Zucker v. Westinghouse Elec.

Case Information

CHERTOFF, Circuit Judges Fort Washington, PA 19034 (Filed June 30, 2004) Attorney for Amicus William Rand, Sr. (Argued) OPINION OF THE COURT William C. Rand Coudert Brothers

New York, NY 10036 SLOVITER, Circuit Judge.

Attorney for Appellant

Under the common fund doctrine, the court may award a shareholder- Richard D. Greenfield objector attorney’s fees for successfully Greenfield & Goodman pursuing a shareholder derivative suit that Royal Oak, MD 21662 confers a benefit upon the corporation.

The question that we confront in this case Attorney for Appellee, is whether a successful shareholder- Daniel Mogell objector who represented only himself as a pro se attorney in such a suit is entitled to attorney’s fees. 1996).

I. In 1998, insurers of the officers and directors of Westinghouse agreed to pay Because we have published a prior damages to the class action plaintiffs on opinion on another issue in this case in the condition that the plaintiffs in the Zucker v. Westinghouse Electric Corp., derivative suit terminate that litigation. ^[2] 265 F.3d 171 (3d Cir. 2001), we repeat Zucker, 265 F.3d at 173. In 1999, the only those details that are relevant to the parties in the derivative suit reached a issue before our court. Shareholders of Westinghouse/CBS filed a derivative suit ^[1] and a related class action suit following the alia, that the plaintiffs’ attorneys in the settlement agreement, stipulating, inter derivative suit could submit to the court an announcement of Westinghouse that it application for attorney’s fees and would suffer multi-million dollar losses e x p e n s e s o f $ 7 5 0 , 0 0 0 , w h i c h because of several loans it made. Id. at Westinghouse agreed to pay. Id. at 174. 173. In the derivative suit they alleged

that the officers and directors of The District Court approved the Westinghouse grossly and recklessly settlement for both the derivative suit and mismanaged the corporation. Id. In the the class action suit. Id. Plaintiffs’ c l a s s a c t io n th ey a l l eg e d t h at counsel then requested attorney’s fees and Westinghouse had violated Sections 10(b) expenses of $750,000. However, Rand, a and 20 of the Securities Exchange Act of holder of 100 shares of Westinghouse 1934, as amended (the Exchange Act), 15 stock and an attorney acting pro se, U.S.C. §§ 78j(b), 78t (1988), and Rule objected to the award on the ground that 10b-5 promulgated thereunder, 17 C.F.R. the settlement had not conferred a benefit § 240.10b-5 (1992), as well as Sections 11, upon Westinghouse. The District Court 12(2), and 15 of the Securities Act of nonetheless awarded to plaintiffs’ counsel 1933, as amended (the Securities Act), 15 fees and expenses in the amount of U.S.C. §§ 77 k (a), 77 l (2), 77 o (1988). The $582,443.

class action plaintiffs also alleged a claim

for negligent misrepresentation under Rand, acting as a pro se attorney, principles of Pennsylvania common law. filed an appeal to this court, contesting the In re Westinghouse Sec. Litig., 832 F. fees award. We reversed the District Supp. 948, 961 (W.D. Pa. 1993), aff’d in Court’s judgment on the ground that the part, rev’d in part, 90 F.3d 696 (3d Cir.

^[2] Several of the insurance policies derivative litigation did not confer a conferred a definite benefit benefit on Westinghouse and therefore upon the corporation by plaintiffs’ counsel was not entitled to any successfully challenging the fee award. Id. at 175-78. We remanded award of attorneys’ fee [sic] the case to the District Court with to plaintiff’s counsel in the instructions to deny the application of the underlying derivative action. plaintiffs’ attorneys for fees and expenses. Rand represented himself, Id. at 178. however. As a result, he did not incur any attorney fees

Following our remand order, Rand for which he is personally petitioned the District Court for an award responsible. Thus, an award of $250,000 as attorney’s fees for his of attorney’s fees would not successful appeal. In support, Rand c o m p e n s a t e h i m f o r asserted that the $250,000 request e x p e n s e s i n c u r re d in represented one-third of the $750,000 that initially objecting and plaintiffs’ counsel might have received but subsequently prosecuting for Rand’s successful intervention. He the appeal.

cited several class action cases in which

the attorneys for the shareholder-objector App. at 6. The Court thus denied Rand’s received attorney’s fees, ranging from 21% motion for attorney’s fees and costs and to 53% of the fund. In the alternative, declined to endorse the stipulation for Rand appended a lodestar calculation of $95,000 for attorney’s fees. However, it $67,100 for attorney’s fees (based on an approved the portion of the stipulation $250 hourly rate) and $673 in expenses. awarding Rand $673 for expenses. Rand also submitted to the District Court

a stipulation in which Rand and Rand timely appealed, seeking Westinghouse stated that Westinghouse reversal of the District Court’s order and benefitted economically from Rand’s an award of $95,000 for attorney’s fees. appeal and agreed to pay Rand $95,000 for Appellees, Westinghouse and the directors attorney’s fees and expenses. and officers thereof, take no position on

this appeal, except to acknowledge that The District Court concluded that they entered into the stipulation described Rand was not entitled to recover attorney’s above. Amicus Curiae Howard Bashman ^[3] fees based on his pro se representation.

