Fed. Sec. L. Rep. P 96,371 William R. Van Gemert v. The Boeing Company (Formerly the Boeing Airplane Company)
573 F.2d 733
2d Cir.
1978
Check Treatment

*2 MULLIGAN, and VAN Before OAKES GRAAFEILAND, Judges. Circuit GRAAFEILAND, Judge: Circuit VAN appellant ruled that this Court adequate notice of its Boeing give did certain convertible deben intention call in it liable action tures and held brought on behalf debenture holders Boeing Van Gemert failed to convert. de Company, 520 F.2d 1373 nied, 46 L.Ed.2d dis Subsequent proceedings in directing order trict court resulted judgment amount of the deposit of the dollars, in award, six million approximately City a New York an escrow account appointed, Special A Master was bank. pass upon authority receive and supervise the admin of claim and to proofs judgment. istration further that the provided The order plaintiffs’ committee of attor fees, expenses and their neys be awarded disbursements, by court, pay as fixed from total thereof made ment judgment.1 The sole issue amount of the appeal is whether that on this fund which not claimed hereafter escrow charged can be with a class members ex (Da- rata share of the fees and Gillespie, New York S. Hazard Wardwell, We hold that until absent class City, penses. Polk & New York vis receive benefit of the attor The members counsel), defendants-appellants, portions of neys’ Air- labors Company (formerly Boeing The award, charge such no assessment et al. Company), plane twenty days entry affidavits submitted within court ordered district The application for fees support of counsels’ paid their undistributed tion may be from the beneficiaries of his labors even though shares. his efforts have not been di rected toward the preservation creation or of unclaimed funds has been question fund. Mills v. Electric appeal before this Court on Auto-Lite 90 S.Ct. our decision on original liability. followed *3 616, 24 (1970); Sprague v. Ti (2d 553 812 Van v. F.2d Gemert Bank, 161, conic 307 777, U.S. 59 S.Ct. 83 1977). we Cir. On that a L.Ed. Kopet 1184 v. Esquire Realty non-claiming that the shares of request 1005, (2d 523 F.2d 1008 1975). Cir. class be distributed rata members in order to among Appellees members assist contend the foregoing that line legal and of paying justifies them in dis authorities an award for attor- Citing neys’ bursements. Eisen Carlisle Jac fees from the six-million dollar class (2d 1973), quelin, 479 F.2d 1005 Cir. vacated award regardless of whether the entire grounds, 417 and remanded other U.S. award is distributed to class members. 2140, 156, (1974), argument 94 40 L.Ed.2d 732 we This has a appeal surface because remedy” “extraordinary suggests procedure held that of a only ap- justified pears fluid class was not under reasonable, to be simple but also is apply. are, however, the circumstances of case.2 Van Ge There other factors mert, Appellees 553 F.2d at 815-16. now which must be considered in weighing the seek to avoid the effect of our holding merits of appellees’ proposal. by requesting a only un actions, Class termed some as “law funds,

claimed with payment thereof to be yer’s lawsuits”, see Developments in the directly attorneys. made to their Actions, Law —Class 89 1318, Harv.L.Rev. doing, they rely upon equitable

