Argued Sept. 8, 1975.
Before ALDISERT, GIBBONS and WEIS, Circuit Judges.
Reargued May 14, 1976.
Before SEITZ, Chief Judge, and ALDISERT, GIBBONS, ROSENN, HUNTER and WEIS, Circuit Judges.
OPINION OF THE COURT
ALDISERT, Circuit Judge.
The question presented is whether the district court properly applied the guidelines for awarding attorneys' fees we set forth when this matter was previously before us. 487 F.2d 161 (3d Cir. 1973) (Lindy I). We affirm in part, but vacate the judgment and remand for entry of an order in accordance with this opinion.
This protracted litigation emanates from the plumbing fixtures cases.
In its opinion on remand, the district court determined that appellees were entitled to attorneys' fees of $1,134,765.45 from the settlement fund then valued at $29.3 million. Of this amount, the district court ordered members in the third category—the previously unrepresented claimants—to pay $925,968.61. Thus, the district court ordered members of the third category to pay 81.6 per cent of the attorneys' fee from the settlement fund, even though their aliquot share of the fund was only about $8,145,400 or 27.8 per cent. The district court ordered no further payment of attorneys' fees from the settlement fund, but appellees were to receive $861,191 under private contracts with their clients, the members of the first claimant category.
Any understanding of the specific issues in this appeal must start with the rules we enunciated when these proceedings were here before. The district court has properly summarized what we said:
382 F.Supp. at 1003.
The appellants press four contentions: (1) The district court should have made no award for services performed by the Berger firm; (2) The district court should have excluded certain specific services performed by appellees from the "lodestar" defined in Lindy I; (3) The district court should not have doubled the "lodestar" to reflect (a) contingency and (b) quality factors; and (4) The district court required category three claimants to pay a disproportionate share of the attorneys' fees from the settlement fund.
Appellants' contention that the Berger firm should not participate at all in the attorneys' fee awarded from the fund rests on two premises: (a) that Berger and his firm contributed nothing to the creation of the settlement fund, and (b) that, in any event, Berger and his firm will be adequately compensated for their services in connection with this litigation.
In support, appellants marshal several subsidiary points. First, Berger claimed
The district court was confronted with, and rejected, the identical arguments. We agree with its disposition. Ibid. at 1009-11. In summary, the district court found that the time expended by Berger and his firm "contributed materially to the creation of the settlement fund"; that Berger consulted with Kohn "at every stage of the proceedings"; that Kohn valued Berger's judgment and advice; and that Berger's firm reviewed briefs and pleadings for the Kohn firm during the early stages of the litigation. Upon a review of the record, we conclude that these findings of the district court were not clearly erroneous. Krasnov v. Dinan, 465 F.2d 1298, 1302 (3d Cir. 1972). With respect to the "reconstruction" of time expended, the district court stated:
382 F.Supp. at 1011. Finding the basic facts not clearly erroneous, and determining that there is no error either in the court's reasoning or in its application of the proper legal precept, we affirm the district court on this point. Implicit in this conclusion is the understanding that the agreement between Kohn and Berger to split fees is simply irrelevant to the considerations mandated by Lindy I.
Insofar as appellants urge that the Berger firm not receive an attorney's fee from the fund because Berger was not counsel for a court-appointed Class Representative, we reject the argument. We do not read the appellees' original petition as being on behalf of Kohn and Berger qua counsel for class representatives; rather, they petitioned "jointly as counsel for the plaintiffs and intervenor plaintiffs . . [where] the plaintiffs were designated by the Court as class representatives . . ." App. at 77. In addition, we are faced with the district court's findings of fact—that the Berger firm benefited the fund—which we will not upset.
The district court excluded from its "lodestar" determination the time spent by appellees in negotiating fee arrangements with, and in preparing claim forms for, privately retained claimants. Although Kohn and Berger filed a cross appeal, they do not contest the propriety of this ruling. In any event, we would agree with the district court.
Appellants contend that the court also should have excluded from the "lodestar" time expended (A) relating to appellees' application for attorneys' fees and (B) on interventions. The district court fixed the reasonable value of appellees' services relating to the fee application at $29,806.25. In addition, the district court made an award in the amount of $40,654.00 for "time spent since March 20, 1974", all of which was time spent in connection with the fee
A. Fee Application and Appeal
The propriety vel non of an award from the fund for services relating to the fee application itself
Federal courts have long recognized "the historic power of equity to permit the trustee of a fund or property, or a party preserving or recovering a fund for the benefit of others in addition to himself, to recover his costs, including his attorneys' fees, from the fund or property itself or directly from the other parties enjoying the benefit." Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 257, 95 S.Ct. 1612, 1621, 44 L.Ed.2d 141 (1975); see, e. g., Sprague v. Ticonic National Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939); Central Railroad & Banking Co. v. Pettus, 113 U.S. 116, 5 S.Ct. 387, 28 L.Ed. 915 (1885); Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1881). See generally 7A C. Wright & A. Miller, Federal Practice and Procedure § 1803 (1972); Dawson, Lawyers and Involuntary Clients: Attorney Fees from Funds, 87 Harv.L.Rev. 1597 (1974) [hereinafter cited as Dawson]. As we said in Lindy I, "[t]he award of fees under the equitable fund doctrine is analogous to an action in quantum meruit: the individual seeking compensation has, by his actions, benefited another and seeks payment for the value of the service performed." 487 F.2d at 165. Accordingly, "a benefit to the fund is supposedly required. . . . The standard formula [of benefit] . . . mix[es] together three distinct ideas: that a fund can be benefited by being `created, increased or protected' (or `preserved')." Dawson at 1626. Generally, where litigation involves the competing interests of claimants to a common fund, no attorneys' fees should be awarded. The reason is that, "if the interests are in conflict, success for one side means no benefit for the other and for a charge against a fund a benefit is required." Ibid. at 1638 (footnote omitted).
