U.S. Federal Labor Relations Authority

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21:0932(109)AR - U.S. Customs Service and NTEU, Chapter 136 -- 1986 FLRAdec AR

[ v21 p932 ]
The decision of the Authority follows:

 21 FLRA No. 109
                                            Case No. 0-AR-908
                         I.  STATEMENT OF THE CASE
    This matter is before the Authority on an exception to the
 supplemental award of attorney fees by Arbitrator Ira F. Jaffe filed by
 the Union under section 7122(a) of the Federal Service Labor-Management
 Relations Statute and part 2425 of the Authority's Rules and
    In his initial award in this matter, the Arbitrator found that the
 parties' collective bargaining agreement clearly required that the
 grievant should have been temporarily promoted for a period she
 performed the duties of a higher-graded position and that in settlement
 of the grievance the Agency had also agreed by letter that the grievant
 was entitled to backpay for the full period.  The Arbitrator concluded
 that the Agency violated the terms of the grievance settlement and the
 collective bargaining agreement by its failure to pay the grievant at
 the higher rate of pay for the period.  The Arbitrator awarded the
 grievant backpay for the period and retained jurisdiction of the matter
 for the limited purpose of entertaining an application for attorney
 fees.  The Union filed a request for fees pursuant to 5 U.S.C. Section
 5596 /1/, 5 U.S.C. Section 7701(g), /2/ and the applicable provision of
 the parties' agreement.  The attorney claimed compensation for 66.9
 hours at $95 per hour, the prevailing rate in the geographic area for a
 labor attorney with his experience.
    In his supplemental award, the Arbitrator found that there was no
 dispute that the grievant was the prevailing party.  The Arbitrator,
 citing O'Donnell v. Department of the Interior, 2 MSPB 604, 608-10
 (1980), also found that attorney fees had been incurred by the employee.
  The Arbitrator further found that under the decision of the Merit
 Systems Protection Board (MSPB) in the Allen v. U.S. Postal Service, 2
 MSPB 582 (1980), /3/ attorney fees were warranted in the "interest of
 justice" because the Agency's failure to abide by its earlier grievance
 settlement agreement and its repudiation of the basis for its earlier
 payments to the grievant were wholly unfounded;  because the Agency knew
 or should have known that it would not prevail on the merits;  and
 because the Agency's action was clearly without merit.
    With regard to the actual amount of reasonable fees to be awarded,
 the Arbitrator found that the number of hours claimed by the Union
 attorney was reasonable.  As to the reasonableness of the rate, however,
 the Arbitrator found, based on Goodrich v. Department of the Navy, 733
 F.2d 1578 (Fed. cir. 1984), cert. denied 105 S. Ct. 958 (1985) and Wells
 v. Schweiker, 12 MSPB 329 (1982), that an award of fees at the
 prevailing market rate to salaried union counsel would not be
 "reasonable" and would be at odds with the purposes of the Back Pay Act
 and 5 U.S.C. Section 7701(g).  The Aribtrator further found taht both
 Wells and Goodrich support the proposition that the make whole purposes
 underlying the statutory attorney fee provisions involved do not support
 payment of market-rate fees to salaried union attorneys because such
 fees would provide the union with a windfall profit.  The Arbitrator
 further found that creation of a special litigation fund by the Union
 into which attorney fees were to be paid did not overcome those
 considerations.  The Arbitrator therefore concluded that recovery of
 attorney fees in this case was limited to the actual cost of the
 attorney's salary plus an overhead cost allowance.  On that basis, the
 Arbitrator awarded 66.9 hours of attorney fees at the cost-plus rate and
 reimbursement of the attorney's travel costs.