In so (1976), 1605 have received a good deal criticism; common fund doctrine fathered much and of this has been direct leading Greenough, cases of Trustees v. ed 105 at the substantial fees awarded to class 527, (1881), 26 1157 attorneys. U.S. L.Ed. and Central g., Alpine Pharmacy, Inc. Pettus, & Banking Railroad Co. v. 113 1045, Chas. Pfizer & 481 F.2d 1049- 387, (2d 1092, L.Ed. Under doctrine, attorney 722, an who creates or S.Ct. 38 L.Ed.2d 549 Terms preserves a fund the benefit fees”, of others in such as “golden harvest of Free may Foreign Cars, addition his client be awarded com World Romeo, Inc. v. Alfa pensation S.p.A., 26, from those who accept (S.D.N.Y.1972), fruits 55 F.R.D. “as Pettus, fees”, Blecher, his labors. at tronomical M. Is the Class is upon S.Ct. 387. This award not based the Action Doing (Plaintiff’s Rule the Job? attorney’s 365, Viewpoint), existence an lien (1972), 55 F.R.D. fund, upon equitable princi fees”, Comment, rather but “enormous 54 U.Det.J. ple those who from the (1977), benefit attor Urb.L. are used to describe ney’s allowances, services should Gener them. which often run into the Corp. Rys., al Finance v. New York point State 3 millions particu of dollars.3 Critics larly F.Supp. (W.D.N.Y.1933) (quoting over-generous applications Gillaspie, (N.D.W.Va. equitable In re F. doctrine, by means of which fund decisions, 1911)). More expanding recent massive attorneys fees are awarded unjust enrichment, concept regard on the too have little for the interests of the appropriate held that under circumstances members. See of Detroit Grin attorney a may right compensa- have nell Corp., F.2d Cir. Charges, Telephone 2. Court vacated and re- See In Because re Hotel 500 F.2d grounds, pass (9th 1974). manded Eisen on it did not Cir. recovery. upon the issue of fluid class How- ever, appears the Ninth to share this Circuit requesting 3. Counsel in this case are fees of unwillingness Circuit’s to treat the class as a approximately two million dollars. judicial entity purposes whole as of suit. dispute fundamentally private arising criticism, which is much of 1977). This into inquiry careful out of the debenture contract. Van Ge prompts justified, misapplication mert, at it would be In Eisen whether permit counsel doctrine equitable many may fund that “the said claims not be. and ex- part of their fees to collect herein collectively or as ‘the class as a treated shares of class the allocable from penses . . . .” 479 whole’ proceeds claim none appellees’ must recovery. therefore from the individual class come members, not from the “class as a whole.” to Rule 23 Although the amendments 1966, only a few effect since have been Although holdings which follow gone damages have actions broadly Greenough speak and Pettus of re through a trial on merits attorneys’ fees intrin covering *4 1018-19; Wolfram, Eisen, C. 479 F.2d in every requirement sic case is the Actions, 1976 Am.B. The Antibiotics Class must to whom benefits accrue those 251, 357; Simon, W. J. Foundation Research Pipe expenses Alyeska are assessed. See Engine of Tool or Class Actions —Useful Society, line Service v. Wilderness 421 Co. 375, (1972); Destruction?, F.R.D. 378 55 240, 1612, 264 44 L.Ed.2d n. S.Ct. Damage Note, the Cy Pres to The Solution (1975). under the 141 “The award of fees Ac of Mass Class Distribution Problems equitable analogous doctrine is to fund 893, tions, (1975). 900 As a 9 Ga.L.Rev. the individual quantum action in meruit: need to resolve result, there has been little actions, has, seeking by his to do of what question” the “troublesome for payment and seeks benefited another judgment unclaimed with the performed.” Lindy the value service Eisen, See damages in favor of a class. v. Radiator & Bros. Builders American Fluid class at 1012.4 479 F.2d 161, Sanitary Corp., 487 F.2d 165 a number adopted by been of Standard concepts have (3d 1973).6 receive no bene which have terminated in Those who in actions Cir. courts West Vir lawyer’s State of work should not settlement. fit from the F.Supp. 710 v. v. Chas. Pfizer 314 it. ginia Schechtman required to aff’d, (2d 537, (2d 1957); F.2d 1079 (S.D.N.Y.1970), 440 Wolfson, 540 Cir. 244 F.2d 871, 81, denied, 92 166, cert. 168 47 F.2d Nav. Nolte v. Hudson However, (1971).5 prece 30 L.Ed.2d 115 1931); Friday, v. 190 F.2d (2d Cir. Simmons involving are of little dents settlements Irving-Austin 849, 1951); In re (8th 852 Cir. through help litigated when a case has been 574, (7th Cir. Corp., 578 Bldg. 100 1012; Eisen, 479 F.2d at trial to District 1938); Independent School Baltic Oil 53 City Philadelphia American High Activities Asso Dakota School South 45, (D.N.J.1971). F.R.D. 71 ciation, 780, (D.S.Dak.1973); 786 F.Supp. 362 Jacobs, City Miami Beach So.2d cf. Eisen, expressed supra, its This Court denied, 348 cert. (Fla.Dist.Ct.App.1976), unwillingness adopt concept to the