Fischel v. Equitable Life Assur. Society of U.S.
| Decision Date | 03 October 2002 |
| Docket Number | No. 00-16024.,No. 00-16277.,00-16024.,00-16277. |
| Court | U.S. Court of Appeals — Ninth Circuit |
| Parties | Peter D. FISCHEL; Gerald M. Geiger; Philip J. Havlicek; Edgar C. Chua, Plaintiffs-Appellants, v. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation, Defendant-Appellee. Peter D. Fischel; Gerald M. Geiger; Philip J. Havlicek; Edgar C. Chua, Plaintiffs-Appellants, Herbert Adelman; Walter Fleischer; Malakoff, Doyle & Finberg, P.C.; Dennis J. Woodruff, Appellants, v. Equitable Life Assurance Society of the United States, a New York corporation, Defendant-Appellee. |
Walter H. Fleischer, Washington, DC, for the plaintiffs-appellants.
Wilber H. Boies, McDermott, Will & Emery, Chicago, IL, for the defendant-appellee.
Appeal from the United States District Court for the Northern District of California; Vaughn R. Walker, District Judge, Presiding. D.C. Nos. CV-96-04202-VRW, CV-96-04202-VRW.
Before CANBY, JR., GRABER, and PAEZ, Circuit Judges.
Plaintiffs, who are independent insurance agents for Equitable Life Assurance Society of the United States ("Equitable"), initially brought this class action in California Superior Court challenging Equitable's modification to the agents' commission payment system and to certain agents' health benefits plan. Equitable removed the case to federal court on the grounds that the health benefits claim was completely preempted by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1461, and that there was diversity jurisdiction. The district court denied Plaintiffs' motion to remand the action to state court, concluding that there was federal question jurisdiction under ERISA. Soon thereafter, Equitable agreed to settle Plaintiffs' claim regarding the commission payment system.
As part of the settlement, Equitable agreed to pay Plaintiffs approximately $20 million in commission payments. Having secured a settlement fund, or "common fund," Plaintiffs' counsel sought an award of attorney's fees and costs. Although Plaintiffs' counsel initially sought 25 percent of the fund and later 10 percent, they were awarded approximately 3 percent of the fund. In arriving at its award, the district court declined to calculate its award on a percentage-of-the-fund approach and instead utilized the lodestar method. Dissatisfied with the result, Plaintiffs and their counsel appealed the fee award.
Before reaching the merits of the appeal, we must first address whether Plaintiffs may attack subject matter jurisdiction in this collateral proceeding. We conclude that they cannot because they litigated the matter before the district court and then relinquished their right to appeal by settling. That decision is now final, and we cannot revisit it here. Accordingly, we do not decide whether the district court erred by denying Plaintiffs' remand motion on the basis of its determination that it had jurisdiction under ERISA.1
Turning to the attorney's fee award, we find that the district court did not abuse its discretion by calculating the award according to the lodestar method rather than the percentage-of-the-fund method. The district court erred, however, in its analysis of whether Plaintiffs' counsel was entitled to a risk multiplier. The district court also did not adequately explain whether it compensated Plaintiffs' counsel for the delay in payment. Accordingly, we affirm in part, reverse in part, and remand.
In 1992, Equitable announced that it would begin calculating insurance agents' future commissions on medical policies based on the 1992 policy premium base rather than on future premium increases. Perceiving such action to be a breach of Equitable's contract with its insurance agents, agent Michael Siefe complained to Equitable in October 1992. His complaints were to no avail.
Siefe contacted two attorneys, neither of whom was interested in representing him on a contingency fee basis because (1) his claim was not "clear cut," (2) his claim only posed "a modest monetary threat (by Equitable's standards)," (3) Equitable was a large insurer with significant resources to retain highly qualified attorneys, (4) the attorneys were busy with other cases with a better risk/rate-of-return ratio, and (5) the attorneys "were not willing to invest the necessary time" to learn the issues.
