Goldberger v. Integrated Resources

• Decision Date: 30 November 1999
• Docket Number: Docket No. 99-7198
• Citation: 209 F.3d 43
• Parties: (2nd Cir. 2000) SHOLEM GOLDBERGER, Plaintiff-Appellant, v. INTEGRATED RESOURCES, INC., ARTHUR H. GOLDBERG, JAY H. ZISES, PHILLIP H. COHEN, STANLEY SPIVACK, SELIG A. ZISES, DAVID R. MARKIN, IRA LEON RENNERT, H. STRUVE HENSEL, JOHN ELLIS, RICHARD M. ROSENBAUM, ALLAN R. TESSLER and HENRY J. CLAY, SR., TOUCHE ROSS & CO., STEPHEN WEINROTH, Defendants-Appellees, DAVID H. PIKUS, Special Master. August Term 1999 Argued:
• Court: U.S. Court of Appeals — Second Circuit

Page 43

209 F.3d 43 (2nd Cir. 2000)

SHOLEM GOLDBERGER, Plaintiff-Appellant, v. INTEGRATED RESOURCES, INC., ARTHUR H. GOLDBERG, JAY H. ZISES, PHILLIP H. COHEN, STANLEY SPIVACK, SELIG A. ZISES, DAVID R. MARKIN, IRA LEON RENNERT, H. STRUVE HENSEL, JOHN ELLIS, RICHARD M. ROSENBAUM, ALLAN R. TESSLER and HENRY J. CLAY, SR., TOUCHE ROSS & CO., STEPHEN WEINROTH, Defendants-Appellees, DAVID H. PIKUS, Special Master.

Docket No. 99-7198

August Term 1999

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: November 30, 1999

Decided: March 28, 2000

Plaintiffs' counsel appeal from two orders of the United States District Court for the Southern District of New York (Kram, J.) awarding attorneys' fees.

AFFIRMED.

MELVYN I. WEISS, Milberg Weiss Bershad Hynes & Lerach LLP, New York, New York, (Robert P. Sugarman, George A. Bauer III and U. Seth Ottensoser of counsel), for Plaintiff-Appellant.

ARTHUR N. ABBEY, Abbey, Gardy & Squitieri, LLP, New York, New York, (Jill S. Abrams of counsel), for Plaintiff-Appellant.

DAVID H. PIKUS, Bressler, Amery & Ross, P.C., New York, New York, for amicus curiae seeking affirmance.

Before: McLAUGHLIN, STRAUB, and SACK, Circuit Judges.

McLAUGHLIN, Circuit Judge:

Following the settlement for over $54 million of a securities class action, plaintiffs' counsel sought attorneys' fees of 25% of the recovery, amounting to $13.5 million. The United States District Court for the Southern District of New York (Kram, J.) declined to award that amount. Instead, the court awarded $2.1 million, amounting to about 4% of the recovery, based on counsel's "lodestar" of hours actually and reasonably billed. Counsel now appeal, arguing that the district court erred by: (1) refusing to award fees on a percentage of the recovery basis; and (2) declining to enhance their lodestar with a multiplier.

We hold that either the lodestar or percentage of the recovery methods may properly be used to calculate fees in common fund cases, and that the district court did not abuse its discretion in choosing the lodestar in this case. Nor do we find any abuse of discretion in the district court's award of a fee of about 4% of the recovery. Accordingly, we affirm.

BACKGROUND

This case arises from the ashes of what is regarded by some as the most spectacular scam of the 1980s.¹ The complaint alleges that early in that decade, Michael Milken of Drexel Burnham Lambert Group, Inc. began to successfully tout high risk, high yield "junk" bonds as a way to finance growth for otherwise under-capitalized companies. For a while the junk market flourished. Eventually, however, it became apparent that the market comprised, not arm's- length participants, but primarily a group of Milken clients. These people depended on him to sell their high risk bonds to a so-called "daisy chain" of other Milken controlled clients with proceeds from their own (typically over-financed) junk offerings. The whole pyramid fell apart when the market realized that junk debt carried a much higher default rate than had been advertised. The initiation of criminal and civil enforcement proceedings against Milken and Drexel exacerbated the matter. In January 1989, Drexel pleaded guilty to, inter alia, federal securities fraud, and agreed to pay $650 million in fines and restitution. In April 1990, Milken followed suit by pleading guilty to, inter alia, securities fraud, and agreeing to pay $600 million in fines and restitution.

The primary defendant in this case - Integrated Resources, Inc., a diversified financial services company - was allegedly part of Milken's daisy chain. When financing from Drexel dried up, Integrated found itself unable to fund its current liabilities. On June 15, 1989, Integrated announced that it was defaulting on over $1 billion of its short term debt, and the prices of its publicly traded securities plummeted. Immediately thereafter, a group of plaintiffs' law firms filed various actions on behalf of a putative class of Integrated securities holders. They alleged violations of, inter alia, section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. All the actions were consolidated before Judge Shirley Wohl Kram of the United States District Court for the Southern District of New York, and two law firms - Milberg Weiss Bershad Hines & Lerach LLP and Abbey, Gardy & Squitieri, LLP (then Abbey & Ellis) - were designated co-lead counsel. In their second amended complaint, plaintiffs named as defendants: (1) Integrated and some of its officers and directors; (2) Drexel; (3) Milken; and (4) Touche Ross & Co., Integrated's outside auditor.

