Nineteen Appeals Arising Out of San Juan Dupont Plaza Hotel Fire Litigation, In re

• Decision Date: 01 June 1992
• Docket Number: 91-1636,91-1645,Nos. 91-1635,91-1641,s. 91-1635
• Citation: 982 F.2d 603
• Parties: In re NINETEEN APPEALS ARISING OUT OF the SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION. to 91-1651, 91-1946, 91-1971, 91-1972, 91-2159, 91-2160 and 91-2258 to 91-2261. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 603

982 F.2d 603

In re NINETEEN APPEALS ARISING OUT OF the SAN JUAN DUPONT

PLAZA HOTEL FIRE LITIGATION.

Nos. 91-1635, 91-1636, 91-1641, 91-1645 to 91-1651, 91-1946,

91-1971, 91-1972, 91-2159, 91-2160 and 91-2258 to 91-2261.

United States Court of Appeals, First Circuit.

Heard June 1, 1992.

Decided Dec. 11, 1992.

Judith Resnik, with whom Dennis E. Curtis, Richard A. Bieder, Joan C. Harrington, Michael A. Stratton, and Koskoff, Koskoff & Bieder, P.C., were on brief, for appellants Bieder, Nachman, Rivera-Garcia, Moreda-Toledo, Anduze-Montano, Buso-Aboy, Suro-Ballester, Weinstock, Levine, and Mellado-Gonzalez, et al.

Douglas G. Brown, Ronald E. Hermanson, and Harold V. Sullivan II on brief, for appellants Ayala Cruz, Miranda, Brown, and Sullivan, et al.

Hirshman & Levine on brief, for appellant Levine.

Arthur R. Miller, with whom Stanley Chesley, Wendell Gauthier, John Cummings, David Indiano, and Will Kemp were on brief, for appellees.

Before SELYA, Circuit Judge, LAY, ^* Senior Circuit Judge, O'SCANNLAIN, ^** Circuit Judge.

SELYA, Circuit Judge.

These appeals call upon us to descend once more into the belly of a beast previously (and accurately) described as a "litigatory monster." In re Recticel Foam Corp., 859 F.2d 1000, 1001 (1st Cir.1988). On this occasion, we are involved less with the litigants than with their champions. One group of lawyers, appellants here, contend that the procedures followed by the district court in awarding attorneys' fees and directing cost reimbursement were fundamentally unfair, ignored the requirements of procedural due process, and constituted an abuse of discretion. Another group of lawyers, appellees here, vehemently deny these charges and seek to uphold the award. Because we agree that the proceedings in question were profoundly flawed, we vacate the district court's order.

I. BACKGROUND

Given the narrow purview of these appeals, we need not dwell upon the tragic facts of the incendiary fire that claimed nearly one hundred lives at the San Juan Dupont Plaza Hotel on December 31, 1986. For our purposes, a bareboned preface serves to place the instant appeals into workable perspective. ¹

A

In 1987, the Judicial Panel on Multidistrict Litigation consolidated over two hundred seventy cases, involving approximately twenty-three hundred plaintiffs, and placed them under the aegis of the Honorable Raymond L. Acosta in the District of Puerto Rico. See In re Fire Disaster at Dupont Plaza Hotel, 660 F.Supp. 982 (J.P.M.L.1987) (per curiam). Shortly thereafter, the Chief Justice appointed the Honorable Louis C. Bechtle as a "settlement judge." While the litigation moved toward trial in Judge Acosta's court, Judge Bechtle endeavored to advance settlement prospects by determining individual and aggregate values for the cases.

In an effort to organize the plaintiffs' side of the litigation, Judge Acosta appointed a steering committee (the PSC) to act as lead and liaison counsel for the plaintiffs. Because PSC members would exert the lion's share of control over the direction of the litigation and would, therefore, likely lay claim to a larger slice of the fee pie than their non-member colleagues, appointment to the PSC was much coveted; only attorneys who had been retained by individual plaintiffs were eligible to apply, and more than forty of the fifty-six individually retained plaintiffs' attorneys (IRPAs) declared their candidacies. Judge Acosta initially chose nine members and, in June 1988, increased the complement by two. ²

By dint of the PSC's role, a rough division of labor emerged. The PSC members looked after the big picture: mapping the overarching discovery, trial, and settlement strategies and coordinating the implementation of those strategies. The IRPAs handled individual client communication and other case-specific tasks such as answering interrogatories addressed to particular plaintiffs, preparing and attending the depositions of their clients, and taking depositions which bore on damages. The IRPAs also worked with Judge Bechtle on a case-by-case basis in his efforts to identify and/or negotiate appropriate settlement values for individual claims. When Judge Acosta determined that the plaintiffs should try twelve representative claims as a means of facilitating settlement, a collaborative composed of three PSC members and four IRPAs bent their backs to the task.

