MEMORANDUM AND ORDER
This petition for attorneys fees arises from the settlement of a nationwide class action against defendant Sears, Roebuck and Co. (“Sears”), challenging its practice of obtaining and collecting upon reaffirmation agreements which were not filed in Bankruptcy Court in violation of 11 U.S.C. § 524(c)(3).
The settlement results in monetary benefits of over $165 million — a recovery of 151 percent of class members’ out-of-pocket losses. This common fund is to be paid to approximately 190,000 debtors, each of whom will receive additional benefits such as a finance charge waiver (at 18-21 percent credit card rates) on all post-petition purchases.
This action came in the wake of the pioneering work of the Bankruptcy Court in Massachusetts, which had denounced a variety of Sears’ reaffirmation practices.
See In re Iappini
Class counsel seek court approval of their petition for attorneys fees in the amount of $7.5 million plus expenses of $48,237.60. Sears has stipulated to these attorneys fees, which were negotiated after the final order approving settlement had been entered. The requested attorneys fees represent approximately 4.5 percent of the common fund. The settlement agreement provides that attorneys fees shall not be taken out of the common fund. If a lodestar approach were used, the actual amount of attorneys fees of class counsel calculated by multiplying the number of hours worked by the hourly billing rate totals $826,665.00, 1 such that the requested attorneys fees would constitute a lodestar multiplier of 8.9 percent.
After hearing, and some hand-wringing, the Court concludes that the fee is not unreasonable under the common fund doctrine.
PROCEDURAL HISTORY
This ease traces back to a pro se motion of debtor'Francis M. Latanowich to reopen his case on November 14, 1996. The Bankruptcy Court (Kenner, J.) had entered a discharge order in his favor on April 1, 1996, at which time no open reaffirmation agreements
On January 29,1997, at the hearing on the order to show cause, Sears explained that it had not filed the reaffirmation agreement because it feared an order of civil contempt under which it would incur sanctions if it filed additional reaffirmation agreements containing certain prohibited language under the Iappini opinion. 2 After the hearing, the court issued two procedural orders. The first gave Sears an opportunity to submit a brief (which it filed and has since withdrawn) and gave the United States Trustee an opportunity to file a brief in support of sanctions. The second required Sears to file by February 28,1997 a list of all unfiled reaffirmation agreements in Massachusetts from January 1, 1995 through January 29, 1997. Although the list was timely filed, the court issued a further order that it be authenticated with an affidavit.
On March 14, 1997, Sears submitted an affidavit attaching a list of approximately 2,733 bankruptcy cases in which it had obtained a post-petition “Reaffirmation Agreement” — each signed by the debtor but never filed with the Bankruptcy Court by Sears.
The Latanowich torch sparked a marathon to the courthouse. On March 31, 1997, the plaintiffs’ counsel grabbed the torch and filed a class action in Bankruptcy Court, Brioso v. Sears, Roebuck and Company, Adversary Proceeding No. 97-1222-CJK, on behalf of a nationwide class of debtors asserting violations of the Bankruptcy code as well as a claim pursuant to Mass.G.L. e. 93A. This action expressly referenced the Latanowich proceedings. Another class action was filed on April 7, 1997, Caldas v. Sears, Roebuck and Company, Adversary Proceeding No. 97-1229-JNF. These two actions were later consolidated. On April 17, 1997, the government filed United States of America v. Sears, Roebuck and Co., 97-10839-JLT (D.Mass.) (the “United States Action”), asserting not only violations of the Bankruptcy Code but also mail fraud violations pursuant to 18 U.S.C. § 1341 and 1345. 3
The senior management of Sears and its Board of Directors maintain that they first learned that Sears had failed to file reaffirmation agreements on March 27, 1997. On April 9, 1997, Sears withdrew the memorandum of law it had filed in response to the order to show cause. In its place, it submitted a written
mea culpa
memorandum stating that “the company no longer intends to contest the court’s order to show cause,” and conceding that it had “exercised flawed legal judgment and execution in failing to file some reaffirmation agreements.” Sears agreed to conduct an audit to identify all debtors with unfiled reaffirmation agreements from 1992 until April 1,1997, to impose a debt collection moratorium, and to remit to such debtors all amounts paid pursuant to those unfiled reaffirmation agreements, with interest, net of
On April 14, 1997, the Bankruptcy Court ordered Sears to retain the services of Professor Lawrence P. King of New York University School of Law and of counsel to Wachtell, Lipton, Rosen & Katz (Sears’ counsel) in order to perform a legal audit of Sears’ procedures with regard to reaffirmation agreements. The court ordered Sears to adopt Professor King’s recommendations and it also enjoined Sears from sending billing statements and assessing interest charges to the debtors with whom Sears had entered into reaffirmation agreements that were never filed.
