ADKINS, J.
In this appeal we address how courts should determine the amount of attorneys' fees to be awarded in suits by homeowners associations against property owners to collect annual assessments in cases where recovery of fees is governed by contractual provisions in the homeowners agreement. Petitioner homeowners associations (the "Associations") appeal the amount of attorneys' fees awarded to them by the Circuit Courts for Harford and Prince George's Counties. These courts assessed the reasonableness of the attorneys' fees requested by the Associations and correctly declined to apply the "lodestar method" in calculating fees. We affirm.
The litigation in these cases stems from an attempt to collect attorneys' fees for services rendered to the Petitioners, three homeowners associations (the Monmouth Meadows Homeowners Association, the Constant Friendship Homeowners Association, both in Harford County, and the Montpelier Hills Homeowners Association, in Prince George's County). The legal services in question involved, among other things, the pursuit of delinquent homeowners association fees from residents living within each association (Tiffany Hamilton, Bode and Bonike Thomas-Ojo, and Kevin Tillery, respectively; collectively, the "Residents").
The facts in each case are similar. As a condition of membership in the Associations, the Residents were contractually obligated to pay annual assessments to the Associations. Delinquent assessments resulted in charged interest on past due amounts plus late fees.
Nagle & Zaller contacted the Residents in writing in an effort to resolve their situations, but the Residents did not make payments sufficient to settle their debts. Because the Residents were unable or unwilling to make the required payments, the Associations established and recorded liens on the Residents' properties in accordance with the Maryland Contract Lien Act ("CLA"), which allows for the creation of a lien on real property as the result of a breach of contract. See Md.Code (1974,
The Associations then initiated suits against the Residents in the District Court, sitting in Harford and Prince George's Counties. In each case, the Associations won affidavit judgments against the Residents in "largely uncontested" proceedings. The Associations also sought attorneys' fees from the Residents in those courts, calculated according to the "lodestar method," which 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.
On appeal, the Circuit Courts used different approaches in awarding fees in their respective cases. In the Hamilton and Tillery 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. In the Thomas-Ojos's case, the Circuit Court for Prince George's County discussed the lodestar method, found that it was not bound to use it, and also took into consideration the guidance presented by Rule 1.5 of the Maryland Lawyers' Rules of Professional Conduct. See Md. Rule 16-812. That court concluded that the fees requested by the Montpelier Hills Homeowners Association in that case were unreasonably high for the work actually required, and accordingly reduced the fee award to $300. Like the Circuit Court for Harford County, the court also declined to award fees incurred on appeal.
We granted certiorari to consider four questions,
As all of these cases were heard de novo in their respective Circuit Courts, we review what the Circuit Courts did, not the District Court. We will address the Petitioners arguments as they apply to the Circuit Courts' rulings, after we answer what we perceive to be the Petitioner's principal argument—that the lodestar method of determining attorneys' fees should have been applied in these cases.
We review a trial court's award of attorneys' fees under an abuse of discretion standard. See Myers v. Kayhoe, 391 Md. 188, 207, 892 A.2d 520, 532 (2006) (holding that when there are contract provisions requiring the award of attorneys' fees to the prevailing party, the amount of the fees to be award is "within the sound discretion of the trial court").
