ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA.
Gibbons and Becker, Circuit Judges and Debevoise, District Judge.*fn* Becker, Circuit Judge, concurring.
Eleven law firms appeal from an order allowing fees out of a fund resulting from the settlement of class actions charging a conspiracy to fix prices in violation of Section 1 of the Sherman Act. 15 U.S.C. § 1 (1982).*fn1 The order was entered after a hearing on objections to fee applications made on behalf of some members of the plaintiff class.*fn2 We remand for further proceedings consistent with this opinion.
1. Evolution of the Fee Dispute
On March 3, 1978, twelve separate fine paper pricefixing lawsuits were transferred by the Judicial Panel on Multi-district Litigation for coordinated and consolidated pretrial proceedings to the Eastern District of Pennsylvania, where four such actions were already pending.*fn3 The first of these sixteen actions had been filed on July 18, 1977 in the Northern District of Illinois by the law firm of Specks & Goldberg, Ltd. Other actions were later filed in different districts around the country, and these, too, were eventually transferred to the Eastern District of Pennsylvania.
Prior to the March 3, 1978 transfer, some members of the law firms which had filed the initial cases met, first in Atlanta in January of 1978, and again in Chicago on February 3, 1978, to organize a common strategy for the handling of the litigation. At the February 3, 1978 meeting these plaintiffs' lawyers, acting as a committee of the whole, elected an Executive Committee, which designated Granvil I. Specks, Esq., of the Chicago firm of Specks & Goldberg, Ltd., and Harold Kohn, Esq., of the Philadelphia firm of Kohn, Savett, Marion & Graf, P.C., as co-chairmen.*fn4 Both Specks and Kohn were experienced in the successful representation of plaintiffs in Fed. R. Civ. P. 23(b)(3) class actions. Those present at the February 13, 1978 meeting also agreed upon a lead counsel team, comprised of Specks, Kohn, Joseph Cotchett, John Noll and later, Seymour Kurland.
Shortly after the March 3, 1978 transfer order, and ten months prior to any class certification, the trial court held a pretrial conference at which, over the objection of the Attorney General of California, who represented one plaintiff, it approved the organizational structure proposed by plaintiffs' counsel.*fn5 App. A. 130-43. The court by order expressly approved the creation of the Executive Committee, and expressly contemplated the establishment by that committee of additional standing committees. At the time of this pretrial conference a number of subcommittees, including a Rule 37 Subcommittee, a Plaintiffs' Discovery Committee, a Compliance With Defendants' Discovery Committee, and Industrial Analysis Committee and a Finance Committee, had already been created by the Executive Committee. App. O 262-67.
The same Pretrial Order which approved the organizational structure of plaintiffs' counsel also fixed a 30 day time limit for the filing of a motion or motions for class certification, and a 90 day time limit for completion of discovery relating to class action issues. App. A 138-39. It was not until February of 1979, however, that the court certified a national class of direct purchasers of fine paper.*fn6
Meanwhile, however, settlement discussions went forward with certain fine paper manufacturer defendants. On July 25, 1978, counsel for the plaintiffs received an offer from St. Regis Paper Co. to settle its total liability for $2 million. Five other defendants made settlement offers between that date and January 16, 1979, when settlement offers totaling $30 million were in hand. Shortly after the entry of the court's February 1979 order certifying a national class of direct purchasers of fine paper the plaintiffs moved, on March 5, 1979, for preliminary approval of the proposed settlements with the six defendants whose offers totaled $30 million. That proposed settlement was opposed by those paper manufacturer defendants who had not yet offered to settle, some of whom had previously filed cross claims for contribution. Judicial approval of the partial settlements was not obtained until September 2, 1979. Pretrial Order No. 66.
By the time the $30 million settlement with six fine paper manufacturers had been approved, 23 additional separate lawsuits had been added for a total of 38. Fourteen of these were separated from the plaintiff class by virtue of the class certification order.*fn7 Thus twenty-four individual actions were on file on behalf of the class at the time of court approval of the initial round of settlements. Several of these suits had been filed after the soon to be approved offers totaling $30 million were already in hand.
In December of 1979 the trial court entered an order which consolidated discovery in all the fine paper cases, directed that discovery be completed by July 3, 1980, and fixed September 22, 1980 as the trial date. The same order directed plaintiffs to file a pretrial memorandum on August 29, 1980, "in the form to be prescribed by the Court." Pretrial Order No. 76, App. A 227. Thereafter, on January 8, 1980, the court, in Pretrial Order No. 83, prescribed the form of the plaintiffs' pretrial memorandum.*fn8 Other trial preparation went forward against the remaining defendants. That preparation ultimately involved deposing approximately 250 witnesses, inspecting and copying thousands of documents, briefing and arguing numerous motions, and preparing a 643 page pretrial memorandum.
