The opinion of the court was delivered by: LEE
On May 30, 1995, this Court approved the global settlement of this multi-district securities litigation, including the separately-negotiated-but-interconnected settlement of the consolidated shareholders' derivative class action, Yeager v. Rangos, Civil Action No. 92-1081. Memorandum Opinion, May 30, 1995 (Document No. 305). ("Mem. Op.") The settlement of the main class action was for approximately $ 95 million in cash;
the Court valued the settlement of the derivative action "in the neighborhood of $ 4 million dollars." Mem. Op. at 45.
APPLICATIONS FOR ATTORNEYS' FEES
Before the Court are the application for attorneys' fees filed by Co-lead Counsel ("CLC") in the main class action, Plaintiffs' Verified Joint Petition and Supporting Memorandum for an Award of Attorneys' Fees, Reimbursement of Expenses and Incentive Awards ("Main Fee Application") (Documents No. 283, Vol. I, and No. 284, Vol. II), and the application for attorneys' fees filed by derivative plaintiffs' counsel ("DPC"), Memorandum in Support of Plaintiffs' Motion for Final Approval of the Proposed Settlement and in Support of Counsel's Application for Attorneys Fees ("Derivative Fee Application") (Document No. 20 at Civil Action No. 92-1081).
In the main class action, CLC request an award of attorneys' fees pursuant to the percentage-of-recovery ("POR") of a common fund method at 28% of the $ 95 million settlement fund, or $ 26.6 million, reimbursement of expenses in the amount of $ 843,190.22, and incentive awards of $ 2,500 to each of the representative class members. Additionally, at the hearing on the fairness of settlements, CLC, by agreement of counsel, proposed that they would allocate the attorneys' fees awarded among the numerous counsel who represented plaintiffs in the more than 20 consolidated cases.
In the Derivative Fee Application, DPC seek an award of
approximately 2.2 million, out of a total monetary settlement of . . . between $ 9,385,000 to $ 10,865,000). This gross fee includes expenses incurred by counsel for the derivative plaintiffs in the amount of approximately $ 15,000 [plus, apparently, the request for counsel fees not to exceed $ 1,975,000 from the Chambers' officers and directors and counsel fees of $ 200,000 agreed to by Grant Thornton.] Therefore, the counsel's fee sought by counsel is about 23% of the total monetary settlement, assuming evaluation of the real property at the lower end.
Derivative Fee Application at 23.
The Derivative Action Stipulation and Settlement Agreement (Document No. 13 at Civil Action No. 92-1081) filed on February 24, 1995, contains the proviso that "Plaintiffs' counsel in the Derivative Litigation have agreed to request the Court to award them attorneys' fees of One Million Nine Hundred Seventy-five Thousand Dollars ($ 1,975,000), plus reimbursement of all reasonable costs incurred . . . together with interest . . . as may be approved by the Court. Chambers agrees to pay such amounts, as may be approved by the Court, not to exceed One Million Nine Hundred Seventy-five Thousand Dollars ($ 1,975,000) . . . and the individual defendants will take no position with respect to such payment." Id. at P 7. Moreover, the stipulation of settlement in the derivative action specifically makes it "a condition of this settlement that the settlement of the Securities [Main] Class Action, set forth in a separate Stipulation and Agreement of Compromise and Settlement, be fully consummated." Id. at P 11.
As this Court stated in its memorandum opinion of May 30, 1995, the settlement of the main class action includes a "recapture provision" which states that "in the event the Court disapproves any portion of the requested award of One Million Nine Hundred and Seventy-five Thousand Dollars ($ 1,975,000), plus interest, for fees and reimbursement of expenses in the Derivative Action . . ., then the portion not approved shall be paid over into the Settlement Fund in this [main class] action. Mem. Op. at 10, quoting Supplement to Class Action Stipulation and Agreement of Compromise and Settlement (Document No. 266) at P 7 (filed March 21, 1995).
DPC did not submit lodestar data prior to the fairness hearing, apparently in reliance upon their erroneous assumption "that this Court plans to apply the percentage method to awarding counsel fees. . . ." Derivative Fee Application at 22.
At the Court's direction, DPC subsequently submitted lodestar data, with supporting affidavits, on May 26, 1995. Joint Declaration of Fred Taylor Isquith and C. Oliver Burt, III, in Support of Application to Approve Award of Attorneys' Fees and Reimbursement of Litigation Expenses ("Joint Derivative Declaration") (Document No. 26 at Civil Action No. 92-1081).
