Richlin Security Service v. Chertoff - Oral Argument

Argument of Brian Wolfman

Chief Justice Roberts: We'll hear argument first this morning in Case 06-1717, Richlin Security Service versus Chertoff.

Mr. Wolfman.

Mr. Wolfman: Mr. Chief Justice, and may it please the Court: The Federal Circuit affirmed an award of attorney fees under the Equal Access to Justice Act, or EAJA, to Petitioner Richlin Security Services Company, but it denied Richlin an award for paralegal services at market rates on the ground that statutory attorney fees do not include work done by paralegals.

The Federal Circuit was wrong because, as this Court has explained, the statutory term "attorney fees"... and now I'm quoting...

"takes into account the work not only of attorneys but others whose labor contributes to the work product for which an attorney bills her client. "

Employing that reasoning the Court held, in Missouri versus Jenkins, that paralegal fees are compensable at market rates as attorney fees under 42 U.S.C. section 1988.

The question in this case is whether there is any reason EAJA should be interpreted differently.

The answer is no.

And, indeed, the only potentially relevant difference between the two statutes... that EAJA requires fees to be awarded at prevailing market rates, and section 1988 requires only that fees be reasonable... provides stronger support for market-based recovery of paralegal fees under EAJA than it would under section 1988.

Justice Ginsburg: Mr. Wolfman, what about the cap that's not present in 1988 and is present in EAJA?

Mr. Wolfman: Well, Justice Ginsburg, that really is, when we get down to it, what the government's argument boils down to.

And I think the cap is irrelevant for two reasons, both of which are important.

First, and let me... let me first state the argument; then I'll give you the answers.

But the argument that the government posits is... taking a lead from the Federal Circuit... is that paralegal services can't be compensable at market rates under EAJA because then paralegal services would be fully or largely compensable, while lawyers' fees to the extent that they exceed the cap would not be.

And again there are two answers to that: First, the argument incorrectly looks at EAJA from today's perspective when lawyers' rates generally exceed the fee cap.

Justice Scalia: Excuse me.

The paralegals' rates would also be subject to the... to the cap.

Mr. Wolfman: Absolutely.

Justice Scalia: They couldn't go above the cap.

Mr. Wolfman: There is no question about that because... because, Your Honor, they are attorney's fees.

Justice Scalia: Okay.

Mr. Wolfman: That's our submission.

But... but the problem with looking at it at the current vantage point, which is what the Federal Circuit essentially did, is that at the time EAJA was enacted, most lawyers--

Justice Stevens: May I just ask on that last point, does the government agree that the paralegals' fees are subject to a cap?

Mr. Wolfman: --Well, the government would certainly agree that if there are attorney's fees, they are subject to the cap.

They are not willing to pay above the cap for anything.

Justice Scalia: Indeed, would insist.

Mr. Wolfman: Yes, indeed, Your Honor.

But at any rate--

Justice Stevens: But they do not agree with the bottom line that they are subject to cap?

Mr. Wolfman: --Well, what they believe... the government--

Justice Stevens: --attorney's fees.

Mr. Wolfman: --And I'm sure they can explain this better than I can.

But what the government's position is, is that they are like an out-of-pocket expense--

Justice Scalia: Right.

Mr. Wolfman: --reimbursable only at the cost to the lawyer.

That's an interesting question, Your Honor, because one could... one could posit a situation 20, 30 years out from now, if EAJA were not amended, where even the cost to the lawyer could exceed the cap.

So, in a way, the government's argument sort of collapses upon itself.

We... we... our submission is they are all attorney's fees and they are all subject to the cap.

But let me go--

Justice Souter: But you... isn't that one of the problems with your argument?

Because there is something very strange about capping paralegal fees at the same amount that they would cap a lawyer's fees for, regardless of what that amount is and when they were setting it.

Mr. Wolfman: --Well, again, that's... that's... I took to be Justice Ginsburg's question and let me try to answer it.

First, as I say, by... by positing that's a strange situation, which we don't agree with, but even assuming it's a strange situation, again it looks at the situation from today's perspective, not at the time--

Justice Souter: No, I'm looking at it from the perspective of the original enactment on your theory at that moment.

These fees were legal fees, were attorney fees, and they were capped at the same amount that a lawyer's time was capped at.

And that's just odd.

Mr. Wolfman: --Well, I don't believe it's odd.

And, again, for two reasons: At that point... again, you have to take the perspective where they are at.

Lawyers' fees and paralegal fees were really capped at the same point, but all those fees were arrayed, by and large, under the cap so that there would be paralegal fees at a relatively low rate, junior associates at a modest rate, and the senior partner's closer to the cap.

Justice Scalia: Well, agent fees--

Mr. Wolfman: By and large--

Justice Scalia: --I mean, the problem exists whether or not you make paralegal fees attorney's fees, because agent fees are also subject to the same cap.

Mr. Wolfman: --That is true.

Justice Scalia: And agents were paid a good deal less than that.

Mr. Wolfman: That is true.

That is another argument that could be made.

Agents, who are individuals that are qualified by an administrative agency, in essence, to practice law without the supervision of a lawyer, they are also allowed fees under the administrative part of EAJA, but not under section 2412, which is the court part of EAJA.

Justice Kennedy: You began... and it's not just because of my notepad but because I'm interested... you told Justice Ginsburg there are two reasons--

Mr. Wolfman: Yes.

Justice Kennedy: --why the government's cap is wrong.

And I'm not even sure you finished the first one.

What are the two reasons?

Mr. Wolfman: I would love that opportunity, Your Honor.

The first, again, is,... and let me come back to this if I didn't get it out completely... which is that, again, it's looking at the... at the problem, if there is one from the... the current-day perspective, but what you had at the time, by and large, was that lawyers' and paralegal rates would be arrayed below the cap.

It's just not something that would have been within the contemplation of Congress.

But let me--

Justice Stevens: But may I ask you this?

Mr. Wolfman: --Yes.

Justice Stevens: Supposing at the time the statute was enacted, paralegals' fees were not generally treated as lawyers' fees, but rather were disbursements, does that make a difference?

Mr. Wolfman: That might have made a difference, but that was not the case, Your Honor.

In fact, what the Court pointed out in Missouri versus Jenkins, which was 1989, nine years later, paralegal fees... it appeared to be that they were separately billed in about three-quarters of all law firms.

