9th Circuit restores attorney fees slashed over firm size

The 9th U.S. Circuit Court of Appeals has vacated a $4.5 million fee reduction, ruling that a winning law firm's small size cannot be used to justify lower fees and declaring that "brilliance at the bar" is not measured by the number of associates a lawyer commands.

The opinion, written by Circuit Judge Salvador Mendoza Jr., reversed a ruling by U.S. District Judge Michael W. Fitzgerald who had reduced attorney fees awarded to San Francisco firm Gaw Poe LLP because of its small size.

"We should not reduce fee awards to lawyers simply because of how they have structured their workplaces," Mendoza wrote in Tuesday's opinion. "And, conversely, the fact that a firm is larger and has a larger overhead should not automatically entitle its attorneys to higher fees."

The panel, which also included Circuit Judges Kim McLane Wardlaw and Anthony D. Johnstone, further affirmed a ruling in favor of small wholesalers who claimed that the makers of Clear Eyes eyedrops unlawfully offered price advantages to larger buyers, including Costco and Sam's Club.

The wholesaler plaintiffs were represented by Gaw Poe attorneys Mark W. Poe, Victor Meng and Randolph Gaw.

Gaw called the decision a "landmark opinion in many ways" in a phone call on Wednesday.

"I think this is really the first opinion that I'm aware of that recognizes that you can have lawyers in any type of firm configuration doing really high-quality work out there, and that they might be entitled to compensation equal to lawyers at the largest law firms," Gaw said.

"The district court, for whatever reason, felt that it was a relevant factor that we were a then four-person law firm," he continued. "Speaking for myself, the case law doesn't support that as a consideration, and the 9th Circuit has made that explicit now with its most current order."

After a Los Angeles federal jury ruled in favor of Gaw Poe's clients, Fitzgerald slashed the firm's award by more than half, from a requested $7.6 million in fees to $3.1 million in fees.

"Notwithstanding plaintiffs' counsel's background, accolades, and expertise in this area of the law, it is simply unreasonable to award big law rates to a four-person firm representing mom-and-pop warehouses," Fitzgerald wrote in his August 2024 order.

Tuesday's opinion addressed this reasoning directly, calling it an abuse of discretion.

"First-rate attorneys who prevail in litigation are entitled to receive fees commensurate with their skill, experience, and reputation, even if their clients are mom-and-pop businesses that don't have Fortune 500 budgets to hire big law firms to represent them," Mendoza wrote.

Defendants Prestige Brands Holdings Inc. and Medtech Products Inc. were represented by Duane Morris LLP attorneys Michael L. Fox and Christopher S. Patterson in San Francisco, as well as Robert Kum in Los Angeles and Robert M. Palumbos and William Shotzbarger in Philadelphia. Kum declined to comment in a phone call on Wednesday, while co-counsel did not respond to phone or email inquiries by press time.

The lawsuit alleged violations of the Robinson-Patman Act, California's Unfair Practices Act, and the Unfair Competition Law. Plaintiffs asserted that Prestige provided larger competitors with a 5% price advantage and exclusive rebates unavailable to smaller distributors. These practices allegedly caused secondary-line price discrimination that injured competition by forcing disfavored wholesalers to choose between losing sales or selling at a loss, according to the plaintiffs. L.A. International Corporation v. Prestige Brands Holdings, Inc. et al., 2:18-cv-06809 (C.D. Cal., filed Aug. 8, 2018).

Prestige defended its pricing by arguing that payments to Costco were legitimate functional discounts--reasonable reimbursements for promotional services--rather than discriminatory pricing. They contended the Robinson-Patman Act necessitated a showing of substantial harm to competition, a higher standard than a "reasonable possibility."

Additionally, the defense asserted that wholesalers were not in actual competition with membership clubs like Costco for the "same dollar" due to their different market models.

A jury rejected these arguments at trial in 2024.