[ v21 p932 ]
The decision of the Authority follows:
21 FLRA No. 109 U. S. CUSTOMS SERVICE Agency and NATIONAL TREASURY EMPLOYEES UNION, CHAPTER 136 Union Case No. 0-AR-908 DECISION 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 Regulations. II. BACKGROUND AND ARBITRATOR'S AWARD 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 action. (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.