                              III.  EXCEPTION
                              A.  Contentions
    In its exception, the Union contends that the award of attorney fees
 is deficient because 5 U.S.C. Section 7701(g)(1) requires that an
 arbitrator must base an award of reasonable attorney fees on the
 prevailing market rate.  In support of its contention, the Union argues
 that under the Civil Rights Act of 1964, the Freedom of Information Act
 and the Privacy Act, provisions for an award of reasonable attorney fees
 are construed as an entitlement to fees at the market rate and,
 therefore, any award of reasonable attorney fees under 5 U.S.C. Section
 7701(g)(1) also must be based on such a rate.  The Union also argues
 that the concerns raised by the court in National Treasury Employees
 Union v. U.S. Department of the Treasury, 656 F.2d 848 (D.C. Cir. 1981),
 and by the MSPB in Powell v. Department of the Treasury, 8 MSPB 21
 (1981), have been resolved by the Union's establishment of a Legal
 Services Program (LSP).  In the NTEU case, the court found that an
 attorney employed by a union could not receive legal fees in excess of
 the union's actual expenses in providing the particular services because
 the union compensated the attorneys at well below the going value of
 their services on the open market and that the union therefore would
 profit on the legal activities of its lawyers, contrary to the American
 Bar Association's Code of Professional Responsibility, under any
 arrangement whereby market value fees found their way into the union's
 general treasury.  The Union in this case maintains that any attorney
 fees recovered will be set aside for the LSP and used solely to litigate
 the rights of Federal employees before administrative and judicial
 tribunals.  Therefore, the Union argues, the LSP should qualify for
 treatment as a public interest organization or legal services firm and
 be compensated under the market-rate formula.
                       B.  Analysis and Conclusions
    In determining what constitutes reasonable attorney fees, courts have
 applied a variety of methods and analyses.  An example of a method
 acceptable to administrative adjudicatory agencies and most courts is
 the "lodestar" method, in which the attorney's customary hourly billing
 rate is multiplied by the number of hours reasonably devoted to the case
 with appropriate adjustments for any special factors.  Naval Air
 Development Center, Department of the Navy and American Federation of
 Government Employees, Local 1928, AFL-CIO, 21 FLRA No. 25 (1986), slip
 op. at 9.  This is the method ordinarily applied by the MSPB in
 determining reasonable attorney fees under 5 U.S.C. Section 7701(g)(1)
 when the attorney involved is in private practice, e.g., Kling v.
 Department of Justice, 2 MSPB 620, 624-28 (1980), and applied by the
 Authority in reviewing an arbitrator's award of fees to an attorney in
 private practice.  Naval Air Development Center, slip op. at 12.
    Where, however, the attorney is an employee of a union, a different
 method must be applied in computing reasonable fees under 5 U.S.C.
 section 5596 and 5 U.S.C. Section 7701(g)(1).  Where such fees are to be
 paid to a union, the fees are computed based on actual costs rather than
 on the prevailing market rate for the legal services rendered.  Further,
 a special fund created by a union into which all fees awarded to
 union-employed attorneys would be paid and expended solely for legal
 work does not entitle the union to market rate fees under 5 U.S.C.
 Section 5596 and 5 U.S.C. Section 7701(g)(1) for the services of its
 staff.  Id. at 10, citing Goodrich and NTEU v. Department of the
 Treasury.  Among the reasons for limiting fees for salaried union
 attorneys under those statutory provisions to recovery of actual costs
 is, as the Arbitrator in this case recognized and the MSPB held in Wells
 v. Schweiker, 12 MSPB at 333:
          (T)o award more . . . than that which is available under the
       cost-plus method would be inconsistent with the language and
       purpose of 5 U.S.C. Section 5596(b)(1)(A)(ii), the fees provision
       of the Back Pay Act.  An attorney fee award ordered under that
       provision may not exceed the cost reasonably incurred by or on
       behalf of the employee for legal representation.  Cf. 5 U.S.C.
       Sectoin 7701(g).  This is consistent with the general purpose of
       the Back Pay Act to "make whole" employees who had suffered a loss
       in salary and benefits as the result of an improper personnel
       action.  Senate Report No. 1062, 89th Cong., 2nd Sess. (1966) 1-2.
