October 16, 2009
VALDEZ FISHERIES DEVELOPMENT ASSOCIATION, INC., Appellant,
Chris FROINES, Appellee.
Stephen McAlpine, Law Offices of Stephen McAlpine, Anchorage, for Appellant.
Jeffrey J. Jarvi, Michael T. Stehle, Stehle & Jarvi, L.L.C., Anchorage, for Appellee.
Before : FABE, Chief Justice, EASTAUGH, CARPENETI, WINFREE, and CHRISTEN, Justices.
Valdez Fisheries Development Association, Inc., appeals an award of attorney's fees. It argues that the fee award misinterprets this court's earlier opinion reversing and remanding the original award of attorney's fees in this case. We agree, and remand for recalculation of the fee award.
II. FACTS AND PROCEEDINGS
In May 2000 Chris Froines filed suit against Valdez Fisheries, seeking damages for breach of contract. On December 15, 2003, Froines made an Alaska Civil Rule 68 offer of judgment to settle the dispute if Valdez Fisheries would pay him $15,000. Valdez Fisheries refused the offer. After a five-day trial, the jury entered a verdict in Froines's favor, awarding him $10,000 in damages.
Froines moved for attorney's fees under Alaska Civil Rule 68(b)(2).  The motion was
supported by an affidavit and billing records showing the number of hours Froines's attorneys worked and their hourly rates. The affidavit calculated that the total amount of attorney's fees incurred on Froines's behalf was $74,394.50. Because of the date of the offer, Civil Rule 68 authorized an award of fifty percent of Froines's " reasonable actual attorney's fees."  The motion requested an award of fifty percent of the total fees. Noting that he had incurred fees of $74,394.50, Froines sought an award of $37,197.25. The superior court agreed that Froines's jury verdict entitled him to an attorney's fee award in the amount of fifty percent of his reasonable actual attorney's fees. But the superior court looked in part to the factors of Alaska Professional Conduct Rule 1.5 and determined that reasonable actual fees should not have exceeded $20,000. The superior court thus awarded Froines $10,000 in attorney's fees.
Froines appealed, and we reversed. Our decision in Froines II explained that the fee award might have been improperly based on certain factors listed in Professional Conduct Rule 1.5 that were inapplicable or that " cut both ways" under the facts of this case. We remanded for recalculation because we could not say with certainty that the attorney's fee award would have been the same had the factors been considered properly. 
On remand, the superior court interpreted our opinion to require that " reasonable actual attorney's fees" be equated to " the amount of time that an attorney honestly chooses to spend on the case." The superior court articulated that its interpretation of Froines II precluded it from exercising its discretion: " [a] subjective [evaluation] ... requires this court to approve the amount of time" actually worked. The superior court awarded $42,090.50 in Rule 68(b)(2) attorney's fees to Froines, exactly the amount Froines's attorneys sought. It appears that the reasonableness of Froines's attorneys' hourly rates was not disputed.
Valdez Fisheries appeals, arguing that the superior court misinterpreted Froines II and that the new award of attorney's fees should be reversed because it includes fees for work that did not advance the litigation. We reverse and remand.
III. STANDARD OF REVIEW
We review " a trial court's fact-based determinations regarding whether attorney's fees are reasonable for an abuse of discretion."  We review a trial court's " interpretation of Alaska Civil Rule 68 ... de novo." 
A. Awards of Attorney's Fees Under Alaska Civil Rule 68
Trial courts have broad discretion in calculating awards of attorney's fees, but that discretion is constrained by the court rules that authorize such awards. Here, fees were awarded under Rule 68, which authorizes awards calculated as a percentage of a party's " reasonable actual attorney's
fees."  The purpose of the rule is to encourage settlement and efficient litigation practices.
In making an award of attorney's fees under Rule 68, the trial court's primary task is to determine the amount of " reasonable actual attorney's fees." The trial court must exercise its discretion to determine whether the fees claimed are objectively reasonable. There is no exhaustive list of the factors a court may or should consider in this process. Courts often approach the question by determining whether the hourly rate charged was reasonable and whether the number of hours worked was reasonable. This approach is particularly appropriate where the party against whom fees are awarded requests an itemized billing affidavit and objects to specific items in the bill as unnecessary, duplicative, or otherwise unreasonable. In such a case, the itemized billing record provides a starting point because it establishes what fees were " actually" incurred. The superior court's task is then to determine whether the hourly rate is reasonable, and how many of the hours of work billed were reasonably incurred.
In this case, Froines's attorneys filed an itemized billing record. Valdez Fisheries argues here, as it did Before the superior court, that certain activities Froines's attorneys engaged in and certain strategies they pursued were unreasonable. For example, Valdez Fisheries argues that Froines seeks payment for two attorneys' presence at trial, when one would have sufficed. It also argued that Froines's attorneys billed far more hours for preparing and conducting the trial than the case required. And Valdez Fisheries argued that Froines's attorneys filed motions seeking redetermination of legal questions already resolved in the case, and spent time drafting jury instructions for claims not raised in the complaint. Each of these arguments is an allegation that certain amounts of time billed by Froines's attorneys did not reasonably advance the litigation. It is the task of the superior court to evaluate these claims, and claims like them, to determine whether the hours Froines's attorneys billed were reasonable. Hours billed for activities that are not reasonably intended to advance the litigation, or hours billed for completing a task in excess of those that ought to be required to complete it, are not reasonably incurred.