On April 16, 1997, the court concluded that Sears’ “disregard for the law and for the rights of the Debtor in this case was also systematic, a matter of company policy,” and so held that it had the authority to issue punitive sanctions for violating a discharge order pursuant to 11 U.S.C. § 524(a)(2).
Latanowich,
The consequential damages in this case do not begin to reflect the magnitude of Sears’s offense against Mr. Latanowich and against the bankruptcy law. Sears here made a conscious decision to disregard the clear requirements of the law because it was more expeditious and profitable to do so. Its conduct toward the Debtor was predatory: Sears preyed on the Debtor when he was financially most vulnerable and powerless; and in doing so it deprived him of the fresh start that Congress intended that he should have. Sears’s disregard for the plain requirements of the discharge order and of § 524(c) was contemptuous, as was its response (in this case) to Iappini, which was simply not to file — but still enforce — an agreement that Iappini prohibited.
Id. at 337 (footnote omitted).
As damages, she held that the pre-petition debt of the debtor was discharged, and that he was entitled to compensation for post-petition payments of principal and interest on the pre-petition debt. She also issued an order to show cause why compensatory and punitive damages should not enter in each of the 2,733 other cases in which Sears admitted it had failed to file reaffirmation agreements. The opinion was forwarded to the United States Trustee, the United States Attorney, the Attorney General — and class counsel John Roddy, Esq.
By order dated April 16, 1997, the Bankruptcy Court, on Sears’s consent, conditionally certified a temporally unlimited nationwide class, for settlement purposes only, and appointed plaintiffs’ counsel as class counsel. It set June 5, 1997 as the deadline for the Brioso plaintiffs and Sears to report on the status of the ease, with a clear direction to the parties to negotiate a fair and reasonable settlement of the claims of all class members. At some point, the Bankruptcy Court had suggested a $500 per capita sanction. A period of intensive discovery and negotiations ensued.
On April 21, 1997 Judge Tauro signed a Stipulated Order for Preliminary injunction in the United States Action, which required Sears to: (1) file all reaffirmation agreements; (2) conduct a national review to identify those debtors who filed Chapter 7 petitions from January 1, 1992 to the present from whom Sears had obtained signed reaffirmation agreements which were never filed; (3) cease collection activities with respect to such debtors; and (4) calculate the amounts charged and collected from these individuals, inclusive of interest, finance and other charges relating to each debtor’s obligations as of the filing date of the bankruptcy petition.
On May 20, 1997, plaintiffs, concerned about the jurisdiction of a Bankruptcy Court over a nationwide class action, filed this class action complaint seeking nationwide relief for
Sears threw in the towel within two weeks. The parties entered into a Stipulation and Agreement of Compromise and Settlement, dated June 5, 1997. The next day, Sears applied for a status conference and hearing before the court on a proposed class action settlement in the matter. Sitting jointly, Bankruptcy Court Judge Kenner, who was presiding over the now consolidated class action in Bankruptcy Court, and I held the settlement hearing on October 28, 1997. According to the parties, the staff of the Attorneys General of at least thirty-nine states, and the Federal Trade Commission (subject to a statutory notice and comment period) have all approved this settlement.
The settlement contains the following key terms, which also apply to Sears’s subsidiary, Western Auto. First, the settlement class is defined as all debtors who owed a debt to Sears and who signed a post-petition reaffirmation agreement which either was not filed prior to the order of discharge, or if filed, was disapproved or rejected by the court or rescinded by the debtor. This class definition is significant because prior to the settlement, only debtors with reaffirmation agreements signed in 1992 were covered by the relief ordered by the Bankruptcy Court and the Stipulated Preliminary Injunction; this sweeping settlement class effectively eliminates potential defenses that claims would be barred by the applicable statute of limitations and laches. Second, Sears shall file all reaffirmation agreements received not less than five days prior to the entry of the debtor’s order of discharge. Third, Sears shall complete its ongoing national review to identify debtors from January 1, 1992 to April 1, 1997, in accordance with the stipulated order in the United States Action. These identified debtors will not have to file a proof of claim to recover. Fourth, Sears shall continue its ongoing billing moratorium and suspend all collection activities on each class member’s account until a new balance may be calculated.