In 1980 it was probably fewer.

There was a transition going on.

But let me give you the Court's response to that problem in Missouri versus Jenkins, to the extent that it is a problem.

And what the Court said was, whether they're separately billed or not, they were subsumed within the lawyer's rates like other forms of overhead.

That's what the Court said in Missouri versus Jenkins.

And the question of how they are billed doesn't... doesn't inform the question of how you interpret the term "attorney's fees".

That's what the Court said in Missouri versus Jenkins and what it reaffirmed two years later in the West Virginia Hospitals versus Casey.

Now, let me, if I could, get to the second point which Justice Kennedy asked me about.

The second point is that the government's argument proves far too much, because under the Federal Circuit's theory, which the government has now adopted, the fees generated by law firm associates would also not be compensable at market rates because a much higher percentage of an associate's billed rate would also fall below the cap as compared to the senior partners in the firm.

In other words, it doesn't help explain the problem.

Chief Justice Roberts: I'm sorry.

Is your point there that most associates are billed at less than $125 an hour?

Mr. Wolfman: No.

That's not my point, Your Honor.

My point is this: The... the theory of the government's argument is that you would... you would be, in essence, giving too much recovery to the lower... to the lower-billed billing agents, whether they be paralegals, junior associates, and so forth.

And it... when you get up to the senior partners--

Chief Justice Roberts: Too much money proportionally.

Mr. Wolfman: --Proportionally.

Chief Justice Roberts: Okay.

Mr. Wolfman: Exactly.

That's the argument.

In all events, some of those various individuals' rates will be compensated under EAJA.

Our point is that it proves far too much because the junior associates are much more like the paralegals than the senior associates at the largest K Street or Wall Street law firm.

And my only point... my only submission... point in that regard is that it shows that the government's argument proves too much because it illustrates that the government's concern and the Federal Circuit's concern, the anomaly that they have pointed out, has nothing to do with the statutory term "attorney fees" and nothing to do with paralegals, per se.

It's the phenomenon that's at work is the fact that the rate... the hyperinflation in the legal services market as a whole has outstripped EAJA.

That's the phenomenon on which the Federal Circuit, in truth, was relying, even though they put it to the paralegal question.

Justice Alito: If... if paralegal charges are not fees but are other expenses, what would be the standard for determining the rate at which they would be compensable?

Would it necessarily be cost under this statute or would it simply be what is reasonable?

Mr. Wolfman: Well, that's... that's an excellent question.

I think it, in part, undermines the government's position because what happened here is that the Federal Circuit and the Board of Contract Appeals below said, well, it's cost to the lawyer, and we are going to do an Internet search and we are going to find what paralegal salaries are and divide it by the requisite number of hours in any year.

And we are going to make it $35 an hour, and we are going to determine that's the cost to the law firm.

But, of course, that's... that's not the cost to the law firm.

What about the overhead?

What about the rent, utilities, and so forth, what about benefits?

So what you would have is a very complex cost analysis.

Now, you're suggesting, Your Honor, that we could do it on some vague notion of reasonableness.

But the problem is that the... the fee-shifting statutes either look to market rate or actual cost.

But what is interesting about the actual cost argument here... and that's true across the entire range of fee-shifting statutes... and what's interesting about--

Justice Scalia: This problem is going to exist anyway, isn't it?

I mean, even if you don't cram paralegals into the other expenses, there are going to be other expenses that are in the other expenses.

Mr. Wolfman: --But--

Justice Scalia: You're going to have to have this same problem... and what about the overhead and so forth?

Mr. Wolfman: --No, that is... with respect, Justice Scalia, that is not correct because the problem here is... and I'm using your words... is that the government is cramming a in-house professional services... service into a place where no court virtually in the history of American jurisprudence has ever put it.

Out-of-pocket--

Justice Alito: Well, if... if it's simply reasonableness... because I don't see anything in the statute that says that all non-fee expenses are compensable at cost... if it's simply reasonableness, would it be possible to say that what would be reasonable would be a rate that preserves the ratio between attorneys' fees and paralegal fees that existed at the time when the statute was enacted so that you wouldn't have the problem of attorneys being compensated at the same rate as paralegals?

Mr. Wolfman: --Let me... let me answer that in two ways: If you were to preserve the ratio, then it seems to me that the... in many markets, the paralegals are going to get right near the cap anyway or, you know, between $75 and $100, because we know that many lawyers' rates are well above the cap... if you preserve that ratio--

Justice Alito: No.

No.

If the ratio... if lawyers were... I know that if lawyers were compensated at $125 an hour when this was enacted and paralegals were compensated at $75, then it would be a 2-1 ratio, and you'd preserve that.

Mr. Wolfman: --Yes.

You could do that, and what you would have is just a static rate for all players in the market, and there's no suggestion that Congress intended that.

After all, I using the term "prevailing market rates"--

Justice Scalia: Am I to understand, you claim that even if they are expenses, they should... they should be paid for at market rate, don't you?

Mr. Wolfman: --Well, not quite market rate, but this goes to... I said I had two responses to Justice Alito's question.

And the problem is that when we talk about out-of-pocket expenses, again, which is where the government is trying to shoe-horn the paralegal services, we talk about out-of-pocket expenses for the client, for the prevailing party.

Expenses, whether they are out-of-pocket expenses or attorney fees are... are awarded to the prevailing party, and the cost faced by the prevailing party is the cost to the prevailing party, what it paid for the paralegal services.

Now, that will approximate the market rate, no question about it.

It might not always be synonymous with it.

Justice Alito, I am not suggesting that Congress could not have done it that way, but there is no suggestion that it did.

After all, in this statute, compared to other fee-shifting statutes, it specifically said it wants to work at the prevailing market rate.

And the only reason that in some markets for some lawyers the... the ceiling, the cap has become a floor is because of hyperinflation in the legal services market.

It has nothing to do with the compensability of paralegal services vis-a-vis junior associates, as I've mentioned.

Justice Ginsburg: Mr. Wolfman, if there's any discretion in the district judge in setting the amount of the fee, then why wouldn't it be appropriate to say, now there's a cap for the lawyer is $125 an hour, but we know the true market rate for that lawyer is $200?

Does it do the same thing with the paralegal?

The true market rate is X, and we're going to knock it down so that it will match the knock-down for the lawyer?

