Fresno Cnty. Employees' Ret. Ass'n v. Isaacson/Weaver Family Trust

• Decision Date: 23 May 2019
• Docket Number: Docket No. 17-2662,August Term, 2018
• Parties: FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION, Plaintiff-Appellee, v. ISAACSON/WEAVER FAMILY TRUST, Objector-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

925 F.3d 63

FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION, Plaintiff-Appellee,

v.ISAACSON/WEAVER FAMILY TRUST, Objector-Appellant.¹

Docket No. 17-2662

August Term, 2018

United States Court of Appeals, Second Circuit.

Argued: November 15, 2018

Decided: May 23, 2019

ERIC ALAN ISAACSON, La Jolla, CA, for Objector-Appellant.

HANNAH G. ROSS, Bernstein Litowitz Berger & Grossmann LLP (Jai Chandrasekhar, on the brief), New York, NY, for Plaintiff-Appellee.

Before: JACOBS, POOLER, and WESLEY, Circuit Judges.

POOLER, Circuit Judge:

The objection of the Isaacson/Weaver Family Trust (the "Objector") to Bernstein Litowitz Berger & Grossmann LLP’s fee award raises a novel issue of the proper principles for allocating fees awarded from a common-fund settlement. The Objector argues that, whenever an action is initiated under a statute with a fee-shifting provision, an attorney’s fee is presumptively limited to the unenhanced lodestar fee, even if the action is settled by the creation of a common fund. Appellee argues that the contrary is true, claiming that, whenever an action is settled with the creation of a common fund, equitable principles permit the district court to award a fee that can be calculated using either the lodestar-fee method or a percentage-of-the-fund method. As Second Circuit case law has long implied, we hold that, even if a case is brought pursuant to a fee-shifting statute, common-fund principles control fee awards authorized from a common fund, and a common-fund fee award may be calculated as the lodestar or as a percentage of the common fund. In so holding, we recognize the acute difference between assessing a fee award against a defendant, who reaps no benefit from an action brought against him, and requiring class members to compensate counsel for representation that enriches the class. We AFFIRM the well-reasoned order of the district court finding that Bernstein Litowitz Berger & Grossmann LLP is entitled to its requested fee and expense award.

BACKGROUND

This case is collateral litigation arising from the June 16, 2016, settlement of a consolidated securities class action brought by shareholders of BioScrip, Inc. The district court appointed Fresno County Employees’ Retirement Association as lead plaintiff and Bernstein Litowitz Berger & Grossmann LLP ("Lead Counsel") as lead counsel for the action. The class sought to recover for two allegedly material misrepresentations that BioScrip, Inc. made and brought an action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934; Securities and Exchange Commission Rule 10b-5; and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933.

After the consolidated class-action complaint largely survived a motion to dismiss and the case entered discovery, the parties agreed to settle all of the aforementioned claims. The settlement called for the class-action defendants to pay $ 10,900,000 into a common fund in exchange for the class releasing all claims asserted against the defendants in the action. The settlement also provided that "Lead Counsel will apply to the Court for a collective award of attorneys’ fees to Plaintiffs’ Counsel to be paid solely from (and out of) the Settlement Fund." Stipulation & Agreement of Settlement at 20, ¶ 19, Faig v. BioScrip, Inc. , No. 13-cv-6922(AJN) (S.D.N.Y. Feb. 4, 2016), ECF No. 104-5. Thereafter, Lead Counsel moved for an award of attorneys’ fees of 25% of the settlement fund, totaling $ 2,725,000 plus interest, and an expense award of $ 133,565.28. Lead Counsel’s requested fee award amounted to a 1.39 multiplier of the lodestar fee.

The Isaacson/Weaver Family Trust filed an objection to Lead Counsel’s requested award, arguing that Lead Counsel’s award should be reduced to the lodestar amount. No other class member objected to the settlement agreement or the requested fee. The district court subsequently held a settlement fairness hearing where it heard argument on, among other things, Lead Counsel’s fee request. In a thorough and discerning opinion, the district court found that Lead Counsel’s requested fee was reasonable and granted the fee in full.

