70 F.R.D. 366 | E.D. Pa. | 1976
OPINION
I. BACKGROUND
A number of lawyers have filed petitions for counsel fees in connection with the settlement of these two cases. Both cases arise out of the financial collapse in June 1970 of the Penn Central Trans
The complaint in Dorfman v. First Boston Corporation, et al. was filed on July 7, 1970, and the complaint in Juster, Inc. v. First Boston Corporation, et al. on September 28, 1970 (hereafter collectively referred to as “Dorfman-Juster”).
Earlier proceedings in these cases are reported in two previous opinions. We will only briefly review the facts contained in those decisions. Plaintiffs, Minnie Dorfman and Juster, Inc., brought suit pursuant to various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. They sought damages for their losses in the purchase of nine percent Sinking Fund Debentures issued by Pennco.
In January, 1972, we granted defendants’ motion to dismiss as to a number of claims, and denied their motion as to claims asserted under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1970), and sections 17(a)(1) and (a)(3) of the Securities Act of 1933, 15 U.S.C. § 77q(a) (1970). Dorfman v. First Boston Corporation, 336 F.Supp. 1089 (E.D.Pa.1972). Later, plaintiffs were certified as class representatives pursuant to F.R.Civ.P. 23(a) and (b)(3). Dorfman v. First Boston Corporation, 62 F.R.D. 466 (E.D.Pa.1974). The class which plaintiffs represented was defined as “the class of debenture holders who purchased in reliance on the December 16, 1969 offering circular * * *.” Id. at 478.
Dorf man-Juster was settled, along with the actions in MDL 56, on December 2, 1974. The settlements occurred simultaneously because of the defendants’ insistence throughout the course of these cases that any settlement would have to be “global” in nature. From the global settlement fund, $2 million was allocated to the Dorfman-Juster class. After a hearing at which no objections were raised, we approved the settlement in Dorfman-Juster on August 25, 1975.
On February 25, 1975, we issued Post Settlement Order No. 1 requiring, inter alia, that all petitions for attorney fees be filed by February 28, 1975. Mitchell Kramer, Esq., counsel for Minnie Dorfman, and Herbert Deutsch, Esq., counsel for Juster, Inc., (hereafter “class counsel”) filed a joint petition for counsel fees and reimbursement of expenses on February 28, 1975.
On May 9, 1975, petitioners David Berger, P.A., Blank, Rome, Klaus & Comisky, Farage & Shrager, and Modell, Pincus, Hahn & Reich (hereafter “Berger et
Berger et al. then filed, on July 14, 1975, a petition for counsel fees. It is this petition with which we deal first.
II. BERGER ET AL.
These petitioners
In reaching our conclusion, we felt it unnecessary to hold an evidentiary hearing. See Alpine Pharmacy, Inc. v. Chas. Pfizer & Co., Inc., 481 F.2d 1045, 1053 (C.A.2, 1973).
Petitioners’ position is that although they did not formally represent plaintiffs in Dorfman-Juster, their efforts during settlement negotiations in large part were responsible for establishing the global settlement fund. They contend that the Supreme Court’s decision in Sprague v. Ticonic National Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939) gives this court the power to make an award of counsel fees to them. Mr. Justice Frankfurter, speaking for the Court in Sprague stated:
“Whether one professes to sue representatively or formally makes a fund available for others may, of course, be a relevant circumstance in making the fund liable for his costs in producing it. But when such a fund is for all practical purposes created for the benefit of others, the formalities of the litigation — the absence of an avowed class suit or the creation of a fund, as it were, through stare decisis rather than through a decree — hardly touch the power of equity in doing justice as between a party and the beneficiaries of his litigation.” 307 U.S. at 167, 59 S.Ct. at 780.
We have no doubt that this court has the power to award attorney fees to counsel who do not formally represent any of the parties.
Petitioners argue that the Second Circuit’s opinion in Alpine Pharmacy, Inc. v. Chas. Pfizer & Co., Inc., supra, an antibiotic drug price-fixing case, is directly on point with the present case. Petitioners have cited no other cases in which awards similar to this have been made.
Alpine involved an appeal from an order of Judge Inzer ,B. Wyatt of the Southern District of New York approving a plan of distribution for certain claimants and awarding attorney fees. The case arose out of the massive antibiotic multidistrict antitrust litigation.
