Boeing Company v. Van Gemert, 78-1327

Decision Date19 February 1980
Docket NumberNo. 78-1327,78-1327
Citation444 U.S. 472,100 S.Ct. 745,62 L.Ed.2d 676
PartiesThe BOEING COMPANY, Petitioner, v. William R. VAN GEMERT et al
CourtU.S. Supreme Court
Syllabus

Petitioner company called for the redemption of certain convertible debentures, fixing a date by which debenture holders could convert their debentures into shares of petitioner's stock and after which debenture holders could only redeem their debentures for slightly more than face value. After the deadline expired, some of the nonconverting debenture holders brought a class action against petitioner, claiming that it had violated federal and state laws by failing to give reasonably adequate notice of the redemption. The District Court ultimately entered judgment against petitioner, establishing the amount of its liability to the class as a whole, and fixing the amount that each class member could recover on a principal amount of $100 in debentures, with each individual recovery to carry its proportionate share of the total amount allowed for attorney's fees, expenses, and disbursements. Petitioner appealed only the judgment's provision as to attorney's fees, contending that such fees should be awarded only from the portion of the fund actually claimed by class members, not from the unclaimed portion of the judgment fund. The Court of Appeals affirmed, holding that since each class member had a present vested interest in the class recovery and could collect his share of the judgment upon request, absentee class members had received a benefit within the meaning of the common-fund doctrine, which allows the assessment of attorney's fees against a common fund created by the lawyers' efforts.

Held :

1. The attorney's fee award in this case is a proper application of the common-fund doctrine, which rests on the perception that persons who obtain the benefit of a lawsuit without contributing to its costs are unjustly enriched at the successful litigants' expense. The criteria for application of the doctrine are satisfied when, as here, each member of a certified class has an undisputed and mathematically ascertainable claim to part of a lump-sum judgment recovered on his behalf. In this case, absentee class members need prove only their membership in the injured class to claim their logically ascertainable shares of the judgment fund. Their right to share the harvest of the suit upon proof of their identity, whether or not they exercise it, is a benefit in the fund created by the efforts of the class representatives and their counsel, and unless absentees contribute to the payment of attorney's fees incurred on their behalves, they will pay nothing for the creation of the fund and their representatives may bear additional costs. This inequity is rectified by the District Court's judgment requiring every class member to share attorney's fees to the same extent that he can share the recovery. Pp. 478-481.

2. The common-fund doctrine, as applied in this case, is entirely consistent with the American rule against taxing the losing party with the victor's attorney's fees. The class members, whether or not they assert their rights, are at least the equitable owners of their respective shares in the recovery, whereas petitioner's present interest is limited to its stake in resisting third-party claims against the fund in view of petitioner's colorable claim for the return of any unclaimed money. Although petitioner itself cannot be obliged to pay fees awarded to the class lawyers, its latent claim against unclaimed money may not defeat each class member's equitable obligation to share the expenses of litigation. Pp. 481-482.

2 Cir., 590 F.2d 433, affirmed.

S. Hazard Gillespie, New York City, for petitioner.

Norman Winer, New York City, for respondents.

Mr. Justice POWELL delivered the opinion of the Court.

The question presented in this class action is whether a proportionate share of the fees awarded to lawyers who represented the successful class may be assessed against the unclaimed portion of the fund created by a judgment.

I

In March 1966, The Boeing Co. called for the redemption of certain convertible debentures. Boeing announced the call through newspaper notices and mailings to investors who had registered their debentures. The notices, given in accordance with the indenture agreement, recited that each $100 amount of principal could be redeemed for $103.25 or converted into two shares of the company's common stock. They set March 29 as the deadline for the exercise of conversion rights. Two shares of the company's common stock on that date were worth $316.25. When the deadline expired, the holders of debentures with a face value of $1,544,300 had not answered the call. These investors were left with the right to redeem their debentures for slightly more than face value.