Mr. Wolfman: Well, the reason for that is... is that there... there is no suggestion at all that that's what was being contemplated in this statute.

And that may be the way that if you had seen this phenomenon that's developed, which again is hyperinflation in the legal services market, you might have written it that way.

It's true that the courts have discretion.

There's always a reasonableness factor.

But the overriding factor is the market rate.

The Congress said "prevailing market rate".

And to me, that would be outside the bounds of any discretion that had been afforded.

Justice Ginsburg: But isn't it likely that when Congress said that, it was not thinking of paralegals.

Mr. Wolfman: No.

I think... I don't think... with respect, I don't think that's the question.

Going back... that takes us back to Missouri versus Jenkins, and what the Court said there is that you have this word "attorney's fee", and the way of thinking of attorney's fees is to include everything that goes into the labor of the attorney that ultimately gets billed to the client and that paralegal services are an aspect of that.

Two years later, in West Virginia University Hospitals, the Court made... made essentially the same point again, which is that... that at the time that all these fee-shifting statutes were passed, paralegal services, to the extent that they existed, were traditionally subsumed within the lawyer's rate.

And so that once law firms started billing for them separately--

Chief Justice Roberts: I'm sorry.

"Traditionally subsumed in the lawyer's rate. "

are you suggesting, when this statute was passed, they weren't billed separately to the client?

Mr. Wolfman: --No.

I'm not suggesting that.

I'm saying traditionally, well before they were passed, they were subsumed to the market rate.

There... there came to be a tradition, roughly in the '70s and early '80s, for the separate billing.

And what the Court held emphatically in Missouri versus Jenkins was that the separate billing didn't tell you anything about whether there were attorney's fees.

Let me... let me... if I could extend my answer a little bit.

Appreciating what the government's argument is here, the government's argument is that if the paralegal fee, the paralegal services, are subsumed within the lawyer's rate, if there were a law firm out there that still didn't do the separate billing, that would be compensable as an attorney's fees when billed within the lawyer's rate.

But if they're billed separately under EAJA, the government's position is they're not compensable at lawyers' rates.

Justice Scalia: Of course, that's no loss to the government because when you put it into the lawyer's rate, you hit the ceiling for the lawyer's rate that much sooner.

Mr. Wolfman: That is true--

Justice Scalia: It seems like that would be--

Mr. Wolfman: --but that was not true in 1980.

Justice Scalia: --Right.

Mr. Wolfman: And that's the point we are making here.

And it's true that it may not be, in this day and age--

Justice Souter: I'm sorry.

Why wasn't it true in 1980?

You simply mean in 1980 the two together wouldn't have gotten as high as the cap?

Mr. Wolfman: --Absolutely.

If you... in most markets for most lawyers... we deal with this extensively in our brief.

We cite case after case to this effect.

And I think... and I don't mean to be glib here... I think the way to put this, that in 1980 and 1985, that the statute covered virtually all lawyers' fees rather comfortably on Main Street, if not necessarily on K Street and Wall Street.

I mean... and that's what the statute was for.

I know it's hard to appreciate that now, when we see, you know, very high rates from the large law firms, but put yourself back in that perspective, which is... in that vantage point, which we try to do in our brief.

Justice Kennedy: Assume that our decision will in part drive the market either way, what we do will effect the way paralegals are used, the way billing is done.

If that is true, is there some utility in simply following the EAJA so we give a consistent signal to the market and then if Congress wants to change it, it can?

I mean--

Mr. Wolfman: I'm not sure I understand the question.

Justice Kennedy: --Rather than follow EAJA, I mean follow 1988, follow Jenkins.

Follow Jenkins.

Mr. Wolfman: Well, I certainly think there's utility in doing that, and Congress can revisit this.

The difficulty is that Congress has not revisited it.

And Congress could revisit this and make... I think it's... it is clear right now that the... the purposes of the statute are not being fully carried out because, again, of the hyperinflation in legal services.

Justice Kennedy: Are there some disutilities from an economic standpoint in having two structures: Jenkins for one kind of cases, EAJA in the other cases as the government wants?

Mr. Wolfman: Is there some--

Justice Kennedy: Are there some disadvantages to the system?

Mr. Wolfman: --I... of course, we don't think there are, but the... to be candid, the... the Federal Circuit pointed to one purported disadvantage.

The Federal Circuit claimed that to the extent that there was some incentive that would be driven by a contrary decision, it would be that lawyers would shunt off more work than is efficient to paralegals, and it's--

Chief Justice Roberts: But that's... I saw that analysis.

This Act only applies when the government's position is not substantially justified.

People are not going to structure their billing arrangements assuming the government's position is not even going to be substantially justified.

Mr. Wolfman: --I certainly agree that it is unlikely, but as we point... very unlikely.

I agree with that, Mr. Chief Justice, but there is another point that I would make that we cover quite extensively in our brief, which is that... which is that... I think you have to step back and think about that for a second, what the Federal Circuit did.

The notion that lawyers are going to shunt off work to paralegals that they wouldn't otherwise have, there are... runs head long into both economic and ethical constraints on the profession.

Economic, because if that was occurring, i.e., people were... lawyers were giving paralegals work that they could not sensibly do, clients would, one, insist that work not be allocated like that; or, two, take their business elsewhere.

That's the economic constraints.

If, in other words, the whole premise--

Chief Justice Roberts: That point makes some assumptions about the relative abilities, say, of junior associates and senior paralegals, and I'm not sure are well founded.

[Laughter]

Mr. Wolfman: --Well, Mr. Chief Justice, I will... I believe that you have greater experience on that than I do.

But I think the other answer to that is the ethical constraints.

Even if there weren't economic constraints... I mean, as we pointed out in our brief, sure, the paralegal profession has become an impressive one.

They do a lot of things that lawyers used to do, no question.

But a lawyer can't shunt off work that they can't handle because there are ethical constraints.

I can't, for instance, give a paralegal, say, responsibility for... principal responsibility for writing an appellate brief.

I could not or would not do that because they can't do that, generally speaking, because of their training and experience.

So I just think that just falls apart.

And as you say, Mr. Chief Justice, the fact that... of the substantial justification defense and other reasons as well, it's unlikely... and this gets back to Justice Kennedy's questions... unlikely that law firms will structure their practices and businesses around this problem.

The real problem, though, is not an attack on the government fisc, as we point out in our brief.

The impact on the public fisc for rejecting the Federal Circuit's decision would be negligible.

