Alpine Pharmacy, Inc. v. Chas. Pfizer & Co., Inc.

• Decision Date: 02 July 1973
• Docket Number: 853 and 854,73-1306 and 73-1308.,No. 852,Dockets 73-1305,852
• Citation: 481 F.2d 1045
• Parties: ALPINE PHARMACY, INC., an Illinois Corporation, et al., Plaintiffs-Appellees, v. CHAS. PFIZER & CO., INC., et al., Defendants, and Cotler Drugs, Inc., et al., Plaintiffs-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

481 F.2d 1045 (1973)

ALPINE PHARMACY, INC., an Illinois Corporation, et al., Plaintiffs-Appellees, v. CHAS. PFIZER & CO., INC., et al., Defendants, and Cotler Drugs, Inc., et al., Plaintiffs-Appellants.

Nos. 852, 853 and 854, Dockets 73-1305, 73-1306 and 73-1308.

United States Court of Appeals, Second Circuit.

Argued May 7, 1973.

Decided July 2, 1973.

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Edward A. Berman, Chicago, Ill. (Lawrence Walner, Lewis W. Schlifkin and Bernard B. Brody, Chicago, Ill., of counsel), for plaintiffs-appellants Cotler Drugs, Inc.

Harry Rubenstein, Chicago, Ill., for plaintiff-appellant Louis Patlogan, formerly d/b/a Patlogan's Western Pharmacy.

Myron Roschko, Beverly Hills, Cal. (Roschko & Rosenson, Beverly Hills, Cal.), on the brief for plaintiffs-appellants Domaro, Inc. and Benalen Corp.

Jay Erens, Chicago, Ill. (Levy & Erens, Richard F. Levy and Howard A. Tullman, Chicago, Ill., of counsel), for plaintiffs-appellees Alpine Pharmacy, Inc. and others by the Committee of Counsel.

David I. Shapiro, New York City (James vanR. Springer, Washington, D. C., of counsel), for Dickstein, Shapiro & Galligan.

Before SMITH, MULLIGAN and TIMBERS, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge:

This is the latest, but we fear not the final, chapter in the ongoing saga of the antibiotic multidistrict antitrust litigation. The instant appeal is from an order of the United States District Court for the Southern District of New York, Inzer B. Wyatt, Judge, approving a plan of distribution to claimants in the retail and wholesale druggist class, and awarding attorneys' fees and expenses. For the reasons given below, we affirm in part and remand in part.

Since the background of the underlying litigation can charitably be described as complex, familiarity with the opinions of the district court and this court in State of West Virginia v. Chas. Pfizer & Co., 314 F.Supp. 710 (S.D.N.Y.1970), aff'd, 440 F.2d 1079 (2d Cir.), cert. denied, Cotler Drugs, Inc. v. Chas. Pfizer & Co., 404 U.S. 871, 92 S.Ct. 81, 30 L.Ed.2d 115 (1971), will be assumed. For the purposes of understanding the issues involved in the present appeal, the following skeletal history should suffice.¹

The underlying suit involves antitrust allegations directed against five corporate defendants, concerning the marketing of broad spectrum antibiotic "wonder drugs." Pursuant to 28 U.S.C. § 1407, the Judicial Panel on Multidistrict Litigation consolidated a number of such actions in the Southern District of New York, assigning them to Judge Wyatt. The plaintiffs in these suits fall into a number of groups, but only three classes of claimants are relevant here: (a) city, county, and state government entities (the CCS plaintiffs), whose claims arise out of either the direct purchases of antibiotics or out of payments to or for the benefit of recipients of public aid; (b) wholesale and retail druggists (hereinafter, for simplicity, termed the retailer class); and (c) individual consumers.

Before the underlying action could proceed to trial, the defendants made a settlement offer in the amount of $100,000,000 as to the claims of these three groups. The CCS plaintiffs were to get $60 million; the remaining $40 million was to be divided between the claims of the retailer class and individual consumers. At the outset, many of the plaintiffs were of the view that the retailer class should get nothing at all, since the members of this class sold nearly all of the antibiotics which they purchased to consumers on the basis of cost plus a fixed markup, which resulted in their actually making higher profits as a result of the alleged antitrust violations. However, a "nuisance value" settlement of $3 million was eventually allocated to this class, in order to secure their agreement to the settlement. The remaining $37 million was to go to the claims of consumers.²

After a number of CCS plaintiffs chose to opt out of the "global settlement," the settlement offer was adjusted downward to $82,615,030.³ The only group which raised serious objections to the final plan was the retailer class, which contended that it was entitled to the entire $37 million going to consumers. After extensive negotiations, the parties arrived at the novel solution of placing the entire settlement fund in escrow, with the interest on the account to accrue to the benefit of the retailer class. The escrow was to continue until there was a final order approving the compromise.