We subscribed to these general views in Lindy I, where we said:
487 F.2d at 165;
Services performed in connection with the fee application are necessary to the attorney's recovery. They benefit him, for without them, the attorney cannot, since Lindy I, recover. But such services do not benefit the fund—they do not create, increase, protect or preserve it. Accordingly and in the circumstances of this case, we accept the prevailing rule for litigation involving the competing interests of claimants to a common fund. See page 110, supra. There being no benefit to the fund from services performed by appellees in connection with their fee application, there should be no attorneys' fee award from the fund for those services. The district court, therefore, erred in awarding $29,806.25 for the fee application work prior to March 20, 1974, in awarding $40,654 for work after March 20, 1974, and in awarding $320 for fee application work by paraprofessionals and law students.
Having made a determination of the applicable rule of law for the case before us, it is important to emphasize that which is not before us. We do not decide today what the rule should be where the fee application is pressed by the client himself, and competing interests among claimants surface. Cf. Dawson 1634 n.126. Nor do we decide the rule for the situation where a competing claimant to a common fund persuades the court in the first instance to set an attorney's fee inadequate under Lindy I, thereby necessitating an appeal.
Appellants challenge the district court's award for time expended on interventions contending that this work in no way benefited the class. They argue that there was no reason to intervene in this multidistrict class action because class members dissatisfied with the representation of the class might opt out and thereby avoid the binding effect of a 23(b)(3) action. F.R.Civ.P. 23(c)(2).
The district court considered and rejected appellants' argument. It found that time spent on interventions "was beneficial to the class as a whole", and continued:
382 F.Supp. at 1013; see ibid. at 1010.
We agree with appellants that, since the 1966 amendments to Rule 23, there is no necessity for intervention in a 23(b)(3) class action. Indeed, Berger admitted as much during his deposition. But this truism cannot end the analysis. While intervention may no longer be necessary, it is certainly still permissible. The federal rules allow intervention "of right" when an applicant's interest is not "adequately represented by existing parties." F.R.Civ.P. 24(a). Moreover, Rule 23 itself states that the district
As rehearsed previously, the propriety of a particular award for an attorney's services from a common fund depends on whether the specific services benefited the fund—whether they tended to create, increase, protect or preserve the fund. Appellants argue that, because intervenors did not advance the costs of notice, their presence in the case did not benefit the fund. This argument misses the mark. The point is, and the district court so found, that, when confronted by the intervenors and the financial strength they added to the plaintiff class, "defendants . . . were under much more pressure to settle." This finding was not clearly erroneous. Krasnov v. Dinan, supra. We must conclude, therefore, that the services performed on intervention helped to create the fund—they helped to force the settlement.
In the instant case, there was never a formal class certification. Brief for Appellants at 7; see n.2 supra. Thus, the interests of those that intervened were not formally represented by the named plaintiffs who sought to be class representatives. In these circumstances, it may not be said that the interventions served only to clutter the action. Accordingly, the district court did not err when it awarded Kohn and Berger fees for services performed on interventions.
We express no opinion on whether attorneys' fees for services on interventions should be awarded from an equitable fund where the interventions occur after a class certification. In such circumstances, it might be argued that intervention serves no essential purpose, for class certification requires a finding of adequate representation. See F.R.Civ.P. 23(a)(4), 23(c)(2)(C), 23(d)(2), 24; 7A C. Wright & A. Miller, Federal Practice and Procedure § 1799 (1972).
Lindy I instructs that, in addition to the "lodestar", the court's computation of the value of attorneys' services should reflect two other factors—the contingent nature of success and the quality of the attorney's work. 487 F.2d at 168. In Merola II we observed that the second factor is "evidenced by the work observed, the complexity of the issues and the recovery obtained. In settled cases, the second additional factor [quality] is reflected largely in the benefit produced. It permits the court to recognize and reward achievements of a particularly resourceful attorney who secures a substantial benefit for his clients with a minimum of time invested, or to reduce the objectively determined fee where the benefit produced does not warrant awarding the full value of the time expended." 515 F.2d at 168-69.