The plaintiffs in the Alpine case fell into a number of subclasses. However, there were three essential groups: (1) various governmental bodies which had directly or indirectly purchased antibiotics, (2) wholesale and retail druggists, and (3) individual consumers. There, as here, defendants insisted upon a global settlement which would encompass all plaintiffs’ claims. In 1969 a settlement offer of $100 million was made; acceptance required the approval of all of the subclasses. This required working out an equitable allocation of the $100 million fund among all of the plaintiff classes.
The attorney who had been the chief negotiator of the global settlement, David Shapiro,
After extensive negotiations among defendants, Shapiro, and counsel for the druggists, it was agreed that the druggist class would be allocated $3 million plus the interest on the entire settlement fund for a period of time. The latter amount was an additional contribution to the settlement fund by defendants, because the interest would be accumulated for a period of time before defendants were required to establish an escrow account.
Shapiro thereupon petitioned the court for an award of attorney fees from the $3 million allocated to the druggists. Judge Wyatt approved an award to Shapiro even though he had never formally represented any of the druggists in the litigation. In making the award, Judge Wyatt found that “[i]t is certain that the efforts of Shapiro were largely responsible for the creation of the $3,000,000 fund allocated to the [druggist] class.” 481 F.2d at 1057. The Court of Appeals
Petitioners, analogizing themselves to Shapiro, claim that they similarly should be awarded fees from the settlement fund which they participated in establishing.
Our reading of the opinions of Judge Wyatt in State of West Virginia v. Chas. Pfizer & Co., 314 F.Supp. 710 (S.D.N.Y.1970), aff’d, 440 F.2d 1079 (C.A.2), cert. denied, 404 U.S. 871, 92 S.Ct. 81, 30 L.Ed.2d 115 (1971), and the Second Circuit in Alpine Pharmacy, Inc. v. Chas. Pfizer Co., supra, brings us to the conclusion that there were a number of factors which contributed to Judge Wyatt’s conclusion that Shapiro’s efforts had created the settlement fund for the druggists. A comparison of these factors with the facts of this case leads us to a different conclusion.
First, the Court of Appeals noted that Shapiro had been chief negotiator of the global settlement; none of the attorneys for the druggists took part in these negotiations. In the present case, negotiations were carried on separately by petitioners and class counsel with the defendants. Indeed, one of the defendants in Dorfman-Juster, First Boston Corporation, was not a defendant in any of the MDL 56 cases. This defendant contributed substantially to the overall fund, although its contribution was only because of Dorfman-Juster and the efforts of class counsel.
Although at one point early in these cases there was some confusion about petitioners’ authority to represent Dorfman-Juster plaintiffs at settlement negotiations, any confusion was totally dissipated in a conference before us in the early summer of 1973.
The situation that then evolved was totally unlike that in Alpine. There, the
A far different situation obtained here. No one seriously questioned the substantive validity of the Dorfman-Juster claim after our rulings on the motions, see supra. It was, in itself, a substantial part of the global settlement. It was not a “nuisance value” claim, but one based on solid substance. And it was a claim that class counsel repeatedly insisted would not be settled for less than $2 million, a position known at all times to petitioners and defendants. Raymond Denworth, Esq., liaison counsel for defendants, stated in an affidavit, “At some point in those conferences [after the settlement conference of April, 1974 before us], counsel for plaintiffs in Dorfman-Juster stated that, in order to settle their cases, they would require a total fund of $2 million, and did not care from what source those funds came, or how they were allocated.”
After the global fund of $10 million materialized, the problem of allocation arose. Because of disagreements among plaintiffs in MDL 56, it was left to the court to allocate the fund to the subclasses. However, the Dorfman-Juster allocation was not made by the court; it was decided upon in negotiations between class counsel representing plaintiffs here, and petitioners representing plaintiffs in MDL 56.
In sum, we have concluded that class counsel were in part responsible for the birth of the $10 million global fund; they were solely responsible for negotiating the allocation of $2 million with petitioners who represented at that point an adverse class. This simply is not a case, as was Alpine, where counsel for one class of plaintiffs has ridden the coattails of another to settlement.
Class counsel argue that in any event, the petition was not timely filed. On February 25, 1975, we ordered that petitions for counsel fees be filed not later than February 28. The Berger et a1. petition was filed on July 14, 1975, nineteen weeks after the deadline, four months after the national publication of notice to the Dorfman-Juster class, and twelve days after the fee hearing itself.
III. KRAMER-DEUTSCH
Counsel for plaintiffs in Dorfman-Juster, Mitchell Kramer, Esq. and Herbert Deutsch, Esq., have petitioned this court for an award of $710,000 in attorney fees and $18,617.37 in costs, expenses and disbursements.