The Court stated, inter alia, attorney objector Rand Rand should be entitled to At first blush, it appears that counsel fees. As a pro se In the posture of this case, there the District Court order should be was no party who took the position that affirmed. We asked Howard Bashman, Esq., to do so and are most appreciative urges that although Rand successfully bondholder of the Florida Railroad raised a shareholder objection, a pro se Company, sued the trustees of several attorney should not be able to recover fees. realty companies to prevent them from

wasting a land trust fund and failing to pay II. interest on its bonds. Vose ultimately succeeded and saved the trust fund a We exercise de novo review of “the significant amount of money. Trustees, standards and procedures applied by the 105 U.S. at 529. Vose then petitioned for District Court in determining attorneys’ “an allowance out of the fund for his fees, as it is purely a legal question.” expenses and services” because he had Planned Parenthood v. Att’y Gen. of N.J., borne “the whole burden of this litigation” 297 F.3d 253, 265 (3d Cir. 2002). for more than a decade and had “advanced However, we review the District Court’s most of the expenses which were findings of fact for clear error. Id. In this necessary for the purpose of rendering [the case, there are no disputed issues of fact. litigation] effective and successful.” Id. The District Court recognized that Rand The courts below had approved the bulk of had conferred a “definite benefit upon the Vose’s requests, including the fees for his corporation.” App. at 6. We agree. That, solicitor and counsel, costs of court, and however, is not the issue before us. copying. Critically, they also approved an

award for “personal services” and “private Rand argues that the District Court expenses.” Id. at 537. erred as a matter of law in holding that attorney’s fees may not be awarded to an The Supreme Court approved of attorney who represented himself in a compensating Vose for his attorney’s fees shareholder derivative suit even where the and court fees as a matter of “equity and suit has benefitted the corporation. The justice.” Id. at 536-37. Because Vose had Supreme Court has issued two opinions “worked for [other bondholders] as well as that guide our decision on this appeal: for himself,” the Court found that it would Trustees of the Internal Improvement Fund have been “unjust” to give other of Fla. v. Greenough, 105 U.S. 527 (1882), bondholders an “unfair advantage” by not and Kay v. Ehrler, 499 U.S. 432 (1991). requiring them to contribute to “the expenses which [Vose had] fairly A. Trustees of the Internal incurred” in the course of litigation that Improvement Fund of Fla. v. had benefitted all bondholders. Id. at 532. Greenough The Supreme Court thus established the “common fund” doctrine as a federal In Trustees, Francis Vose, a common law doctrine that prevents the unjust enrichment of non-litigant beneficiaries at the litigant’s expense. Accordingly, it affirmed the award for of his efforts. reimbursement for attorney’s fees and In short, Trustees emphasizes that a costs to Vose, the litigant whose actions person who draws a salary or other resulted in the creation of the common compensation from a trust or settlement fund for the benefit of himself and others. fund should not have a personal stake in

the fund and instead should objectively Critically for our purposes, the seek to maximize the settlement fund to Supreme Court denied Vose’s petition for the benefit of the corporation or group. “personal services” and “private expenses” The Court’s refusal to award Vose a fee because such an award would have been for “personal services” illustrates its without precedent in law or equity. Id. at unwillingness to set up financial incentives 536-38. The Court found pivotal that for objectors to pursue potentially Vose “was a creditor, suing on behalf of unnecessary litigation to obtain a salary (or himself and other creditors, for his and fees for “personal services”) that might their own benefit and advantage.” Id. at conflict with the best interest of the 537. In denying Vose’s request for corporation or other shareholders. The payment of “personal services” and Court thus denied Vose’s request for fees “ p r i v a t e e x p e n s e s , ” t h e C o u r t for “personal services” because such distinguished the character of a trustee, compensation might reward and encourage who could properly receive a salary from potentially useless litigation by others the trust, from that of an interested seeking lucrative “salaries.” objector such as Vose, who could not reap

