Dunn v. H. K. Porter Co., Inc.

• Decision Date: 12 December 1978
• Docket Number: No. 78-1439,78-1439
• Citation: 602 F.2d 1105
• Parties: CA 79-2498 Harry C. DUNN, Elmer F. Heier, Willis G. Jones and James Price, suing on behalf of themselves and as representatives of a class of persons formerly employed by the H. K. Porter Company, Inc. v. H. K. PORTER COMPANY, INC. Bertha ZECOSKI and Marie Lee v. H. K. PORTER COMPANY, INC. Appeal of Warren L. SOFFIAN, Esquire, and Richard S. Hoffmann, Esquire. . Submitted Under Third Circuit Rule 12(6)
• Court: U.S. Court of Appeals — Third Circuit

Page 1105

602 F.2d 1105

CA 79-2498 Harry C. DUNN, Elmer F. Heier, Willis G. Jones

and James Price, suing on behalf of themselves and as

representatives of a class of persons formerly employed by

the H. K. Porter Company, Inc. v. H. K. PORTER COMPANY, INC.

Bertha ZECOSKI and Marie Lee v. H. K. PORTER COMPANY, INC.

Appeal of Warren L. SOFFIAN, Esquire, and Richard S.

Hoffmann, Esquire.

No. 78-1439.

United States Court of Appeals Third Circuit.

Submitted Under Third Circuit Rule 12(6) Dec. 12, 1978.

Resubmitted Feb. 23, 1979.

Decided June 29, 1979.

Warren L. Soffian, Master, Donsky & Soffian, Jerome E. Bogutz, Bogutz & Mazer, P. C., Philadelphia, Pa., Richard S. Hoffmann, Newtown, Pa., for appellants.

Joel A. Forkosch, Associate Professor of Law, Camden, N. J., amicus curiae.

Before GIBBONS, VAN DUSEN and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

On this appeal, we are compelled to explore a matter of considerable sensitivity to the bar and delicacy to the bench the authority of a district court to set aside private contingent fee agreements entered into between a member of the bar and various members of a class, properly certified pursuant to Fed.R.Civ.P. 23(b)(3). We conclude that the court has sufficient power to take this action, but because our examination of the record fails to disclose an adequate factual basis for the trial court's decision to set aside the contracts, we vacate the judgment and remand for further proceedings.

I.

The genesis of this dispute lies in a collective bargaining agreement entered into between H. K. Porter Company, Inc. ("Porter") and Local 63 of the United Rubber, Cork, Linoleum and Plastic Workers of America. The labor negotiations included a pension plan which came into existence in 1950 and covered employees of the company's Quaker Division. It was amended several times, most recently in February of 1969. After Porter decided to close the Quaker Division facility in September 1971, it gave notice of its intention to terminate the plan, effective February 23, 1973. Those who properly qualified continued receiving benefits until January 1976 when the company unilaterally ceased all payments. It claimed that it had no further obligations under the agreement because the trust fund established under it had been exhausted.

As a result, several employees contacted Richard Hoffmann, the attorney who had previously represented Local 63 in its negotiations with the company and who had represented several employees on an individual, private basis. Others sought help from Warren L. Soffian, who had secured pension benefits for approximately thirty members of Local 63. Both lawyers worked out fee arrangements with their clients. Hoffmann requested they pay a contingent fee of "20% Of the amount recovered by settlement, trial or otherwise." Soffian gave his clients a choice of either a similar 20% Contingent fee or a flat payment of $400, half payable initially and half payable upon successful completion of the suit. ¹

Both attorneys filed complaints on behalf of their clients against Porter in the Eastern District of Pennsylvania in order to secure the benefits allegedly due. Hoffmann initiated a class action, Dunn et al. v. H. K. Porter Co. (D.C.Docket No. 76-1000), and Soffian brought a suit on behalf of several former employees, Zecoski et al. v. H. K. Porter Co. (D.C.Docket No. 76-2105). Following a conference with Judge Daniel H. Huyett, 3rd, the suits were consolidated and a single class action brought. The class was composed of all persons employed by Porter between January 1, 1951 and February 29, 1972, within the bargaining unit represented by Local 63 and who, during that period, became eligible for pension benefits under the collective bargaining agreement. ²

On March 17, 1977 the trial judge ordered counsel for plaintiffs to prepare and file applications for counsel fees which were to conform to the standards announced in Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp. (Lindy I ), 487 F.2d 161 (3d Cir. 1973), and applied in Lindy II, 540 F.2d 102 (3d Cir. 1976). The court additionally ordered counsel to file a memorandum of law addressing its authority to set aside the fee agreements with class members and to award reasonable attorneys' fees under Lindy I and Lindy II. ³

A series of settlement meetings between the parties followed which culminated in a July 12, 1977 order that a conference be held to determine, Inter alia, whether the proposed settlement was fair, reasonable, and adequate as well as to consider the award of counsel fees based on independent findings of fact. The court thereafter requested further affidavits concerning the settlement proposal. However, it modified its earlier statement with respect to counsel fees, indicating that further consideration of the matter would be deferred.