The trial court has discretion to resolve such questions and determine the amount of " reasonable actual attorney's fees" because it has knowledge of the case that the reviewing court lacks. The trial court's greater knowledge of the case makes it uniquely suited to answer these questions quickly, accurately, and fairly. The purpose of conferring discretion on the trial court to determine " reasonable actual attorney's fees" is to allow it to use its greater familiarity with the details of the case to perform an objective inquiry into these questions and their like.
B. The Superior Court's Decisions
We reversed the superior court's first award of fees because of concerns that the trial court improperly relied on factors listed in Professional Conduct Rule 1.5. We have
never adopted Professional Conduct Rule 1.5 as the test for calculating attorney's fee awards. In one case involving a contractual provision for " reasonable attorney fees," this court noted that several factors listed in Professional Conduct Rule 1.5 were helpful in its inquiry. But the purpose of Professional Conduct Rule 1.5, and its near-identical parallel, Alaska Bar Rule 35, is to aid attorneys in determining an appropriate rate to charge their clients. When these factors have a place in a court's calculation of reasonable actual fees, it is most likely in determining whether the hourly rate charged is reasonable.
In this case, the hourly rates charged by Froines's attorneys were not disputed. Because some factors in the reasonable rate inquiry overlap with factors in the reasonable hours inquiry, Froines II addressed the particular factors from Professional Conduct Rule 1.5 relied on by the superior court. We explained that some were inapplicable to the facts of this case, such as the contingent nature of the fee, and that other factors may require different treatment in the context of this case. And we explained that factors suggesting that " the prevailing party litigated its claim in an unreasonable manner," may need to be treated differently in the context of Civil Rule 68, if their weight stems from the premise " that the case was particularly amenable to an offer of judgment."  The extent to which a trial court believes that a case should have settled must be considered in light of the fact that the very application of Rule 68, and the enhanced fees available under it, already penalizes the non-settling party. By definition, Rule 68 fees are awarded only after an offer of judgment is rejected, and some degree of continued litigation becomes necessary in order to resolve the dispute-despite the offeror's attempt to resolve the case. This is why, in the context of Rule 68, the trial court's opinion that a case should have settled is not a valid basis for reducing a fee award to the prevailing party. But this does not mean that the party that issues a Rule 68 settlement offer that is rejected has free reign to incur unnecessarily high fees. After designating a prevailing party, the trial court's assessment of fees-under Civil Rule 82 or Civil Rule 68-begins with the prevailing party's actual fees, but it does not end there. The reasonableness of the actual number of hours billed, and the rate charged for the services, must be separately evaluated by the court.
In Froines II, we could not tell whether the superior court's initial fee award was influenced by a determination that Froines's dispute with Valdez Fisheries should have
been settled. We suggested that, on remand, the superior court should determine the amount of reasonable actual attorney's fees by considering the remaining factor cited in its first award: " the moderate amount of time and labor that the case should have required." 
The superior court's order on remand expressed concern that its " objective evaluation of the ‘ time required’ to litigate this case" would be " considerably colored by the maximum likely recovery, the actual recovery, and the contingent nature of the fee arrangement." The trial court concluded that our opinion in Froines II forbid it " from considering these objective factors to determine whether the plaintiff's fees are ‘ required.’ " But in the same order, the superior court demonstrated that it could evaluate the reasonableness of the hours billed-by determining whether they were " required" to litigate the claim-independent of the possibly improper factors it claimed colored its thoughts. The superior court stated that Froines's attorneys " spent enormous chunks of time" on motions that were patently without merit and on drafting jury instructions for claims that Froines was procedurally barred from pursuing. The reasonableness of filing a meritless motion or drafting unnecessary jury instructions is unrelated to the nature of the fee agreement between the lawyer and the client, and unrelated to the probable or actual recovery on the claim. Similarly, the reasonableness of having two attorneys present at trial, or of spending five days in trial rather than three, are questions unrelated to the nature of the fee agreement between the lawyer and the client and only somewhat related to the probable or actual recovery on the claim. These questions depend much more directly and substantively on the number and complexity of the legal and factual issues in dispute.
The superior court's order awarding attorney's fees to Froines explicitly states that the award is not based on the superior court's objective evaluation of the amount of reasonable actual attorney's fees. The court read Froines II as preventing it from using its discretion to make an objective evaluation, and compelling it to accept " the amount of time that an attorney honestly chooses to spend on the case." This was error. The task of determining the amount of reasonable actual attorney's fees requires an objective assessment. The trial court is uniquely suited to make this judgment.
For the reasons stated above, we REVERSE and REMAND for recalculation of the award of attorney's fees in accordance with this decision.
EASTAUGH, Justice, concurring.
I agree with the court that the fees dispute must be remanded for further proceedings. But I write separately to repeat my view, expressed in my dissent when this case was last Before us, concerning the evidence relevant in Alaska Civil Rule 68 attorney's fees disputes. In my view, the court has unwisely and needlessly prevented trial courts from considering some of the most relevant evidence bearing on the reasonableness of the incurred attorney's fees when a party seeks a Rule 68 fees award.
Because this is the same case, my continued adherence to my dissent is not foreclosed by stare decisis.