Boeing, however, specifically declined to "decide whether a class-action judgment that simply requires the defendant to give security against all potential claims would support a recovery of attorneys' fees under the common-fund doctrine." 444 U.S. at 479 n.5. The settlement agreements in this matter essentially provided security against potential claims. For example, Moyer agreed to place $ 2 million in escrow, with any escrowed funds remaining after payment of claims returned to Moyer. Boeing simply did not address the propriety of using the maximum payable, as opposed to the dollar amount of an actual fund within the court's control, for purposes of calculating class counsel fees.
It must also be noted, however, that there is no clear authority for the proposition that the fee should be awarded solely on the basis of the actual amount recovered by class members. In In re: Chrysler Motors Corp. Overnight Evaluation Program Litig., 736 F. Supp. 1007 (E.D. Mo. 1990), the court apparently based the fee award on the value of verified claim forms submitted by class members.
The court, however, did not address the question of whether the fee should be based on the maximum exposure to the settling defendant. Thus, Chrysler Motors does not provide any rationale for basing the percentage award on the actual amount recovered by class members.
General Motors directs that if fees are to be awarded on a percentage basis "some reasonable assessment of the settlement's value" must be made. Settlements of the type involved in this case are rarely ascribed a value that is equivalent to the face value of potential claims. For example, in Weiss, 899 F. Supp. at 1304, the court valued a settlement that called for a $ 100 million fund for coupon redemption to be approximately $ 75 million, and awarded 15% of that amount. In this case, class counsel has assigned a face value to the settlement that is 23.5 times greater than the actual recovery. Class counsel derived a value of $ 9.4 million as the class benefit by using information showing that Darling purchased approximately $ 35 million of rendering materials in the relevant geographic area in 1984 and multiplying that figure by four to determine Darling's aggregate purchase over a four year period. To this amount was added the top four years of Moyer's purchases, which totaled $ 7,559,287. This sum was multiplied by five percent to determine the potential class recovery from Darling. The resulting number is $ 7,434,280. Because Moyer's liability was limited to $ 2 million, class counsel claimed a total potential benefit to the class of $ 9.4 million. But "there is virtually a statistical certainty that not all class members will file statements or proofs of claim when such filing is a precondition to sharing in a common recovery." 2 Newberg on Class Actions § 10.14 (2d ed. 1985). A table accompanying Newberg's treatise indicates that response rates are often very small, and rarely exceed 50%. In this case, class counsel had some basis for projecting claims to be made because settlement claims had been submitted in connection with the first Moyer settlement agreement. Yet class counsel never attempted to forecast a reasonable response rate for this settlement. While counsel should not be penalized because class members fail to exercise their rights, class counsel should not claim a benefit value that simply does not exist. Clearly, the realistic value of the settlement in this case does not remotely approach class counsel's estimate.
In General Motors, Judge Becker observed that the percentage of recovery method "rewards counsel for success and penalizes it for failure." 55 F.3d at 821. Darling's position is that the small recovery that resulted here reflects a lack of success on class counsel's part. But in a settlement of the nature presented here, the limited actual recovery does not necessarily reflect the "failure" of class counsel. The settlement at issue was achieved approximately ten years after the alleged conspiracy to restrain trade ended. It is evident that a number of class members either no longer exist or are not in business.
It is also evident that records to substantiate sales dating back to 1977 may have been lost, discarded, or destroyed.
Class counsel should not be penalized because the passage of time in this protracted litigation reduced the size of the class and made it probable that the dollar expenditure by the settling defendants would be substantially less than their hypothetical exposure.
General Motors also established that the court has discretion in determining whether to use the lodestar method in the "constructive common fund" setting. 55 F.3d at 821. This position is consistent with the rulings of a number of other courts of appeals, which "have recognized that the appropriate method for use in common fund cases depends upon the circumstances of each case." Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d 513, 516 (6th Cir. 1993); see, e.g., Johnston v. Comerica Mortgage Corp., 83 F.3d 241, 246 (8th Cir. 1996); Florin v. Nationsbank of Georgia, N.A., 34 F.3d 560, 566 (7th Cir. 1994); Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1311 (9th Cir. 1990); Florida v. Dunne, 915 F.2d 542, 545 (9th Cir. 1990). "The lodestar rational 'has appeal where, as here, the nature of settlement evades the precise evaluation needed for the percentage of recovery method.'" In re Chambers Dev. Sec. Litig., 912 F. Supp. 852, 864 (W.D. Pa.1995).
In Greenhaw v. Lubbock County Beverage Ass'n, 721 F.2d 1019 (5th Cir. 1983), a jury verdict in a class antitrust action had a treble value of approximately $ 2 million. Claims asserted against the judgement, however, totaled only $ 17,482. The court awarded the lodestar amount of $ 246,517, rejecting the defendant's contention that the award was disproportionately large in relation to the actual recovery and class counsel's contention that the award was disproportionately small in relation to the potential class recovery. Id. at 1032; see also Johnston, 83 F.3d at 246 (given difficulty in estimating value of settlement, use of lodestar approach was not an abuse of discretion). The Fifth Circuit ruled that the district court's use of an unenhanced lodestar to award fees to the Greenhaw class counsel reflected a sound exercise of discretion.
