Brody v. Hellman

• Decision Date: 12 July 2007
• Docket Number: No. 05CA2017.,05CA2017.
• Citation: 167 P.3d 192
• Parties: Adele BRODY, et al., on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. Peter S. HELLMAN; Jerry Colangelo; Solomon D. Trujillo; Manuel A. Fernandez; Craig R. Barrett, Dr.; Frank P. Popoff; Marilyn Carlson Nelson; Hank Brown; George J. Harad; Linda G. Alvarado; Qwest Communications International; and Joseph P. Nacchio, Defendants-Appellees, and Association of U.S. West Retirees; Eldon H. Graham; Hazel A. Floyd; and Mary M. Hull, Intervenors-Appellants.
• Court: Colorado Court of Appeals

167 P.3d 192

Adele BRODY, et al., on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. Peter S. HELLMAN; Jerry Colangelo; Solomon D. Trujillo; Manuel A. Fernandez; Craig R. Barrett, Dr.; Frank P. Popoff; Marilyn Carlson Nelson; Hank Brown; George J. Harad; Linda G. Alvarado; Qwest Communications International; and Joseph P. Nacchio, Defendants-Appellees, and Association of U.S. West Retirees; Eldon H. Graham; Hazel A. Floyd; and Mary M. Hull, Intervenors-Appellants.

No. 05CA2017.

Colorado Court of Appeals, Div. III.

July 12, 2007.

Shuman & Berens LLP, Robert J. Dyer III, Kip B. Shuman, Denver, Colorado; Lerach Coughlin Stoia Geller Rudman & Robbins LLP, Michael J. Dowd, Pamela M. Parker, Laura M. Andracchio, San Diego, California; Milberg Weiss Bershad & Schulman LLP, Jeff S. Westerman, Karen T. Rogers, Los Angeles, California; Weiss & Lurie, Jordan L. Lurie, Los Angeles, California,

Joseph H. Weiss, New York, New York, for Plaintiffs-Appellees.

Curtis L. Kennedy, Denver, Colorado, for Intervenors-Appellants.

Opinion by Judge BERNARD.

In this common fund case, objectors-intervenors, the Association of U.S. West Retirees, Eldon H. Graham, Hazel A. Floyd, and Mary M. Hull, appeal the trial court order awarding attorney fees and costs to lead counsel, Lerach Coughlin Stoia Geller Rudman & Robbins LLP; Dyer & Shuman LLP; Milberg Weiss Bershad Hynes & Schulman LLP; and Weiss & Lurie. We affirm in part, vacate in part, and remand for further proceedings.

I. Background

The following facts are undisputed. This case arose from events surrounding the June 30, 2000, merger between U.S. West, Inc. and Qwest Communications International, Inc. On June 5, 2000, U.S. West announced that, at a June 2, 2000, meeting, its board of directors had declared a regular dividend for the second quarter of 2000, payable on August 1, 2000, to shareholders of record as of June 30, 2000. In a letter dated June 6, 2000, Qwest CEO Joseph Nacchio demanded that U.S. West either rescind the dividend or set a record date of July 10, 2000 or later. On June 6, U.S. West announced that the June 30 record date was incorrect, and that the actual record date was July 10, 2000. The merger closed on June 30, 2000, and the dividend was never paid.

On June 21, 2000, plaintiff, Adele Brody, on behalf of a class of U.S. West shareholders, filed a complaint against U.S. West and the U.S. West directors, alleging breach of fiduciary duty and breach of contract to pay the dividend, which was valued at $270 million. On January 8, 2001, Brody filed an amended complaint against U.S. West, the U.S. West directors, Qwest, and Nacchio, alleging breach of contract, breach of third-party beneficiary contract, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, and commission of ultra vires acts.

Defendants answered they had no obligation to pay the dividend, because the July 10, 2000, record date fell after the merger, and there were no U.S. West shareholders of record on that date. Defendants also answered that, if they were liable at all, damages were less than half the amount Brody claimed, because if Qwest had paid the dividend, the Qwest stock held by former U.S. West shareholders after the merger would have been worth significantly less.

Thus, the central disputed issues were whether the record date for the dividend was June 30 or July 10, 2000, whether Qwest breached its contractual obligation to pay the dividend, and whether U.S. West breached its fiduciary duty by failing to ensure payment of the dividend.

In March 2001, defendants moved to dismiss the complaint or for summary judgment. The trial court denied the motion. Thereafter, the parties conducted discovery, which consumed the following two years. In September 2002, both parties moved for summary judgment. The trial court denied both motions in July 2003. In September 2003, plaintiffs filed a motion for class certification, which defendants opposed. The trial court granted the motion in January 2005, after which the parties proceeded to prepare for trial. In March and April 2005, the parties participated in two settlement conferences, but were unable to reach an agreement.

