Bowen v. Southtrust Bank of Alabama

• Decision Date: 13 February 1991
• Docket Number: Civ. A. No. 87-T-1149-N.
• Citation: 760 F. Supp. 889
• Parties: Terry BOWEN, et al., Plaintiffs, v. SOUTHTRUST BANK OF ALABAMA, etc., et al., Defendants.
• Court: U.S. District Court — Middle District of Alabama

760 F. Supp. 889

Terry BOWEN, et al., Plaintiffs, v. SOUTHTRUST BANK OF ALABAMA, etc., et al., Defendants.

Civ. A. No. 87-T-1149-N.

United States District Court, M.D. Alabama, N.D.

February 13, 1991.

George L. Beck, Jr., W. Terry Travis, Montgomery, Ala., for Bowen, DeBardelaben, Hughes, Black, Stringfellow, Hodge and Smoot.

Jim Hampton, Montgomery, Ala., for plaintiffs.

James Huckaby, Jr., Charles A. McCallum, III, Haskell, Slaughter & Young, Birmingham, Ala., for intervenor Alabama Life and Disability Ins. Guar. Ass'n.

F.A. Flowers, III, Robert G. Tate and A. Brand Walton, Jr., Burr & Rorman, Birmingham, Ala., for SouthTrust Bank, Southeastern Independent Business Ass'n, etc., Associated Associations, etc., Ass'n of Public and Private Employers, etc., and Caraway.

James Jerry Wood, Wood & Parnell, Montgomery, Ala., for George H. Jones.

Thomas Gallion, Constance Caldwell, Montgomery, Ala., for Receiver of Nat. Union Life Ins. Co. re settlement proceedings.

AMENDED ORDER

MYRON H. THOMPSON, Chief Judge.

Plaintiffs Terry Bowen, Toni DeBardelaben, and Hazel Hayes brought this action on behalf of themselves and a class of participants in several employee health insurance plans, charging that the plans' trustee, SouthTrust Bank of Alabama, the plans' insurer, National Union Life Insurance Company, and other named defendants violated the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. §§ 1001-1461, by allowing the plans to become insolvent and thus unable to pay plaintiffs' medical bills.¹ The parties have proposed a class settlement according to which defendants have contributed approximately $1 million to a fund which would be used to compensate plaintiffs and their creditor medical providers. The agreement also provides that plaintiffs' counsel, George Beck, shall be awarded an unspecified, reasonable attorney's fee from the settlement fund, the exact amount to be determined by the court. Although the court has not yet approved the settlement, the case is now before it on a motion by Beck seeking $380,498.59 in attorney's fees and costs. For the reasons set forth below, the court concludes that Beck is entitled to $238,375.80 as attorney's fees and $37,508.59 as costs, for a total sum of $275,884.39, conditioned on the court's approval of the overall class settlement.

I.

Plaintiffs filed this lawsuit in October 1987. In May 1988, the court certified three plaintiff classes, consisting of all members of each of the three defendant health insurance plans who were due claims or benefits as a result of their participation in the plans. The case was tried without a jury in July 1989. However, before the court could render a verdict, the parties agreed to settle the lawsuit. According to the proposed settlement, SouthTrust has paid into the registry of the court $361,375.00 in addition to the $227,906.40 still held by the bank as trustee for the insolvent plans, and the receiver for National Union Life has in turn contributed $400,000. With accumulated interest, the fund created from these payments now amounts to, $1,035,372.86, as of February 1, 1991. The settlement calls for this money to be distributed on a pro rata basis to plaintiffs and to those medical providers with outstanding claims against plaintiffs who agree to accept the stipulated amount as full satisfaction of such claims. As part of the settlement, SouthTrust has also agreed to bear the administrative expenses associated with providing notice to class members, distributing monies from the fund, and otherwise implementing the settlement. Although it has not yet approved the settlement, the court has permitted the parties to send notices to class members and their medical providers informing them of the proposed settlement and offering them the opportunity to accept or opt out of it.

The settlement also seeks to resolve partially the issue of attorney's fees, by providing that plaintiffs' counsel shall not ask the court "for more than 33 1/3 % plus payment of out-of-pocket expenses as a reasonable attorney's fee," to be deducted from "the total amount paid into the Court."² Accordingly, in November 1990, plaintiffs' counsel George Beck filed a motion for attorney's fees and costs. Beck seeks $342,990.00 in fees, amounting to roughly one-third of the settlement fund, and requests reimbursement for costs in the amount of $37,508.59.³ Beck has also submitted contemporaneous time sheets indicating that he has devoted a total of 951.6 hours to this lawsuit. SouthTrust and the plans have neither disputed Beck's entitlement to attorney's fees and costs nor questioned the reasonableness of the number of hours he has expended on the litigation; however, they have objected to the amount of his fee request. According to defendants, Beck's fee should be calculated using an hourly-rate or "lodestar" approach, according to which he should be compensated at a rate of $150 an hour for in-court time and $100 an hour for out-of-court time, yielding a total fee of approximately $114,000.⁴ In the alternative, defendants contend that if Beck's fee is to be figured as a percentage of the economic benefit that he has created for class members, he should receive only 30% of the funds contributed by SouthTrust, because the monies paid by the plans themselves and the insurer, National Union Life, were available to plaintiffs prior to the litigation. Such an approach would entitle Beck to a fee of approximately $168,000.⁵ In response, Beck insists that the entire $1,035,372.86 fund as well as additional economic benefits obtained for the class are attributable to his efforts, and argues that even under an hourly-rate formula, his "lodestar" fee, properly "enhanced" or "multiplied," would result in a fee equal to or greater than the $342,990.00 that he has requested.⁶