Our previous holdings with respect to attorneys' fees have emphasized that trial courts must routinely undertake an inquiry into the reasonableness of any proposed fee before settling on an award. See, e.g., Meyer v. Gyro Transp. Sys., 263 Md. 518, 531, 283 A.2d 608, 615 (1971) (holding that the award of "reasonable attorney's fees" contemplates "a judicial proceeding by the court for the purposes of ascertaining the amount which may reasonably be charged ....") (citations omitted). Contractual clauses providing for awards of specific amounts of attorneys' fees are generally valid and enforceable. See Myers, 391 Md. at 207, 892 A.2d at 532. Even where such a provision is not explicitly limited to reasonable fees,
The Associations argue that the proper way to calculate attorneys' fees in these cases is through the use of the lodestar method. As noted above, a court that uses the lodestar method to calculate a fee award begins by multiplying the number of hours reasonably spent pursuing a legal matter by "a reasonable hourly rate" for the type of work performed. See Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 1939, 76 L.Ed.2d 40 (1983), abrogated in part on other grounds, Gisbrecht v. Barnhart, 535 U.S. 789, 122 S.Ct. 1817, 152 L.Ed.2d 996 (2002). This amount is then adjusted by the court, depending on the effect of numerous external factors bearing on the litigation as a whole. For example, the Supreme Court has approved a list of twelve factors to be considered in a lodestar analysis in federal court:
Blanchard v. Bergeron, 489 U.S. 87, 91 n. 5, 109 S.Ct. 939, 943 n. 5, 103 L.Ed.2d 67 (1989) (citing Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717-19 (1974)). This Court has relied on these factors in lodestar calculations. See, e.g., Manor Country Club v. Flaa, 387 Md. 297, 313, 874 A.2d 1020, 1030 (2005). This approach may very well return a fee award that is actually larger than the amount in controversy, as occurred in both Hamilton's case and Tillery's case here.
We are not persuaded by the Associations' arguments that the lodestar method is applicable in these cases. We said in Friolo v. Frankel, 373 Md. 501, 504-05, 819 A.2d 354, 356 (2003), that the lodestar method of calculating attorneys' fees was generally appropriate in the context of fee-shifting statutes. This holding is justified by the public policy underlying most statutes that allow for fee-shifting. Fee-shifting provisions frequently apply in "complex civil rights litigation involving numerous challenges to institutional practices or conditions." Friolo, 373 Md. at 525, 819 A.2d at 368 (quoting Hensley, 461 U.S. at 436, 103 S.Ct. at 1941). As the Supreme Court of Alaska has observed, these provisions "are not policy-neutral. They are usually designed to encourage suits that, in the judgment of the legislature, will further public policy goals." State v. Native Village of Nunapitchuk, 156 P.3d 389, 403 (Alaska 2007) (footnotes omitted). A court's application of the lodestar method in these cases "is designed to reward counsel for undertaking socially beneficial litigation in cases where the expected relief has a small enough monetary value that [other methods] would provide inadequate compensation." Krell v. Prudential Life Ins. Co. of Am., 148 F.3d 283, 333 (1998).
The policy considerations mentioned above do not apply here because these cases do not involve a fee-shifting statute. The CLA simply permits attorneys' fees provided for in a contract
The Associations argue that the cases before us are sufficiently related to advancing the public interest to justify use of the lodestar method in determining reasonable attorneys' fees. The Associations claim that "[h]olding delinquent owners accountable for paying their share of association assessments supports social benefits that extend far beyond the association itself." They allege that they and other homeowners associations provide public services such as street maintenance and security, thus relieving local governments of those obligations.
We are unpersuaded that any tangential benefit the Associations may provide to local government or to the public is sufficient to justify use of the lodestar method in awarding the fees for their attorneys. With this argument, the Associations fail to apprehend a fundamental distinction between the legal liabilities incurred by the Residents in these cases and the legal wrongs that are the subject of public interest litigation under true fee-shifting statutes. The fact remains that this litigation arises from disputes between private parties over breaches of contract. Passage of a law by the General Assembly enabling parties to remedy breaches of certain contracts by the creation of liens on a breaching party's property does not constitute a legislative pronouncement that the contracts themselves are so infused with any public interest, or that breaches thereof represent any substantial threat to the public interest. The enactment of RP Section 14-203 merely reflects that the General Assembly chose, as it has done many times, to facilitate the enforcement of legitimate private contractual obligations. The procedure set forth in the statute for creating the lien does not imbue these private contracts with public interest significance of the level protected by the enactment of other fee-shifting statutes. See Friolo, 373 Md. at 526, 819 A.2d at 369 (quoting Pennsylvania v. Del. Valley Citizens' Council for Clean Air, 478 U.S. 546, 565, 106 S.Ct. 3088, 3098 (1986)) (holding that fee-shifting statutes are designed to "enable private parties to obtain legal help in seeking redress for injuries resulting from the actual or threatened violation" of duly enacted laws, and are not intended as "a form of economic relief to improve the financial lot of attorneys[.]"). We hold that the lodestar method is an inappropriate mechanism for calculating fee awards in private, contractual debt-collecting cases. Use of the lodestar method in such cases is inappropriate because they lack the substantial public interest justification underlying its application in the context of true fee-shifting statutes.