A week before the September 22, 1980 trial date Champion International Corporation offered to settle its liability for $4 million, and on the first day of trial the remaining defendants offered an additional $16,650,000. Added to the already approved $30 million partial settlement, these offers brought the total settlement fund to $50,650,000. Under the terms of the settlements the defendants were to be relieved of liability both for damages and for attorneys' fees, and would immediately pay over the settlement fund so that it would earn interest on behalf of those interested in the recovery until it was disbursed. The settlement thus was structured to create a fund in court from which attorneys fees could be paid; a practice approved by the court in Lindy Bros. Bldrs., Inc. of Phila. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973) (Lindy I).
The trial court fixed March 20, 1981 as the deadline for filing petitions for fees and expenses from the fund. Pretrial Order No. 143, as amended by Pretrial Order No. 147, App. J472. Prior to that date negotiations took place among members of the plaintiffs' Executive Committee and others in an effort to reach agreement on a ceiling on fees which would be sought by the attorneys for the class. These negotiations were unsuccessful, and on March 20, 1981, 41 separate petitions were filed by private law firms and state attorneys general, seeking an aggregate of $21 million in fees and expenses for 70,000 attorney hours by 160 lawyers, and for 25,000 paralegal hours. Thus, in the aggregate, attorneys for the class sought over 40% of the $50,650,000 settlement fund.
It soon became apparent that the inability of the Executive Committee to work out an agreed upon maximum for fees and expenses was the result of a dispute among some members of that committee as to the value to the class of their respective services. In the fee application of Kohn, Savett, Marion & Graf, P.C., Harold Kohn took the position that his firm was chiefly responsible for the results achieved, and that the work claimed to have been performed by other applicants was exaggerated and of little value. On March 27, 1981, several counsel urged the court to appoint a Fee Review Committee, a procedure suggested in the Manual For Complex Litigation, § 1.47(4) (1982). Kohn objected, and the trial court declined to appoint such a committee. 98 F.R.D. at 77. On April 24, 1981, 26 lawyers representing the plaintiffs in 19 of the 24 settled lawsuits, filed objections to the Kohn firm's fee application. That objection was supported by affidavits of 17 plaintiffs' attorneys, to which were attached numerous exhibits. App. C 1-396. On May 15, 1981, the Kohn firm filed, on behalf of the two named plaintiffs it represented, a general objection, App. N 50-56, and sixteen specific objections to the fee applications filed by other plaintiffs' attorneys. In these objections Kohn contended that the applications of other attorneys had not been filed in good faith, and that most of the time which had been expended on the case had been solely for the purpose of generating fees. App. N 57-118.
On the same day that Kohn's objections were filed, class members listed in this appeal as appellees, none of which were named class representatives in the litigation, filed objections to the fees. App. L 18. This group of objectors, represented by Weil, Gotshal & Manges, moved for permission to review all fee applications and file supplemental written objections. App. L 28. That motion was granted. App L 42. The court fixed June 9, 1981 for the commencement of hearings on the fee applications. At least in part because of disputes over discovery of documents in the files of some plaintiffs' attorneys, review of the fee applications by Weil, Gotshal & Manges took several months. The review was not completed by June 9, 1981, and the hearing on that date was continued so that a report on the Weil, Gotshal & Manges review could be completed.
At the July 23, 1981 hearing several applicants requested evidentiary hearings on disputed factual allegations, and the trial court observed:
Insofar as the request of the motion of Mr. Sloan and Mr. Specks for an evidentiary hearing, that of course will abide by the results of the report filed by Mr. Millstein [of Weil, Gotshal & Manges] and the response of the petitioning lawyers. If you want evidentiary hearings you will get it.
Finally, on October 5, 1981, Weil, Gotshal & Manges filed on behalf of objecting class members a 522 page report, supported by a 164 page appendix of charts, and by three separately bound volumes of documentary exhibits.*fn9 The trial court permitted the petitioning firms to file responses, and fixed times for hearings on the applications and objections.