The polestar in considering class counsel’s fee requests is Lindy Brothers Builders, Inc. v. American Radiator & Standard Sanitary Corporation, 487 F.2d 161 (C.A.3, 1973). The court made clear that the starting point for determining proper attorney fees was the amount to which counsel would be entitled on the basis of a reasonable hourly rate of compensation for the services rendered. Other factors which we must consider in arriving at a final award are:
(a) the contingent nature of the suit, and
(b) the quality of the work performed.
A. Compensation Based on Hours Expended
We are convinced after an independent evaluation of the figures contained in class counsel’s affidavit that they are, for the most part, reasonable, commendably detailed and accurate.
(1) partners,
(2) associates,
(3) para-professionals,
(4) law students.
(1) Mitchell Kramer and Herbert Deutsch are experienced attorneys who have been involved in numerous class actions in which they have achieved favorable results for their clients. See, e. g., In Re Gypsum Cases, 386 F.Supp. 959, 969-73 (N.D.Cal.1974). Herbert Salus is a former judge of the Court of Common Pleas of Philadelphia County and has been an attorney for twenty-six years. All three of the above normally bill their time at $75 per hour for non-contingent cases. We feel that a figure of $75 per hour is a fair one to use in computing a figure based on compensation for time spent.
(2) Most of the associate time was that of Steven Kapustin, of Kramer and Salus. His time is normally billed at $50 per hour, and we consider this reasonable.
(3) Class counsel’s petition also includes time worked by a para-professional. This is not time which, strictly speaking, involved the provision of legal services or expertise. We cannot agree with the Second Circuit that class counsel may only recover for the out-of-pocket cost of the para-professional rather than a fee based on a reasonable per hour charge.
(4) For similar reasons we believe work by a law student should be valued on a reasonable per hour basis. We consider $15 per hour as reasonable compensation for the time of a law student.
Two more points need discussion before computing a figure based on time worked. Class counsel have included in their petition all time spent both in preparing their petition for counsel fees and all time spent opposing the petition of counsel for plaintiffs in MDL 56.
As to the former, we are reluctantly unable to agree with Judge Harvey in Lindy that class counsel are entitled to compensation for their time. 382 F.Supp. 1012 — 13. Under the “common fund” theory, fee awards are based on the efforts of counsel to establish a fund which will benefit the class.
“Such a rule would encourage the expenditure of minimum time and effort by a petitioning attorney in connection with an important phase of the administration of the fund. The result under such circumstances could very well be an excessive or improperly allocated award, not based on all the relevant circumstances.”
We think that class action counsel in seeking an award of counsel fees from the court have an affirmative obligation to themselves and to the court to present a detailed, accurate and comprehensive fee petition. The beneficiaries of the efforts expended on the petition are class counsel themselves. It seems to us that the plaintiff class does not receive any benefit from the preparation and submission of an adequate petition; since class counsel have the duty to submit a sufficient fee petition, a substandard one would not be acceptable as a basis for a fee award.
Similarly, we feel we must exclude time spent in opposing the Berger et al. fee petition. Class counsel’s efforts in connection with that brought no benefit to the plaintiffs, since any award to MDL 56 counsel would come from class counsel’s own fees, not the net fund for distribution to the class. Indeed the only persons benefited were class counsel themselves. Accordingly, we will dis
Class counsel’s petitions detail a total of 4510.5 hours expended by partners. Subtracting 142 hours yields 4368.5 compensable hours. Similarly, subtracting 46.25 hours from the 270.5 hours of associate time detailed in the petitions results in a figure of 224.25 hours. A total of 552.5 hours by para-professionals and 72.5 hours by law clerks was spent on this case. After multiplying each of these numbers by the appropriate hourly figure, we reach a total of $350,987.50.
We must, however, consider whether other factors require either an increase or a decrease in this amount. We emphasize that while time is our starting point, and a significant factor, it is not the only consideration. As Judge Weinfeld has so aptly pointed out, “To give it prime importance may at times result in rewarding inefficiency or the luxurious practice of law and penalizing those who are efficient and expeditious in performing their legal tasks.” Blank v. Talley Industries, 390 F.Supp. 1, 5 (S.D.N.Y.1975).
B. The Contingency Factor
Class counsel accepted this case on a contingent basis; they had no recourse to any client for fees if this action had been unsuccessful. They did not have the benefit of any prior governmental criminal investigation or conviction. It is also true that the case has been vigorously contested by counsel for defendants.
