MEMORANDUM AND ORDER ADOPTING RECOMMENDATIONS OF THE RULE 706 EXPERT REGARDING THE LUKINS & ANNIS FEE ALLOCATION CLAIM
Re: D.I. 31794, 32034
KEVIN J. CAREY, Bankruptcy Judge.
On December 15, 2008, the claimants involved in extensive litigation with the Debtors regarding Zonolite Attic Insulation ("ZAI") filed a motion to approve a class settlement and certification of the ZAI class, which the Court preliminarily granted on January 16, 2009, and finally approved on April 1, 2009 (the "ZAI Class Settlement"). The ZAI Class Settlement was contingent on confirmation of a plan that contained a trust with distribution procedures to effectuate the settlement.
The Debtors' First Amended Joint Plan of Reorganization (D.I. 26368) took effect on February 3, 2014 (D.I. 31700). On February 7, 2014, ZAI Class Counsel filed a motion seeking a Common Fund Fee Award of 25 percent of the first two payments in the class settlement, for a total fee in the approximate amount of $16 million (the "Fee Award") (D.I. 31718).
L&A contends that it is entitled to a portion of the Fee Award due to its active involvement in the ZAI matters from their inception until December 31, 2004, when Scott, the attorney who principally was handling the ZAI litigation, left L&A to form The Scott Law Group, P.S. L&A argues that the firm's efforts contributed to the development of the ZAI litigation, writing:
(D.I. 31794, p. 7.) L&A stated that it did not have an agreement with Mr. Scott regarding a cost and fee sharing agreement related to the ZAI litigation. (Id. p. 3.)
On April 3, 2014, this Court entered an Order approving the Fee Award and reimbursement of ZAI Class Counsels' expenses from the fund created by the ZAI Class Settlement, but requiring the Fee Award to be held in trust pending further order of the Court regarding the L&A Joinder and Counter-Motion (the "Fee Award Order") (D.I. 31985).
Also on April 3, 2014, at the request of the parties, this Court entered an Order (the "Rule 706 Order") appointing Judith K. Fitzgerald as a Rule 706 Expert to issue a report and recommendation regarding the L&A Joinder and Counter-Motion.
On April 18, 2014, L&A filed the Motion of Lukins & Annis, P.S. for an Allocation of the ZAI Class Action Common Fund Fee Award (the "L&A Motion") (D.I. 32034). On April 28, 2014, responses to the L&A Motion were filed by ZAI Class Counsel (D.I. 32063), the Reorganized Debtors (D.I. 32058), ZAI Class 7B Trustee (D.I. 32061), and the Property Damage Future Claimants' Representative (D.I. 32061).
On June 25, 2014, Fitzgerald filed her Expert Report (D.I. 32259). Her expert opinions are summarized as follows:
Expert Report, p. 3. Fitzgerald further recommended that L&A be denied any reimbursement of its costs as no notice was provided to the ZAI class that such a request would be made and no other non-class counsel will receive a disbursement based on costs. Expert Report, p. 30.
On July 7, 2014, ZAI Class Counsel filed a response to the Expert Report (D.I. 32275), attaching a declaration of Darrell W. Scott, that challenged certain factual findings in the Expert Report regarding Scott's representations to L&A about reaching a fee arrangement at a later time as incorrect.
Also on July 7, 2014, L&A filed a response to the Expert Report ("L&A's Response"), asking that the Expert Report's recommendation be revised to provide for an allocation to L&A of at least 17.03% of Scott's share of the Common Fund Fee Award, or approximately $1,136,666.00 (D.I. 32276). L&A argues that the Expert Report recognized that it provided an important benefit to the ZAI Class Settlement, but then recommended only a "nominal" allocation to L&A from the Fee Award. L&A contends that the award does not recognize that it expended approximately 5,602 hours of time, with an actual dollar value of $1,136,666.00 (at historical rates), for investigating, developing, and litigating the state court Barbanti Litigation and the ZAI property damages claims in the bankruptcy proceedings. L&A further argues that Fitzgerald gave undue deference to ZAI Class Counsel's proposed allocation of the Fee Award, especially in light of ZAI Class Counsel's unreasonable attempt to completely bar L&A from any recovery. L&A also argues that the recommended allocation award is not fair and equitable when compared to the proposed allocation to other counsel and the contributions of those firms to the ZAI Class Settlement.