Although the district court did not have the benefit of Merola II, its analysis generally followed these lines. With certain exceptions
Appellants argue that Lindy I resolved the contingency issue adversely to the attorneys.
When appellants argue that Lindy I forecloses the contingency issue they not only misread the language of Lindy I upon which they rely, but they also belittle the district court's painstaking comparison between the limited effect of the criminal prosecutions and the breadth of the civil litigation.
Chief Judge Seitz said in Lindy I: "The court may find that the contingency was so slight . . . that an increased allowance for the contingent nature of the fee would be minimal." 487 F.2d at 168 (emphasis added). The language was permissive, not mandatory.
The district court specifically found the contingency factor was not slight, but rather justified "a substantial increased allowance". 382 F.Supp. at 1017. Success of the civil suits, the district court stated, depended on several contingencies:
Ibid. at 1015. Thus, assuming plaintiffs could prove that defendants had violated the antitrust laws, plaintiffs would have had to prove they, as distinguished from an alternate potential class of claimants in the distribution scheme, were entitled to collect damages. Moreover, at the outset of the civil litigation, defendants challenged the propriety of a national class action on the ground that it was unmanageable. Perhaps most important, however, and as more specifically set forth by the district court, ibid. at 1015-16, only three of the 16 defendants were convicted after original not guilty
Ibid. at 1016.
Appellants contend further: that "[t]he bulk of the time claimed in this case was on routine matters", that this "was not a complex antitrust case involving novel substantive issues", and that "the result achieved was not outstanding". Brief for Appellants at 45-46.
The answer to the first argument is that Lindy I does not dictate consideration of the proportion of time spent on routine matters in assaying the quality factor. The "lodestar" concept reflects such considerations, encompassing the amount of time spent on various projects, the status of individual attorneys, and the reasonable hourly rate for each person for each service performed. See Lindy I, 487 F.2d at 167.
We might agree with appellants that the basic issue in the case —a price-fixing conspiracy—did not involve novel substantive issues. But that agreement would not detract from the complexity of this massive multidistrict litigation, nor from the novelty of the myriad attendant subsidiary issues. On this score, the district court stated:
382 F.Supp. at 1019 (footnote omitted). We do not consider this finding of complexity clearly erroneous, but, as hereinafter set forth, we question whether this factor should be considered under the rubric of quality of professional performance.
The court also detailed the skill and experience of appellees Kohn and Berger, and the members of their firms, to support its finding of quality service. The court concluded:
Ibid. at 1021-22.
Finally, appellants deprecate the $29.3 million settlement as being "merely an `acceptable'" one, Brief for Appellants
We must now determine whether the district court committed error by using these considerations to increase its "lodestar" award for several categories by 100 per cent.
To evaluate the district court's doubling of the "lodestar" we first must recognize distinctions in the juridical functions of trial and reviewing courts, and the concomitant differences in their respective responsibilities. As we have often said, the award of a reasonable attorney's fee is within the district court's discretion.
Ordinarily in the law, as the Ninth Circuit observed several years ago, "discretion"
Delno v. Market St. Ry., 124 F.2d 965, 967 (9th Cir. 1942); see Napolitano v. Campania Sud Americana de Vapores, 421 F.2d 382, 384 (2d Cir. 1970). Thus, one may attack an exercise of discretion as "irrational". One seeking to establish such an abuse of discretion,
Stated negatively, the appellate court may not upset a trial court's exercise of discretion on the basis of a visceral disagreement with the lower court's decision. Similarly, the appellate court may not reverse where the trial court employs correct standards and procedures, and makes findings of fact not clearly erroneous. In sum, "[i]f the district court has applied the correct criteria to the facts of the case, then, it is fair to say that we will defer to its exercise of discretion." Katz v. Carte Blanche Corp., 496 F.2d 747, 756 (3d Cir.) (in banc), cert. denied, 419 U.S. 885, 95 S.Ct. 152, 42 L.Ed.2d 125 (1974). But if the trial court has not properly identified and applied the criteria, the court's determination will not be entitled to such deference.
As previously rehearsed, the district court went to great lengths to articulate clearly the reasons for its decision. Cf. Greater Boston Television Corp. v. FCC, 143 U.S.App.D.C. 383, 444 F.2d 841, 851 (D.C. Cir. 1970) (Leventhal, J.), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701 (1971). The court found that the contingent nature of success alone justified "a substantial increased allowance". 382 F.Supp. at 1017. Inasmuch as we understand appellants to challenge the amount by which the district court increased the "lodestar" award, we decline the invitation to upset the exercise of discretionary authority. Had any one of us been the trial judge acting on this fee application, we might well have acted differently; we might have increased the basic award by 20, 50, or 75 per cent. But as appellate judges, we do not find the district court's action "so unreasonable or so arbitrary as to amount to a prejudicial abuse of . . . discretion." Napolitano v. Compania Sud Americana de Vapores, supra, 421 F.2d at 384; see Rosenberg, Judicial Discretion of the Trial Court, Viewed From Above, 22 Syracuse L.Rev. 635, 662 (1971).