Sometime later, in March 1996, Siefe contacted Herbert Adelman, a lawyer in Washington, D.C. Adelman previously had filed a class action against Equitable on behalf of medical policyholders. After Adelman "determined that there was sufficient merit in the claims to warrant a meeting," they met for three days in May 1996 to discuss the case. Adelman ultimately agreed to represent Siefe and other similarly situated agents.
Adelman had difficulty securing local counsel in California. He contacted approximately six law firms in California, none of which was interested in the case because (1) the litigation was anticipated to be protracted and expensive, and involved a defendant with great resources, (2) the risk of loss was significant, and (3) there was a possibility of a statute of limitations defense. Adelman also spoke to lawyers in Florida, Texas, and New York firms but could not find anyone interested in filing a case in one of those states. Eventually Adelman found local counsel in California.
On September 19, 1996, Adelman delivered a letter to Equitable's counsel stating that an association composed of current and former Equitable insurance agents was planning to circulate a letter to all of Equitable's agents setting forth claims against Equitable unless Equitable was willing to enter into discussions regarding the agents' claims. Equitable requested additional time as well as documentation to review the claims, but made no commitment regarding how it would respond. Equitable also requested that Adelman not circulate the letter pending its review of the claims.
On October 21, 1996, while Equitable was reviewing the agents' claims, Plaintiffs filed this class action in California Superior Court alleging two claims for breach of contract.2 The first claim ("Count One") related to Equitable's freeze of the premium base for calculating insurance agents' commissions on medical policies. The second claim ("Count Two") involved Equitable's alleged breach of its promise to provide health benefits to certain agents.
Equitable removed the action to federal court on the grounds that Count Two was completely preempted by ERISA and that there was diversity jurisdiction. Plaintiffs responded with a motion to remand the case to state court. Concluding that it had federal question jurisdiction, the district court denied the motion to remand.
On November 6, 1996, Equitable's counsel informed Plaintiffs that Equitable was "concerned" about Count One and might agree to settle it. It was not until February 5, 1997, however, approximately three and one-half months after the lawsuit was filed and four and one-half months after negotiations began, that Equitable announced that it would settle Count One by ending the freeze.
In response to Equitable's announcement, Plaintiffs filed a motion for a preliminary injunction to compel Equitable to withhold 25 percent of the settlement fund for attorney's fees. Concluding that a 10 percent withholding would be sufficient, the district court granted the preliminary injunction in part on June 10, 1997. In making this preliminary determination, the district court explained that it was exercising its discretion to apply the lodestar method, rather than the percentage-of-the-fund method, to calculate attorney's fees. The court emphasized that the "early settlement... renders a twenty-five percent recovery for the attorneys unreasonable in light of the circumstances" and that the lodestar approach would avoid a "windfall" to the attorneys at the expense of their clients. The court further explained that "[t]here has been no discovery, no lengthy settlement negotiations, no protracted litigation of any kind." The district court then determined that when it ultimately ruled on counsel's fee application, it would use a "generous" combined hourly rate for partners, associates, and paralegals of $300 per hour.
In discussing whether it would enhance the lodestar amount with a multiplier, the district court stated that it would consider a multiplier of up to 1.5 if Plaintiffs' counsel secured a 100 percent recovery for the class. The court also explained that it had discretion to apply a risk multiplier, because the attorneys took the case on a contingent basis, and would do so if Plaintiffs' counsel were to show that (1) without an adjustment for risk they would have had "substantial difficulties" finding counsel, and (2) the difficulty of finding counsel exists for the entire class of contingency fee cases and not just for this particular case. See Fadhl v. City & County of San Francisco, 859 F.2d 649, 650 (9th Cir.1988) (per curiam) (). The district court then tentatively ruled that Plaintiffs' counsel had failed to make the requisite showing to support application of a risk enhancement. Citing the briefs filed in support of the motion for a preliminary injunction, the district court noted that Plaintiffs' counsel "concede[d] that success on count one of the complaint was likely and that the most substantial risk they faced was that they would only obtain a partial recovery."3 Nonetheless, the court did not rule out the possibility that Plaintiffs' counsel could demonstrate that they were entitled to a fee enhancement on the basis of risk or "undesirability." The court...
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