Weinberger v. Great Northern Nekoosa Corp.

• Decision Date: 06 December 1990
• Docket Number: No. 90-1822,90-1822
• Citation: 925 F.2d 518
• Parties: , Fed. Sec. L. Rep. P 95,781, 19 Fed.R.Serv.3d 472 William WEINBERGER, et al., Plaintiffs, Appellants, v. GREAT NORTHERN NEKOOSA CORP., et al., Defendants, Appellees. First Circuit. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 518

925 F.2d 518

59 USLW 2514, Fed. Sec. L. Rep. P 95,781,

19 Fed.R.Serv.3d 472

William WEINBERGER, et al., Plaintiffs, Appellants, v. GREAT NORTHERN NEKOOSA CORP., et al., Defendants, Appellees.

No. 90-1822.

United States Court of Appeals,First Circuit.

Heard Dec. 6, 1990.

Decided Feb. 11, 1991.

Stephen D. Oestreich (argued), with whom Laurence D. Paskowitz, Wolf Popper Ross Wolf & Jones, Peter L. Murray, Thomas C. Newman, and Murray, Plumb & Murray were on brief for plaintiffs, appellants.

Stuart J. Baskin (argued), with whom Alan S. Goudiss, Shearman & Sterling, Robert H. Stier, Jr., David A. Soley, and Bernstein, Shur, Sawyer & Nelson were on brief for defendants, appellees.

Peter J. Brann, Asst. Atty. Gen. (argued), State of Me., with whom James E. Tierney, Atty. Gen. and Thomas D. Warren, Deputy Atty. Gen., were on brief for State of Maine, amicus curiae.

Before SELYA and CYR, Circuit Judges, and BOWNES, Senior Circuit Judge.

SELYA, Circuit Judge.

This appeal requires that we consider, for the first time, how a district court should respond to an application for attorneys' fees made in conjunction with the voluntary discontinuance of a class action suit under circumstances where there is no common fund and the fees are to be paid pursuant to a "clear sailing" agreement. ¹ We hold that in such a situation the district court should ordinarily exercise its equity jurisdiction and entertain the application. We hold further that, rather than merely rubber-stamping the request, the court should scrutinize it to ensure that the fees awarded are fair and reasonable. And because these holdings are not completely dispositive of the matters in controversy, we remand for additional proceedings.

I. BACKGROUND

On October 31, 1989, Georgia-Pacific Corporation (G-P) announced an unsolicited tender offer for all the outstanding common stock of appellee Great Northern Nekoosa, Inc. (GNN) at a cash price of $58 per share. On the same day, G-P filed two lawsuits in Maine's federal district court seeking to dismantle GNN's takeover defenses. In part, G-P challenged the constitutionality of Maine's anti-takeover law, Me.Rev.Stat.Ann. tit. 13-A, Sec. 611 (1988).

On November 12, GNN formally rejected the tender offer, asserting that G-P's bid was inadequate in price, unlawful, and not in the best interests of GNN's shareholders. The directors simultaneously mobilized an arsenal of defenses. By then, the present appellants, GNN shareholders, had begun to initiate class actions against GNN and its directors. One such action was filed on November 3; a second on November 4; and the third on December 6. Each shareholder suit echoed G-P's claims (1) that the directors, by animating GNN's takeover defenses, had breached their fiduciary duty, and (2) that Maine's anti-takeover statute was unconstitutional. ² In due course, the State of Maine intervened in those actions which questioned the constitutionality of the Maine statute.

Intent on capturing its prey, G-P increased its offer to $63 per share on November 19. GNN rejected the higher offer but, as required by its bylaws, scheduled a special shareholders' meeting and referendum. G-P's attempt to accelerate the meeting was rebuffed by the federal court. See Georgia-Pacific Corp. v. Great Northern Nekoosa Corp., 727 F.Supp. 31 (D.Me.1989). An avalanche of intense activity, in and out of court, descended during the next few months. Truncating the tale, it suffices to say that matters did not go well for GNN's directors and their shark repellents. See, e.g., Georgia-Pacific Corp. v. Great Northern Nekoosa Corp., 731 F.Supp. 38 (D.Me.1990) (invalidating certain anti-takeover provisions contained in GNN's bylaws). By early 1990, more than 75% of the outstanding shares had been tendered to G-P.

