The opinion of the court was delivered by: MUIR
I. Petitioners' Introduction.
1. Petitioners are McNerney, Page, Vanderlin & Hall, 433 Market Street, Williamsport, Pennsylvania, 17701.
2. Petitioners seek an award of the following counsel fees and costs incurred in the prosecution and settlement of this action: $ 231,574.50 in attorneys fees, $ 3,991.76 for reimbursement of out-of-pocket expenses expended, $ 1,609.80 for the fees and costs for the final disbursement of the settlement sum. The total sum requested would be paid from the settlement fund in this case.
3. The firm of McNerney, Page, Vanderlin & Hall has represented the class certified Civil Action No. 80-0429 since its certification and has represented the Plaintiffs-Class Representatives in the class action since its inception. McNerney, Page, Vanderlin & Hall coordinated its efforts and activities with Mr. Pursel and Mr. Acton, local counsel for the named Plaintiffs, who participated in the preparation of the initial pleadings, the discovery of information relative to the named Plaintiffs, and the settlement of this action brought in the name of these Plaintiffs. Petitioners also cooperated with counsel for Plaintiffs in related cases pending before this Court, the Commonwealth Court of Pennsylvania, and the United States Court of Claims, and did not duplicate the efforts or work of such other counsel.
4. Although Mr. Pursel and Mr. Acton initially sought attorney's fees in connection with this matter, no testimony was presented at the hearing concerning petitioner's fee award, and on November 25, 1981, their requests for attorneys' fees were withdrawn.
A. The Factual Background
5. Between 1966 and 1972, the named Plaintiffs, the class members, the Intervenors, and the Hampden Township Sewer Authority (hereinafter referred to as "Claimants" or "section 206(a) Claimants" undertook various sewage construction projects to improve the water quality of the streams into which they discharged. The Claimants applied for and received federal sewage construction grants under section 8 of the Federal Water Pollution Control Act, P.L. 84-660, in varying amounts ranging from 3.8% to 44% of their eligible construction costs between June 30, 1966 and July 1, 1972. The amount of the federal grant funds received by each of the claimants under section 8 of the Federal Water Pollution Control Act was less than the maximum federal sewage construction funding then available which was 55% of the eligible costs.
6. In 1972, the federal construction grant program for sewage treatment facilities was extensively amended by the Federal Water Pollution Control Act Amendments of 1972, 33 U.S.C. §§ 1251 et seq. Pursuant to section 206(a) of the Amendments, 33 U.S.C. § 1286(a), federal grants were provided for construction projects which had not received the maximum federal grant assistance under the original Act, to bring the federal funding for that project up to 55% level.
8. In November, 1972, DER, through its officers and agents, sought out the various Pennsylvania municipalities and municipal authorities, including the Claimants, to request or suggest that they apply for the section 206(a) grant funds through and with the assistance of DER. In response to these requests, the Claimants applied for the section 206(a) grant funds from EPA through DER and were advised by officers of DER that DER was processing their applications. However, at this time, DER also filed its own application for section 206(a) grant funds, a fact not then known to the Claimants. Thereafter, EPA determined to pay approximately $ 19 million dollars of the section 206(a) grant funds to DER, rather than to the applicant municipal entities, as "reimbursement" for prior state construction grants for these projects.
9. Between 1974 and 1979, $ 9,225,883.00 of this $ 19 million was paid to DER rather than to the applicant municipal authorities or municipalities. To date, DER has spent or encumbered, $ 6,055,808.00 of the $ 9,225,883.00 of section 206(a) grant funds which it has received, leaving a balance of $ 3,170,075.00 unspent and unencumbered.
10. Class counsel interpreted section 206(a) as well as its legislative history as mandating that the grant funds be paid to the municipal authorities and municipalities which constructed the project, not to DER.
11. In November, 1975, class counsel instituted a civil action against the then Administrator of EPA, Russell Train, on behalf of the Williamsport Sanitary Authority, both to enjoin the EPA from paying any further section 206(a) grant funds to DER rather than to the municipalities and municipal authorities in Pennsylvania and to recover such funds as had already been paid to and retained by DER. This was Civil Action No. 75-1377 in the United States District Court for the Middle District of Pennsylvania, captioned Williamsport Sanitary Authority v. Train (hereinafter sometimes referred to as the "Train" action).