There was no such order until the end of the State of West Virginia case, which involved attacks on the settlement offer by some disgruntled members of the retailer class. By the time Judge Wyatt entered the order appealed from here, the total amount to be distributed to the retailer class, including both the basic $3 million share and the escrow interest, was $12,685,018.

It was this "pot" which Judge Wyatt sought to divide below, after making deductions for the expenses of administration, counsel fees and expenses of counsel. Before proceeding to the merits, we should note that the bulk of Judge Wyatt's distribution order has not been appealed. We are asked today only to review the claim of two class members to additional damages, and a number of contentions concerning the distribution of attorneys' fees.

I.

Out of the more than 4400 class claimants, only two have objected to the amount of settlement funds allocated them. Before treating the merits of these objections, we cannot help but note that the virtual unanimity with which the retailer class accepted the settlement allocations stands as tribute to what we recently termed "Judge Wyatt's extraordinary feat of judicial administration" in handling these cases. Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (1973). That feat is in no way marred by the two claims here, which, for the reasons outlined below, we find to be without merit.

The two objecting class members are Domaro, Inc., and Benalen Corporation. They both complain about Judge Wyatt's refusal to award them "special damages." Each claimed that it had refused to buy antibiotics from the defendants, ostensibly because of the antitrust violations, and thus went to Italy for "wonder drugs." However, domestic customers, who were fearful of infringing the patent arrangements of the defendants, allegedly would not buy from Domaro and Benalen. Hence the "special damages" claim for amounts over and above the figures Judge Wyatt allotted, the latter being arrived at by simply multiplying the total dollar amounts of antibiotics purchased from the defendants times a fixed percentage.

While it seems likely to us that the only manageable way of allocating the settlement funds was through such a formula, ignoring the specialized claims of individual class members, we need not so decide in this instance. The record indicates that the original claims submitted by Domaro and Benalen, in August of 1969, inexplicably failed to mention the European purchases theory of "special damages." It was not until over two and one-half years later, at a hearing held to consider the Amended Second Stage Plan of Allocation, that appellants sought to press this claim upon the district court. Judge Wyatt told appellants at that time of the great difficulties caused by accepting late damage claims, and eventually limited these class members, as all others, to damages measured by the formula outlined above.

We are convinced that the late nature of the claims alone here justifies affirmance. As Judge Wyatt noted, when there are over 4400 claims on file, those who develop late theories about "special damages" do so at their peril. Thus, even putting to one side the rather speculative nature of the claims at hand, we find no error in Judge Wyatt's handling of them.

II.

The remaining contentions center on Judge Wyatt's decisions with respect to the awarding of counsel fees. Few subjects associated with the class action device have generated as much critical commentary in recent years as the matter of attorneys' fees. See e. g., State of Illinois v. Harper & Row Publishers, Inc., 55 F.R.D. 221 (N.D.Ill.1972); 7A C. Wright & A. Miller, Federal Practice and Procedure § 1803 (1972 Supp.); Manual for Complex and Multidistrict Litigation § 1.47 (1973 rev.); Comment, Attorneys' Fees in Individual and Class Action Antitrust Litigation, 60 Cal.L. Rev. 1656 (1972); Handler, The Shift from Substantive to Procedural Innovations in Antitrust Suits — The Twenty-Third Annual Antitrust Review, 71 Colum.L.Rev. 1, 9-10 (1971). As Judge Decker has wryly put it, the lucrative fees involved in recent class actions may evoke public acceptance of an Italian proverb, "A lawsuit is a fruit tree planted in a lawyer's garden." State of Illinois v. Harper & Row, supra, 55 F.R.D. at 224.

As the recently revised Manual for Complex and Multidistrict Litigation suggests, there are several competing considerations at work in the award of class action counsel fees. One accepting employment as counsel in a class action does not become a class representative through simple operation of the private enterprise system. Rather, both the class determination and designation of counsel as class representative come through judicial determinations, and the attorney so benefited serves in something of a position of public trust. Consequently, he shares with the court the burden of protecting the class action device against public apprehensions that it encourages strike suits and excessive attorneys' fees. See 7A C. Wright & A. Miller, supra, at § 1803.

On the other hand, few would dispute the basic proposition that one whose labors produce a favorable result deserves adequate recompense. Such a notion is particularly applicable in the area of the antitrust class action, which depends heavily on the notion of the private attorney general as the vindicator of the public policy. See, e. g., Perma Life Mufflers, Inc. v. Int'l Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d...