of contingency multiplier employed in this case. True, one of the headings listed in Johnson was "Whether the fee is fixed or contingent" (488 F.2d at 718). But the Fifth Circuit stated not that this consideration warrants enhancement of a compensatory fee by application of a multiplier, but only that this factor should be taken into account in determining the amount of a compensatory fee. Moreover, the court's discussion under this heading suggests that it did not contemplate contingency multipliers designed to compensate counsel for the risk of nonsuccess. Rather, the court simply indicated that "(t)he fee quoted to the client or the percentage of the recovery agreed to is helpful in demonstrating the attorney's fee expectations when he accepted the case." Ibid. The contingency factor also was mentioned in Stanford Daily v. Zurcher, supra, cited in the Senate Report (see page 11, supra), but this was simply one factor among several invoked in support of a relatively modest bonus. Other cases cited by the Senate Report with approval did not include a contingency multiplier. /15/ The normal hourly rates charged by counsel engaged in private practice reflect the fact that the client is expected to pay the fee regardless of the outcome of the case. If recovery of fees depends on the client's success, it may be necessary to allow a slightly higher hourly rate to induce lawyers engaged in private practice to undertake cases covered by Section 1988. This assumes, of course, that absent the inducement to undertake civil rights litigation provided by Section 1988, the lawyer would have sufficient fee-generating work fully to occupy his time. /16/ Accord: McManama v. Lukhard, 464 F. Supp. 38, 43 (W.D. Va. 1978), aff'd, 616 F.2d 727 (4th Cir. 1980); Cole v. Tuttle, 462 F. Supp. 1016, 1019 (N.D. Miss. 1978); McCormick v. Attala County Board of Education, 424 F. Supp. 1382, 1388 (N.D. Miss. 1976). /17/ See Copeland v. Marshall, supra, 641 F.2d at 923-930 (Wilkey, J., dissenting); Glover v. Johnson, 531 F. Supp. 1036 (E.D. Mich. 1982); Page v. Preisser, 468 F. Supp. 399 (S.D. Iowa 1979); Alsager v. District Court, 447 F. Supp. 572 (S.D. Iowa 1977); cf. New York State Ass'n for Retarded Children, Inc. v. Carey, supra, slip op. 4586-4594; see also Comment, Calculation Of A Reasonable Award Of Attorneys' Fees Under The Attorneys' Fees Awards Act of 1976, 13 J. Mar. L. Rev. 331, 363 (1980). /18/ The Legal Services Corporation Act imposes some restriction on its grantees' pursuit of fee-generating cases, including those covered by fee-shifting statutes. See 42 U.S.C. (Supp. V) 2996f(b)(1). This restriction, however, is subject to exceptions created by the Legal Services Corporation regulations, see 45 C.F.R. 1609.4 (1982), and, where applicable, applies only to the actual use of federal funds rather than the grantees' other activities. /19/ See, e.g., Hensley v. Eckerhart, supra, slip op. 6 n.6 (Brennan, J., concurring in part and dissenting in part); Copeland v. Marshall, supra, 641 F.2d at 899. /20/ The House Report reflects Congress' judgment that persons represented by non-profit legal services organizations should not for that reason be denied any award of fees. H.R. Rep. No. 94-1558, supra, at 8 n.16. See New York Gaslight Club, Inc. v. Carey, supra, 447 U.S. at 70 n.9. But nothing in the House Report suggests that a court computing the amount of such award must be oblivious to the windfall that results when a fee award is based on market rates well in excess of the organization's costs. Incarcerated Men of Allen County Jail v. Fair, 507 F.2d 281 (6th Cir. 1974), and Torres v. Sachs, 69 F.R.D. 343 (S.D. N.Y. 1975), aff'd, 538 F.2d 10 (2d Cir. 1976), cited in the House Report for the proposition that fees should not be denied to parties with organizational counsel, do not address the measure of fees for such parties. To be sure, Fairley v. Patterson, 493 F.2d 598 (5th Cir. 1974), which was cited for the same proposition, and the court of appeals' decision in Torres, do go further, holding that the amount of the fees should not be reduced. But neither case reflects consideration of the windfall potential inherent in the uncritical award of fees at market rates.