It's worth noting, though, that the Federal Circuit's decision would have an impact on clients most affected by it.

Three groups comprise the great majority of EAJA applicants: Small businesses like Richlin, disabled veterans, and disabled Social Security claimants.

In all three situations, clients will lose if paralegal services are awarded at the cost of those services to their lawyers.

For the latter two groups, veterans and Social Security claimants, Federal law, in fact, requires that EAJA... that the EAJA fee be paid to the claimant.

So, although it makes economic sense for paralegals to work on significant aspects of Social Security and veterans' cases... and that's set out at some length in the amicus brief of the National Association of Legal Assistants... the claimants will lose those fees under the government's view of EAJA.

Chief Justice Roberts: Is that pertinent... is that pertinent on the cap questions we've been discussing too?

I mean, if you're representing a disabled veteran, is the lawyer typically charging more than $125 an hour?

Mr. Wolfman: No.

This is how it works, and that's why I said Federal law provides for this.

And let me give you the citations.

They are also set forth in footnote 2 of this Court's decision in Scarborough.

The way the Social Security and veterans situations work... and, again, they comprise the majority of these cases... is that the Federal law allows the lawyer to take a contingent fee out of the back benefits, not to exceed 20 and 25 percent of the veterans' or Social Security claimants' back benefits, respectively.

But then what Federal law also provides... and the citations are Public Law 99-80 section 3 and Public Law 102-572 section 506(c)... Federal law provides that to the extent that there is an EAJA fee, the lawyer may not double-dip and has to send that fee directly back to the client.

So for these relatively impecunious claimants, essentially chopping the paralegal fee in third or in half or something like that would have a real impact on claimants.

Justice Breyer: I would not say no one else, but not everyone else places the importance on legislative history that I do, but I do.

And I saw here that the Senate Judiciary Committee considered all these arguments, they wrote a report; and they sided with the government.

Mr. Wolfman: Well--

Justice Breyer: And I know it was there, but it doesn't matter to me it was on a bill that was later not passed, and then unless there is something different--

Mr. Wolfman: --Well--

Justice Breyer: --for that reason, because in my own mind I'm thinking there were a group of people on the committee, they went through the issue, they reflected views of their principles, they work it out, and unless something changed that makes me think that isn't the working out of it, I would put a lot of weight on it.

Mr. Wolfman: --Well--

Justice Breyer: And now you're going to tell me what there is, I hope.

Mr. Wolfman: --I'm certainly going to do that, Justice Breyer.

The first thing is... and I do want to point out for the benefit of the other members of the Court that... is that that piece of legislative history accompanied vetoed legislation.

But let me also say that, and we explained this at some length both in our opening and reply briefs, that the government relies on a snippet saying that paralegals... paralegal services can be awarded, and then it says paren, at cost.

But there are a number of other aspects of that same piece of legislative history that point in exactly the opposite direction in terms of market rate recovery, and in fact the Court cites... excuse me, the committee cites a case from the Sixth Circuit, the Northcross case, in which paralegal services were awarded at market rates.

Chief Justice Roberts: And of course they may mean... may have meant costs to the client.

Mr. Wolfman: And that is... and that is my next point, Mr. Chief Justice, which is that it said "at cost", but at whose cost?

And the problem here, is that this piece of fee shifting statute and every other fee shifting statute of which I am aware awards a fee to the prevailing party.

The purpose of the statute is not to enrich the lawyers.

The purpose of the statute is to provide incentive for lawyers to handle cases on behalf of clients.

Unless the Court has any further questions, I'll reserve the balance of my time.

Argument of Anthony Yang

Chief Justice Roberts: Thank you, Counsel.

Mr. Yang.

Mr. Yang: Thank you Mr. Chief Justice, and may it please the Court: EAJA authorizes Federal agencies to award two distinct categories of litigation expenses against the United States: fees and other expenses.

The most natural reading of attorney's fees is one that embraces an attorney's time, payments for an attorney's time, whereas the broader term "other expenses" naturally encompasses outlays that are paid by an attorney during its representation of a client including the cost of paralegals whose work may be necessary for the preparation of a client's case.

Congress recognized this distinction between attorney's fees and other expenses when it enacted EAJA in 1980.

The relevant Senate report, like EAJA's House report, stated that the ceiling on "attorney's fees"--

Chief Justice Roberts: You say the relevant one was of course on a legislation that wasn't passed, right?

Mr. Yang: --Actually this is even before EAJA lacks the first time, this is upon EAJA's initial enactment in 1980, there was a Senate report and a House report and both have functionally identical language.

The Senate report states that quote,

"attorney's fees relates only to the compensation of lawyers themselves. "

and then goes on to explain that costs connected with their representation of a particular interest in a proceeding is not affected by the limitation that is the cap on attorney's fees.

When Congress then re-enacted EAJA after its repeal, Congress again made clear... and this is the report that, Mr. Chief Justice, you were referring to... made clear that the EAJA fees includes an attorney's out-of-pocket expenses, and that those out-of-pocket expenses were illustrated by the specific example of paralegal time being reimbursed at cost.

Justice Ginsburg: What is cost?

Could you... one could say I'm going to look at the Internet and come up with $35 dollars an hour, or you could say in the case of a paralegal there is a part of the overhead, there is the fringe benefits... so just giving the hourly rate is deceptive of what the actual cost is to the law firm, because the law firm has to add on to determine what in fact it's paying for the paralegal, the fringe benefits and part of the overhead.

Mr. Yang: Justice Ginsburg, the government agrees that more than simply salary would be reimbursable at cost.

And I think the appropriate way to calculate cost in the context of paralegals would be... would parallel how the government calculates its cost for attorneys when the government seeks attorney's fees.

And what the government does is it uses salary as a baseline and then adds... for the government 29 or approximately 29 percent of salaries for other benefits.

And--

Chief Justice Roberts: Well and it might be quite different for private practitioner.

Your benefits for health care will probably cost you a lot less than private practice and doesn't that make the paralegal fees quite different than the other items of expenses that are listed?

You know, expert witnesses, you get a bill, that's how much it costs the lawyer.

Studies, analysis, engineering reports, you don't have to figure overhead benefits with respect to any of those.

All of a sudden you throw in another item, paralegal costs, you put those under costs, and now you've got to go through this elaborate calculation that is going to be not worth it, almost, for a typical firm representing a small client.