After thoroughly reviewing appellants' contentions, we have concluded that the district court followed the guidelines stated in Lindy I; accordingly, we cannot say that the district court abused its discretion in doubling the amount deemed a reasonable "lodestar" award for most categories of services performed.
The district court's struggle with this case on remand and the difficulties we encountered on review, however, persuade us that additional direction is necessary so that the district courts within this circuit may properly implement the teachings of Lindy I. We now turn to that task.
Before detailing the factors relevant to what we, in Lindy I, termed "the contingent nature of success" and "the quality of an attorney's work", certain principles must be emphasized.
Preliminarily, we reaffirm the standards enunciated in Lindy I, supra, 487 F.2d at 167-69. Nothing in the augmentation hereinafter set forth should be considered as a dilution or diminution of that basic formula.
We find it necessary also to observe that we did not and do not intend that a district court, in setting an attorneys' fee, become enmeshed in a meticulous analysis of every detailed facet of the professional representation. It was not and is not our intention that the inquiry into the adequacy of the fee assume massive proportions, perhaps even dwarfing the case in chief. Once the district court determines the reasonable hourly rates to be applied, for example, it need not conduct a minute evaluation of each phase or category of counsel's work. In Lindy I we said: "Any increase or decrease in fees to adjust for
Finally, we underscore that once a district court determines the "lodestar" it should inquire separately into the contingency and quality factors, and make specific findings of fact as to each.
Under the rubric of "the contingent nature of success" the district court should appraise the professional burden undertaken —that is, the probability or likelihood of success, viewed at the time of filing suit. The court may increase the amount established in the computation of the "lodestar" as a reasonable fee on the basis of a careful evaluation of the following factors:
1. Analysis of plaintiff's burden. Subsumed in this category are the following considerations: (a) the complexity of the case, —legally and factually; (b) the probability of defendant's liability,—whether it is clear or dubious; whether it has been previously suggested by other civil or criminal proceedings; whether it is asserted under existing case law or statutory interpretation, or is advanced as a novel theory; (c) an evaluation of damages,—whether the claims would be difficult or easy to prove.
2. Risks assumed in developing the case. This category subsumes consideration of: (a) the number of hours of labor risked without guarantee of remuneration; (b) the amount of out-of-pocket expenses advanced for processing motions, taking depositions, etc.; (c) the development of prior expertise in the particular type of litigation; recognizing that counsel sometimes develop, without compensation, special legal skills which may assist the court in efficient conduct of the litigation, or which may aid the court in articulating legal precepts and implementing sound public policy.
3. The delay in receipt of payment for services rendered.
If, having considered the foregoing or other relevant criteria, the district court desires to increase the "lodestar" award, it should identify those factors supporting its conclusion, state the specific amount by which the basic fee should be increased due to the contingency of success, and give a brief statement of reasons therefor. We reiterate that any such increment in the "lodestar" award is to be considered and applied apart from the evaluation of the quality of services rendered in the particular proceedings.
Under the rubric of "the quality of an attorney's work", the court should appraise the manner in which counsel discharged his or her professional responsibilities. The district court may use this factor to increase or decrease the "lodestar" calculation.
As a first principle, the court must recognize that a consideration of "quality" inheres in the "lodestar" award: counsel who possess or who are reputed to possess more experience, knowledge and legal talent generally command hourly rates superior to those who are less endowed. Thus, the quality of an attorney's work in general is a component of the reasonably hourly rate; this aspect of "quality" is reflected in the "lodestar" and should not be utilized to augment or diminish the basic award under the rubric of "the quality of an attorney's work".
In determining whether to adjust the "lodestar" for quality work or not, the district court may consider, inter alia:
1. The result obtained by verdict or settlement, evaluated in terms of (a) the potential money damages available to the class member, i. e., a comparison of the extent of possible recovery with the amount of actual verdict or settlement; (b) the benefit —monetary or non-monetary—conferred on the class, i. e., permitting the court "to recognize and reward achievements of a particularly resourceful attorney who secures a substantial benefit for his clients with a minimum of time invested . . . ." Merola II, supra, 515 F.2d at 168.
2. An evaluation of the professional methods utilized in processing the case,—rewarding the use of efficient methods to expedite the case and penalizing the use of methods the predominant purpose of which was to delay or obstruct the proceedings.
If, on the basis of the quality of services rendered, the court is persuaded that an increase or decrease in the "lodestar" is warranted, it should identify those factors supporting its conclusions, state the specific amount by which the basic fee should be altered due to the quality of work, and give a brief statement of reasons therefor.
Because we view the foregoing as an implementation of the Lindy I formulation, rather than as a modification thereof, we will require that it be employed only for those fee applications not already adjudicated in the district courts. Moreover, in the interest of terminating the lengthy proceedings at bar—now in their fifth year—we will not require the district court here to reconsider its determination. Although we do not disturb the district court's treatment of the contingency and quality factors, it should be apparent that we do not necessarily endorse the methods or the reasoning employed to reach its result.