For the most part, Judge Acosta's work on this massive litigation has been a model of judicial craftsmanship and practical ingenuity. The exigencies of these appeals do not demand that we describe the judge's many innovations. We do note, however, that he wisely segmented the liability inquiry into phases. The first two phases, now concluded, established the liability of the hotel's owners and certain suppliers, respectively; when the results of these phases were integrated with the representative trial outcomes and with Judge Bechtle's handiwork, the combination generated an aggregate settlement fund of approximately $220,000,000.

At the close of the second phase, Judge Acosta opted to disburse the settlement fund because, in his words, "the Phase III litigation will not affect the results of the previous phases in any way and consequently [there is] no reason why distribution of the settlement fund to the victims and their attorneys should not go forward at this time." In re San Juan Dupont Plaza Hotel Fire Litig., 768 F.Supp. 912, 936 (D.P.R.1991) (hereinafter "Fees Op. "). The parties to these appeals--who agree on little else--do not dispute this assessment of the situation. ³

B

The IRPAs were originally retained under a variety of contingent-fee agreements, most of which were capped at the legal maxima: twenty-five percent for minors or incompetents; thirty-three and one-third percent for adults. ⁴ In addition, the plaintiffs agreed to pay certain costs. Thus, the amount available for legal fees was a fixed percentage of the overall recovery pool and the only figures which the court needed to compute prior to distributing the settlement fund were (1) the amount of PSC fees to be deducted from the attorneys' fund (a fund comprising the portion of the settlement reserved for legal fees) and (2) the amount of costs to be deducted from the plaintiffs' fund (a fund comprising the portion of the settlement reserved for the victims, excluding counsel fees).

Before discussing the former computation, some introductory comments are in order. Under standard "American rule" practice, each litigant pays his or her own attorneys' fees. See, e.g., Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 245, 95 S.Ct. 1612, 1615, 44 L.Ed.2d 141 (1975). Yet, there are times when the rule must give way. For example, when a court consolidates a large number of cases, stony adherence to the American rule invites a serious free-rider problem. See generally Mancur Olson, The Logic of Collective Action (1971). If a court hews woodenly to the American rule under such circumstances, each attorney, rather than toiling for the common good and bearing the cost alone, will have an incentive to rely on others to do the needed work, letting those others bear all the costs of attaining the parties' congruent goals.

A court supervising mass disaster litigation may intervene to prevent or minimize an incipient free-rider problem and, to that end, may employ measures reasonably calculated to avoid "unjust enrichment of persons who benefit from a lawsuit without shouldering its costs." Catullo v. Metzner, 834 F.2d 1075, 1083 (1st Cir.1987). Such courts will most often address the problem by specially compensating those who work for the collective good, chiefly through invocation of the so-called common fund doctrine. In its paradigmatic formulation, the common fund doctrine permits the trustee of a fund, or a person preserving or recovering a fund for the benefit of others in addition to himself, to recover his costs, including counsel fees, from the fund itself, or alternatively, from the other beneficiaries. See Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct. 745, 749, 62 L.Ed.2d 676 (1980); Alyeska, 421 U.S. at 257, 95 S.Ct. at 1620; Catullo, 834 F.2d at 1083. ⁵ Although common fund cases are sui generis, they typically evince certain characteristics. These include ease in identifying the persons, or classes of persons, benefitted by the recovery; ease in tracking the benefit flow; the ability to trace benefits with enough accuracy that, in the end, the flow chart inspires confidence; and the ability to shift litigation costs with enough precision and reliability that cost and benefit are fairly proportionate to one another. See Boeing, 444 U.S. at 478-79, 100 S.Ct. at 749; Alyeska, 421 U.S. at 265 n. 39, 95 S.Ct. at 1625 n. 39.

Here, Judge Acosta's decision to use a steering committee created an occasion for departure from the American rule. In apparent recognition of the free-rider problem, the judge served notice from the beginning that he would eventually make what he, relying in part on appellees' counsel, see Fees Op., 768 F.Supp. at 924 n. 42, later termed a "common fund fee award" to remunerate PSC members for their efforts on behalf of communal interests. This was a proper exercise of judicial power. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 392, 90 S.Ct. 616, 625, 24 L.Ed.2d 593 (1970); see also In re "Agent Orange" Prod. Liab. Litig., 818 F.2d 226, 240 (2d Cir.1987) (upholding a fee award to a plaintiffs' steering committee under the equitable fund doctrine); Bebchick v. Washington Metro. Area Transit Comm'n, 805 F.2d 396, 402 (D.C.Cir.1986) (collecting cases); In re MGM Grand Hotel Fire Litig., 660 F.Supp. 522, 526 (D.Nev.1987).

C

After Phase III ended and court-appointed accountants determined that the attorneys' fund was in the approximate amount of $66,000,000, Judge Acosta held a two-day hearing addressed to the method and amount of compensation to be awarded to PSC members...