II.

A.

It is well settled that the parties to a lawsuit may negotiate a settlement according to which the defendant makes a lump-sum payment embracing both monetary relief to the plaintiff and attorney's fees liability. See Evans v. Jeff D., 475 U.S. 717, 733, 106 S.Ct. 1531, 1540, 89 L.Ed.2d 747 (1986), quoting Marek v. Chesny, 473 U.S. 1, 6-7, 105 S.Ct. 3012, 3015, 87 L.Ed.2d 1 (1985) (enabling defendants to pre-determine total liability encourages settlement); White v. New Hampshire Dept. of Employment Security, 455 U.S. 445, 453 n. 15, 102 S.Ct. 1162, 1167 n. 15, 71 L.Ed.2d 325 (1982) (same).⁷ However, as with any settlement in a class action, such an agreement is subject to the approval of the district court. See Fed.R.Civ.P. 23(e). In determining whether plaintiffs' counsel is in fact entitled to fees, and if so, in what amount, the court must be sensitive to the potential conflict of interest between plaintiffs and their counsel, and must be particularly careful to insure that the ultimate division of settlement funds is fair to absent class members. See Piambino v. Bailey ("Piambino I"), 610 F.2d 1306, 1328 (5th Cir.1980); Parker v. Anderson, 667 F.2d 1204, 1213-14 (5th Cir.), cert. denied, 459 U.S. 828, 103 S.Ct. 63, 74 L.Ed.2d 65 (1982). The device of a lump-sum settlement is normally used in class action cases governed by a fee-shifting statute which, if the plaintiffs were to prevail at trial, might permit them to obtain substantial fees directly from the defendant in addition to the amount of any judgment. See County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1327 (2nd Cir.1990); Skelton v. General Motors Corp., 860 F.2d 250, 254-55 (7th Cir.1988), cert. denied, ___ U.S. ___, 110 S.Ct. 53, 107 L.Ed.2d 22 (1989); Parker, 667 F.2d at 1213-14. Had the court rendered a verdict in favor of plaintiffs in this case, they would have been eligible to seek attorney's fees from SouthTrust and the other defendants pursuant to ERISA's fee provision. 29 U.S.C.A. § 1132(g)(1) ("In any action under this subchapter ... by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party").⁸

A settlement like the one reached here has the effect of converting a statutory fee case into one in which plaintiffs' attorney must seek compensation from the common fund created by the agreement. See Long Island Lighting Co., 907 F.2d at 1327; Skelton, 860 F.2d at 254-55; Parker, 667 F.2d at 1213-14. The right of an attorney to petition a court for fees to be paid from a common fund represents an ancient and well established equitable exception to the traditional principle of American law that each litigant must bear his or her own attorney's fees. See Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct. 745, 749, 62 L.Ed.2d 676 (1980); Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 257, 95 S.Ct. 1612, 1621, 44 L.Ed.2d 141 (1975).⁹ This doctrine "rests on the perception that persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant's expense."¹⁰Boeing, 444 U.S. at 478, 100 S.Ct. at 749. See In re Fox, 725 F.2d 661, 663 (11th Cir.1984). Thus, unlike statutory attorney's fees, which shift the fee burden to the losing party, common fund fees share or spread this obligation among those benefited by the litigation. See Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268, 271 (9th Cir.1989); Brown v. Phillips Petroleum Co., 838 F.2d 451, 454 (10th Cir.), cert. denied, 488 U.S. 822, 109 S.Ct. 66, 102 L.Ed.2d 43 (1988); Bebchick v. Washington Metro Area Transit Com'n, 805 F.2d 396, 402 (D.C.Cir.1986). Even in cases in which no statute entitles plaintiffs' counsel to seek fees from a losing defendant, the lawyer may obtain fees from the monetary relief awarded a plaintiff class by virtue of a settlement or judgment, if his efforts can be said to have "bestowed a `common benefit' on the class or protected a `common fund,'" Fox, 725 F.2d at 663. See also Newburg, Attorney Fee Awards, § 2.01, at 22-30 (1986). Putting aside, for...