On February 13, 1990, GNN announced that it was for sale to the highest bidder. No white knights appearing, negotiations took place between G-P and GNN. On February 20, the hostile takeover came to a friendly conclusion when G-P agreed to pay a sweetened price of $65.75 per share. As the hostilities wound down, GNN and G-P dismissed all pending litigation inter sese. Similarly, the class action plaintiffs agreed to dismiss their suits as moot, contingent upon payment of attorneys' fees and expenses. To forestall the possibility that fee litigation might further delay consummation of the tender offer, a pact emerged wherein the class action plaintiffs agreed to "take no steps to attach any part of the funds to be paid to the [GNN] shareholders pursuant to the upcoming tender offer." In return, G-P "agreed to pay the plaintiffs' attorneys' fees and expenses as shall be awarded by the United States District Court for the District of Maine." If the parties were "unable to reach agreement on the appropriate amount of ... fees and expenses," the class action plaintiffs would be free to petition the court to set the amount. ³ The tender offer, involving an aggregate payment of some $3,740,000,000, was consummated on March 6, 1990, 97.3% of the shares having been tendered. The remaining stock was subsequently acquired in a short-form merger. Although no definitive accord was reached on fees, G-P did enter into a clear sailing agreement with the appellants, stipulating that it would not oppose a court-approved award of $2,000,000 or less. ⁴

On June 21, the class action plaintiffs moved to dismiss their actions as moot and applied for $2,000,000 in fees. In support of their motion and application, they submitted only a short memorandum chronicling the course of the litigation. They did not provide the district court with contemporaneous time records, affidavits, or other supporting documentation. Faithful to the clear sailing agreement, G-P did not object. On June 28, the district court, under the aegis of Fed.R.Civ.P. 23(e), dismissed the actions as moot. At the same time, the court denied the unopposed application for fees, writing:

[C]ounsel have failed to set forth any factual predicate of evidentiary quality by which the Court could properly make an award of reasonable attorneys' fees and expenses in any amount in this matter.... [I]f the parties have agreed to payment of a specific fee, there would appear to be no occasion for this Court to pass upon the reasonableness of the agreement of the parties in that respect.

Plaintiffs immediately asked the court to reconsider, filing a cornucopia of supporting documents. The court refused, citing plaintiffs' "failure to timely produce a record ... of the fee issues at the time of entry of [the June 28] order...."

On appeal, appellants claim that the district judge erred both in spurning their unopposed fee application and in refusing to consider, and then to grant, their augmented fee application.

II. JUDICIAL ATTENTION TO FEE APPLICATIONS

Inasmuch as the court below questioned whether there was any "occasion ... to pass upon" the fee request, we are called upon to examine the nature and extent of a district court's jurisdiction over a fee application submitted in conjunction with the prearranged dismissal of a class action. We then assess whether such jurisdiction should have been exercised more expansively in the instant case. ⁵

A. The District Court's Jurisdiction.

The court below intimated that if the parties had independently agreed to a fee not chargeable to the class membership or payable from a common fund, the court need not intervene. We start our analysis, therefore, with the threshold question of whether a district court should be required to pass on the reasonableness of a fee application in a class action case where the fees will neither be paid from, nor directly diminish, the common fund. ⁶ We believe that when a fee application is submitted ancillary to, or as part of, the termination of a class action, the district court should ordinarily determine the reasonableness of the fees, notwithstanding that the source of payment does not directly impair the class recovery.

Fed.R.Civ.P. 23(e) states in its entirety: "A class action shall not be dismissed or compromised without the approval of the court." While the rule does not explicitly mention the oversight of fee applications, the approval function has routinely been extended to embrace fees, whether or not pre-negotiated, in those cases where the plaintiffs' attorneys are to be paid out of a common fund (and where, consequently, there is an inherent tension between the interests of the class and the interests of the lawyers). As Professor Moore has put it:

Courts have used this approval authority to review fee settlements and, on occasion, to reduce negotiated fees. Such action may be necessary because the interests of the class members' attorneys may differ from the interests of the class members themselves.... [T]he court's power to approve or reject a settlement under Rule 23(e) enables the court to ensure fairness for the class members.

3B Moore's Federal Practice p 23.91 at 23-533 to 23-534; see also Piambino v. Bailey (Piambino I), 610 F.2d 1306, 1328 (5th Cir.) (to minimize conflict between attorney and class, district court "must address" the issue of attorneys' fees before approving class action settlement), cert. denied, 449 U.S. 1011, 101 S.Ct. 568, 66 L.Ed.2d 469 (1980). We know unimpeachably that the source of a court's authority to award attorneys' fees in such common fund cases is "the historic power of equity to permit ... a party ... recovering a fund for the benefit of others in addition to himself, to recover his costs, including his attorneys' fees, from the fund ... itself or directly from the other parties enjoying the benefit." Alyeska Service Pipeline Co. v. Wilderness Soc., 421 U.S. 240, 257, 95 S.Ct. 1612, 1621, 44 L.Ed.2d 141 (1974).

Where there is no common fund, and class action plaintiffs seek attorneys' fees directly from defendants, in addition to damages or other relief due to the class, this equitable principle does not...