Mr. Yang: --Mr. Chief Justice, I'm not sure that I agree with some of the premises that you had.

First, with respect to the analysis and reports and such, those are not always things that are done outside a law firm.

The statutory text, in fact, allows the reimbursement of costs for any study, analysis, report, test or project; it's not limited to things that are done outside of a firm.

I mean also be--

Chief Justice Roberts: Well, in most firms an engineering report would be outside the--

Mr. Yang: --Well, that's an engineering report, except for maybe, some intellectual property firms but--

Justice Kennedy: It seems to me the question is a valid one, that you're running away from the question.

Mr. Yang: --Well--

Justice Kennedy: And I'll let you answer.

It suggests this further inquiry.

Suppose that a solo practitioner knows that a paralegal in another firm is very good at this and he asks the other lawyer, may I use your paralegal, and he just sends that lawyer the bill.

What... how would that be billed under your view?

Mr. Yang: --Well, there is now two questions in the air.

Justice Kennedy: They both... they both apply, they both apply to outside experts.

Mr. Yang: Well, when a paralegal is outsourced, which is your question, there is two potential situations.

One may be that the paralegal is less expensive, and if that were the case you would think that firms would normally outsource their paralegals if it's less expensive to obtain them from the outside than the inside.

Chief Justice Roberts: --Well, but that wasn't Justice Kennedy's question.

His was the outsourced paralegal is better at a particular task.

Mr. Yang: The outsourced paralegal is better, it may be that the actual cost to the firm is the cost that the firm pays for that paralegal to the third party.

Justice Souter: Well in that case it would bill the paralegal in the same way it would bill, I take it, the expense of, let's say, having water tested in a pollution case.

It would... it would... I take it it would bill the client dollar for dollar what it had to pay.

Mr. Yang: In fact that's right--

Justice Souter: And add--

Mr. Yang: --And not add profit on to that... that paralegal as well.

Justice Souter: --They don't add a profit and they don't add a profit on to... to travel expenses and things like that.

Mr. Yang: Right.

Justice Souter: And... so if that is so, in each case cost means cost to the client, and you're coming up with a new category of expense, which is cost to someone else, and why should there be a subcategory of expense, in which cost does not mean cost to the client when every other category of expense does mean cost to the client?

Mr. Yang: Justice Souter, every other category does not mean cost to the client.

In fact, EAJA specifically provides for fees, but the fees are based on the prevailing market rates for similar services.

Justice Souter: Because there is a separate provision for fees.

Mr. Yang: That's correct, Your Honor.

Justice Souter: Yes.

Mr. Yang: But in that context a client does not incur any legal fees, have any obligation to pay any fees, and courts routinely award EAJA fees when there has been no cost to the client in fees, and similarly, even if the client has an obligation to pay the cost in those circumstances... where for instance a firm is providing pro bono services or a legal services organization is providing pro bono services to a client, the client does not have to incur or pay the costs.

The question is whether those costs have been ultimately incurred and have been incurred at the rate that the firm has incurred the cost on behalf of the client.

Justice Stevens: At this discretion, let me ask this question.

Maybe it's the same question Justice Kennedy asked, but I want to be sure of your answer.

Suppose you had independent firm of paralegals.

I don't know whether the market contains them, but it surely could.

A firm that they are all paralegals, and they then bill the law firm at their own hourly rate, and then the law firm in turn bills the client.

In that situation, would the market rate of the independent firm of paralegals govern?

Mr. Yang: It would be the rate that is ultimately paid.

If you're outsourcing the paralegals it would be the rate paid by the firm for those paralegals.

Now it may also be, for instance--

Justice Stevens: Do I understand the government's position that the... the result would different if a firm uses its own paralegals as opposed to outsourcing?

Mr. Yang: --The result is not different, Your Honor.

The result is the same in the sense that the firm's cost--

Justice Stevens: No.

But under my example they would be paying the market rate for paralegals, and I think you say they could be reimbursed for that.

Mr. Yang: --It wouldn't necessarily be the market rate.

It may would be what they are paying, which may well reflect the market rate.

Justice Stevens: Well, they are not market to make business.

I presume the paralegals would charge the going rate.

Mr. Yang: If they did.

Justice Stevens: I assume that they also charged the market rate.

Mr. Yang: It may be.

But if it's the market rate, there would presumably be no incentive for a firm to outsource--

Justice Kennedy: But again, you're not answering the hypothetical.

Let's assume two cases: Case A, you hire an outside paralegal at $85 an hour.

He is outside, he is independent.

He is just like the expert engineer in the Chief Justice question, $85 an hour.

Case two, it's your own paralegal.

The prevailing rate for which you charge general clients is $85 an hour.

Why should there be a difference?

Mr. Yang: --There should be a difference, Your Honor, because with respect to outsourced firms, there is no concern that a firm is going to add, well... if the firm is only going to bill at its cost, the firm is not going to add additional profit to the outsourced paralegal.

So if, for instance, a firm paid $85, under our view the firm could not turn around and charge $95 to the client.

Likewise... and the reason that this is important under your context--

Justice Kennedy: But under your... they can't even charge $85 an hour.

Mr. Yang: --Well, that's correct if their cost, actual cost would be less in house.

And the reason that's important is because in EAJA, unlike section 1988, there are several statutory differences.

One, EAJA provides for other expenses, so the term "attorney's fees" is not the only terms that needs to be construed by the court.

Other expenses needs to be construed in a manner that gives it meaningful effect.

And Congress recognized, again, in the legislative history to the extent you could disagree on the meaning of other expenses, Congress was very clear both in 1980 and then again in 1984 that other expenses, attorney's fees do not include things that attorneys pay and only compensates attorneys for their own hourly rate.

And the reason that the fee cap was important is because EAJA, as this Court recognized in Underwood, is not intended to be fully compensatory.

If the cap for--

Justice Ginsburg: I know you said that a few times and you have authority for it, but it seems to me odd if you look at 1988 and if the attorney's fees and costs... and costs is very limited in the statute in 1920... and if you have attorney's fees and other expenses, other expenses is a much larger category than costs within 1988.

So I... I would think that, well, EAJA is the more compensatory because it allows for more items.