The trial court scheduled a hearing on the fee applications and objections for each petitioning firm that requested one. These were scheduled between 4:00 P.M. and 6:00 P. M. on each court day. The hearings consumed 73.5 hours over 41 days.*fn10 Eight law firms participated. During the course of those hearings petitioning attorneys objected that the Weil, Gotshal & Manges Report and supporting exhibits were not admissible evidence. Initially, at a hearing on December 17, 1981, the court ruled that they would not be accepted as evidence. App. L 200. Rather they would be treated only as argument. App. L 224. On the fifteenth day of hearings, however, when Specks & Goldberg, Ltd. had completed its case in support of its fee applications. Mr. Millstein of Weil, Gotshal & Manges offered in evidence, apparently against all fee applicants, the three volumes of exhibits referred to in his firm's report. App. F 395. Many of these exhibits were internal memoranda of, or correspondence among some, but not all, of the petitioning law firms. The petitioning attorneys who were present objected to their admissibility on authenticity, hearsay and relevancy grounds. App. F 393-400. The court ruled that the objecting parties could take the volumes home over the weekend and then inform the court what items they objected to, at which time a ruling would be made. App. F 398. The court tentatively ruled that a firm's internal memorandum was not binding on any other firm "unless I conclude there is a conspiracy." App. F 399.
The reference to a conspiracy is understandable in light of the nature of the fee objections made by Harold Kohn. In essence, Kohn charged that Granvil I. Specks and others entered into a conspiracy to overstaff the case, engaging attorneys and paralegals in "busy work" for the purpose of running up time in order to fatten the lodestar determination required by Lindy Bros. Bldrs., Inc. of Phila. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973). If such a conspiracy was established by independent evidence, admissions in furtherance of it by each of its members could be used against the coconspirators. Fed. Evid. R. 801(d)(2)(E). On March 1, 1982, the sixteenth day of hearings, extended argument was held on admissibility of the tendered exhibits. App. M 317-345. The court observed "I am not going to rule on those particular items until we get everybody in here, everybody who wants to testify comes in." App. M 343. On May 20, 1982, after the evidentiary hearings were closed, the trial court, without making a finding as to the existence of a conspiracy, and without specifying the basis of admissibility, ordered that the tendered documents be submitted in evidence, with no limitation as to the parties against which or the purpose for which they might be used. App. I 370. These exhibits constitute 1,053 pages in App. N, O, and P.
The objectors offered no other evidence. The hearings consisted of testimony and exhibits offered by those petitioning law firms which requested evidentiary hearings, and of cross-examination of the witnesses whose testimony those firms presented. Both Weil, Gotshal & Manges, on behalf of the appellee objectors, and Kohn, Savett, Marion & Graf, P.C., on behalf of its client, waived the right to insist that each petitioning attorney appear for cross-examination. App. F 414-15. Thus evidentiary hearings were not held on all fee applications, but were held on all applications involved in these appeals.*fn11 The last fee hearing was on May 12, 1982.
III. The Trial Court's Decision
A. Preliminary Observations
On March 3, 1983, the trial court filed a lengthy opinion dealing with the fee applications.*fn12 Early in that opinion the judge indicates the general impression with which the proceedings left him, observing:
These fee petitions are grossly excessive on their face and, regrettably, lend substance to the widely-held and mostly unfavorable impressions of the plaintiffs' class action bar, sometimes referred to as the class action industry.
98 F.R.D. at 68. The opinion outlines the history of this litigation resulting in the $50,560,000 settlement. It then discusses formation of the organizational structure of plaintiffs' counsel, noting that after Specks & Goldberg, Ltd. filed the first action in Illinois on behalf of a national class of direct purchasers of fine paper, Granvil I. Specks circulated the complaint to several other lawyers with whom he had worked in prior class actions. These lawyers, the court observed, filed similar complaints on behalf of different named plaintiffs in other districts. Specks and the others then met and "began planning for distribution of patronage, that is, deciding to which firms the work assignments would be allocated." 98 F.R.D. at 71. The general tone of the court's discussion of the organizational meetings discloses disapproval of the steps leading to the filing of these separate lawsuits, and of the organization of plaintiffs' counsel for the purpose of allocating work.*fn13 The opinion acknowledges that the committee structure agreed upon at the February 3, 1978 meeting was approved by court order, but observed:
In retrospect, I can recognize the force of Mr. Spiegel's argument [on behalf of California, opposing that structure] but at the time the court was persuaded by the array of distinguished counsel for the private plaintiffs and had no reason to anticipate that the case would not be prosecuted in the best interests of the class.
98 F.R.D. at 74. The opinion further notes that eight new firms came into the case after the first $30 million in settlement offers was in hand, and that the Executive Committee, over Kohn's objection, assigned work to some of these newcomers. 98 F.R.D. at 74. About the committee system the opinion notes:
It was inevitable that this type of structure would generate wasted hours on useless tasks, propagate duplication and mask outright padding.