Then, in June 2005, on the eve of trial, the parties agreed to cancel the trial and enter into a settlement agreement. The agreement, which they executed on June 20, 2005, established a $50 million settlement fund. Lead counsel requested $15 million in attorney fees, or 30% of the settlement fund, and approximately $1.3 million in costs. Notice of the settlement and of lead counsel's fee request was sent to the 763,333 members of the class.

On August 30, 2005, the trial court held a fairness hearing to determine whether the requested fees and costs were reasonable. The trial court granted the request of three individual members and one organizational member of the class (objectors) to intervene at the hearing to contest the requested amounts. At the end of the hearing, the trial court granted the full request for attorney fees and costs.

II. Attorney Fees

Objectors contend the trial court abused its discretion in awarding lead counsel $15 million in attorney fees. We disagree.

The determination of what constitutes reasonable attorney fees "is a question of fact for the trial court and will not be disturbed on review unless it is patently erroneous and unsupported by the evidence." Am. Water Dev., Inc. v. City of Alamosa, 874 P.2d 352, 384 (Colo.1994)(quoting Hartman v. Freedman, 197 Colo. 275, 281, 591 P.2d 1318, 1322 (1979)). Thus, we review the reasonableness of the amount of attorney fees awarded under an abuse of discretion standard. The trial court must make findings sufficient to allow meaningful appellate review of an award. Yaekle v. Andrews, ___ P.3d ___, ___, 2007 WL 609872 (Colo.App. No. 05CA1569, Feb. 23, 2007).

Generally, attorney fees cannot be recovered absent an express statute, court rule, or private contract providing for them. Hawes v. Colo. Div. of Ins., 65 P.3d 1008, 1015 (Colo.2003). The common fund doctrine is an exception to this principle. The doctrine is an equitable remedy that affords fees to attorneys for their advocacy for the benefit of others. It is grounded in equitable principles of quantum meruit and unjust enrichment. "Therefore, a court needs no legislative support to award fees under the common fund doctrine." Hawes v. Colo. Div. of Ins., supra, 65 P.3d at 1015-16.

The policy underlying the common fund doctrine was discussed in Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct. 745, 749, 62 L.Ed.2d 676 (1980) (citations omitted):

[A] litigant or lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney's fee from the fund as a whole. . . . The [common fund] 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. Jurisdiction over the fund involved in the litigation allows a court to prevent this inequity by assessing attorney's fees against the entire fund, thus spreading fees proportionately among those benefited by the suit.

Colorado recognizes the common fund doctrine. Kuhn v. State, 924 P.2d 1053, 1060 (Colo.1996). In class actions lawsuits where a fund is created for the benefit of the class, either through settlement or judgment on the merits, the doctrine is widely adhered to as a method for proportionately spreading attorney fees among the class members. Kuhn v. State, supra, 924 P.2d at 1060 (citing 7B Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice & Procedure § 1803 (1986)).

Because a class action lawsuit benefits all class members, and because at least one class member contracts with an attorney to pursue this benefit, "the remaining class members should pay what the court determines to be the reasonable value of the services benefitting them." Kuhn v. State, supra, 924 P.2d at 1058 (quoting Lindy Bros. Builders, Inc. v. Am. Radiator & Standard Sanitary Corp., 487 F.2d 161, 165 (3d Cir. 1973)). An award of attorney fees from a common fund also "serves to reward counsel for creativity and skill in enlarging a settlement fund beyond what was thought possible or likely at the inception of the case." In re HPL Techs., Inc. Sec. Litig., 366 F.Supp.2d 912, 919 (N.D.Cal.2005).

A. Fee Agreement

On appeal, the objectors contend the proposed fee award is excessive. In this regard, their Notice of Objection and Request to Intervene indicated lead counsel had not revealed information to support the proposed fee award, including lead counsel's "usual hourly rates, the fee agreement with [the named plaintiff], the tasks performed and the time spent on this case." Objectors also made a general discovery request.

At the hearing to determine whether lead counsel's fee request would be approved, objectors were allowed to intervene and asked the trial court to grant a fee award of $10 million, or twenty percent of the common fund. The trial court did not enter any prehearing orders denying objectors' request for discovery, and, at the hearing, objectors did not make any requests for discovery; they did not discuss what the effect of any fee agreement should be upon the trial court's analysis; and the trial court did not make any rulings on the request for discovery. The trial court's only comment concerning the existence of a fee agreement was that there was no "prearranged fee . . . other than it was going to be a contingency."

There is no fee agreement in the record. At oral argument, lead counsel indicated "there was a written fee agreement with at least one client."

Although objectors requested discovery of the fee agreement in their written motion, they did not pursue this issue before the trial court during the hearing on the fee award, nor ask the trial court, during the hearing, to provide them with...