Skelton v. General Motors Corp.

• Decision Date: 13 January 1989
• Docket Number: 87-1530 and 87-1610,Nos. 87-1404,s. 87-1404
• Citation: 860 F.2d 250
• Parties: , 1989-1 Trade Cases 68,590 Arlie Glen SKELTON, et al., on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. GENERAL MOTORS CORPORATION, Defendant-Appellee. APPEALS OF SACHNOFF, WEAVER & RUBENSTEIN, LTD. and Law Offices of Beverly C. Moore, Jr.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 250

860 F.2d 250

57 USLW 2267, 1989-1 Trade Cases 68,590

Arlie Glen SKELTON, et al., on behalf of themselves and all

others similarly situated, Plaintiffs-Appellants, v. GENERAL MOTORS CORPORATION, Defendant-Appellee.

APPEALS OF SACHNOFF, WEAVER & RUBENSTEIN, LTD. and Law

Offices of Beverly C. Moore, Jr.

Nos. 87-1404, 87-1530 and 87-1610.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 13, 1988.

Decided Oct. 14, 1988.

Rehearings and Rehearings En Banc Denied Jan. 13, 1989.

Lowell E. Sachnoff, Sachnoff Weaver & Rubenstein, Ltd., Chicago, Ill., Michael P. Malakoff, Berger Kapetan Malakoff & Meyers, Pittsburg, Pa., for plaintiffs-appellants.

William R. Jentes, Kirkland & Ellis, Chicago, Ill., for defendant-appellee.

Before BAUER, Chief Judge, and CUDAHY and COFFEY, Circuit Judges.

CUDAHY, Circuit Judge.

This case arises out of a series of class actions brought against General Motors Corporation ("GM") for allegedly substituting less efficient engines and various other automotive parts (including transmissions) into certain lines of GM automobiles. The suits, brought in Illinois, New York and Washington, D.C., culminated when the consolidated class filed a complaint against GM in 1982 (for substituting less efficient transmissions in several lines of GM automobiles), under the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, 15 U.S.C. Secs. 2301-2312 (the "Magnuson-Moss Act"). The plaintiffs successfully petitioned the court for class certification and then settled with GM in 1985. Pursuant to the settlement, GM agreed to establish a $17 million fund to be distributed among the plaintiffs whose cars were affected by the substitution. As part of the settlement, the plaintiffs agreed that the fund would be the sole source of their attorneys' fees and that the fees would be calculated on an hourly rather than on a percentage-of-the-fund basis.

Class counsel submitted fee petitions based on the hours they expended multiplied by their hourly rate of payment. Counsel also requested a 75% enhancement of their fee awards to compensate for the risks undertaken in commencing this litigation. In denying the enhancement, the district court reasoned that the determination of a fee award under common fund principles is not significantly different than under a statutory fee-shifting provision. Thus, the district court held that the fee-shifting provision of the Magnuson-Moss Act is relevant to the award of fees in this case and that, under that provision, counsel are not entitled to an upward multiplier. The court alternatively concluded that even if the Magnuson-Moss Act does not preclude the award of a multiplier, plaintiffs' counsel in this case are not entitled to a risk multiplier because the litigation never progressed beyond class certification.

I.

The issue presented by this case is whether the principles governing the shifting of attorneys' fees as between a plaintiff and a defendant are equally applicable to the division of a common fund recovery between a plaintiff class and its attorneys. The district court reasoned

that the standards for determining reasonable attorneys fees in common fund cases and statutory fee cases should not be significantly different. In the court's view, the use of statutory fee guidelines is especially relevant where the litigation is commenced and prosecuted under a federal statute which specifically provides for an award of attorneys' fees.

Skelton v. General Motors Corp., 661 F.Supp. 1368, 1375-76 (N.D.Ill.1987) (footnote omitted). But there are a number of reasons, based on the development of the respective doctrines and on the logic of the two problems, why these questions must be viewed separately. The factors which separate them are much more significant than those that link them.

Traditionally in the United States, parties to a lawsuit bear their own expenses. Thus, each litigant must pay its own attorney's fees without regard to the outcome of the litigation. This has become known as the "American Rule." By contrast, for centuries British statutory authority has allowed an award of fees and costs to the prevailing party. See Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247-64, 95 S.Ct. 1612, 1616-25, 44 L.Ed.2d 141 (1975) (thoroughly discussing the history and present status of attorney fee awards). The American Rule continues to govern most of the cases in this country. However, there are many cases where the court may determine not only the amount of fees but which party shall pay them, based on statutory requirements or equitable doctrines. In some of these cases the court's determination may take the place of, supersede or modify fee agreements between a party and its counsel.