On the other hand, it appears to us that the probability of success on the merits was not as highly speculative as some other cases in which attorney fees have been awarded. Also, there were a number of official investigations into the financial collapse of the Penn Central companies.
The attorneys for plaintiffs are experienced and able lawyers. Their special expertise in class actions of this type and their vigor were of significant value in moving the case toward its ultimate disposition, despite the many roadblocks faced. A great many of the factual and legal issues in this case were subtle and complex. For example, our decision to certify this case as a class action required reargument, in large part due to the difficult nature , of the determination.
The final settlement figure in this case also appears to be quite favorable to plaintiffs. There was a substantial danger that this action would be consolidated with MDL 56;
We have concluded that increasing the hourly figure of $350,987.50 by 50 percent would fairly and adequately take
In addition to the fee award, class counsel are entitled to reimbursement of their costs and expenses in the amount of $18,617.37.
Counsel should submit an appropriate form of order.
ORDER
And now, this 6th day of February, 1976, it is ordered that the petition for counsel fees filed by David Berger, P.A.; Blank, Rome, Klaus & Comisky; Farage & Shrager; and Modell, Pincus, Hahn & Reich be and it hereby is dismissed.
. The complaint in Juster, Inc. v. First Boston Corporation, et al. was filed in the Southern District of New York.
. The numerous suits before the Panel included actions by both stockholders and bondholders of the various Penn Central companies.
. The Multidistrict Panel, in referring these cases, specifically recognized the possibility of factual differences and left open separate treatment of Dorfman-Juster. In Re Penn Central Securities Litigation, 322 F.Supp. 1021, 1022-23 (Jud.Pan.Mult.Lit.1971).
. Recently we also signed an order approving the settlement in MDL 56.
. A joint supplemental petition was filed on June 12, 1975.
. Actually, Berger et al. and class counsel are all petitioning for fees. For convenience Berger et al. will be referred to as “petitioners” and Kramer & Deutsch as “class counsel.”
. Based on the reasons set out in the body of the opinion we do not think that the Court of Appeals’ decision in Lindy Brothers Builders Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161, 169 (C.A.3, 1973), commands a different result.
. See generally J. Dawson, Lawyers and Involuntary Clients: Attorney Fees From Funds, 87 Harv.L.Rev. 1597 (1974).
. We are aware of one other case in which the court acted to shift fees among attorneys for plaintiffs. In Doherty v. Bress, 104 U.S.App.D.C. 308, 262 F.2d 20 (1958), cert, denied, 359 U.S. 934, 79 S.Ct. 649, 3 L.Ed.2d 636 (1959), there were numerous plaintiffs’ claims, all based on the same aircraft accident. Two of
“There is some irony in the thought that the Greenbugh-Pettus [the predecessors of Sprague] machinery of the ‘common fund,’ which has extracted so much from strangers for the enrichment of the legal profession, can be reversed and turned against other lawyers to generate such internecine strife. In the end the decision may turn out to be merely a freak. It can be explained in part by the statutory power of the trial judge to determine what shares all the lawyers would be given in the tort judgment against the government [28 U.S.C. § 2678 (1970)]. Surely much depended also on the express agreement by all plaintiffs and defendants that the test cases would determine the issue of fault. Doherty v. Bress has seldom been cited subsequently and seems almost to have dropped out of sight. I have found only one case in which a lawyer has used it in an active effort to redivide the lawyers’ own pie. This effort failed, the reasons given being that the lawyers concerned had represented distinct groups of clients whose contentions differed, were at times mutually hostile, and contributed in ways that were hard to measure. [Schmidt v. McCarthy [125 U.S.App.D.C. 131], 369 F.2d 176 (D.C. Cir. 1966).] So it maybe [s/c] that the gate left ajar by Doherty v. Bress will lead nowhere. But who can be sure the gate is not locked? (Citations omitted.)”
Attorney Fees From Funds, note 8, supra, at 1651.
. Shapiro was counsel for some, but not all, of the government plaintiffs.
. We wish to emphasize that the decision on attorney fees is one which is initially left to the trial judge’s discretion. See, e. g., Hall v. Cole, 412 U.S. 1, 93 S.Ct. 1943, 36 L.Ed.2d 702 (1973). In exercising that discretion, the trial judge must, and naturally will, take into account all of the facts and circumstances of the case. For this reason we think it especially important to point to those facts and circumstances which we feel Judge Wyatt relied on.
