Duhaime v. John Hancock Mut. Life Ins. Co.

• Decision Date: 31 December 1997
• Docket Number: No. CIV.A. 96-10706-GAO.,CIV.A. 96-10706-GAO.
• Citation: 989 F.Supp. 375
• Parties: Richard DUHAIME; James W. Yoder; Donna M. Yoder; Theodore A. Peck; John Sullivan; and Clarissa Sullivan, On Behalf of Themselves and All Others Similarly Situated, Plaintiffs, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY; John Hancock Variable Life Insurance Company; and John Hancock Distributors, Inc., Defendants.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

989 F.Supp. 375

Richard DUHAIME; James W. Yoder; Donna M. Yoder; Theodore A. Peck; John Sullivan; and Clarissa Sullivan, On Behalf of Themselves and All Others Similarly Situated, Plaintiffs, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY; John Hancock Variable Life Insurance Company; and John Hancock Distributors, Inc., Defendants.

No. CIV.A. 96-10706-GAO.

United States District Court, D. Massachusetts.

December 31, 1997.

Glen DeValerio, Michael G. Lange, Berman, DeValerio & Pease, Boston, MA, Keith M. Fleischman, Melvyn I. Weiss, Barry A. Weprin, Brad N. Friedman, Milberg, Weiss, Bershad, Specthrie & Lerach, New York, NY, Douglas M. Brooks, David Pastor, Kenneth G. Gilman, Gilman & Pastor, Boston, MA, John J. Stoia, Jr., Andrew W. Hutton, Milberg Weiss Bershad Hynes & Lerach, San Diego, CA, John K. Grant, Milberg Weiss Bershad Hynes & Lerach, San Francisco, CA, Andrew S. Friedman, Sullivan

Bunch H., Bonnett Fairbourn, Friedman & Balint, P.C., Phoenix, AZ, Lawrence D. Shubow, Boston, MA, Joseph D. Ament, Michael B. Hyman, William H. London, Much, Shelist, Freed, Denenberg, Ament, Bell & Rubenstein, Chicago, IL, W. Christian Hoyer, Tampa, FL, for Richard Duhaime.

Glen DeValerio, Michael G. Lange, Berman, DeValerio & Pease, Boston, MA, Keith M. Fleischman, Melvyn I. Weiss, Barry A. Weprin, Brad N. Friedman, Milberg, Weiss, Bershad, Specthrie & Lerach, New York, NY, Douglas M. Brooks, David Pastor, Kenneth G. Gilman, Gilman & Pastor, Boston, MA, John J. Stoia, Jr., Andrew W. Hutton, Milberg Weiss Bershad Hynes & Lerach, San Diego, CA, John K. Grant, Milberg Weiss Bershad Hynes & Lerach, San Francisco, CA, Andrew S. Friedman, Sullivan Bunch H., Bonnett Fairbourn, Friedman & Balint, P.C., Phoenix, AZ, Lawrence D. Shubow, Boston, MA, Joseph D. Ament, Michael B. Hyman, William H. London, Much, Shelist, Freed, Denenberg, Ament, Bell & Rubenstein, Chicago, IL, W. Christian Hoyer, Tampa, FL, Ronald R. Parry, Arnzen, Parry & Wentz, P.S.C., Covington, KY, Stephen Hubbard, Cantilo, Maisel & Hubbard, LLP, Dallas, TX, for Maureen Hahn, Theodore A. Peck, John Sullivan, Clarissa Sullivan.

John G. Fabiano, Jeffrey B. Rudman, Hale & Dorr, Boston, MA, Edwin G. Schallert, Debevoise & Plimpton, New York, NY, for John Hancock Mutual Life Ins. Co., John Hancock Variable Life Ins. Co.

John G, Fabiano, Peter A. Spaeth, Andrea J. Robinson, Hale & Dorr, Boston, MA, for John Hancock Distributors, Inc.

J. Allen Holland, Jr., John R. Cavanaugh, Lynch, Brewer, Hoffman & Sands, Boston, MA, Diane A. Nygaard, Overland Park, KS, for Katherine Rose, Richard Beauvais, Phyllis Beauvais, Timothy Murphy, Deloris Goldberg.

Paul D. Gifford, Atty. Gen. of State of Cal., Oakland, CA, for California Ins. Com'r.

Joseph B. Lichtblau, Boston, MA, for Texas Plaintiffs.

Douglas Stevick, Brian Wolfman, Public Citizen Litigation Group, Washington, DC, for Howard M. Metzenbaum.

MEMORANDUM AND ORDER REGARDING ATTORNEYS' FEES

O'TOOLE, District Judge.

The Court here considers class counsel's petition for approval of the payment of attorneys' fees in the amount of $39 million, plus expenses not to exceed $750,000, in accordance with the parties' agreement.

Background

This petition arises out of a settlement of a class action against the defendants John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, and John Hancock Distributors, Inc. (collectively "John Hancock" or "Hancock"). The history of the litigation and the details of the settlement are set forth in this Court's memorandum approving the settlement agreement. That agreement provides that "Lead Counsel agrees to make, and the Company [John Hancock] agrees not to oppose, an application for the award of Attorneys' Fees in the Action not to exceed a total of $39 million plus expenses not to exceed $750,000." The agreement further provides that "such fees will be paid by the Company within 10 business days of the entry of the Final Order and Judgment." (Amended Stipulation of Settlement § XIV.)