Fifth, Sears shall remit to class members all post-petition payments made on account of reaffirmed indebtedness (including all finance charges, late fee charges, returned check charges) with interest; eliminate finance charges attributable to post-petition purchases; and deem all pre-petition debt a nullity. Sixth, class members who entered into reaffirmation agreements prior to 1992 may recover by filing a Proof of Claim with sufficient documentation. Notice was sent to all Sears credit card holders as the best way to find non-identified class members (i.e. pre-1992 debtors).
Seventh, Sears shall provide a fund of $25 million to be distributed in pro rata shares to the members of the Settlement Class. Eighth, if efforts to locate an identified class member fail, the unclaimed funds will revert to the Attorney General of the class member’s state for consumer education .purposes. Ninth, in the event that a member of settlement class is deceased, Sears shall make the payment to such member’s heirs or estate. Tenth, Sears shall continue to extend credit to the members of the settlement class, waive any security interest on goods purchased pri- or to the bankruptcy filing, and attempt to correct any negative credit reports. Eleventh, “[a]s an additional benefit to the Settlement Class,” Sears shall pay all attorneys’ fees and expenses awarded to class counsel. (¶ 19.1.)
Subsequently, as they had informed the court they would attempt to do, counsel negotiated a settlement oh attorneys fees which is at issue here. The United States Attorney, the Federal Trade Commission and the' consortium of State Attorneys general were given an opportunity to comment on the requested fee award. Only the Attorney General of Massachusetts responded in a letter dated December 31, 1997. An Assistant Attorney General refuted plaintiffs’ expert’s position that they were faced with a “categorical denial” by Sears of the allegations and “thus faced a risky litigation against a powerful adversary.” (Docket 85). Rather, citing Latanowich, the letter pointed out that “Sears admitted to its unlawful practices in a response to the Bankruptcy Court’s Order to Show Cause, soon after the class action was filed” and noted: “We would also note that the Sears reaffirmation issue was first brought to the public attention by the actions of the bankruptcy court, prior to the filing of the class action suit.”
Again, Judge Kenner and I presided jointly over the hearing concerning the reasonableness of the fees. Although the motion for approval was filed in this District Court .action only, her familiarity with the background of the case was helpful. No objections were filed concerning the attorneys fees by any government or private actors— though no separate notice of the amount of the fees was sent to class members. Sears has apparently now reached consent agreements with the Federal Trade Commission, and the attorneys general of fifty states.
DISCUSSION
Under the “common fund doctrine,” the district court has the equitable power to reimburse a person who maintains a suit that results in the creation, preservation or increase of a fund in which others have a common interest for reasonable attorneys fees and litigation expenses incurred from that fund.
See Central Railroad & Banking Co. v. Pettus,
“[W]hen a fee application is submitted ancillary to, or as part of, the termination of a class action, the district court should ordinarily determine the reasonableness of the fees, notwithstanding that the source of payment does not directly impair the class recovery.”
Weinberger v. Great N. Nekoosa Corp.,
The First Circuit placed the courts in this “guardian angel” role for “fear that class actions will prove less beneficial to class members than to attorneys” in the following ways:
The problem has two aspects: extortion (that is, the prosecution of strike suits) and collusion (that is, the tension which necessarily arises between class members and class counsel when settlements and attorneys fees are negotiated simultaneously). While the conflict between a class and its attorneys may be most stark where a common fund is created and the fee award comes out of, and thus directly reduces, the class recovery, there is also a conflict inherent in cases like this one, where fees are paid by a quondam adversary from its own funds — the danger being that the lawyers might urge á class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment on fees.
Id. at 524 (citations omitted).
In a common fund case, the district court, “in the exercise of its informed discretion, may calculate counsel fees either on a
Ordinarily a court approving a fee award should determine what sort of action the court is adjudicating and then primarily rely on the corresponding method of awarding fees, using the alternative method to doublecheck the reasonableness of the fee.
See In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liability Litig.,
Although I agree with plaintiffs that the appropriate approach to use here is the common fund doctrine, the tougher issue is a determination of the appropriate percentage of the common fund in light of the fact that this case rode “piggyback” on the
Latano-wich
case.
Id.
at 1272. In a similar situation, the District Court in the
Swedish Hospital
case took a “value added” approach which I found instructive.
See Swedish Hosp. Corp. v. Sullivan,
No. 89-1693,
Although a majority of common fund class action fee awards fall between twenty and thirty percent,
see id.,
the expectation is that “absent unusual circumstances, the percentage will decrease as the size of the fund increases.”