Henceforth, awards of equitable fund attorneys' fees should be made in accordance with the guidelines of Lindy I as refined and implemented today. If these guidelines are followed, we will review such awards only for abuse, or misuse, of discretion.
We turn now to the question of determining what portion of the fee award, set in accordance with the Lindy I criteria, the unrepresented class members should bear.
A. Allocating the Award
We take as a starting point the settled principle that passive members of a class who "accepted the fruits" of the labors of others are obligated to contribute to the attorney for the active members who created the fund. Central Railroad & Banking Co. v. Pettus, 113 U.S. 116, 127, 5 S.Ct. 387, 28 L.Ed.2d 915 (1885); Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1881). "Absent extraordinary circumstances, the unrepresented claimants should pay for the attorneys' services in proportion to their benefit from them—that is, the unrepresented claimants should pay a percentage of the reasonable value of the attorneys' services to the class equal to their percentage of the class' recovery." Lindy I, supra, 487 F.2d at 169. With these guidelines, the district court began its analysis of the allocation problem:
382 F.Supp. at 1025 (footnote omitted). The court, however, ordered the unrepresented claimants to pay, not 27.8 per cent of the fee, but 81.6 per cent. Ibid. at 1027. If we are to affirm this allocation, therefore, we must be able to find "extraordinary circumstances".
The essence of the district court's implicit finding of extraordinary circumstances appears to have been its concern that the unrepresented claimants would contribute a disproportionately small percentage of their settlement recoveries to attorneys. That is, if the unrepresented claimants paid only their aliquot share of the equitable fund award—27.8 per cent of $1,134,765.45 or $315,464.80—they would be paying only 3.87 per cent of their settlement recoveries to attorneys. By contrast, claimants in category 1 had contracted to pay their attorneys contingency fees of 33 1/3 per cent of any recovery, and claimants in category 2 had contingency agreements calling for payments of 20 to 40 per cent of their recoveries. Ibid. at 1025.
We believe the district court's concern was misplaced.
B. "Equitable Set-Off"
In concluding that category 3 claimants should pay 81.6 per cent of the applicable award, the district court followed a circuitous route. The first signpost was the observation: "[P]etitioners quite properly recognized that no additional fees should be charged against their clients, who will be paying petitioners $861,191 under the contingent fee agreements in effect. Moreover, this Court has previously ruled that none of the other litigants should be required to pay any additional fees beyond what they have agreed to pay their own attorneys in this litigation." Ibid. at 1025-26. Under normal circumstances, the court reasoned, appellees Kohn and Berger could recover 53.8 per cent of the applicable award from category 2 claimants, for the benefits the attorneys conferred on them. Attorneys representing category 2 claimants, however, had also performed services benefiting the fund, including category 3 claimants, and, accordingly, had a theoretical quantum meruit right of action for attorneys' fees against the category 3 claimants. The court then employed a device—styled "equitable set-off"—whereby it ordered category 3 members to pay 53.8 per cent of the award directly to appellees, rather than requiring that Kohn and Berger seek that amount from category 2 claimants, who might then seek to recover the like amount from category 3 claimants.
Whatever merit this equitable set-off device might have in the abstract, we hold that the district court erred in applying it to this case. The court "conclude[d] that the value of the benefits conferred on the unrepresented claimants by the many attorneys who represented litigants in Category 2 and who contributed to the creation of the settlement fund [was] at least $610,503.81." Ibid. at 1028 (emphasis added). We find the record devoid of the type of evidence necessary since Lindy I to support an award of attorneys' fees (or their set-off).
C. Adequate Compensation
Nor can we accept as an "extraordinary circumstance" the district court's concern that Kohn and Berger would not be adequately compensated unless the 53.8 per cent usually allocable to category 2 claimants were added to the 27.8 per cent chargeable to category 3 claimants. Without determining whether the total amount of attorney compensation from private agreements and equitable fund awards is a valid consideration in setting an equitable fund fee, we note that in the peculiar circumstances of this case, the actual total compensation to the Kohn and Berger firms will bear an uncanny resemblance to the total amount laboriously calculated by the district court.
Accepting as a starting point the district court's gross award from the fund of $1,134,765.45, and deducting therefrom the sums of $29,806.25, $320 and $40,654 as more particularly set forth in Part II, supra, we conclude that the appellees were entitled to an award of $1,063,985.20 from all members of the settlement class. The district court concluded that claimants of categories 1 and 2 should shoulder no part of this burden. The propriety of that ruling is not before us. We have found no extraordinary circumstances justifying departure from the general rule of pro rata allocation; accordingly, category 3 claimants should pay 27.8 per cent of the equitable fund attorneys' fee award—or $295,787.88. Consequently, the Kohn and Berger firms will receive total fees of $1,156,978.88—including $861,191 under private contingent agreements. The district court's concern that they be adequately compensated should be satisfied completely, for their total compensation will exceed by $22,213.43 the "final award" of the district court, see 382 F.Supp. at 1024, and by $546,929.03 the district court's "lodestar" calculation, see ibid. at 1014, which "constitute[s] reasonable compensation" for services rendered, Lindy I, supra, 487 F.2d at 168, exclusive of quality and contingency factors.