Turning to the objections, the court noted Kohn's assertion that the 97,000 hours claimed by plaintiffs' lawyers were excessive and that the same work could have been accomplished with the expenditure of 5,000 to 15,000 hours by one competent firm.*fn14 98 F.R.D. at 78. The court also noted the Weil, Gotshal & Manges challenge to fee requests, and the recommendations in the Weil Gotshal & Manges Report. 98 F.R.D. at 79. Regarding the objections filed to the Kohn firm's fee petition, the court observed:
Plaintiffs' counsel returned the volley by filing numerous objections to the Kohn firm's fee petition.
Although these same objectors did not challenge any other fee petitions, the objections to the Kohn petition apply equally to many other petitions.
14. These same lawyers had filed a four page statement of objections [to the Kohn petition] on April 24, 1981, about three weeks prior to the deadline for filing objections. As explained by Kohn, this pleading was an attempt "to intimidate and coerce the Kohn firm to refrain from filing objections" to these attorneys' fee petitions. See Memorandum in Support of Motion to Quash Depositions, filed 5/20/81, Docket Entry No. 3344.
15. Thus, more evidence of the "buddy" system at work at the expense of the class.
98 F.R.D. at 79. About the responses to the Weil, Gotshal & Manges Report, the trial court observed:
Not unexpectedly, the petitioners (except Kohn) defended the organizational structure and the hours charged claiming that the division of labor had been the most effective way of tackling the massive task confronting them and that only their long hours, hard work and sheer persistence produced the fund which benefited the class.
Kohn, in his response, agreed with Weil, Gotshal that there had been tremendous waste, particularly in the deposition program.
98 F.R.D. at 80 (footnote omitted).
Following the foregoing preliminary observations, the court's opinion sets forth general guidelines to be applied in making the analyses required by Lindy Bros. Bldrs. Inc. of Phila. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973) (Lindy I), and 540 F.2d 102 (3d Cir. 1976) (Lindy II). The trial court proposed disallowing or reducing lodestar hours for the following tasks:
1. Pretrial memorandum time.
4. Pretrial conference time.
5. Hours without adequate supporting data.
6. Industrial Analysis Committee time.
98 F.R.D. at 81-82. It also determined that in lieu of the specific rates historically charged by the petitioning attorneys there would be allowed:
1. Hourly rate for partner-level work performed by a partner -- $100.00.
2. Hourly rate for associate-level work performed by an associate -- $50.00.
3. Hourly rate for co-lead counsel (Specks and Kohn) -- $150.00.
The trial court also categorized the types of work appropriate for partners, associates, and paralegals. In instances in which experienced persons were found to have performed compensable tasks which in the court's view should have been assigned to persons with less experience or less professional training, the court included the time in the lodestar, but at uniform hourly rates for the less experienced or less professionally trained persons.
Addressing the Lindy I and II contingency factors, the court ruled that a 1.5 positive contingency multiplier would be allowed for lodestar time expended prior to the consummation of the $30 million settlements on January 16, 1979. 98 F.R.D. at 84. As to time expended after that date, the court ruled that "once the initial settlements were approved, there was no risk of non-payment for services or reimbursement of expenses." 98 F.R.D. at 84. And in justifying the selection of 1.5, rather than some higher rate, as the multiplier for time expended prior to January 16, 1979, the court observed:
I have not chosen a higher multiplier because prior to January 1979, the risk of an unsuccessful result in this case was spread among 25 law firms and 7 attorneys general. Moreover, it appears that this was not a case of high risk because there was a "large number of attorneys who were willing to prosecute this case on a purely contingent basis. This was quite obviously not a case where counsel were reluctant to invest considerable time because of the fear they would go unpaid." In re Penn Central Securities Litigation, 416 F. Supp. at 919 n.30.
98 F.R.D. at 84 (footnote omitted).
Addressing the Lindy quality multiplier the court ruled that none would be allowed, observing:
Under all the circumstances of the case, I am not persuaded that any counsel demonstrated such an unusually high degree of skill as would warrant compensation beyond that reflected in the hourly rates.
One firm, Specks & Goldberg, Ltd., was singled out, however, for the application of a negative quality multiplier:
Specks and Goldberg . . . because of its dominant leadership role, must be charged with primary responsibility for all the wasted hours, duplication and gross inefficiency which marked this case from its inception.
98 F.R.D. at 84. A 50% negative quality multiplier was applied to the Specks & Goldberg, Ltd. lodestar amount. 98 F.R.D. at 84.
The court also ruled that it would not allow reimbursement for expenses incurred by attorneys arising from activities for which their time would be disallowed, and that close scrutiny would be made of charges for meals consumed at hometown restaurants. 98 F.R.D. at 85.