of fluid (Fla.), So.2d and, recovery, on a we 939, 430, litigation, 54 L.Ed.2d apply refused it perceive any Although do not rea- the Court said: “We we not know that there will be do any exposure pro- history why litiga could not be son maximum unclaimed the made, provisions depending surprisingly tion to has demonstrated date vided for response by presented, any absent upon small members notified of claims return of Kirkham, right F. make claims. See to the defendants.” excess Complex Litigation In Civil Good —Have tent Awry?, 199, (1976); 70 F.R.D. ions Gone Corp., of Detroit v. Grinneli Simon, or En W. Class Actions —Useful Tool Court, 1974), quoting Cir. Destruction?, gine of 55 F.R.D. terms, Lindy, simplest purpose “In its said: attorney ‘compensate of the fee award benefiting value of services for the reasonable ” B Club v. 5. But see B & Investment Kleinert's . . . claimant.’ Inc., (E.D.Pa.1974) 62 F.R.D. where damages defendant,7 such as private point In a action for why this, is no reason holding Alyeska Court as an “[t]here additional compensated potential bene why should be reason fees should not now accepted by members of the class.” fits not charged against the entire escrow fund. Industries, Inc., Talley F.Supp. Blank v. Reversed and remanded for pro- further Newburg, see also 2 H. (S.D.N.Y.1975); ceedings in accordance with this opinion. Actions, (1977); ¶ 2780 at 1249 Class E. Labowitz, Sys Actions in the Class Federal OAKES, Circuit Judge (dissenting in Shattering Im tem and in California: part): Dream, 23 possible Buf.L.Rev. I first disavow the rhetoric of the majori Barge Corp., cf. Miller v. Union Line ty directed at class actions and “class action (W.D.Pa.1969). F.Supp. lawyers.” Class actions often are valuable tools for the individual plaintiff seeking rule application of this should cause justice against a defendant whose resources no administrative difficulties on remand. enable obtain highest-paid lawyers Having directed creation an escrow engage in such extensive discovery and possible account for total amount litigation techniques one, two or recovery, district must court now set plaintiffs three otherwise could never af period of time for the proof reasonable ford to conduct the lawsuit. This very case claims class members. Because both ad- *5 exemplifies the usefulness of class actions. expenses attorneys’ fees ministrative Holders of million $1.5 of debentures that charged pro and disbursements are to be were worth million only $4 if converted members, by the against rata awards class given given deadline were inadequate and payment of the awards must be deferred unreasonable of notice Boeing’s intention to until the Master Special completed pro- has redeem the debentures and of the conver cessing the claims and his fees and expenses sion deadline. The class members therefore can be point, determined. At that the ben- failed to exercise their rights conversion accruing efits to class members be can the deadline. Van Gemert Boeing accuracy”, “traced with some and the costs Cir.) (Van can be “shifted with some exactitude I), Gemert benefiting.” those Alyeska, 421 U.S. at S.Ct. (1975). A n.39, 95 decade 1625. district court hard-fought of difficult litigation has at may then an appropriate make award last resulted in an award to the debenture attorneys’ expenses. fees and which, holders had the original notice been any unclaimed, sufficient, If funds remain the Court would have rightfully been theirs appropriate disposition must make asking. of them. the In the process, against up conjectural odds, Because it is as to whether hill lawyers for the now successful there any will be be- plaintiffs unclaimed funds and did an extraordinarily capable e cause we have not been asked job, having to consider even “mad new law” on a question of disposition complicated Thus, on set of facts. criticism express present no view this class actions generally plaintiffs’ or however, Recognizing, matter. possibil- attorneys’ particular1 fees in falls flat ity that unclaimed funds will be returned to when focused on the case at bar. recovery Those advocates of fluid class who Sw.L.J. Uniform Class Ac tions, primarily view class actions as However, deterrents A.B.A.J. against wrongful urge proponents even some of recovery conduct that unclaimed fluid class concede that disposed under some may circumstances funds be of in a manner similar to the appropriate cy return pres trusts, unclaimed funds to the doctrine the law or that defendant. Uniform Class they Miller, Actions Wright escheat to the 7A state. & (U.L.A.) 15(b). Act § Federal Practice and Procedure 1784 at 64 § Gordon, (Supp.1976); Manageability S. Those who Under criticize fees of class action plaintiffs’ Act, lawyers Proposed Uniform seem to Class Actions overlook the fees however, 5-103(B). Accordingly, Rule the number agree, required