Mr. Yang: --Justice Ginsburg, under Jenkins' rationale, Jenkins recognized that when there is not another... another box of other expenses, where in a statute which was intended to be fully compensatory, that attorney's fees necessarily must include compensation for all types of costs that a lawyer might incur in the presentation/representation of a client.

That works for Section 1988.

But if that rationale were applied to the EAJA context, if attorney's fees were given the same meaning in EAJA, there is little or no work for other expenses to be done in the statute, because already you've pushed all of those expenses into the box of attorney's fees and--

Chief Justice Roberts: Counsel, your... this question only arises when the position of your client was not substantially justified.

Now under those... and it was designed, to some extent, to penalize you because... because of that fact.

Why should we adopt a construction that, in effect, penalizes the client who has had to face the Federal Government when the Federal Government's position was not substantially justified?

They are going to have to pay the paralegal fees at market rates, but they are only goes to get compensation at cost.

Mr. Yang: --Mr. Chief Justice, the reason that you would adopt our construction is because Congress is balancing more than the intent to provide compensation for prevailing parties in EAJA.

It was also intending to balance the effect on the Federal fisc and limit the government's exposure as a means of passing the Act.

Chief Justice Roberts: It's kind of a stretch to suggest in a situation where they pass a law that only applies to individuals or small businesses where they put a cap in and so on, that another way that we are going to prevent damage to the fisc was to treat paralegal expenses as costs rather than at market rate.

I suspect that was not foremost in their mind.

Mr. Yang: Well, Mr. Chief Justice, I think the legislative history illustrates that, in fact, paralegals and other costs--

Chief Justice Roberts: Well, it assumes that when they said "costs", that they meant costs to the firm as opposed to costs to the client.

And that, I think, is entirely an open question.

Mr. Yang: --Well, the relevant page of the legislative history in 1984 that you're talking about explains that Congress wanted to adopt the views of the Administrative Conference in its model rules, and goes on to quote the Administrative Conference--

Chief Justice Roberts: Not to belabor the point it meant that the people who drafted the Senate report may have meant that.

Mr. Yang: --Well, that's a problem with all legislative history.

Justice Breyer: I don't think it is a problem with legislative history.

[Laughter]

I think that the people in Congress who hired their staffs pay attention to what the staffs say in precisely the same way that any other executive--

Chief Justice Roberts: Do we know what the President's view was on that question when he signed the legislation into law, which is what he was required to do before it became law and which he did not do under the prior bill?

Mr. Yang: The President did not express a view, but what we do know is that the legislative history in 1984 dealt with language that was identical to that ultimately passed by the Senate... by Congress and signed by the President.

And that legislative history explains and quotes the Administrative Conference that says that what should be awarded is an award of reasonable expenses of the attorney.

Justice Scalia: Do you know of any other case where we used... I mean it just gets worse and worse.

Do you know any other case where we've used the legislative history of a vetoed bill to determine the meaning of a later bill that was not vetoed?

Mr. Yang: Yes, Justice Scalia.

Justice Scalia: Good.

What is it?

Mr. Yang: This Court has twice cited unanimous opinions, the same report that we cite here, one of which was in the Jean opinion.

In fact, the Court not only cited the Senate report, but also cited the House report to the 1984 bill.

Justice Scalia: When was that?

Mr. Yang: Jean?

Justice Scalia: Yes.

Mr. Yang: Pardon my--

Justice Scalia: Never mind.

Don't take... don't waste your time.

Justice Breyer: --I mean that wouldn't be surprising would it, that wouldn't be surprising because you have, in fact, very complex bills that have 14 sections and section of the B bill could have been vetoed... been vetoed because of problem with Section 14 and repassed without Section 14, in which case the legislative history for the other 13 sections would be highly illuminating as to what they mean.

Mr. Yang: --In fact Congress recognized that, Justice Breyer, when it re-enacted... when it readdressed the bill in 1985, the relative legislative history specifically references the bill that existed before that it was reported by--

Justice Breyer: The question that I had in respect to this statute is... is that my impression and here... I'd like to know how they bill secretary's times.

I'd like to know how they bill rent.

And my thought is... and I want to be either verified or told I'm wrong and explain it, that when you have no cap, the lawyer and the client want to shove everything possible into the rubric attorney's fees, including the kitchen sink, if the plumber is there in the kitchen of the law firm.

[Laughter]

That's fine.

No problem.

There is no other way to get paid for them.

But where you have a cap, you should shove everything the other side, if expenses are going to be paid for it, because that cap means that the lawyer will not get his full pay back and therefore, the lower the cap, the more you want to be sure it's covering only that lawyer's time.

And everything else goes into expense so that you can pay the lawyer adequately and he will recover his expenses elsewhere.

Was that the theory of this bill?

Is there any evidence that that was the theory?

If you did it that way, would anything get mixed up?

Mr. Yang: --Well, the theory of the bill was that attorney's fees would be based at prevailing market rates, and that prevailing market rates would embody a certain set of costs that might be reimbursed.

I would think that the prevailing practice is not to bill separately for the kitchen sink, but as the Court explained in Missouri versus Jenkins, Missouri's analysis would extend to your hypothetical, Justice Breyer.

It explains that reasonable attorney's fees had to cover all kinds of costs, including the costs of secretaries, messengers, librarians or janitors who might well be cleaning the kitchen sink.

Justice Ginsburg: Am I right that when this language first came in... this is in relation to Justice Breyer's question... there was no cap?

When did the... when was the cap put on?

Mr. Yang: The cap in EAJA was imposed from the very beginning.

Justice Ginsburg: It was.

Mr. Yang: Yes.

It was.

It was in the Senate bill.

It was... it was removed by subcommittee, reinserted by the full judiciary committee, passed the Senate, came over to the House and continued on for passage in 1980.

Justice Ginsburg: It would be a lot of weight to be put on three little words: "Billed at cost".

If you just read those words, you could be the costs to the client, the cost to the law firm and then you'd have to go to this further document, the Administrative Conference document, it's rather thin I think.

Mr. Yang: Well, Justice Ginsburg, we are relying not only on the 1984 but also on the 1980 legislative history, which although it does not specifically refer to paralegals, explains that in connection with the term "attorney's fees" and the ceiling on attorney's fees... and I'll quote again from the Senate report, which was the first: Ceiling on attorney's fees relates only to the compensation of lawyers themselves.

And then goes on to say: That does not include other costs connected with their representation of a particular interest in a proceeding.