Judicial Review of Attorneys' Fees in Class Actions

The Court of Appeals has held that a "clear-sailing"¹ fee agreement like the one negotiated here must receive close judicial scrutiny. Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 525 (1st Cir.1991). The fact that the fee award does not come out of a common fund does not eliminate the need for careful review. "[W]hen a fee application is submitted ancillary to, or as part of the termination of a class action, the district court should ordinarily determine the reasonableness of the fees, notwithstanding that the source of payment does not directly impair the class recovery." Great Northern Nekoosa, 925 F.2d at 522. The reason for this is that there is a danger "lawyers might urge a class settlement at a low figure or on less-than-optimal basis in exchange for red-carpet treatment on fees." Id. at 524. See also In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 819-20 (3d Cir.1995)(recognizing that even when fees do not come directly from a settlement fund, judicial scrutiny is required because "`a defendant is interested only in disposing of the total claim asserted against it; ... the allocation between the class payment and the attorneys' fees is of little or no interest to the defense.'")(quoting Prandini v. National Tea Co., 557 F.2d 1015, 1020 (3d Cir.1977)).

Moreover, the court has a responsibility to consider the "potential public misunderstandings" caused by negotiation of fee awards. In re "Agent Orange" Prod. Liab. Litig., 818 F.2d 216, 225 (2d Cir.1987), cert. denied, 484 U.S. 1004, 108 S.Ct. 695, 98 L.Ed.2d 648 (1988)(citing Susman v. Lincoln Am. Corp., 561 F.2d 86, 95 (1977)). See also General Motors Corp. Pick-Up Truck, 55 F.3d at 820. In General Motors, the Third Circuit specifically instructed the district court to "be alert to the presence in the fee agreement of any ... appearance of abuse capable of creating a public misunderstanding." Id.

Fee Calculation Method

Class counsel contend that in cases like this where a benefit is created for the class, the court should measure an award of attorneys' fees according to a percentage-of-the-fund ("POF"), or percentage-of-the-benefit conferred on the class, instead of using the so-called "lodestar" method, which bases payment on the billable value of the number of hours spent by counsel in prosecuting the litigation and settlement. The Court of Appeals for this Circuit has held that "in a common fund case the district court, in the exercise of its informed discretion, may calculate counsel fees either on a percentage of the fund basis or by fashioning a lodestar." In re Thirteen Appeals, 56 F.3d 295, 306 (1st Cir.1995). A district court should be flexible in its award of attorneys' fees, and may use "a combination of both methods when appropriate." Id. at 308.

In this case, the POF method of calculating fees more appropriately aligns the interests of the class with the interests of the class counsel — the larger the value of the settlement, the larger the value of the fee award. There are other advantages of the "POF" approach as well. It is "less burdensome to administer than the lodestar method," it "enhances efficiency" and does not create a "disincentive for the early settlement of cases." In re Thirteen Appeals, 56 F.3d at 307.² Class counsel's argument that one of the "distinct advantages" of the POF method of payment is that it focuses "on result, rather than process, which better approximates the workings of the marketplace," is persuasive. The POF method resembles the contingent fee arrangements often made between attorneys and clients in cases like this — the greater the value secured for the class, the greater the fee earned by class counsel, and conversely, the smaller the value created for the class, the smaller the fee award.

Valuation of the Settlement

Once it is determined that a POF method to calculate the attorney fee awards is appropriate, the next task is to determine the value of the "fund" created for class members. Class counsel estimate the benefit created for the class to be at least $368 million for the Alternate Dispute Resolution ("ADR") Relief and $48 million for General Policy Relief and Monthly Deduction Relief. (Fee Petition at 28.) The requested fee represents 9.3 percent of a fund having that combined value. The difficulty here is that the actual value of the settlement is presently unknown. It will not be known until class members have chosen and received either General Policy Relief or an award through the ADR process.

It might be possible to project a value for the settlement by comparing this settlement to similar ones. Class counsel have actually entered into similar settlements with other insurance companies.³ However, those settlements are different enough from the present one that they do not provide a reliable indication of what the actual value of the settlement will be in this case. The standards for receiving high scores in this settlement are more favorable in some respects to class members than in previously negotiated settlements, and this settlement has presumptions automatically giving class members high scores which are either absent or only present to a limited extent in those other settlements. Accordingly, the Court agrees with counsel that the experience in other cases is not a good predictor for this case.

If there is no predictive value from the prior settlements, the only basis for valuing this settlement — in advance — is estimation. For this, counsel offer the expert valuation by Robert Hoyer, who has calculated the likely aggregate value of ADR Relief to be $368,584,000.⁴ (Hoyer Aff. ¶ 9.) While the Court does not question Mr. Hoyer's computations or credentials, it must be noted that his calculations are based on assumptions about certain variables: (1) claim utilization, or the extent to which class members will receive remedies; (2) remedy...