Having carefully considered the arguments of counsel and studied the applicable precedents, I am firmly convinced that the lodestar approach is preferable where, as here, there is a substantial divergence between the actual recovery and the potential benefit; the benefit is not reasonably calculable; and the defendant who is obligated to pay the fee contests class counsel's claim. By requiring payment of an unenhanced lodestar as counsel fees in the context of this hybrid common fund settlement, defendants are not rewarded for the effects of delay. Moreover, the lodestar approach affords certainty to both sides during settlement negotiations by enabling the parties to assess the defendants' probable liability for attorneys' fees. A settling defendant can then estimate both its probable payments to class members as well as its payment of counsel fees in determining whether to settle or proceed to trial. Judicial scrutiny of the settlement and determination of the fee award in an adversarial setting assure that the class has not been "sold out" by counsel for an exorbitant fee. Class counsel are assured of "presumptively reasonable" compensation in negotiating in a difficult case a settlement based upon the presentation of verified claims by class members.
Contrary to class counsel's arguments, I find that use of a risk enhancing multiplier is foreclosed by General Motors. As recognized in Lake v. First Nationwide Bank, 900 F. Supp. 726 (E.D. Pa. 1995):
In City of Burlington v. Dague, . . . the Supreme Court ruled that a contingency multiplier based on the risk of the plaintiff's success could not be used to increase the lodestar under two federal fee-shifting statutes. This prohibition has subsequently been extended to common fund cases, making the likelihood that the plaintiff would not succeed irrelevant for purposes of enhancing the lodestar.
Id. at 736; see also Hirsch and Sheeley, Awarding Attorneys' Fees and Managing Fee Litigation at 71 (Federal Judicial Center 1994) ("In light of [the Supreme Court's] clear desire to facilitate administration and avoid arbitrariness, it seems likely that the Court would reject risk enhancements in common fund cases").
Even if a risk enhancement multiplier was not foreclosed, I would not award an upward adjustment in this case. "Risk multipliers tend to penalize the parties with the strongest defenses." Skelton, 860 F.2d at 253. The settlements negotiated in this case reflected the weakness of plaintiff's case. Class counsel should not be rewarded simply because some settlement was achieved. At all times, the settling defendants recognized that the amount they would be required to pay to the settling class would be substantially less than the value ascribed to the settlements by class counsel. At no time did the settling defendants express a willingness to establish a multi-million dollar fund that would be divided among class members and class counsel. On the contrary, efforts to negotiate a lump sum settlement were met with stubborn opposition. The settling defendants insisted on a claims-made settlement, obviously relying upon the "statistical certainty" that only a fraction of class members would submit verifiable claims. While some settlement may have been preferable to no settlement, the result achieved militates against an upward adjustment in the lodestar.
It is, however, appropriate to calculate the lodestar based upon current rates to compensate for the fact that services have been rendered over an 11 year period.
See Missouri v. Jenkins, 491 U.S. 274, 284, 105 L. Ed. 2d 229, 109 S. Ct. 2463 (1989). It is also appropriate to award interest from the date that judgment was entered in this case, December 20, 1995, to the date of the attorneys' fee award. In calculating the lodestar, hours expended with respect to defendants who have been dismissed from this action will not be compensable. See Rode v. Dellarciprete, 892 F.2d 1177, 1185 (3d Cir. 1990); see also Hensley v. Eckerhart, 461 U.S. 424, 440, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983). Moreover, the fee application must be scrutinized to "exclude from this initial fee calculation hours that were not 'reasonably expended,'" including, "excessive, redundant, or otherwise unnecessary" work. Id. at 434. Because the parties have not addressed these issues, time will be afforded to supplement the record and an evidentiary hearing, if necessary, will be conducted.
This Court is charged with the task of determining a fair, adequate and reasonable fee. Weiss, 899 F. Supp. at 1304. In making this determination, interests in the administration of justice must be considered. See Fickinger, 646 F. Supp. at 633. In this regard, the amount of the fee in relation to the actual recovery realized by the class is indeed a pertinent consideration. But so too are the efforts of class counsel over a protracted period in confronting a difficult adversary. While "common fund awards are not intended to reward a Don Quixote who tilts at windmills no matter how noble the motives or how extensive the efforts," Fickinger, 646 F. Supp. at 637, counsel who wrangle a judicially-approved settlement should be fairly compensated for their labor. "Presumptively reasonable" compensation is afforded through the lodestar method.
Accordingly, the parties will be directed to supplement the record with respect to the calculation of the lodestar in this case, consistent with the principles set forth above.
Thomas I. Vanaskie
United States District Judge
DATE: November 8, 1996
NOW, THIS 8 DAY OF NOVEMBER, 1996, IN ACCORDANCE WITH THE FOREGOING MEMORANDUM, IT IS HEREBY ORDERED THAT:
1. Within ten (10) days from the date of this Order, class counsel shall provide to settling defendants class counsel's time records in this matter, and within thirty (30) days from the date of this Order, class counsel shall file with the Court a memorandum setting forth their position with respect to hours to be excluded from the lodestar calculation.
2. Within twenty (20) days after receipt of class counsel's submission to this Court, settling defendants shall file with this Court a memorandum setting forth their position with respect to hours to be excluded from the lodestar calculation.
3. Class counsel may reply to settling defendants' submission within ten (10) days after service thereof.
4. Robzens, Inc.'s motion for an award of counsel fees and costs (Dkt. Entry 409) is GRANTED IN PART. Robzens shall be awarded fees under the lodestar method in an amount that will be determined by further order of this Court.
Thomas I. Vanaskie
United States District Judge
DATE: November 8, 1996