a salary: As with Vose, Rand is not a trustee

of corporation nor is it his job description Where an allowance is made to objectively and selflessly protect it. to trustees for their personal Rand is a doubly interested party: he has services, it is made with a a shareholder’s interest in the corporation view to secure greater as well as an attorney’s interest in activity and diligence in the obtaining attorney’s fees. Because the performance of the trust, conflict of interest as a lawyer and an and to induce persons of objector-shareholder might lead him to reliable character and take actions contrary to the best interest of business capacity to accept the corporation, he is not entitled to a the office of trustee. These “salary” of attorney’s fees under Trustees. considerations have no As the District Court properly noted, application to the case of a awarding Rand attorney’s fees potentially creditor seeking his rights in could “tempt” other lawyer-shareholders to a judicial proceeding. “advance garden variety objections because of the prospect of an award of Trustees, 105 U.S. at 537-38. attorney fees for their personal service.” App. at 10; see also Trustees, 105 U.S. at 537-38 (observing that an award for acknowledged that the traditional personal services may be “too great a American rule ordinarily prevents a temptation to parties to intermeddle” in prevailing litigant from recovering affairs in which they had “only the interest attorney’s fees from the loser but urged the of creditors, and that perhaps only to a court to consider whether their fee request small amount”). We note that Rand did fell within any of the equitable exceptions not incur any financial liabilities for his to the American rule. Id. at 245. After work on this case. Failure to award Rand determining that neither the bad faith nor fees should not discourage other the common fund doctrines applied, the shareholders from raising meritorious Court of Appeals for the District of objections in the future; it will only ensure Columbia Circuit held that the plaintiffs that they pursue objections with the were entitled to one-half of their fee assistance of third-party counsel. request for acting to “vindicate important

statutory rights” for all citizens under the We also find instructive the “private attorney general” doctrine. Id. at Supreme Court’s decision in Alyeska 245-46 (internal quotation marks and Pipeline Service Co. v. Wilderness citations omitted). The Supreme Court Society, 421 U.S. 240 (1975). Although reversed that decision, holding that Alyeska did not address whether pro se Congress may authorize new exceptions to attorneys may recover fees under the the American rule, but the courts are not common fund doctrine, it underscored the empowered to do so without statutory limitations on the judiciary’s power to authorization. Id. at 262 (“[I]t is apparent a w a r d a t t o r n e y ’ s f e e s w i t h o u t that the circumstances under which congressional authorization. In Alyeska, attorneys’ fees are to be awarded and the an environmental group requested an range of discretion of the courts in making award of attorney’s fees for their third- those awards are matters for Congress to party attorneys. ^[4] The plaintiffs determine.”). Absent a congressional

directive that pro se attorneys should be Plaintiffs had sought to enjoin the Secretary of the Interior from issuing permits for the construction of the trans- Alaska oil pipeline. The district court actions, we find no basis to create a new able to recover attorneys’ fees in derivative derivative actions. represent equitable exception for attorneys who themselves in shareholder initially granted a preliminary injunction

against the issuance of permits, but

dissolved it following the Secretary of

the Interior’s announcement granting the subsequently amended the Mineral permits. Although pipeline construction Leasing Act “to allow the granting of the was later enjoined as a result of the permits sought” by the defendant. Mineral Leasing Act, Congress Alyeska, 421 U.S. at 242-44.

