Adams, Rosenn and Weis, Circuit Judges.
In certain types of litigation, a successful plaintiff may receive attorneys' fees in addition to the customary damages for his claim. Although the negotiation of a fee contemporaneously with the evaluation of damages may be conducted with diligence and honesty, the potential for impropriety gives rise to possible misunderstanding by the public. We agree with the district court's disapproval of the procedure, but remand for further findings of fact necessary in calculation of reasonable fees.
As part of the settlement of a class action based upon sex discrimination in employment, counsel for the class requested court approval of statutorily authorized attorneys' fees. 42 U.S.C. § 2000e-5(k). The proposed settlement petition provided for payment to the class of $97,000, later recalculated to $99,664, and recited the parties' agreement on counsel fees:
"6. Within ninety days after final dismissal of Civil Action No. 72-870, Defendant National Tea Company shall pay Plaintiffs' attorney's fees in the following amounts:
a. The sum of TWENTY-FOUR THOUSAND DOLLARS ($24,000) to Berger & Kapetin;
b. The sum of SIXTEEN THOUSAND DOLLARS ($16,000) to Rosenberg & Lubow; and
c. The sum of TEN THOUSAND DOLLARS ($10,000) to Sylvia Roberts, Esquire."
An affidavit attached to the petition stated that at normal billing rates the fees of the Berger & Kapetan (later restyled Berger, Kapetan & Malakoff) and Rosenberg & Lubow firms would be $42,910, and that Sylvia Roberts' fee was based on a contractual right to receive 20% of the total attorneys' fees awarded. The petition suggested that normal billing rates should be increased by 20% because of the contingent nature of the case and the quality of the work. The petition also requested payment of $3,000 for expenses incurred, including amounts paid to experts, para-professionals, court reporters, postage, copying and similar items. There was no request for counsel fees to be paid from the fund itself.
At the hearing for approval of the settlement, the district judge expressed concern about the request for counsel fees, particularly with the allocation to Ms. Roberts based on a percentage referral arrangement rather than on work performed. The award to the class was approved, but a separate proceeding was scheduled to address the issue of attorneys' fees. At the outset of that hearing, the court stated its dissatisfaction with settlement proposals that include both allowances for attorneys' fees and payment to the class because the combination may create a possible conflict of interest.
Ms. Roberts submitted a letter and affidavit in which she disclaimed any interest in a "referral fee" or a "broker's fee" and submitted an itemization of the time that she had spent on the case. She suggested that an hourly charge of $100 would be reasonable for the 22.75 hours that she had devoted to the matter.
The district court awarded fees as follows:
Berger, Kapetan & Malakoff $21,000.00