C. Application of the Guidelines
Having laid down the foregoing general guidelines, the trial court proceeded to apply them to each separate fee application. The result, overall, was a series of awards aggregating approximately $4.3 million in fees, and expenses of approximately $1.1 million. Thus the aggregate fees and expenses awarded amounted to slightly more than 10% of the $50.6 million settlement fund.*fn15 Every fee application was reduced to some extent. Listed in the margin are the requests and awards for those petitioners who have not appealed, or whose appeals have been withdrawn.*fn16 The fees and expenses requested by appellants, and the court's rulings on them, are as follows:
Firm Fees Expenses Fees Expenses
Freeman, Atkins 727,105.00 39,974.57 229,930.00 39,933.28
& Coleman, Ltd (App. J 174) (App. J 174) (App. J 182) (App. J 182)
Phillip C. Gold- 31,203.76 2,505.35 6,917.50 2,505.35
stick & Associates (App. J 184) (App. J 190) (App. J 190) (App. J 190)
Much, 787,433.25 50,410.29 18- 4-
Shelist, 8.230.00 7.476.35
Freed Denenberg (App. J 250) (App. J 250) (App. J 270) (App. J 270)
O'Brien & Hallisey 725,782.65 35,783.69 109,534.50 35,602.64
San Francisco, (App. J 272) (App. J 272) (App. J 290) (App. J 290)
Walter E. 795,482.00 45,061.59 33,681.50 27,759.61
P.A. (App. J 319) (App. J 319) (App. J 319) (App. J 319)
Rogers, Rude, 106,481.03 8,026.03 -0- -0-
Candlin, Faulkner (App. J 346) (App. J 346)
Sachnoff, 1,1- 93,278.10 304,533.38 90,869.45
Weaver & Ruben- (App. J 347) (App. J 347) (App. J 374) (App. J 375)
Saveri & Saveri 2,076,792.75 60,771.24 18- 54,594.96
San Francisco, (App. J 376) (App. J 376) (App. J 376) (App. J 384)
Sloan & Connelly 510,994.86 20,760.80 116,517.00 20,760.80
Chicago , Ill. (App. J 390) (App. J 390) (App. J 400) (App. J 400)
Lawrence Walner 735,760.00 37,869.73 142,517.75 3-
& Associates, Ltd. (App. J 421) (App. J 432) (App. J 432) (App. J 432)
Totals $7,657,330.63 $394,441.39 $1,316,569.13 $357,178.17
Thus the appellants' requests for fees were reduced by $6,340,761.50 and for expenses by $37,263.22, an overall disallowance rate of approximately 80%.
The listed fee requests include in each instance requested Lindy multipliers. To the eleven appellants, the court awarded a contingency multiplier for time expended prior to January 16, 1979 and included in the lodestar calculation, but not for time thereafter, as follows:
Freeman, Atkins & Coleman, Ltd. 9,892.50 App. J 182
Philip C. Goldstick & Associates,
Much, Shelist, Freed, Denenberg
Ament & Eiger, P.C. 4,972.50 App. J 270
O'Brien & Hallisey 5,405.25 App. J 290
Walter E. Riordan -0- App. J 319
Rogers, Rude, Candlin, Faulkner &
Sachnoff, Weaver & Rubenstein, Ltd. 7,496.88
Saveri & Saveri 7,462.50 App. J 384
Sloan & Connelly, P.C. 2,750.00 App. J 400
Specks & Goldberg, Ltd. 115,900.00 App. J 413
Lawrence Walner & Associates, Ltd. 6,001.25 App. J 432
The 50% negative quality multiplier applied to the court's calculation of a $789,330.50 lodestar amount for Specks & Goldberg, Ltd. reduced its lodestar amount to $394,665.75, and thus the pre-January 1979 contingency factor increased it to the amount awarded, 510,565.25. 98 F.R.D. at 215.
Applying its general guidelines the court also reduced the number of hours in each firm's lodestar calculation as follows:
(1) Pretrial Memorandum Time
The court, concluding that time spent in preparing the court ordered pretrial memorandum was grossly excessive, reduced each firm's time expended on that task by one-half. 98 F.R.D. at 81. This resulted in elimination of 712.70 lodestar hours for the appellants' lodestar calculations as follows:
Freeman, Atkins & Coleman, Ltd.
Robert S. Atkins 95.10 47.60 App. J 175
Lawrence H. Eiger 88.75 44.38 App. J 251
Michael B. Hyman 88.45 44.23 App. J 259
Stephen A. Kanner 105.95 ...