Our rejection of the lodestar approach does not mean that the time spent by the lawyers and a reasonable hourly rate should not be an important component of a court's analysis. Indeed, Rule 1.5(a) of the Maryland Lawyers' Rules of Professional Conduct, which lists factors that should be considered in determining the reasonableness of a fee, identifies "the time and labor required" first in a list of eight factors for determining a reasonable
In awarding attorneys' fees when the legal costs are passed on to a third party to the contract agreeing to the fees, trial courts may choose to consider the terms of the contract between the passing party and its attorneys (e.g., between the Associations and Nagle & Zaller). Trial courts are not bound by the monetary amounts in such contracts, however, and need not cleave to the contracts at all if they improperly influence the fee award. If a trial court chooses to consider contract terms, it also should carefully consider the nature of the work performed, and whether there is a risk that certain rote tasks (for example, the filling out and sending of form letters) are being billed at a higher than reasonable rate. This may occur, for example, in a fee contract like Nagle & Zaller's, which uses a hybrid method to determine the fee—with the rote tasks defined and paid by a flat amount and the other work billed at an hourly rate.
We hasten to say, however, that we do not opine on the reasonableness of the fee agreement between the Associations and
We now turn to the specific fee awards granted by the Circuit Courts for Harford County and Prince George's County. We begin this analysis with a review of the agreement between Nagle & Zaller with the Association regarding the fees they will charge for their collection services. The firm charged flat rates for many of the routine tasks involved, which were not tied to the hours spent, and may not have been performed by attorneys. These included the following:
Demand Letter $100.00 Balance Due Letter $ 50.00 Lien Warning Letter $175.00 Lien Warning Letter—Posting (if required) $ 75.00 Suit/Lien Warning Letter $175.00 Suit/Lien Warning Letter—Posting (if required) $ 75.00 Lien Statement Preparation $100.00 Lien Notification Letter $ 50.00 Suit/Foreclosure Warning Letter $175.00 Suit Warning Letter $175.00 Draft Letter & Monitor Informal Payment Plan $ 50.00 Confessed Judgment Note (Less than two years) $175.00 Confessed Judgment Note (Greater than two years) $275.00 Confessed Judgment Demand Letter $100.00 Non-Sufficient Funds Letter $ 50.00 Payoff Letter $125.00
The fee agreement specified that "[a]ll other time (telephone calls or meetings with delinquent owners, payment plan administration, follow-up letters, etc.) will be charged to the owner at the hourly rate of the person performing or reviewing the work."
The fee agreement included additional flat-rate charges if suit were filed:
Draft and File Complaint $300.00 Draft and File Amended Complaint $175.00 Reissue Complaint $ 50.00 Motion for Alternate Service $175.00 Complaint for Confessed Judgment $200.00 Confessed Judgment Affidavit (if required) $ 50.00 Motion to Amend Judgment $Hourly Interrogatories in Aid of Execution $100.00 Request for Oral Exam $ 50.00 Request for Show Cause $ 50.00 Request for Body Attachment for Contempt $ 50.00 Judgment Lien $ 50.00 Request for Garnishment (wages or bank account) $100.00 Request for Judgment Garnishment (bank account) $ 75.00
Post Judgment Demand Letter $100.00 Motion to Compel Answers to Interrogatories $ 75.00 Request for Foreign Judgment $150.00 Judgment Creditor's Report $ 75.00 Stipulation Agreement (Less than two years) $175.00 Stipulation Agreement (Greater than two years) $275.00 Stipulation Demand Letter $100.00 Motion for Default Judgment $200.00 Order and Review Credit Report $ 50.00 Real Property Search $ 25.00 Pretrial/Hearing Warning Letter $ 75.00
These flat rate charges were also increased by hourly charges for time spent in "trial preparation and trial."