B. Kay v. Ehrler would deprive the litigation of the detached, reasoned judgment associated The distinction that the Supreme with third-party counsel. See id. at 437-38 Court drew in Trustees – between the (pro se attorneys deprived of independent compensable work of an objective, judgment in “framing the theory of the disinterested party and the non- case, evaluating alternative methods of compensable work of an interested litigant presenting the evidence, cross-examining – was further developed in its opinion in hostile witnesses, formulating legal Kay v. Ehrler, 499 U.S. 432 (1991). Kay arguments, and in making sure that reason, had brought a civil rights action rather than emotion, dictates the proper challenging a Kentucky statute that ta c t ic a l r e s p o n s e t o u n f o r e se e n precluded including his name on the developments in the courtroom”). The primary ballot. Id. at 433-34. After he Court explained that unlike pro se prevailed he sought attorney’s fees under representation, traditional third-party 42 U.S.C. § 1988, which provides for an compensable representation is objective, award of attorney’s fees to successful civil unclouded by the emotional hindrances rights plaintiffs. Id. at 434. The Court of borne of first-hand involvement in a case. Appeals read the statute as assuming “the Id. Moreover, the Court emphasized that existence of ‘a paying relationship the word “attorney” generally connotes between an attorney and a client.’” Id. at some form of an agency relationship, id. at 435 (quoting Kay v. Ehrler, 900 F.2d 967, 436 n.6; thus, Congress likely had 971 (6th Cir. 1990)). The Supreme Court c o n t e m p l a te d “ a n a tt o r n e y- c l ie n t affirmed. It noted that the circuits are in relationship as the predicate for an award agreement that a pro se litigant who is not a lawyer is not entitled to attorney’s fees under § 1988.” Id. at 436. ^[5] but were in conflict as to “whether a lawyer who represents himself should be treated like . . . a client who has had the benefit of the advice and advocacy of an independent attorney.” Id. at 435. The Court considered whether such an award of creating incentives for plaintiffs to would run contrary to the statute’s purpose obtain independent counsel who would successfully prosecute meritorious claims. Court in Kay, the court addressed a 1508 (11th Cir. 1985) (en banc), a case In Duncan v. Poythress, 777 F.2d focused upon the agency relationship, Honorable Paul H. Roney, in dissent, implicitly overruled by the Supreme similar question to the one at bar. The writing: Id. at 436-37. This case turns on the meaning of the word The Court noted that an attorney “attorney.” Although the who represents himself would be hindered majority believes the “plain by his inability to testify in the case and language” of section 1988 does not preclude an attorney in litigation award of fees to a there must be two lawyer representing people. Plaintiff herself,” we have here appeared pro simply been unable se. The term “pro to find any se” is defined as an definition which individual acting “in permits a decision his own behalf, in that a pro se lawyer person.” By has an attorney. Set definition, the forth in an person appearing “in Appendix to this person” has no opinion are the attorney, no agent definitions found in appearing for him over two dozen before the court. dictionaries. The fact that such Without exception plaintiff is admitted they define the word to practice law and “attorney” in terms available to be an of someone who attorney for others, acts for another, does not mean that someone who is the plaintiff has an employed as an attorney, any more agent to represent than any other another, someone principal who is who acts at the qualified to be an appointment of agent, has an agent another. A basic when he deals for principle of agency himself. In other law is that “[t]here words, when applied is no agency unless to one person in one one is acting for and proceeding, the in behalf of another, terms “pro se” and since a man cannot “attorney” are be the agent of mutually exclusive. himself.” 2A C.J.S.

Agency § 27, at 592. Id. at 1517-18 (Roney, J., joined by For there to be an Henderson, J., dissenting) (footnotes Philadelphia Board of Education, 248 F.3d Foreshadowing Kay, we have long 129, 131 (3d Cir. 2001), we held that a underscored the importance of reimbursing pa re nt- a tto r n e y wh o suc cessf ull y a successful plaintiff for financial debts to represented his child in an action under the his or her attorney and providing that Individuals with Disabilities Education plaintiff with objective representation. In Act, 20 U.S.C. § 2000 (IDEA), could not Pitts v. Vaughn, 679 F.2d 311 (3d Cir. be awarded attorney’s fees under the 1982), and Cunningham v. FBI, 664 F.2d statutory fee-shifting provision. Because 383 (3d Cir. 1981), we denied the petitions the “danger of inadequate representation is of pro se non-lawyer litigants for as great when an emotionally charged attorney’s fees under Section 1988 and the parent represents his minor child as when Freedom of Information Act (FOIA), the parent represents himself,” providing respectively. Although both plaintiffs had the parent-attorney with an award of been skillful enough to prevail in their attorney’s fees would encourage and respective cases, we noted that the fee- sanction potentially sub-par or deficient shifting rationale was premised, in part, representation, rather than requiring the upon financial indebtedness to a third- party to seek “independent, emotionally party attorney, and, in part, upon the detached counsel.” Id.; see also Doe v. presence of an objective, detached third- Bd. of Educ. of Balt. County, 165 F.3d 260 party attorney who is likely to prevent (4th Cir. 1998) (denying parent-attorney’s groundless or unnecessary litigation. See Pitts, 679 F.2d at 313; Cunningham, 664 F.2d at 386-87. ^[6] petition for fees under IDEA for same reasons). Similarly, after the Kay decision the

More recently, we reiterated the courts of appeals have denied attorney’s importance of retaining rational, fees to pro se attorneys under a variety of disinterested counsel in a case involving fee-shifting statutes, including the Equal an attorney who represented his own child. Access to Justice Act (EAJA), FOIA, and In Woodside v. School District of Title VII. See, e.g., Kooritzky v. Herman, omitted) (emphases in original). Pitts and Cunningham also non-lawyer’s pro se efforts. Pitts, 679 F.2d at 313; Cunningham, 664 F.2d at focused upon the difficulty of valuating a 386. Because Rand’s pro se work as a problems here, we need not discuss valuation issues. licensed attorney does not present similar 178 F.3d 1315, 1319 (D.C. Cir. 1999) v. United States Dep’t of Health & Human 1998) (denying attorney’s fees for pro se 1998) (denying attorney’s fees for pro se attorney allegedly attorney for civil rights violations); Burka Servs., 142 F.3d 1286, 1290 (D.C. Cir. Serv. Care, 163 F.3d 684, 694-95 (2d Cir. (denying attorney’s fees for pro se attorney under EAJA); Hawkins v. 1115 Legal undisclosed client under FOIA); SEC v. representing an Price Waterhouse, 41 F.3d 805, 808 (2d rights suits.