Backed by the separate affidavits of representatives of the law firms which represented the plaintiffs in the federal derivative action and in related state court derivative proceedings, the "bottomline" lodestar figure for the derivative action is "$ 747,989.25 . . . expended in the prosecution of this litigation by the firms in this federal action as well as the five other firms in the State Court Actions. A total of $ 48,140.81 expenses were incurred." Joint Derivative Declaration at P 12. Moreover, DPC submit that their fee and expense reimbursement request ($ 2.175 million id. at PP 2, 14) amount to "between 23% and 42% of the value of the consideration received by Chambers Development . . . ." Id. at P 13. It is unclear where the 42% figure comes from,
but a 23% POR equaling $ 2.175 million would represent a settlement in the vicinity of $ 9.5 million, which is the vicinity of the value DPC placed on the derivative settlement at the time of the fairness hearing. Memorandum in Support of Plaintiffs' Motion for Final Approval of the Proposed Settlement and in Support of Counsel's Application for Attorneys Fees (Document No. 20 at Civil Action No. 92-1081) at 18. (The DPC's most recent opinion of the settlement value is "approximately $ 9,612,000," which would place the $ 2.175 million fee expense reimbursement application at about 22.6% under a POR approach. Derivative Plaintiffs' Memorandum of Law in Support of Their Motion for Modification, or, in the Alternative, for Reargument, Reconsideration and/or Clarification of the Court's May 30, 1995 Order (Document No. 29 at Civil Action No. 92-1081) at 1, 8.)
The Joint Derivative Declaration reiterates that the derivative action settlement was "part of a global settlement with the class action" and that, indeed, the "settlement agreements . . . are interlocked and interrelated. " Joint Derivative Declaration at PP 2 and 7 (emphasis added).
DERIVATIVE PLAINTIFFS' MOTION FOR MODIFICATION, OR, IN THE ALTERNATIVE, FOR REARGUMENT, RECONSIDERATION AND/OR CLARIFICATION OF THE COURT'S MAY 30, 1995 ORDER
In a most interesting and unexpected development, on June 13, 1995, DPC filed the above-referenced Motion for Modification, or, in the Alternative, For Reargument, Reconsideration and/or Clarification of the Court's May 30, 1995 Order, along with a supporting memorandum of law. This "Motion for Modification" was filed explicitly "pursuant to Rule 59 of the Federal Rules of Civil Procedure." Id. at 1.
The Rule 59 Motion for Modification was unexpected because all counsel and the Court were keenly aware that time was of the essence because the "merger with U.S.A. Waste [was] on a tight time table," and that the planned merger upon which the global settlement depended was "contingent upon the Court's approval of the settlement and the uneventful passage of the [30 day] appeal period. " Mem. Op. at 46, 35; see also notes of testimony, July 19, 1995, Fairness Hearing at, e.g., 54-55. In light of the extremely narrow window of opportunity which all counsel including DPC, were well aware of and made the Court well aware of in open court at the hearing on preliminary approval of the settlements and the final fairness hearing and otherwise, and in light of the potentially disastrous jeopardy in which the settlement and the merger would be placed if the appeal period were disrupted for any reason, it was, and is, inexplicable that DPC filed their "Rule 59" Motion for Modification knowing, as any experienced practitioner must be expected to know, that filing such a motion would extend the appeal period under the plain and unambiguous language of the Federal Rules of Appellate Procedure. Fed.R.A.P. Rule 4 provides, in relevant part:
Appeal as of Right -- When Taken
(a) Appeal in a Civil Case.
(4) If any party makes a timely motion of a type specified immediately below, the time for appeal for all parties runs from the entry of the order disposing of the last such motion outstanding. This provision applies to a timely motion under the Federal Rules of Civil Procedure:
(B) to amend or make additional findings of fact under Rule 52(b), whether or not granting the motion would alter the judgment;
(C) to alter or amend the judgment under Rule 59;
(E) for a new trial under Rule 59. . . .
F.R.A.P. Rule 4(a)(1) and (a)(4)(B, C and E) (emphasis added).