On July 10, 2014, ZAI Class Counsel filed a Motion for Leave to File Its Reply to Lukins & Annis, P.S.'s Response to Rule 706 Expert Report (D.I. 32283).
The "common fund doctrine . . . provides that a private plaintiff, or plaintiff's attorney, whose efforts create, discover, increase, or preserve a fund to which others also have a claim, is entitled to recover from the fund the costs of his litigation, including attorneys' fees." In re Cendant Corp. Sec. Litig., 404 F.3d 173, 187 (3d Cir. 2005) quoting In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 820 n. 39 (3d Cir. 1995). The common fund doctrine gives courts significant flexibility in setting attorneys' fees. Cendant, 4040 F.3d at 187. In traditional common fund cases, the court acts almost as a fiduciary for the class, performing some of the roles, i.e., monitoring and compensating class counsel, that clients in individual suits normally take on themselves. Id. See also Drazin v. Horizon Blue Cross Blue Shield of New Jersey, Inc., 528 F. App'x 211, 214 (3d Cir. 2013) quoting In re High Sulfur Content Gasoline Prods. Liab. Litig., 517 F.3d 220, 227 (5
"Generally, a district court may rely on lead counsel to distribute attorneys' fees among those involved, but we have recognized that the court may take a greater role when separate counsel requests fees for work performed prior to the appointment of the lead plaintiff." Milliron v. T-Mobile USA, Inc., 423 F. App'x 131, 134 (3d Cir. 2011) citing Cendant, 404 F.3d at 194-95.
The Milliron Court further wrote:
Milliron, 423 F. App'x at 134 (citations and internal punctuation omitted).
The two primary methods for calculating attorneys' fees are the percentage-of-recovery method and the lodestar method. In re Cendant Corp. PRIDES Litig., 243 F.3d 722, 732 (3d Cir. 2001). The percentage-of-recovery method is generally favored in cases involving a common fund and is designed to allow courts to award fees from the fund in a manner that rewards counsel for success and penalizes it for failure. Id. quoting In re Prudential Ins. Co. America Sales Practice Litig. Agent Actions, 148 F.3d 283, 333 (3d Cir. 1998). The ultimate choice of methodology rests with the court's discretion. Dewey v. Volkswagen Aktiengesellschaft, 558 F. App'x 191, 197 (3d Cir. 2014) quoting Sutter v. Horizon Blue Cross Blue Shield of N.J., 406 N.J.Super. 86, 966 A.2d 508, 519 (N.J. App. Div. 2009).
Fitzgerald has extensive experience in mass tort bankruptcy cases and, particularly relevant to the task at hand, Fitzgerald presided over the bankruptcy case of W.R. Grace & Co., et al, including the lengthy ZAI litigation prior to her retirement from the bench on May 31, 2013. Her consideration and evaluation of L&A's request for an allocation of the Fee Award was based upon careful consideration of the parties' submissions and her familiarity with the background of the bankruptcy case, as well as proper application of the appropriate legal standard.
I disagree with L&A's contention that Fitzgerald relied too heavily on the proposed fee allocation by ZAI Class Counsel or that her award to L&A is not in proportion to the fees allocated to other non-class counsel. Fitzgerald used ZAI Class Counsel's allocation as a starting point, then awarded a share to L&A after consideration the indirect benefit that L&A's efforts provided to the ZAI Class Settlement. I conclude that Fitzgerald's reasoned and informed factual determinations and legal conclusions regarding the L&A request for an allocation of fees from the Fee Award should be, and hereby are, adopted by this Court in full.
Upon consideration of the Joinder and Counter-Motion (D.I. 31794), the L&A Motion (D.I. 32034), and the Expert Report (D.I. 32259), and responses and replies thereto, and for the reasons set forth above, it is hereby