Van Gemert and several other nonconverting debenture holders brought a class action against Boeing in the United States District Court for the Southern District of New York. They claimed that Boeing had violated federal securities statutes as well as the law of New York by failing to give them reasonably adequate notice of the redemption. As damages, they sought the difference between the amount for which their debentures could be redeemed and the value of the shares into which the debentures could have been converted. The District Court dismissed the action on the ground that Boeing had given its debenture holders the notice required by the indenture agreement. The Court of Appeals for the Second Circuit reversed and remanded. It held that, under the New York law of contracts, the indenture agreement contained an implied obligation to give debenture holders reasonable notice of a redemption. The court concluded that the notice actually given was inadequate. 520 F.2d 1373, cert. denied, 423 U.S. 947, 96 S.Ct. 364, 46 L.Ed.2d 282 (1975).

On remand, the District Court awarded as damages the difference between the redemption price of the outstanding debentures and the price at which two shares of Boeing's common stock traded on the last day for exercising conversion rights. The court, however, refused to assess prejudgment interest against Boeing. There followed a second appeal. The class claimed that the stock should have been valued as of a later date and that Boeing was liable for prejudgment interest. Class members who had filed individual claims also contended that they were entitled to receive pro rata shares of any unclaimed damages. At the least, they argued, they should receive enough of the unclaimed money to pay their legal expenses.

The Court of Appeals found the class entitled to prejudgment interest on the award, but it approved the valuation date. The court also concluded that class members who proved their individual claims should not share in the unclaimed portion of the judgment. Allowing these class members to receive a proportionate part of the unclaimed money, the court held, would create the sort of "fluid class" recovery rejected in Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (CA2 1973), vacated and remanded on other grounds, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). Such a recovery would expropriate funds belonging to class members who had not asserted their claims and give a windfall to those who had claimed. Finally, the court decided that claiming class members could not use the unclaimed portion of the judgment to defray their legal expenses. Since Boeing could have a right to money that never was claimed, the court thought that awarding attorney's fees from the remaining funds might shift fees to the losing party in violation of the American rule reaffirmed in Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). 2 Cir., 553 F.2d 812 (1977).

On the second remand, the District Court entered the judgment now at issue. The court first established the amount of Boeing's liability to the class as a whole. It provided that respondents, "in behalf of all members of the plaintiff class, . . . shall recover as their damages . . . the principal sum of $3,289,359 together with [prejudgment] interest. . . ." App. 40a.1 The court then fixed the amount that each member of the class could recover on a principal amount of $100 in debentures. Each individual recovery was to carry its proportionate share of the total amount allowed for attorney's fees, expenses, and disbursements.2 That share, the court declared, "shall bear the same ratio to all such fees, expenses and disbursements as such class member's recovery shall bear to the total recovery" awarded the class. Id., at 40a-41a. Finally, the court ordered Boeing to deposit the amount of the judgment into escrow at a commercial bank,3 and it appointed a Special Master to administer the judgment and pass on the validity of individual claims.4 The court retained jurisdiction pending implementation of its judgment.

Boeing appealed only one provision of the judgment. It claimed that attorney's fees could not be awarded from the unclaimed portion of the judgment fund for at least two reasons. First, the equitable doctrine that allows the assessment of attorney's fees against a common fund created by the lawyers' efforts was inapposite because the money in the judgment fund would not benefit those class members who failed to claim it. Second, because Boeing had a colorable claim for the return of the unclaimed money, awarding attorney's fees from those funds might violate the American rule against shifting fees to the losing party. Therefore, Boeing contended, the District Court should award attorney's fees from only the portion of the fund actually claimed by class members. A panel of the Court of Appeals agreed with Boeing, 573 F.2d 733 (1978), but the court en banc affirmed the District Court's judgment, 590 F.2d 433 (1978).

The Court of Appeals en banc found that each class member had a "present vested interest in the class recovery" and...

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