It is clear from DPC's Motion for Modification and supporting memorandum of law, and from subsequent documents, that DPC sought no real "relief" from the Court's judgment approving the derivative action settlement and that in the main class action, but rather, sought only collateral reconsideration of certain facts found by the Court, namely the valuation of the derivative settlement at $ 4 million, and correction of this Court's "erroneous assumption that any portion of the cash settlement sum not paid as a fee to Plaintiffs' Derivative Counsel would go to the class." Motion for Modification at PP 1, 2. The parties agree that the ostensible purpose of DPC's Rule 59 Motion for Modification was "to request the Court to consider the proper valuation of the derivative settlement in connection with their application for attorneys' fees," on the erroneous assumption that the Court would award DPC attorneys' fees based on a percentage of the value of the settlement. Stipulation Concerning Derivative Plaintiffs' Motion for Reargument/Reconsideration (Document No. 35) at P 4 (stipulation of counsel for all parties in the derivative action). The Court will not speculate what DPC's subjective strategic purpose in filing this motion as a Rule 59 motion might have been, although some ominous implications arise.
With regard to the "recapture" provision of the main class action settlement, which was made a part of the comprehensive, integrated global settlement package no later than March 21, 1995, see Supplement to Class Action Stipulation filed March 21, 1995 (Document No. 266 at P 7, and exhibits and revised exhibits thereto), DPC state in their Motion for Modification filed June 13, 1995:
Neither the Derivative Settlement Stipulation with Chambers and its Directors and Officers nor the Class Action Settlement Stipulation provides for any such payment to the Class . . . .
Motion for Modification at P 2. Moreover, in their memorandum of law in support, DPC unequivocally state:
Several times the Court mentions in its Memorandum Opinion that all portions of the cash not allocated to the fee would go to the class for the benefit of the securities class plaintiffs. That is simply inaccurate. The Settlement Stipulation with Chambers and its Officers and Directors does not provide for any reversionary interest to the class, although the Settlement Stipulation with Grant Thornton does provide for a reversionary interest to the Class in the $ 200,000 payment from Grant Thornton. That amount is in total .22 percent of the global settlement.
Memorandum of law at 9, n. 8 (emphasis in DPC's original).
DPC submitted the Declaration of C. Oliver Burt, III, Pursuant to 28 U.S.C. § 1746 (Document No. 39 at Civil Action 92-1081) to "clarify our understanding concerning the so-called 'recapture' provision referred to in the Court's May 30 Opinion." P 1. (Emphasis supplied by the Court). This "clarification" of DPC's "understanding" of the recapture provision claims that DPC "were unaware of the existence of that 'recapture' provision and learned about it only after submitting their Motion for Reargument/Reconsideration of the Court's May 30 Order." P 2. This is hard to fathom -- the Court's May 30th opinion itself should have been a tip-off to the existence of such a provision; the first tip-off should have been the Supplement to Stipulation of Settlement, filed on March 21, 1995, in the main class action.
Similarly, it is hard to imagine how DPC could legitimately argue that they "do not consider the 'recapture' provision to be part of the derivative settlement." Burt Declaration at P 2. What makes this legal conclusion so insupportable is that, as shown in the references above to several documents filed in this case, and previous statements by Messrs. Isquith and Burt, the global settlements and negotiations in this litigation, including the derivative action, were "interlocked and interrelated." Joint Declaration at P 7. See Derivative Action Stipulation (Document No. 13 at Civil Action No. 92-1081) at P 11 (It is "a condition of this [derivative] settlement that the settlement of the [main class action] . . . be fully consummated.") As this Court previously has observed, "each settlement [was] contingent on the Court's approval of the other, and each [was] inextricably intertwined with the other." Mem. Op. at 40.
DPC's "Rule 59" Motion for Modification sent a few shock waves of its own among all counsel in this litigation, and this Court ordered responses from counsel who understandably scrambled to save the merger and the settlement. "Damage Control" was taken in an attempt to limit the impact of the Motion for Modification on the appeal period by way of a Stipulation Concerning Derivative Plaintiffs' Motion for Reargument/Reconsideration (Document No. 35 at Civil Action No. 92-1081) signed by counsel for all parties in the derivative action. This Stipulation "retrofits" the Rule 59 motion in the following manner: (i) "the reference to Rule 59 is stricken ab initio " because the motion did not seek relief from the Court's order but rather sought reconsideration of "certain issues . . . collateral to approval of the derivative settlement," namely valuation of the settlement, P 1; (ii) "To the extent that the Motion is deemed to have been brought under Rule 59 or any other such rule which provides for the suspension of the time for appeal from the Final order and Judgment entered in the Derivative Action on May 30, 1995, it is not so based. . . ." P 2; (iii) "the parties agree that the Motion should not be treated as one which suspends the time for appeal under Rule ...