Cite as FSM Dev. Bank v. Kaminanga ,12 FSM Intrm. 454 (Chk. 2004)

[12 FSM Intrm. 454]

CIVIL ACTION NO. 2002-1016

Decided: April 26, 2004

APPEARANCES:

HEADNOTES

Attorney, Trial Counselor and Client – Fees; Civil Procedure – Sanctions

Since for every hour in-house counsel spent on the plaintiff's successful motion to compel his employer lost an hour of legal services that could have been spent on other matters, it is therefore appropriate to award the employer reasonable attorney's fees under Rule 37. FSM Dev. Bank v. Kaminanga, 12 FSM Intrm. 454, 455 (Chk. 2004).

Attorney, Trial Counselor and Client – Fees; Civil Procedure – Sanctions

To award a party its attorney fees based upon its in-house counsel's salary prorated for the time spent on a successful motion to compel would be to confer a benefit on the non-prevailing party because the prevailing party choose to use in-house, rather than outside, counsel to do the work. There is no reason in law or equity that the non-prevailing party, or in the case of sanctions, the wrongdoer, should benefit from this choice. FSM Dev. Bank v. Kaminanga, 12 FSM Intrm. 454, 455 (Chk. 2004).

Attorney, Trial Counselor and Client – Fees; Civil Procedure – Sanctions

The entitlement to reasonable attorneys' fees is that of the client, not of his attorney. The amount the client actually pays his attorney is irrelevant, since the determination of what is a "reasonable" fee is to be made without reference to any prior agreement between the client and its attorney. The appropriate lodestar rate is thus the community market rate charged by attorneys of equivalent skill and experience for work of similar complexity. FSM Dev. Bank v. Kaminanga, 12 FSM Intrm. 454, 455-56 (Chk. 2004).

Attorney, Trial Counselor and Client – Fees; Civil Procedure – Sanctions

An attorney's fees award for in-house counsel will be no different than if the party had retained outside counsel for the work. FSM Dev. Bank v. Kaminanga, 12 FSM

[12 FSM Intrm. 455]

Intrm. 454, 456 (Chk. 2004).

COURT'S OPINION

MARTIN YINUG, Associate Justice:

This comes before the court on what appears to be an issue of first impression in the FSM. The plaintiff, FSM Development Bank, prevailed on a motion to compel discovery. Such a party is usually entitled to reasonable attorney's fees and costs as a sanction for the necessity to bring such a motion. FSM Civ. R. 37(a)(4). In this case, the bank was represented by in-house counsel, one of its regular salaried employees. While it would unquestionably be entitled to a fee award for the work done by a private attorney on its behalf, it was unclear whether it could be awarded attorney's fees for work done by its own full-time employee. The court therefore requested that the parties brief the issue.

The bank submitted its Memorandum of Law with supporting affidavit on March 17, 2004. The defendants did not submit a brief.

The bank contends that in the United States, where the statutes and rules (particularly Civil Rule 37(a)(4) under which fees are sought in this case) are similar, federal courts routinely award attorney's fees to parties represented by in-house counsel. The usual reasoning behind this is that "for every hour in-house counsel spent on this . . . [his employer] lost an hour of legal services that could have been spent on other matters." Textor v. Board of Regents of N. Ill. Univ., 711 F.2d 1387, 1397 (7th Cir. 1983); see also Revlon, Inc. v. Carson Prods. Co., 622 F. Supp. 362, 364 (S.D.N.Y. 1985); Scott Paper Co. v. Moore Business Forms, Inc., 604 F. Supp. 835, 837 (D. Del. 1985). That would appear to be the case here. Counsel could not provide the bank other legal services while he was working on its (successful) motion to compel. Since the Textor reasoning is sound, it is therefore appropriate to award the bank reasonable attorney's fees under Rule 37. The bank asks that these fees be calculated at the customary, prevailing hourly rate among local private law firms.

The alternative is to award the bank its attorney fees based upon its in-house counsel's salary prorated for the two hours and twenty-five minutes he spent on this problem. To do so would be to confer a benefit on the defendants because the bank choose to use in-house, rather than outside, counsel to do the work. Courts have concluded that there is no reason in law or equity that the non-prevailing party [or in the case of sanctions, the wrongdoer] should benefit from this choice. Zacharias v. Shell Oil Co., 627 F. Supp. 31, 34 (E.D.N.Y. 1984) (citing Pittsburgh Plate Glass Co. v. Fidelity & Cas. Co., 281 F.2d 538, 542 (3d Cir. 1980)). Similar reasoning was used in Plais v. Panuelo, 5 FSM Intrm. 319, 321-22 (Pon. 1992) to award the plaintiff attorney's fees as a part of statutory damages under 11 F.S.M.C. 701(3) even though plaintiff's counsel was a legal services corporation that did not charge its clients fees and was in part funded by the defendant government.

Such reasoning is persuasive. This is in part because "the entitlement to reasonable attorneys' fees is that of the [client], not of his attorney. The amount [the client] actually pays his attorney is irrelevant, since the determination of what is a `reasonable' fee is to be made without reference to any prior agreement between the [client and its attorney]." Illinois v. Sangamo Constr. Co., 657 F.2d 855, 861 (7th Cir. 1981) (citations omitted) (no reason to distinguish between private and public counsel in determining what is a "reasonable" fee – therefore fee award not based on portion of state attorneys' fees salaries reasonably devoted to the litigation, but on the prevailing market rate for attorneys with

[12 FSM Intrm. 456]

comparable skill, experience, and reputation). The appropriate lodestar rate is thus the community market rate charged by attorneys of equivalent skill and experience for work of similar complexity. See, e.g., Kean v. Stone, 966 F.2d 119, 124 (3d Cir. 1992). The bank will therefore be awarded attorney's fees no different than if it had retained outside counsel for the work.

One benefit of this approach is that it simplifies the calculation for the court – one objective calculation for all parties rather than a subjective (and time-consuming) judicial scrutiny of the method by which a particular party's counsel is compensated or of the represented entity's internal economics and salary structure. Another benefit is that it will discourage counsel's temptation to be dilatory, uncooperative, or obstructionist when salaried counsel represents the opposing party as it might be if the method opposing counsel is paid would lessen or eliminate any sanction for such behavior. It is therefore an appropriate rule of law for the Federated States of Micronesia.

The bank's counsel's claim of two hours and 25 minutes appears reasonable. One hundred ten dollars an hour is a reasonable and prevailing rate for the type of (routine) work performed. The court therefore awards the bank $265.73.