. Class counsel throughout this litigation consistently took the position — in settlement negotiations, conferences, and in letters to petitioners — that no one was authorized to speak for their clients except for themselves.
. The efforts of class counsel which ultimately contributed to the final settlement are sketched out below. Initially, counsel took the position that their clients would be best off if preparation for trial went ahead. Consequently, counsel conducted the following discovery:
(a) Interrogatories were prepared and served on all defendants and the responses were analyzed;
(b) Document requests were prepared and served and the document* produced were analyzed;
(c) Requests for admissions were prepared and served and the responses were analyzed;
(d) A number of witnesses were interviewed; and
(e) Several depositions were taken.
In many cases it was necessary for class counsel to make motions to compel before discovery could be obtained. Subsequently, class counsel (along with petitioners) attended numerous settlement meetings after the settlement conference before us in April, 1974. It was these meetings which ultimately led to the global settlement offer which was accepted and approved. Among other aspects Of this case which class counsel handled are: arguing for severance of Dorfman-Juster from MDL 56 both before the Judicial Panel on Multidistrict Litigation and us, briefing and arguing against defendants’ motion to dismiss, and twice arguing class action motions before this court.
. Wyatt, J. approving the antibiotic drug price-fixing case (Alpine) settlement, sub nom., State of West Virginia v. Chas. Pfizer & Co., 314 F.Supp. 710, 745 (S.D.N.Y.1970), aff’d, 440 F.2d 1079 (C.A.2), cert. denied, 404 U.S. 871, 92 S.Ct. 81, 30 L.Ed.2d 115 (1971).
. This was in part because of the substantive weakness of the druggists’ claims. Judge Wyatt, after discussing the applicability of the “passing-on defense,” 314 F.Supp. at 745-46, observed:
“Whatever the correct answer to this riddle may be, it is difficult to see in these cases any real damage to [the druggists],
“The attitude of the members of the [druggist] class indicates no real damage to them.”
Id. at 746.
. Answer to Petition for Counsel Fees, Affidavit of Raymond Denworth ¶ 12. This fact is substantiated by other documents in the record before us.
. Petitioners allege that they have expended over 17,000 hours in prosecuting this suit. Every one of those hours was spent representing the interests of plaintiffs in MDL 56. Indeed, as fully expected, petitioners’ motions for counsel fees in MDL 56 (presently before us) detail well in excess of 17,000 hours for which they seek compensation from the MDL 56 settlement fund. The justice of awarding what would amount to duplicate fees to petitioners by taking fees away from what this court determines class counsel have earned and deserve, escapes us.
. The latter figure is based upon class counsel’s first petition and affidavit which claims $16,819.62 in costs and expenses, and their supplemental petition filed June 12, 1975 which claims $1,797.75 in costs and expenses.
. See page 368, supra.
. The joint petitions and accompanying affidavits are matters of record in this case, and we see no value in reproducing them in detail here.
. See City of Detroit v. Grinneli Corporation, 495 F.2d 448, 473 (C.A.2, 1974).
. We note in passing that since the recent munificent increase in judicial salaries, a district judge who works 40 hours per week for 50 weeks a year is paid at the rate of $21 per hour.
. See part II supra.
. See Attorney Fees From Funds, note 8 supra.
. We arrived at these figures from an examination of class counsel’s original and supplemental petitions. In instances where it was uncertain whether the time was spent on properly compensable activities or on the fee petitions, we used our best estimate in allocating time. Any possible error is of minimal significance. And we see no use in postponing this determination any further since class counsel probably have no better information available. With class action counsel forewarned by our decision today, we do not expect that this problem will arise in the future.
. To avoid any confusion, and to summarize, the following chart giving time and fees explains how we arrived at this figure.
Per Hour
Class of Work Hours Fee Fee
Partner 4368.5 $75 327,637.50
Associate 224.25 $50 11,212.50
Para-professional 552.5 $20 11,050.00
Law Clerk 72.5 $15 1,087.50
. See, e. g., Staff of SEC, Special Subcomm. on Investigations of the House Comm, on Interstate and Foreign Commerce, The Financial Collapse of the Penn Central Company (1972). Although the printing date was 1972, the substance of the investigation was revealed in testimony in 1970. Id. VII.
. See Dorfman v. First Boston Corporation, 62 F.R.D. 466 (E.D.Pa.1973).
. See In Re Penn Central Securities Litigation, 322 F.Supp. 1021 (Jud.Pan.Mult.Lit.1971).