12. In February 1979, the Honorable R. Dixon Herman issued an opinion and order in the Train action, determining, inter alia, that the Williamsport Sanitary Authority, not DER, was entitled to the section 206(a) grant funds and directing EPA to pay the Williamsport Sanitary Authority its section 206(a) grant funds. Judge Herman did not rule on the federal government's obligations, if any, to the Williamsport Sanitary Authority or any of the other Pennsylvania municipal authorities with respect to the section 206(a) grant funds previously paid to DER because DER was not a party to the action. Williamsport Sanitary Authority v. Train, 464 F. Supp. 768 (M.D.Pa.1979).
13. As a result of the Train suit, EPA paid the remaining $ 10,000,000.00 in section 206(a) grant funds which had not yet been disbursed, but had been earmarked to be paid to DER, to the Claimants. At that time, most, if not all, of the section 206(a) claimants had no idea why they had received these funds or that they might have a claim against DER for the $ 9 million already paid to DER.
14. In May 1979, DER, in response to the Train decision, instituted a declaratory judgment action against the Williamsport Sanitary Authority (hereinafter sometimes the "Williamsport" action) in the Commonwealth Court of Pennsylvania seeking a declaration that it was entitled to the $ 9,225,883.00 of section 206(a) grant funds which had already been paid to and partially spent by DER. The Williamsport Authority was again represented by class counsel. The Williamsport Sanitary Authority removed the Williamsport action to the United States District Court for the Middle District of Pennsylvania in June, 1979, where the action was assigned to the undersigned judge, and filed counterclaims against DER and its officers seeking to recover the section 206(a) funds paid to the state, as well as a declaration of the Authority's right thereto. In this action, the Williamsport Sanitary Authority was sued by the Commonwealth individually and as a representative of a defendant class of all municipal entities with claims against DER for section 206(a) funds in Pennsylvania. Ultimately, after discovery into the class claims and extensive briefing, the action was not certified as a defendant class action.
15. After extensive discovery, pre-trial motions and other pre-trial proceedings, this Court entered judgment in the Williamsport action on September 15, 1980. The Court granted the Williamsport Sanitary Authority's request for declaratory relief, declaring that the municipal authority which constructed the sewage project for which the grant was made, not DER, was entitled to the grant funds, but declined to award any affirmative relief on the ground that such relief was barred by the Eleventh Amendment. Com. of Pa. Dept. of Environmental Resources v. Williamsport Sanitary Authority, 497 F. Supp. 1173 (M.D.Pa.1980). The Williamsport action is now the subject of cross appeals in the United States Court of Appeals for the Third Circuit, which appeals have been stayed as a result of proposed settlement of these actions.
B. The Institution of the Action
16. In March and April of 1980, Ann S. Pepperman of McNerney, Page, Vanderlin & Hall was contacted by various Pennsylvania municipal authorities and municipal entities for the purpose of investigating the possibility of a lawsuit against the Commonwealth Department of Environmental Resources for the recovery of the grant funds paid by EPA to DER under section 206(a), in light of the Train and Williamsport actions.
17. These municipal authorities and municipalities were made aware of their claims to the balance of the section 206(a) funds, in part, as a result of a newsletter circulated by the Pennsylvania Municipal Authorities Association at the suggestion of class counsel who were concerned that if these claimants did not act promptly, their claims would be barred by the passage of time, if the claims were not already barred.
18. McNerney, Page, Vanderlin & Hall reviewed documents produced by DER in the Williamsport action which related to the class plaintiffs such as their grant documents and section 206(a) grant applications, the answers to interrogatories which had been filed in the Williamsport action which related to the claims of the class plaintiffs, the depositions which had been taken in the Williamsport action, and reviewed their research in the Williamsport and Train actions, to determine the merits and chances of success of an action on behalf of other Pennsylvania municipal authorities and municipalities and to determine the best avenues for relief. The firm also relied on its previous research in the Williamsport action relative to class certification for its determination that such an action could, and should, be brought as a class action on behalf of all affected municipal entities in Pennsylvania.
19. The Municipal Authority for the Town of Bloomsburg and the Upper Moreland-Hatboro Joint Sewer Authority indicated their interest in having class counsel institute a suit on behalf of themselves and a class of all similarly situated municipal entities in Pennsylvania to recover the section 206(a) funds from DER.