In the circumstances of this case, we perceive no basis for finding that the benefits conferred on the category 3 claimants exceeded the proportional benefits conferred on the claimants in categories 1 and 2. We have previously indicated that the considerations which appear to have influenced the district court's deviation from the general rule of pro rata allocation do not rise to the requisite level of "extraordinary circumstances". Accordingly, we hold that the district court erred in departing from the general rule of pro rata allocation.
Two additional contentions, neither of which need detain us long, remain for consideration.
First, appellants urge that the district court erred in awarding $10,000 for "future time". The court arrived at this award by multiplying the estimated 100 hours of additional work that remained to wind up settlement administration by the $100 rate applicable to attorney Fine, appellee Kohn's partner. The court found that the estimate upon which it based the award was "reasonable". 382 F.Supp. at 1023. It did so only after hearing testimony. See App. at 1142-43. Having reviewed the record, we cannot say that this finding was clearly erroneous, Krasnov v. Dinan, supra, and we will not upset the award. Rather, we defer to the district judge "who was there". See n.11 supra.
Second, appellees urge that they are entitled to interest on the fee award from the date of the district court's 1972 award. This argument is frivolous. Lindy I vacated the original attorneys' fee award. See n.12 supra. Consequently, there was no predicate award upon which to base interest. Moreover, because of the result reached herein, category 3 claimants will pay less to the Kohn and Berger firms than
We conclude as follows:
1. We reverse the district court's award of $29,806.25 for fee application work prior to March 20, 1974, the award of $40,654 for work after March 20, 1974, and the award of $320 for fee application work by paraprofessionals and law students.
2. We find that the appropriate award to appellees from the settlement fund chargeable to all members of the settlement class was $1,063,985.20.
3. Category 3 claimants should pay 27.8 per cent of the equitable fund attorneys' fee award instead of 81.6 per cent as ordered by the district court. Based on an award of $1,063,985.20, this would amount to $295,787.88 instead of $925,968.61 as ordered by the district court.
The judgment of the district court will be vacated and the proceedings remanded for entry of an appropriate order in accordance with the foregoing.
Each party to bear his own costs.
GIBBONS, Circuit Judge (concurring in part and dissenting in part with whom SEITZ, Chief Judge, joins).
I join in Part IIA (fee litigation time), Part V (proportion assessed against unrepresented class members) and Part VI (future time) of Judge Aldisert's opinion for the court, and in his conclusions insofar as they are supported by the analysis in those parts of the opinion. I also concur in Part I (Berger fee) of that opinion, although the compensability of time spent by the Berger firm on this case is a close question under the time-keeping rule recently announced by Chief Judge Seitz in In re Meade Land & Development Co., 527 F.2d 280 (3d Cir. 1975).
The district court found as fact that the Kohn and Berger firm together spent 181.20 hours arranging for the intervention of other parties into the litigation.
In October, 1966 the United States obtained criminal indictments in the Western District of Pennsylvania charging the plumbing fixture manufacturers with a horizontal price-fixing conspiracy in violation of the Sherman Anti-Trust Act. Thirteen defendants pleaded nolo contendere to these criminal charges and three others were convicted in May, 1969 after a full trial. These convictions were affirmed. In
Two months after the criminal indictments were returned, Attorney Harold Kohn filed the instant class action on behalf of a national class of builder-owners allegedly damaged by the price-fixing scheme. Several hundred other civil actions raising similar issues were commenced throughout the country, all of which the Judicial Panel on Multidistrict Litigation transferred to the Eastern District of Pennsylvania.
As Judge Aldisert points out,
It was perfectly clear from the beginning that this case, had it gone to trial, would have proceeded as a Rule 23 class action. The district court acknowledged in its initial fee determination that the plumbing fixture antitrust litigation involved the largest number of cases consolidated in a single district by the Judicial Panel on Multidistrict Litigation.
In the context of this appeal, the absence of a formal and final class certification is of no consequence in determining the compensability of attorney time spent on plaintiff interventions. As pointed out both by
Judge Aldisert urges that the district court's conclusion that the presence of Berger's clients as plaintiffs in the case added weight to the in terrorem effect of the lawsuit and concomitantly to the pressure to strike a settlement, is a finding of fact which we cannot disturb under Rule 52(a). If that finding is intended as a determination that Berger's presence as a representative of class members did in fact operate to produce a more favorable or more prompt settlement, on this record the finding is totally devoid of evidentiary support.
Intervention is a practice that has insinuated its way to the procedural bone of massive class action cases of this kind.