And when Congress did that, it specifically recognized that it was taking a different approach than that taken in other fee-shifting statutes.

The very next sentence explains that the committee notes that this section is not intended to limit or affect the computation of reasonable attorney's fees under any other provision of law, and gave as an example the Civil Rights Act.

That is section 1988.

So Congress knew from the very beginning that its treatment of attorney's fees as being limited only to attorneys and the larger more capacious category of other expenses, capturing all other costs that an attorney might incur in the representation of a client was one that was both different from other statutes, and one that was intended by Congress.

And it's not reflected not only by the legislative history, but again by fee caps.

The fee caps I believe you started here were specifically designed and set by reference to attorney's rates, the exceptions to the fee caps... again specifically reference attorneys.

There is an exception that you can exceed the fee cap when there is a limited availability of the attorneys qualified at the proceedings involved.

And it would be anomalous in that context where Congress has paid particular attention to the billing rates of attorneys, set the cap based on attorney's rates with no reference to paralegals to assume--

Justice Stevens: May I go back--

Mr. Yang: --that Congress intended--

Justice Stevens: --May I go back to the point, because I think you were cut off before you went into the full legislative history.

I'm still concerned about the argument that even if they are not fees but rather costs, that the costs should be those that are billed to the client.

And you think there is some conclusive answer in the legislative history that that's not the case.

Mr. Yang: --Well, the legislative history when you... again, if you look to what Congress was talking about, both the Administrative Conference rules and the quotation of the Administrative Conference rules--

Justice Stevens: Which took place when?

Mr. Yang: --This was in 1984.

Justice Stevens: At that time were they billing paralegal's fees at cost to the client?

Was it--

Mr. Yang: In fact, Your Honor, there was a dispute that the legislative history speaks to the controversy that evolved regarding the... whether other expenses of the term would include more than what was specifically enumerated in the statute.

And what we cite to in our brief as a footnote at page 28, footnote 12, there was a dispute.

Several courts had concluded that paralegals were reimbursed at cost.

In fact, the Northcross decision, which the committee reports, specifically references... concluded that it was costs to the attorney, as this Court recognized in Jenkins.

Footnote seven of Jenkins discusses the Northcross decision and explains that Northcross awarded out-of-pocket expenses for attorney's fees at the cost to the attorney.

And so, when you take that controversy which had evolved regarding how you compensate these other expenses... and specifically paralegal expenses... along with Congress' statement that it intended to compensate out-of-pocket expenses incurred with connection to a case, the model rules and Northcross when you combine that with the statement that paralegals are to be compensated at cost, seems clear to us that Congress is intending that in contrast to attorney's fees, which have a profit element embedded in them and a profit element capped by the fee cap that Congress imposed in 1980... that when read together, it seems fairly clear to us that Congress intended--

Justice Stevens: --Every expense that's reimbursed at cost has a profit element in it for whoever performed the service.

Mr. Yang: --But when it's within the control of the firm--

Justice Stevens: Business or otherwise.

Mr. Yang: --within the control of the firm, there is a particular danger that the firm can inflate its own costs.

Whereas when it's going out to the market, of course, it's not going to control the profits.

Chief Justice Roberts: Well, maybe this is the same question Justice Breyer asked, but I haven't... I didn't grasp the answer.

Under your system it would make sense for lawyers to charge separately for photocopy services, telephone services, so on because then they are not going to be subject to the attorney fee cap.

And they may think, look, the difference between cost and market rate is relatively small; the difference between our hourly rate and $125 is large.

Mr. Yang: You're asking about the incentives that firms might have.

Chief Justice Roberts: Well, I'm just saying if we adopt your position, isn't it going to be, I guess, worse for your client because firms will, as I've been told firms sometimes do, charge separately for things at a higher rate than their cost?

They will charge higher rate for photocopy services because they try to factor into it overhead and things like than cost.

Mr. Yang: Overhead profit.

We don't believe it's actually going to change any practices, because ultimately, when you're looking at what costs are reimbursable under EAJA, it has to be costs that are not traditionally already paid for in the attorney's fees.

So you have to look not to the practice of the specific firm that's at issue, you have to look at the prevailing practice.

Chief Justice Roberts: Well, I would say... I would say that it's now traditional for firms to charge, say, more for their photocopy services than it cost them.

Mr. Yang: Well, if that's the case under our reading, of course, we would... we would say that that is... that is not a type of expense that was contemplated by EAJA, because Congress already provided for profits that attorneys get from representing a party within the attorney fee and cap that.

The whole idea of a cap is to limit the reimbursement that a firm might get from EAJA below what the prevailing market rates for the services would be.

If the... the prevailing market rates were below the cap, the cap never comes into play.

The only reason for that cap is to limit compensation below market rates.

And it would be anomalous to allow--

Justice Stevens: But the cap doesn't apply to expenses, does it?

Mr. Yang: --I didn't catch you.

Justice Stevens: The cap does not apply to reimbursement expenses at cost?

Mr. Yang: Precisely, because in our view expenses are at cost and it is not... you don't have the same danger of having firms imbedding profit within their own rate.

Justice Stevens: It seems to me just the opposite just as the Chief Justice suggests.

It seems to me you're creating an incentive for the firms to... to charge as much as they can... I mean, under market rates for everything under the... under the time of the lawyer himself.

Mr. Yang: But again, and under our view if they were to... if a firm were to charge, say, 50 cents for a photocopy and it only cost 10 or 15 cents for that photocopy, under our view the firm would only be reimbursed for our for the 15 cents.

The not an incentive to bill the client for anything more--

Justice Stevens: No, because other costs reasonably interpret to include overhead.

It's not just the paper and the accounting time.

Mr. Yang: --Overhead, we don't believe, is fairly attributable to a particular case.

And, in fact, Congress was specific about this particular point on overhead in the legislative history.

Chief Justice Roberts: Well, I think you missed my point.

It was even if you're right, 50 cents and they can only charge 15 cents, they have an incentive to separately charge for photocopying, because they get the 15 cents, and otherwise it's going to... they are going to lose it over the cap if you say no that's part of the attorney's fees.

Mr. Yang: I guess you're right to some extent there would be incentive to shift out costs even though there would be less of an incentive than shifting out costs plus profit.

But the reason that... that the... the reason that we think that that's a bit different is because, again, Congress intended for the profit making part of a... an attorney's compensation to come out of attorney's fees, and then are capped.