The analysis by the Circuit Court for Prince George's County encapsulates the approach that we approve in this opinion.
Based on this reasoning, the court reduced the fee award to $300.
Although billing by the hour is perhaps the most well-accepted basis for an attorney's charge to his or her client, other than a contingency fee, Rule 1.5 suggests other factors to be taken into account. The Circuit Court found several reasons to reduce the fee from the amount charged by Nagle & Zaller—the ordinary nature of the suit, the absence of opposition, the relative inexperience of the attorney, and the small principal amount involved. Moreover, the Nagle & Zaller fee schedule is a hybrid one, which sets a flat fee for the rote tasks, increased by hourly charges for attorney time outside of these tasks. The Circuit Court may well have considered the resulting fee too high, particularly because the tasks for which flat fees were assigned had no component for labor expended, and could have been performed by administrative assistants or paraprofessionals. The Association had the burden of establishing that these flat fee amounts were reasonable for the task performed. See Myers, 391 Md. at 207, 892 A.2d at 532. Although $300 is certainly close to the low end of what we consider to be the range of the Circuit Court's discretion, the court used the correct legal standard in evaluating the reasonableness of the fee, and did not abuse its discretion.
The Circuit Court for Harford County used a similar approach in addressing Hamilton's and Tillery's cases. In Tillery's case, the court explicitly rejected the application of an arbitrary 15% of principal sought as a reasonable fee award. It appropriately recognized that the error in this approach lay in the automatic application
Instead, the court considered the services performed by the law firm, which were described on an exhibit offered by the Association as follows:
-------------------------------------------------------Attorney's Fees, Other Costs, and Court Costs ------------------------------------------------------- $ 50.00 Balance Due Letter (4/19/08) ------------------------------------------------------- $ 75.00 Settle Letter (7/24/08) ------------------------------------------------------- $100.00 (1.0) Paralegal Trial Preparation (7/31/08) ------------------------------------------------------- $210.00 (1.0) EKF Trial Preparation (7/31/08) ------------------------------------------------------- $378.00 (1.8) EKF Attend Trial (8/1/08) ------------------------------------------------------- $813.00 Total -------------------------------------------------------
These charges included and ended with the 1.8 hours that an attorney spent at the District Court trial, at which Mr. Tillery appeared. The court awarded the fees shown in this exhibit, but declined to award the fees requested by the Association for legal work after that point. The court explained that "it's always been my position that reasonable fees are those fees which are, given the nature of the services rendered, the degree of skill, and a whole bunch of other factors ... appropriate."
We reject the Associations's argument, relying on Friolo, that the Circuit Court erred in declining to award fees in connection with its appeals to that court. Although we held in Friolo that in performing a lodestar analysis on remand, the trial court must consider appellate fees incurred in successfully challenging the original fee award, we reiterate that this case does not call for the lodestar method. It does not involve a fee-shifting statute, which is enacted to "ensure that individuals, when injured by violations ... of certain laws, have access to legal counsel...." Friolo v. Frankel, 403 Md. 443, 457, 942 A.2d 1242, 1250 (2008) ("Friolo II"). Thus, the policy reasons for encouraging appeals of inadequate fee awards are not applicable. Of course, a circuit court, in its discretion, may award fees incurred in an appeal challenging a district court's fee award.
Hamilton's case followed much the same trajectory as Tillery's case, although the Circuit Court was more terse in its explanation.
The court declined to award the balance of the fees requested, which represented
We hold that the Circuit Courts in these cases acted within their discretion in making the fee awards that they did, and correctly rejected the approach adopted by the District Court of awarding attorneys' fees based merely on a percentage of principal sought. We also hold it improper to use the lodestar method in calculating attorneys' fees in contractual debt-collecting cases, and instead affirm the use of MRPC 1.5 as a rubric for determining a reasonable fee. We affirm the judgments of the Circuit Courts for Harford County and Prince George's County.
BATTAGLIA, J., joins in judgments only.
Md. Lawyers' R. Prof'l Conduct 1.5(a).