I do not mean to suggest that the compensability of time spent preparing interventions can easily be determined by reference to hard-and-fast rules. In the case of non-class litigation the intervention of a prominent or powerful party may materially contribute to the creation of a benefit common to all plaintiffs, making recovery in quantum meruit appropriate. Whether this is indeed the case must be determined in the first instance by the trial court. I believe, however, that this inquiry should be a searching one, and the inference of benefit not casually drawn.
With respect to class action litigation, the court's responsibility is not markedly different, although I believe the problem is more susceptible to judicial rule-making. Although the majority reserves decision on the point, I can envisage no situation where intervention occurring after a class certification will benefit the class in any compensable fashion. Judge Aldisert recognizes that certification pursuant to Rule 23 contemplates fair and adequate representation of all class interests, and I cannot see how intervention by a party who will in any event be bound by a judgment will impel more vigorous prosecution of the claim or intimidate a potentially liable defendant into settling on terms favorable to the class.
Where, as here, a settlement is reached before a formal certification is made, the district court must engage its talents in realistically appraising the value to the class of plaintiff interventions. The pivotal inquiry is not whether the interventions contribute to the settlement; rather it is whether absent intervention class certification is likely. If a settlement is inevitable after the class is certified, time spent on intervention should not necessarily be deemed beneficial to the class simply because the intervention accelerates an otherwise foreordained result. In this case I think it plain that Berger's and Kohn's efforts had no in terrorem effect because class certification was certain. Accordingly, I feel constrained to disallow from the fee computation the 181.20 hours spent by their firms in pursuing interventions.
II. DOUBLE AWARD FOR CONTINGENCY AND QUALITY OF REPRESENTATION
In computing the fee award the district court doubled the hourly rate of compensation found to be reasonable for the services in question in nine categories of work.
Before turning to my understanding of the law of this case one of the nine time categories—intervention—requires separate treatment. Since in Part I above I conclude that the 181.20 hours in this category conferred no benefit on the class, obviously I conclude that the $26,170.00 at which this time was valued should not have been doubled to $52,340.00.
In Lindy Brothers I we said:
The question, then, is whether a valuation of the contingency and quality factors in this case at one hundred per cent of the reasonable value of the services performed bears a reasonable or a totally unreasonable relationship to that value. It seems clear to me that the district court, bent on justifying a calculation which in the aggregate produced almost the identical numerical total we had previously reversed,
In discussing the contingency factor in Lindy Brothers I Chief Judge Seitz wrote:
487 F.2d at 168 (emphasis supplied; footnote omitted).
The district court correctly held that the reasonable value of the attorney's services was not so large a proportion of the total recovery as to preclude an increased allowance on that ground.
In the first place, the district court, in concluding that a doubling of the reasonable time-based fee was appropriate under the circumstances, made no effort to allocate proportions of the fee increase between the quality and contingency factors.
Patently, this was not done in this case. I am at a complete loss to understand how the majority can affirm the doubling here. We know that the mark-up totaled one hundred per cent, but we can only speculate whether the district court weighed the contingency factor at one per cent or ninety-nine per cent. At a minimum, Lindy Brothers I must be read, and the majority so reads it, as requiring the district court to state with some degree of precision the multiplication factors individually attributable to the quality and contingency criteria.
In the second place, the district court's effort to distinguish away the significance of the factors to which Chief Judge Seitz, discussing contingency, made specific reference is disingenuous. The opinion refers to the uncertainty of the class members' ability to prove liability and damages. This is a price-fixing conspiracy case. The defendants some of whom pleaded nolo contendere and others of whom pleaded guilty, are sellers of plumbing fixtures. The plaintiff class of builder-owners are purchasers for use of plumbing fixtures. The contingency respecting the existence of the conspiracy to fix prices was virtually nil.
When Lindy Brothers I was written it was as obvious as it is now that the amount of potentially recoverable damages was not certain. But Chief Judge Seitz did not advert to the certainty of proving damages, as opposed to the certainty of proving liability, in discussing the element of contingency. I do not say that he excluded that factor as irrelevant. I do say that in a case where some recovery is virtually certain, the fact that the total recovery may be uncertain cannot, consistent with the spirit of Lindy Brothers I, justify a substantial departure from the lodestar of reasonable value of services computed on a time basis.
In an attempt to fortify the district court's feeble analysis of the contingency question, Judge Aldisert interjects a factor the relevance of which escapes me. The majority opinion says:
The certifiability of a proposed class action is a contingency factor, certainly. But it is not the kind of contingency to which Lindy Brothers I refers. If the class action manageability determination had excluded the unrepresented builder-owners they would not have benefited from the attorney services and the attorneys could not recover on a quantum meruit basis from the builder-owners' proportion of any recovery fund. That these attorneys rather than some others in another lawsuit represented the builder-owners in no way increased the value of the instant services to them. The contingency factor to which Lindy Brothers I refers is the probability of success in the lawsuit, not the probability of success in enlarging the class so as to maximize the fee.