Report of the Third Circuit Task Force,
Where the' fund is unusually large and the application of the benchmark percentage may result in a windfall to counsel, some courts have used “a sliding scale, with the percentage decreasing as the magnitude of the fund increased, or have used the lodestar method.”
Manual for Complex Litigation, Third,
§ 24.12 at 189, Federal Judicial Center (1995) (citations omitted).
See, e.g., Branch v. FDIC,
Civ. Action No. 91-13270-RGS,
In the instant case, the analysis of the appropriate percentage is further complicated because the class action proceeded in tandem with federal and state law enforcement efforts. Plaintiffs’ expert Charles Silver, a professor at the University of Texas School of Law, states:
Although the available empirical evidence does not enable me to make authoritative generalizations about fee award practices in class actions where public law enforcement officials and private attorneys are working cooperatively, the anecdotal evidence known to me suggests that fees ranging from 10-15 percent of the recovery are usual in these cases.
(Silver Aff. ¶ 11).
Here, plaintiffs urge me to apply a percentage of the entire common fund of 4.5 percent. They point out that they took into account the spadework of the Bankruptcy Court as well as the actual hours expended in setting the percentage so low. I am reluctant to use the entire common fund as the basis for an attorneys fees calculation, however, as liability for compensatory damages was a foregone conclusion in Massachusetts, and a strong likelihood of success was indicated nationally. Although plaintiffs express concern about the risk of prevailing on' Sears’s “flagship” argument that there is no private right to enforce 11 U.S.C. § 524, the complaint asserted RICO and unfair trade practice claims as well. The stipulated order entered between the United States Attorney and Sears already signalled that Seal’s was virtually agreeing to full compensatory damages for any payments made on pre-petition debt, as well as accompanying finance charges, nationwide.
While Sears may be a corporate Goliath, there were fifty state attorneys general, the federal government, and the angered Bankruptcy Judges lined up across the nation with sling shots. It was only a question of which would deliver the mortal blow. While plaintiffs’ counsel in this case are excellent, the extraordinary magnitude of the overall settlement is attributable in large part to this battlefield reality.
In my opinion, in these unique circumstances the better measure of success is not the size of the common fund but the value added by plaintiffs’ class counsel above and beyond the amounts already on the table. The i’eeord suggests that the monetary value added to the class by the settlement was fourfold. First, Sears agreed to a damage fund of $25 million in addition to compensatory damages. Although Judge Kenner had sent a loud signal in
Latanowich
that puni-tives were warranted, the amount
of the
pu-nitives remained to be seen; moreover, Sears was objecting to the findings in
Latanowich
that it had deliberately disregarded known law. (Grant Aff. ¶ 63, 65.) Second, as part
Based on the foregoing factors, I conclude that the value added by plaintiffs’ settlement efforts was more than $32,000,000.
An attorneys fee of $7.5 million reflects between twenty and twenty-five percent of the value added by plaintiffs’ counsel in this settlement. Swedish Hospital applied a percentage of twenty percent to the value-added portion of the fund. Unlike most of the cases cited by the plaintiffs, here the attorneys fees calculated on the lodestar approach are way out of sync with the percentage of fund approach, even when the percentage is at the lowest end of the range for megafund cases. While this is troublesome, other factors support reasonableness: (1) the negotiated agreement by Sears to the amount of fees after the final order approving the settlement had entered; (2) the deafening absence of any objections from any of the federal or state governmental entities; (3) the lack of any evidence suggesting collusion; (4) the fact that the attorneys fees do not come out of the fund; and (5) the non-monetary and monetary value added by class counsel.
ORDER
I find $7.5 million in attorneys fees and $48,237.60 in expenses to be within the range of reason, and I approve them.
Notes
. The lead Boston attorneys John Roddy and Frederic B. Grant, Jr. billed at $260.00 an hour. The lead Chicago attorneys charged $300 an hour.
. Sears was on the hot seat in Massachusetts for the year before
Latanowich. Iappini
had criticized Sears for: (1) including language in the reaffirmation agreement regarding the creditor's claims of nondischargeability where no such claim was made "to entice the Debtors to reaffirm an obligation;” and (2) scheduling hearings on reaffirmation agreements with no intention of appearing in support thereof by counsel.
. Four other cases have been filed which have been consolidated here by order of the multi-district litigation panel. See MDL-1185.