amI opinion majority ultimate claimants should not affect an at- theory of basic —that solely from are recoverable torney’s right perhaps duty fees his recov- attorneys’ — —to proofs of proper who file members entire class er disbursements from the fund. class the entire than from claim, Additionally, rather principles fundamental recovery class fluid so-called underlying fund —because relating fairness established law in Van Gemert expenses was recovery from common 1977) (Van (2d Cir. fund,3 see Mills Electric Auto-Lite Eisen v. Carlisle II),2 relying on Gemert 389-97, 90 1973), va (2d Cir. F.2d 1005 Jacquelin, (1970), per- militate in L.Ed.2d favor grounds, on other and remanded cated mitting repayment attorneys’ disburse- 2140, 40 L.Ed.2d 156, 94 S.Ct. out of the as it ments fund as soon is the “law of is Van Gemert II expenses, These incurred established. circuit”; en banc treatment absent all, necessary the benefit of are if there is it, therefore, to follow I am bound issue anyone. Attorneys who agree. not I whether such sums expecting, they advance do so as must, Furthermore, class rejection of fluid reimbursement. if this court’s But It here. inquiry repaid not end the they only per is, does claimant —that recoveries sharp there distinction me that is by computing seems to amount that each class dis- attorneys’ attorneys’ fees and between would have to contribute if member attorneys' fees in Plaintiffs’ claimed, bursements. charg- award were and then whole contingent, as generally being actions members for dis- ing the here, only if there are earned they are potential as if all claimants bursements had implicit And Van II’s recovery. Gemert have to bear filed —the would 2 supra, note holding, see out-of-pocket loss for the costs oh unclaimed may imposed not be attributable to entitled class theory— must be based on a similar to file their claims.4 This result sim- failed claimants, there is no are no when there make sense. I there- ply does not common *6 the fund portion thus this “recovery”; part. fore dissent “earned.” Reimbursement not been has disbursements, contrast, depend- is not fact, pre- attorneys In success.

ent on on behalf expending funds

cluded ulti- remains unless the client clients

their ABA expenses. See liable for

mately Canon Responsibility, Professional

Code 5-8, Disciplinary

5, Ethical Consideration lawyers. (1975), expressly charged class action defendants’ being preserved it be that a double standard doctrine. common fund Could applied? course, filing if the 4. Of claimants were re- proposition that II 2. Van Gemert quired to absorb total disbursements out of proofs proper claim who file pro recovery, their rata share the attor- of the of the be entitled rata distribution should neys complete obtain would reimbursement. damage of the award. unclaimed filing But this would reduce the claimants’ so, unconvincing argument doing found and, turn, be unfair to them. unclaimed funds should be awarded that the decision, majority ante result defray claiming members class to is either absorb majority expenses. agree legal I with the disbursements attributable to unfiled holding precludes use of that this the extent claims or that members of the legal funds unclaimed by being responsible paying class end attorneys. action perhaps even fees— disbursements' — from their shares of award. With either Pipeline Alyeska v. Wilderness Service Co. disagree. result I Society, n.