Cir. 1994) (denying attorney’s fees for pro se attorney under EAJA). We note that other courts also have rejected Rand’s claims for attorney’s fees Rand does not contend that Kay for representing himself. In In re Texaco was decided incorrectly. Rather, he argues Shareholder Derivative Litigation, 123 F. that Kay’s prohibition on compensating Supp. 2d 169 (S.D.N.Y. 2000), aff’d, 2002 pro se plaintiffs in civil rights cases should WL 126225 (2d Cir. Jan. 29, 2002), Rand not apply with equal force to attorneys sought attorney’s fees for having served as who represent themselves in securities a successful pro se attorney-objector cases. Rand argues that unlike the whose objection conferred a material plaintiffs in emotionally-charged civil benefit upon the corporation. Although rights cases who are without legal the district court denied his claim as expertise and whose testimony could be untimely, it proceeded to address the necessary to advance the litigation, the merits of Rand’s claim. Id. at 171-74. shareholder-attorney in the common fund That court applied the “logic of Kay and actions such as the one at bar is its progeny” to deny Rand’s request for dispassionate, skillful, and unlikely to be attorney’s fees because he had not acted as called to testify. Rand’s attempted “independent, objective counsel.” Id. at distinction is unpersuasive. Because 173. Moreover, the court noted that attorney’s fees are awarded only to rewarding attorney-objectors might deter prevailing plaintiffs, we can assume a other attorney-objectors, such as Rand, relatively equal legal acumen. Moreover, from retaining counsel based on the we have no reason to assume that possibility of being able to “enrich shareholders who risk losing or have [oneself] by recovering attorney’s fees.” already lost considerable sums of money in Id.

their stockholdings will be substantially less emotionally involved in their suit than We agree with the District Court civil rights plaintiffs. Lastly, and perhaps that the logic of Kay, as well as Trustees, most critically, the Supreme Court’s supports the District Court’s conclusion opinion in Trustees – which involved the that a rule barring attorney-objectors from seemingly dispassionate issue of real estate recovering attorney’s fees would blunt any funds – focused on the need for detached, temptation of attorneys to “advance garden o b j e c ti v e c o u n s e l i n o r d e r t o variety objections” in order to recover a coun terbalance whatever pecuniary salary of fees. App. at 10. Denial of a fee motives a party might have for bringing award to attorneys who represent litigation. Rand has offered no support for themselves will serve as a prophylactic to his hypothesis that neutral third-party deter those attorneys, hopefully few, who counsel is less desirable in the context of may be guided by financial incentives to shareholder derivative suits than in civil pursue unnecessary litigation or to provide representation that is not sufficiently

guided by objective, rational decision-

making. And we decline to create such an

incentive today.

III.

To be clear, we affirm the

continued vitality of the common fund

doctrine and its ethos of making-whole

litigants who pursued shareholder-objector

actions that have conferred a material

benefit upon a corporation. ^[7] We merely

decline to endorse an interpretation of the

common fund doctrine that creates

untoward incentives for attorneys to

pursue unnecessary actions for pecuniary

gain or to pursue such actions without the

benefit of the reasoned and detached

judgment that attends the attorney-client

relationship. For the foregoing reasons,

we will affirm the judgment of the District

Court.

Notes

[1] CBS Corporation is the successor covered claims in both cases and the to Westinghouse Electric Corporation. insurers were not willing to pay for the We refer to it hereafter as Westinghouse. settlements in both cases.

[7] In his brief, Rand argues that he “is entitled at a minimum to an award of an incentive fee,” an award that some courts have made to non-lawyers for their service in conferring a benefit on the class. We note that Rand effectively waived the possibility of an incentive fee during oral argument before us. We thus express no opinion as to whether a pro se attorney would be eligible to receive an incentive fee.

Case Details

Case Name: Zucker v. Westinghouse Elec.

Court Name: Court of Appeals for the Third Circuit

Date Published: Jun 30, 2004

Citation: 374 F.3d 221

Docket Number: 02-3389

Court Abbreviation: 3rd Cir.