In February 1990, the consolidated action was automatically stayed with respect to both Integrated and Drexel after they sought bankruptcy protection. Another Southern District Judge, the Honorable Milton Pollack, who had been chosen by the Multidistrict Litigation Panel to handle the numerous derivative and class actions brought against Milken and his cohorts, also assumed control over the Drexel bankruptcy proceeding. In that proceeding, Judge Pollack appointed Milberg Weiss to represent the interests of, inter alia, the Integrated shareholders.

Four separate settlements were eventually reached with Integrated Resources and its co-defendants. First, the Integrated class received about $22.3 million from the Drexel bankruptcy proceeding supervised by Judge Pollack. Second, the class received about $19.3 million as its pro rata share of the global settlement - also supervised by Judge Pollack - of all claims asserted against Milken and his cohorts. Third, the Integrated class received about $7.6 million from the settlement of the claims against Integrated and its officers and directors. Finally, the class received $4.9 million in settlement of its claims against Touche Ross. Total recovery was thus over $54 million.

Although Judge Pollack had supervised the substantive settlement of several aspects of this case, it fell to Judge Kram to award attorneys' fees. Throughout the fee proceedings before Judge Kram, counsel maintained they should be awarded a simple percentage of the recovery as a fee, rather than having to submit to a review of their billed hours under the so-called "lodestar" method. Specifically, counsel sought 25% of the total recovery, or a total fee of $13.5 million.

The first fee application was made in October 1992 with respect to the funds recovered from the Drexel bankruptcy. Judge Kram appointed Michael D. Hess as a special master to review the application. Special Master Hess's initial Report and Recommendation recommended that counsel receive their requested 25% fee. Judge Kram, however, directed Mr. Hess to revise his recommendation and to base any fee award on counsel's lodestar.

Following an exhaustive review of counsel's billed hours, and after reducing for various charges he found excessive, Mr. Hess submitted a second Report, this time recommending a lodestar award of $1,416,572.75. Among other things, Mr. Hess noted that counsel sought then-current hourly rates, even though their billings spanned the three and one-half years preceding the fee petition. For example, the Milberg firm requested hourly fees for attorney time ranging from $125 to $500 per hour. Mr. Hess reasoned that allowing such then-current hourly rates was justified in order to compensate counsel for the delay in payment.

By order dated June 10, 1993, Judge Kram adopted Mr. Hess's recommendation but reduced counsel's lodestar to $1,284,704.80, citing, inter alia, "over 80 instances where the time records of Milberg Weiss, indicating meetings and telephone conferences with co-counsel, do not correspond with the time records of other counsel." In the same order, Judge Kram explained that she had considered but rejected counsel's contentions that they should be awarded fees on a percentage basis. Judge Kram also declined to award a multiplier.

In October 1996, plaintiffs' counsel made a second fee application, seeking 25% of the nearly $32 million total recovery from the three Milken, Integrated, and Touche Ross settlements. Alternatively, counsel asked that, if the lodestar method were used, then a multiplier should be applied to their lodestar (which would grant them the same 25% of recovery). In November 1996, Judge Kram appointed David H. Pikus as a special master to review this second fee application.

In 1998, Mr. Pikus issued a Report and Recommendation recommending a lodestar award of $865,326.68. Like Mr. Hess, he reduced the lodestar for excessive charges. In addition, Mr. Pikus saw no need for a multiplier. He reasoned that counsel had benefitted from the information generated by the various parallel federal investigations of Milken and his cohorts, and that "[t]here was no groundbreaking issue which loomed significant in this case." He also found that the hourly rates sought by counsel, ranging as high as the $550 per hour charged by Melvyn I. Weiss of the Milberg firm, fell "clearly at the higher end" of "the prevailing range." Mr. Pikus concluded, however, that allowing these high hourly rates was justified to compensate for the risks undertaken by counsel in prosecuting the case, as well as to recognize the quality of the representation rendered. In a January 18, 1999 order, Judge Kram adopted Mr. Pikus's recommendation, holding, inter alia, that awarding "an enhancement multiplier for the results achieved and risks born by Plaintiffs' Counsel would likely result in their overcompensation."

All in all, the district court awarded counsel over $2.1 million in fees for their efforts in this case. Dissatisfied with that amount, counsel, led by the Milberg firm, now appeal. They do not challenge the reductions in their lodestar, although they carp at what they perceive as nitpicking. Instead, counsel argue that the district court erred by: (1) refusing to award fees on a percentage of recovery basis; and (2) declining to enhance their lodestar...