For example, Congress has created exceptions to the American Rule by inserting fee-shifting provisions in certain statutes. See, e.g., 15 U.S.C. Secs. 78i(e), 78r(a) (Securities Exchange Act of 1934); 15 U.S.C. Sec. 1640(a) (Truth in Lending Act); 15 U.S.C. Sec. 2310(d)(2) (Magnuson-Moss Act); 42 U.S.C. Sec. 7604(d) (Clean Air Act); 42 U.S.C. Sec. 2000a-3(b) (Civil Rights Act of 1964, Title II); 42 U.S.C. Sec. 2000e-5(k) (Civil Rights Act of 1964, Title VII); 42 U.S.C. Sec. 3612(c) (Fair Housing Act). Thus, a plaintiff that prevails in an action brought under a statute with a fee-shifting provision recovers the amount of its attorney's fee from the defendant.

In contrast, when a case results in the creation of a common fund for the benefit of a plaintiff class, a court will exercise its equitable powers to award plaintiffs' attorneys' fees out of the fund. Alyeska, 421 U.S. at 257-58, 95 S.Ct. at 1621-22. In this type of case, the defendant deposits a specified amount with the court for the benefit of the class in exchange for release of its liability. The attorneys' fee award is then taken as a share of the fund, thereby diminishing the sum ultimately retained by the plaintiff class. Similar to the way a plaintiff's attorney may be compensated by a contingent fee, a plaintiff class pays its attorneys by sharing its recovery with them.

Because there is a difference between statutory fee-shifting cases and common fund cases with respect, inter alia, to who bears the direct burden of compensating plaintiffs' attorneys, different policies may govern the two types of cases. The common fund doctrine (also known as the "equitable fund" doctrine and the "fund-in-court" doctrine) is "based on the equitable notion that those who have benefited from litigation should share its costs." Report of the Third Circuit Task Force, Court Awarded Attorney Fees 14 (Oct. 8, 1985), reprinted in Appendix of Appellants at 435, 453; see Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct. 745, 749, 62 L.Ed.2d 676 (1980) ("[A] litigant or lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney's fee from the fund as a whole."); Insurance Co. of N. America v. Norton, 716 F.2d 1112, 1115-16 (7th Cir.1983). Statutory fee-shifting provisions, in contrast, reflect the intent of Congress "to encourage private enforcement of the statutory substantive rights, be they economic or noneconomic, through the judicial process." Report of the Third Circuit Task Force, Court Awarded Attorney Fees 15 (Oct. 8, 1985), reprinted in Appendix of Appellants at 454. Defendants who have violated plaintiffs' rights may be required to compensate plaintiffs for the costs incurred in enforcing those rights. Thus, in statutory fee-shifting cases, only parties (usually plaintiffs) may seek reimbursement whereas in common fund cases attorneys may seek compensation.

Another difference between the two types of court-awarded fee arrangements concerns the role of the plaintiffs' attorneys. In common fund cases, once the attorneys secure a settlement for the class, they petition the court for compensation from the same fund. Thus, their "role changes from one of a fiduciary for the clients to that of a claimant against the fund created for the clients' benefit." Id. at 20, reprinted in Appendix of Appellants at 459. The court becomes the fiduciary for the fund's beneficiaries and must carefully monitor disbursement to the attorneys by scrutinizing the fee applications. See In re Fine Paper Antitrust Litigation, 751 F.2d 562, 583 (3d Cir.1984) (fee requests from common fund are subject to "heightened judicial scrutiny"). Because statutory fee cases involve the plaintiff (not his attorney) as claimant and continue to be adversary proceedings, these concerns do not arise in the same way.

The district court in this case reasoned, however, that "regardless of any theoretical distinctions between common fund and statutory fee cases, the courts in this circuit employ the same general standards to calculate attorneys fees in both types of cases." Skelton, 661 F.Supp. at 1376. To the extent that, in this circuit, both fee arrangements generally require the court to employ the lodestar approach, this observation is correct. See, e.g., Gekas v. Attorney Registration & Disciplinary Comm'n, 793 F.2d 846 (7th Cir.1986) (statutory fee case); In re Folding Carton Antitrust Litigation, 84 F.R.D. 245 (N.D.Ill.1979). However, when a court must decide whether to compensate attorneys for the risks they incurred in undertaking the litigation, the difference between fee-shifting and common fund arrangements is quite significant.

Panels of this court--as well as commentators and other courts--have expressed the concern that awarding risk multipliers to prevailing plaintiffs in statutory fee cases may inequitably burden defendants. For example, risk multipliers tend to penalize the parties with the strongest defenses. The stronger the defense, the higher the risk involved in bringing the suit and the greater the multiplier necessary to compensate plaintiff's attorney for bringing the action. Thus, defendants with better cases pay higher plai...