And there is very little incentive to... to shift out fees unless the market itself is already doing that.

And if the market itself is already billing for photocopies, then that's what you're going to get.

Even if you didn't separately charge for photocopies as part of your rate, you could bill under EAJA.

The market is providing for photocopies being billed separately, you can simply submit a request for photocopies.

Justice Scalia: When you have a... you can submit it a letter.

I've looked in your brief, I can't find this Jean case that you mentioned on use of veto.

I have a certain morbid interest in it.

[Laughter]

Mr. Yang: It's at 496 U.S. 154.

And it's... I believe it's cited, it's Commissioner, INS versus Jean.

And I apologize if it's not there, but I thought it was.

Yes.

No.

That's right.

Justice Ginsburg: I'd like to go back to a question that Justice Kennedy asked of Mr. Wolfman.

Isn't there... doesn't it make sense to take a word like "attorney's fees" and like the word "discrimination", we have many different anti-discrimination statutes, but there has been an attempt to give that word "discrimination" the same meaning in all those statutes.

And here the term attorney's fees, if it means that includes all of them, in terms of 1988, why not say every time attorney's fees comes up, that's what it's going to mean?

Mr. Yang: As a general rule, in fee-shifting statutes that are like Section 1988, that is in fact the rule.

But the rule that similar words are given a similar meaning readily yields when there is indication that Congress did not intend the same to apply here, and in fact for instance in the Fogerty versus Fantasy case, the Court specifically rejected the approach of adopting the understanding of reasonable attorney's fees applied in other fee-shifting statutes, because it found that the policy and legislative history of the Copyright Act required or at least suggested that Congress intended something else.

And here, not only do we have a different legislative history, we have fundamentally different statutory text.

There is a second category of other expenses that must be given meaning in conjunction with attorney's fees.

It did not--

Justice Alito: Well on that point, does the statute say that all non fee expenses are compensable at cost?

Or are you arguing that the work that's done by paralegals is a study or analysis project?

Mr. Yang: --It's either a, it can be a study or analysis or at least analogous to that type of a... a--

Justice Alito: Which is it, is it a study analysis or project?

That seems like a strange way of describing it.

Mr. Yang: --It can be... it can be a project, for instance in this case, the paralegal compiled the relevant information regarding how much wages needed to be developed, repaid on the merits of the case, how much taxes needed to be reimbursed.

That could be understood as a project, particularly when Congress has modified it with any, the word "any" before.

Chief Justice Roberts: Counsel, there are occasions, aren't there, when the government is entitled to attorney's fees?

Mr. Yang: There are occasions.

Chief Justice Roberts: Do you know how you bill paralegal times... time in those situations?

Mr. Yang: We often don't bill them separately.

Chief Justice Roberts: You often don't bill them separately.

Mr. Yang: I... I asked this question.

I have not been able to determine that we have ever billed paralegal time separately.

Normally, like every other litigant in a normal fee-shifting statute that would provide for attorney's fees, and again, just the way the government calculates it, it is based on overall costs per benefit, ends up some percent of salary.

There is an attorney fees that benefits... percentage and a small overhead charge as well.

For the attorney's fees, not separately for paralegals.

Rebuttal of Brian Wolfman

Chief Justice Roberts: Thank you, Mr. Yang.

Mr. Wolfman, you have four minutes remaining.

Mr. Wolfman: Thank you, Mr. Chief Justice.

I want to start where the discussion left off.

It harkens back to some things that Mr. Yang said towards the beginning of his argument.

He said that, that if the Federal Circuit weren't affirmed, that there would be no meaning to the term "other expenses", but that's just not so; it would begin to lose its meaning.

It means things like travel, long distance phone, copying, the types of things we think of as out-of-pocket expenses.

The problem here is they are shoe-horning a... the government is shoe-horning what is always conceived of as an in-house professional service as an out-of-pocket expense, and it just does not fit there.

Let me turn to the legislative history and I'd like to do two things with that before I close.

The first is, let's presuppose that it should be given some weight, as Justice Breyer has suggested, and the problem is that it just doesn't bear the weight that the government gives the report.

If you look at... and this is discussed at length at page 12 of our reply brief... let's turn for instance to the administrative conference report.

Here's what it says.

It's a 46 Federal Register 32913.

It says that: With regard to expenses, they should be compensable whenever the lawyer, quote,

"ordinarily charges clients separately for such expenses. "

That's the situation today with paralegal expenses.

Then it's true that the ACUS, the administrative conference, did not issue a hard and fast rule with respect to paralegal expenses.

But that of course is because the market wasn't uniform at that time as it is today.

Today it's nearly ubiquitous that paralegal services are... are separately billed.

But listen to what the court said... said: Indeed, we decline to issue because, quote,

"practices with respect to charging clients for paralegal time vary depending on locality and field of practice. "

But that statement reflects exactly our position.

That the rule the Court embraced in Jenkins is that the compensability of paralegal services should replicate prevailing practices in the market.

Now let me just end by... by... on this note.

If, there is also the question raised about whether you should give any weight to this... this report at all.

We say that you should not for the reasons, essentially in Justice Scalia's last question on that topic; but we do... we do talk about why the Jean decision use of that report does not wear the weight that the government gives us, and that's on pages 13 and 14 of our brief, our reply brief.

And the reason is, is because in Jean, no one brought to the Court's attention in any of the briefs the problem that the... that legislative history accompanied vetoed legislation.

It was never brought to the Court's attention.

In the Scarborough case three years ago, neither the majority opinion nor the dissent cited that report.

Chief Justice Roberts: Well, but I think Justice Breyer is correct, isn't he, that there was no reason for the Senate to sort of redo a report that they had already done on a bill that was substantially identical?

Mr. Wolfman: That might be true in some circumstances, but that's not what happened in 1985.

There was an extensive House report accompanying that legislation.

There was no Senate report.

The House report--

Chief Justice Roberts: There was no Senate report because they had done it just the previous year.

Mr. Wolfman: --I think not, Your Honor.

There were some other things taken up in the House report and the House report, quite extensive, says nothing; it's silent on the question of paralegal services.

Look, let me just say as I close... may I answer the question?

Let me just say as I close that... that if the Court wishes to look at that report, at the very best for the government, it's a wash.

Thank you very much.

Chief Justice Roberts: Thank you, Counsel, the case is submitted.