        Nothing in the Civil Service Reform Act indicates that Congress,
       in amending section 5596, intended to deviate from this basic
       principle.  Thus, section 5596 clearly limits the recovery of
       costs for legal expenses incurred by or on behalf of employees to
       the expense they suffered as a result of the action.  It is not
       intended to provide a union with a windfall profit for the
       performance of services which it was created to provide and by
       their dues its members support.
    In this case it is undisputed that the attorney who represented the
 grievant was an employee of the Union.  Consequently, as the Arbitrator
 determined consistent with 5 U.S.C. Section 5596 and 5 U.S.C. Section
 7701(g)(1), reasonable attorney fees for his services were limited to
 providing for reimbursement of the actual costs /4/ of those services.
    Therefore, the Authority concludes that the Union has failed to
 establish that the Arbitrator's award of reasonable attorney fees on the
 cost-plus basis is deficient as alleged.  /5/
                               IV.  DECISION
    Accordingly, for the above reasons, the Union's exception is denied.
    Issued, Washington, D.C., May 22, 1986.
                                       /s/ Jerry L. Calhoun, Chairman
                                       /s/ Henry B. Frazier III, Member
                                       FEDERAL LABOR RELATIONS AUTHORITY
                ---------------  FOOTNOTES$ ---------------
    (1) 5 U.S.C. Section 5596 provides in part:
           Section 5596.  Back pay due to unjustified personnel
    (b)(1) An employee of an agency who, on the basis of a timely appeal
 or an administrative determination (including a decision relating to an
 unfair labor practice or a grievance) is found by appropriate authority
 under applicable law, rule, regulation, or collective bargaining
 agreement, to have been affected by an unjustified or unwarranted
 personnel action which has resulted in the withdrawal or reduction of
 all or part of the pay, allowances, or differentials of the employee --
          (A) is entitled, on correction of the personnel action, to
       receive for the period for which the personnel action was in
       effect --
          (ii) reasonable attorney fees related to the personnel action
       which, with respect to any decision relating to an unfair labor
       practice or a grievance processed under a procedure negotiated in
       accordance with chapter 71 of this title . . . shall be awarded in
       accordance with standards established under section 7701(g) of
       this title(.)
    (2) 5 U.S.C. Section 7701(g)(1) (1982) provides:
    Except as provided in paragraph (2) of this subsection, the Board . .
 . may require payment by the agency involved of reasonable attorney fees
 incurred by an employee . . . if the employee . . . is the prevailing
 party and the Board . . . determines that payment by the agency is
 warranted in the interest of justice, including any case in which a
 prohibited personnel practice was engaged in by the agency or any case
 in which the agency's action was clearly without merit.
    (3) In Allen, the Board set forth some examples of circumstances in
 which attorney fees would be warranted in the interest of justice,
 including situations:
          - where the agency's action was "clearly without merit," or was
       "wholly unfounded," or the employee is "substantially innocent" of
       the charges brought by the agency;  and
          - where the agency "knew or should have known it would not
       prevail on the merits" when it brought the proceeding.
    (4) With regard to the computation of actual costs, there are three
 elements to be considered:  the compensation paid to the attorney
 employee for the time expended on the case;  out-of-pocket expenses
 related to the case;  and overhead costs.  Additionally, as to overhead
 costs, in the absence of evidence that an allowance of 100 percent of
 the attorney's compensation for overhead is substantially excessive or
 insufficient, such an overhead allowance may normally be included as an
 element of actual costs.  Powell v. Department of the Treasury, 8 MSPB
 at 28-30.
    (5) The Authority notes that the Arbitrator established in a fully
 articulated and reasoned decision that an award of reasonable attorney
 fees was warranted in accordance with the applicable legal requirements
 as summarized by the Authority in Naval Air Development Center.