Finally, I search in vain for the place in the record where the district court, having considered the relevant criteria bearing on contingency, "identif[ied] those factors supporting its conclusion, state[d] the specific amount by which the basic fee should be increased due to the contingency of success, and [gave] a brief statement of reasons therefor."
B. The Quality Factor
The majority opinion in Part IVB makes explicit what was certainly implicit in Lindy Brothers I and what was previously explicated by Chief Judge Seitz in Merola v.
Part III of Judge Aldisert's opinion refers to two "findings" of the district court which are characterized as not clearly erroneous and which are apparently offered in support of the conclusion that the quality of representation in this case merited a substantial (but nowhere quantified) increase in the basic fee.
Another "finding" relates to the conduct of the lawsuit. The district court concluded that the total time spent by petitioners in this case is relatively low when one considers the results accomplished.
C. The Majority's Inconsistency
The patent inconsistency between Part III and Parts IVA, B and C of the majority opinion is explained in Part IVD. Because
Accord, In re Meade Land & Development Co., supra, 527 F.2d at 283-84. I have no stronger desire than Judge Aldisert to engage in endurance contests with district courts, but if the rule of law is to be preserved, our stamina must be equal to theirs. Reversible error has once again been committed below, and I believe that we are duty-bound to grant relief from that error.
The most pernicious manifestation of the majority's tendency to avoid judging in this case—which I suggest threatens the very institution of appellate review for error—is its announcement that we are going to shield ourselves in advance from the consideration of similar errors which may have occurred in fee applications already adjudicated but not yet reviewed.
Examining the record in which the district court acted, I am inclined to agree that the settlement of $10.75 per bathroom unit sold during the term of the price-fixing conspiracy was a favorable one, negotiated with the expenditure of a quite reasonable amount of time. But I have no idea what weight the district court gave to this factor in arriving at its one hundred per cent markup. I am less inclined to see any
The category three claimants should pay 27.8 per cent of the equitable fund attorneys' fee determined as follows:
Time Reasonable Category (hours) Value 1. Pleadings 87.00 $ 7,205.00 2. Discovery 1,609.55 135,524.50 3. Court Appearances 604.65 60,440.00 4. Settlement 531.20 53,557.50 9. Settlement Administration
*939.25 71,218.75 10. Briefs and Legal Research 433.25 41,349.50 11. General Matters 1,686.33 150,585.35 12. Other Appellate Proceedings 17.50 1,750.00 Paraprofessional and law student time 4,874.00 ___________ Total Fee $526,504.60 X .278 ___________ Assessed against Category 3 claimants: $146,368.27
I would remand in No. 74-2189 with instructions to enter judgment fixing the fee to be paid from the category 3 fund at no less than $146,368.27, and with instructions to calculate the contingency and quality factors, if any, applicable to the eight attorney time categories listed above, in accordance with Parts IVA, B and C of the majority opinion. Were I applying the majority formulation I would find it difficult, indeed, to articulate a justification for a hundred per cent markup on this record.
Kohn and Berger filed a timely cross appeal. Rather than refer to them as "appellees and cross-appellants", however, in the interests of simplicity, we refer to them herein only as "appellees".
487 F.2d at 168. In a footnote, we added:
Appellees also appear to argue that the district court's initial attorneys' fee decision ordered that category 3 claimants pay the total amount awarded from the fund, that no appeal was taken from that decision, and that we, therefore, are precluded from reviewing the allocation. Ibid. at 2-3. This contention borders on the frivolous. In Lindy I, we vacated the order granting attorneys' fees. Nothing of the prior district court disposition remained. Accordingly, we proceed to the allocation issue.
Because of the view we take, we need not reach appellants' argument that there is no basis in law for the equitable set-off theory, either because appellees waived any potential claims against category 2 claimants for attorneys' fees or because any potential claims by counsel for category 2 claimants for equitable fund counsel fees would now be time-barred.
Brief for Appellants at 32.
487 F.2d at 168 n.12.
With respect to the three firms that were convicted of price-fixing at trial, a finding of civil liability was all but certain. Apart from plaintiffs' ability in a civil action to replicate the proof of wrongdoing that established guilt beyond a reasonable doubt in the criminal proceeding, plaintiffs might have been able to invoke collateral Estoppel. See generally, Note, Section 5(a) of the Clayton Act and Offensive Collateral Estoppel in Antitrust Damage Actions, 85 Yale L.J. 541 (1976). And to say that a plea of nolo contendere is not entitled to the same evidentiary weight as a conviction or guilty plea is not to say that civil liability cannot be proved, or even that such proof will be difficult. After all, in affirming the criminal convictions of the three defendants that went to trial, Chief Judge Seitz remarked that "the cumulative effect of the Government's case was overwhelming." United States v. American Radiator & Standard Sanitary Corp., 433 F.2d 174, 207 (3d Cir. 1970), cert. denied, 401 U.S. 948, 91 S.Ct. 929, 28 L.Ed.2d 231 (1971).