On September 19, 1977 the court again resumed consideration of the fee question. It concluded that the inquiry was then appropriate so that members of the sub-classes, in assessing whether to object to the proposed settlement, would be able to base their decisions upon the net sum they ultimately would receive. Counsel submitted detailed affidavits in which they documented their services rendered during the litigation. Following oral argument, the district judge issued a November 17, 1977 Memorandum and Order in which he refused to enforce the contingent fee contracts and awarded fees in accordance with Lindy. Dunn v. H. K. Porter Co., 78 F.R.D. 41 (E.D.Pa. 1977). ⁴ Counsel moved for reconsideration and after further argument the court, in a second Memorandum and Order issued January 6, 1978, declined to alter its position. Id. at 46.

Notice was thereupon sent to all members of the class advising them that a hearing on the proposed settlement and counsel fee question would be held on February 9. They were also sent a form in which they could indicate to the court whether they desired to be included in the class, whether they approved of the settlement proposal, and whether they agreed to pay counsel fees pursuant to the contingent fee contracts they signed earlier. A considerable number of those responding stated that a 20% Contingent fee of All sums paid by the company was too high. ⁵ Similar concerns were voiced at the February 9 hearing. The district court subsequently approved the settlement and awarded fees in accordance with Lindy I and II. Dunn v. H. K. Porter Co., 78 F.R.D. 50 (E.D.Pa. 1978). ⁶ The attorneys representing the class thereupon appealed to this court. Appellees, having no interest in this appeal, have not provided us with briefs, and neither have the claimants.

II.

Appellants argue in the first instance that the trial court, although having the authority to review the contingent fee contracts, can set them aside only if they are unreasonable on their face. This assertion misconceives the scope of the trial court's power and duty to supervise those who practice before it as well as its obligation imposed under Fed.R.Civ.P. 23(e).

Because contingency fee agreements are of special concern to the courts and are not to be enforced on the same basis as are ordinary commercial contracts, Spilker v. Hankin, 88 U.S.App.D.C. 206, 210, 188 F.2d 35, 39 (1951), courts have the power to monitor such contracts either through rule-making or on an Ad hoc basis. Canon 13 of the Canons of Professional Ethics, promulgated by the American Bar Association, recognizes that an attorney is free to enter into such arrangements. The Canon, however, qualifies the right with the proviso that they are subject to the "supervision of the courts, as to (their) reasonableness." See Fitzgerald v. Freeman, 409 F.2d 427 (7th Cir.), Cert. denied, 396 U.S. 875, 90 S.Ct. 151, 24 L.Ed.2d 134 (1969) (court not bound by contingent fee agreement executed in conjunction with substitution of new counsel and could, in light of Canons 13 and 34, award fees on quantum meruit basis). We indicated the source of the power in Schlesinger v. Teitelbaum, 475 F.2d 137, 141 (3d Cir.), Cert. denied, 414 U.S. 1111, 94 S.Ct. 840, 38 L.Ed.2d 738 (1973), where we stated that "in its supervisory power over the members of its bar, a court has jurisdiction of certain activities of (its) members, including the charges of contingent fees."

Power flowing from this source has been exercised more frequently to protect those unable to bargain equally with their attorneys and who, as a result, are especially vulnerable to overreaching. Schlesinger v. Teitelbaum, Supra, 475 F.2d at 140 (seamen); Cappel v. Adams, 434 F.2d 1278 (5th Cir. 1970) (children). However, it has also been exercised whenever a contingent fee agreement yields an unreasonable fee. In re Michaelson, 511 F.2d 882, 888 (9th Cir.), Cert. denied, 421 U.S. 978, 95 S.Ct. 1979, 44 L.Ed.2d 469 (1975) (court has inherent power to examine amount charged by attorney in order to protect client from excessive fees); Farmington Dowell Products Co. v. Forster Manufacturing Co., 421 F.2d 61, 87 (1st Cir. 1969) (court has power to examine contingent fee contract in order to assure that it is not unwittingly an accessory to excessive fee). See also, Pitchford v. Pepi, Inc., 531 F.2d 92, 110-11 (3d Cir. 1975), Cert. denied, 426 U.S. 935, 96 S.Ct. 2649, 49 L.Ed.2d 387 (1976).

When a contingent fee contract is to be satisfied from a settlement fund approved by the trial judge pursuant to Fed.R.Civ.P. 23(e), the court has an even greater necessity to review the fee arrangement for this rule imposes upon it a responsibility to protect the interests of the class members from abuse. In such circumstances, the role of the attorneys is drastically altered; they then stand in essentially an adversarial relation to their clients who face a reduced award to the extent that counsel fees are maximized. Moreover, because of the nature of class representation, the clients may be poorly equipped to defend their...