20. Several other authorities who contacted class counsel indicated that they were reluctant to institute such an action because of the costs, in light of the size and strength of their claims, and in some cases, because of their reluctance to sue DER. They indicated that they were willing to be part of a class and share in any recovery the class would obtain but not to institute their own independent actions.
22. Class counsel also filed a complaint against the same named defendants on behalf of the same named plaintiffs and class in the Commonwealth Court of Pennsylvania on April 21, 1980. The causes of action asserted in the Commonwealth Court action were the same as or essentially the same as those asserted in the instant action. The Commonwealth Court action was filed as a "back-up" action for the instant action, based on class counsel's assessment of the chances of obtaining a monetary recovery in the action in this court in the event that it was determined that the Eleventh Amendment to the United States Constitution barred affirmative relief ordering the state to return the section 206(a) grant funds to the named Plaintiffs and the class in the action in this court.
23. On May 9, 1980, class counsel filed an Amended Complaint, incorporating a civil rights act count based on a recent Supreme Court decision which had been handed down subsequent to the filing of the Complaint. A similar amendment was made to the Complaint filed in the Commonwealth Court.
24. The Defendants promptly filed a motion to dismiss the action pending in this Court, relying primarily on the Eleventh Amendment argument raised in the Williamsport action. The Defendants also filed Preliminary Objections to the Complaint filed in the Commonwealth Court raising a plethora of affirmative defenses including exhaustion of administrative remedies, statute of limitations, and sovereign immunity.
25. By order dated August 19, 1980, this Court denied the motion to dismiss as to the defendant individual state officers, but granted the motion as to DER, basing its decision, in part, on Judge Herman's decision in the Williamsport action. In preparing their opposition to the motion to dismiss, class counsel was aided substantially by their research and briefs filed in the Williamsport action in response to a similar motion to dismiss by the same defendants.
26. Numerous other actions were instituted at this time in this Court, the Commonwealth Court, and the United States Court of Claims by other section 206(a) claimants represented by two other law firms not involved in this Petition. DER was not a named defendant in the Court of Claims actions, which were damages actions against the United States and EPA, but was thereafter joined as a Third Party Defendant by the EPA.
26. On June 6, 1980 class counsel, on behalf of the named Plaintiffs, filed a motion for certification of the action as a class action and on June 20, 1980, filed a brief in support thereof. After a brief stay of the ruling on the motion for class certification, this Court issued an order certifying the class on October 21, 1980 and directing class counsel to notify the class members of the certification of the action and of their right to exclude themselves from the action.
27. In October 1980, class counsel mailed the notices of the certification of the action. In response to the notice, class counsel received numerous inquiries from various class members relative to the nature of the claims and the status of the case.
28. Ultimately 32 class members excluded themselves from the class.
D. Intervention and Third Party Defendants
29. Thirty-one of the municipal authorities and municipalities which excluded themselves from the class intervened directly in this action, represented by independent counsel. The intervention was approved by this Court in a May 16, 1981 order. These claimants intervened in this action to ensure themselves the opportunity to participate in any record which was made in this case, not because they felt there was any chance of obtaining affirmative relief in this suit.
31. Since the Williamsport action had been brought as a defendant class action, class counsel's discovery in that action had included the facts relative to the claims of the class members, as well as the Williamsport Sanitary Authority. From a review of the results of discovery conducted in the Williamsport action, class counsel were able to collect many of the relevant facts about the claims of the class members and to piece together the general picture relative to the actions of EPA and DER and the class members. By so doing, class counsel eliminated the need for duplicitous discovery in this action and reduced the amount of time devoted to discovery in this action.
32. Class counsel also reviewed the three sets of interrogatories which had been prepared in the Williamsport action as a basis for the interrogatories which were filed on behalf of the class in the instant action. Class counsel filed and served a set of more than 300 interrogatories on the defendants in November 1980 covering most of the areas which remained in dispute between the parties. Class counsel also requested the production of DER's files relative to the construction projects of the class members.
33. After submission of these discovery requests, class counsel conferred with DER's counsel by telephone and in person in an attempt to resolve objections to the interrogatories and to clarify the nature of the information which the class counsel sought to elicit from the Defendants. By working closely with DER and its counsel, class counsel was able to avoid unnecessary motions and briefs submitted to this Court and to elicit a great amount of pertinent information.
34. Class counsel also made several trips to Harrisburg to inspect DER's files on the class members.
35. By order dated October 21, 1980, this Court directed the parties in the various actions in the United States District Court to meet and confer to discuss methods to expedite the litigation of the matter and to report to the Court by January 15, 1981. Class counsel arranged the meeting which was held at its offices on January 6, 1981. Class counsel also took the lead in preparing the Report to the Court filed on January 15, 1981, in response to the Order and in the joint motions and briefs which were filed in connection with this Report.
36. At the January 6, 1981 conference, class counsel made two suggestions which substantially expedited the litigation and settlement of the matter and contributed to the efficient litigation of the actions.
37. First, class counsel suggested that the trial date for the class action then set for January 1981 be stayed pending the resolution of the appeals of the Williamsport Sanitary Authority and the Commonwealth Department of Environmental Resources and state officers in the Williamsport action. Since most of the issues raised in the instant case were the same as or were substantially similar to those presented in the Williamsport action, there appeared to be a significant possibility that the resolution of the appeal in that case would resolve the complex legal issues pending in the instant action and a stay would avoid unnecessary expenditure of time in trying issues resolved by the Court of Appeals. Counsel for the other parties concurred.
38. Second, class counsel suggested that no new discovery be instituted for a two month period while the parties met and attempted to reach a set of undisputed facts. From class counsel's review of the information provided in discovery to that time in this action and in the Williamsport action and from their general knowledge of the case, it appeared that most of the essential facts in the case were not in dispute. Such meetings were designed to eliminate duplicitous discovery in this case of facts which were not in dispute.
39. Accordingly, class counsel moved on behalf of all the parties to stay the action pending the resolution of the appeal in the Williamsport action and to stay new discovery pending the efforts of counsel to meet and prepare a set of undisputed facts within a three-month period.
40. The Court approved both requests. As a result of these requests, class counsel saved a significant amount of time and effort by avoiding unnecessary discovery and expedited the litigation of the action.
41. Between January 15, 1981, and March 15, 1981, class action counsel met on several occasions with counsel for the Intervenors, counsel for the Hampden Township Sewer Authority and counsel for DER and EPA, in Harrisburg, to prepare a set of undisputed facts for use at trial. These meetings produced substantial benefits in terms of the discovery of additional information and of the merits of the Defendants' positions, both as to the facts and to the law of the case, and in preparation for trial. Had the case been tried and the stipulations been used, these meetings would have also resulted in a saving of time inasmuch as most of the facts involved in the case were the subject of agreement. Moreover, these meetings served to reduce the areas in which it was anticipated that discovery would be necessary by disclosing the areas of agreement between counsel.
F. Settlement Negotiations
42. McNerney, Page, Vanderlin & Hall conducted the settlement negotiations on behalf of the class.
43. The settlement negotiations commenced in the spring of 1980 and continued through the summer of 1981, involving numerous conferences of counsel at various locations in Pennsylvania and in Washington, D.C.
44. The settlement negotiations posed several complex difficulties. Among these was the state defendants' position that they would not settle any of the claims unless all of the claims and actions were resolved. More than 30 parties were involved in more than 50 suits in this court, the Commonwealth Court and the United States Court of Claims, with two different sets of defendants, the federal defendants and the state defendants. A further complication was the fact that some parties had claims in all three courts against both sets of the defendants while others, including the class, had not been able to file an action in the Court of Claims where the federal defendants could be reached because class certification had been denied by that court. The framework which finally resolved these difficulties and settled the action was one proposed by class counsel.
45. Class counsel were aware that the only realistic chance for recovery for the class was through a negotiated settlement because of the weakness of the class's case.
46. Through the efforts of McNerney, Page, Vanderlin & Hall, the state defendants increased their settlement offer from 1( to $ 3,170,075.00, the balance of the unencumbered section 206(a) funds held by DER, in a period of six months. Class counsel also successfully reduced the demands of the Court of Claims Plaintiffs for a share of the state's settlement fund from $ 1 million to $ 500,000.00. Moreover, class counsel participated to a certain extent in the negotiations with EPA which increased its contribution to the settlement from nothing, to $ 250,000.00, to $ 500,000.00, and ultimately to $ 1 million.
47. The proposed settlement agreement, which has been termed the "pivotal" agreement by the parties, was prepared by class counsel.
48. Class counsel petitioned this Court for the approval of the proposed settlement and, after conducting a hearing thereof, ...