DISCUSSION

The parties primarily dispute the method by which a reasonable fee should be calculated when class counsel settles claims brought pursuant to statutes with fee-shifting provisions by establishing a common settlement fund. The Objector argues that, because the parties created the common fund to resolve claims based on statutes with fee-shifting provisions, the Supreme Court’s fee-shifting jurisprudence applies, and Lead Counsel is presumptively entitled to only the unenhanced lodestar fee. Lead Counsel disagrees, arguing that the settlement that created the common fund resolved claims based on statutes that do not have applicable fee-shifting provisions, and regardless, the common-fund doctrine governs a district court’s award of attorneys’ fees when counsel has secured a settlement fund for the benefit of the class. We make clear today what has long been implicit in this Circuit’s jurisprudence: regardless of whether a case is brought pursuant to a statute with a fee-shifting provision, if the parties settle the case by creating a common fund, common-fund principles control class counsel’s fee recovery. So concluding, we offer no opinion on whether the statutes pursuant to which the underlying case arose contain applicable fee-shifting provisions.

I. Standard of Review

"The Second Circuit reviews a district court’s decision to grant or deny an award of attorneys’ fees for abuse of discretion, reviewing de novo any rulings of law." Flanagan, Lieberman, Hoffman & Swaim v. Ohio Pub. Emps. Ret. Sys. , 814 F.3d 652, 656 (2d Cir. 2016). Because the Objector has challenged the fee award based on the district court’s ruling of law that Lead Counsel was entitled to a common-fund fee award, our review is de novo.

II. The American Rule and Its Exceptions

In the American system of justice, "the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys’ fee from the loser." Alyeska Pipeline Serv. Co. v. Wilderness Soc’y , 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). There are two well-known exceptions to this "American Rule": (1) where Congress has specifically legislated that the prevailing party may recover fees from the losing party, see Perdue v. Kenny A. ex rel. Winn , 559 U.S. 542, 550 & n.3, 130 S.Ct. 1662, 176 L.Ed.2d 494 (2010), and (2) where "a litigant or a lawyer ... recovers a common fund for the benefit of persons other than himself or his client," Boeing Co. v. Van Gemert , 444 U.S. 472, 478, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980). While in both instances an attorney is entitled to a recovery that is ultimately financed by the opposing party, the Supreme Court has placed greater restrictions on attorneys’ fees recovered from statutory fee-shifting provisions than on fees recovered from common funds.

When a statute’s fee-shifting provision authorizes a reasonable attorneys’ fee, the Supreme Court has held that "the lodestar method yields a fee that is presumptively sufficient."² Perdue , 559 U.S. at 552, 130 S.Ct. 1662. Fee-shifting provisions typically encourage counsel to represent plaintiffs in actions where "Congress has opted to rely heavily on private enforcement to implement public policy." Alyeska Pipeline Serv. Co. , 421 U.S. at 263, 95 S.Ct. 1612. Where a litigant acts as a private attorney general, the goal of fee shifting is to provide "a fee that is sufficient to induce a capable attorney to undertake the representation of a meritorious ... case." Perdue , 559 U.S. at 552, 130 S.Ct. 1662. The defendant effectively finances the private enforcement action against it as a component of its liability. See Alyeska Pipeline Serv. Co. , 421 U.S. at 253-54, 95 S.Ct. 1612 (quoting fee-shifting provisions that refer to taxing the opposing party for fees "incident to the judgment" (internal quotation marks omitted)).

Notably, an unenhanced lodestar fee does not account for the contingent risk that a lawyer may assume in taking on a case. See City of Burlington v. Dague , 505 U.S. 557, 562-63, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992) ; Pennsylvania v. Del. Valley Citizens’ Council for Clean Air (Del. Valley II ), 483 U.S. 711, 724-25, 107 S.Ct. 3078 (1987). This makes particular sense where the defendant shoulders the burden of fees because "[a]n attorney operating on a contingency-fee basis pools the risks presented by his various cases." Dague , 505 U.S. at 565, 112 S.Ct. 2638. Therefore, "enhancing fees for risk of loss forces losing defendants to compensate plaintiff’s lawyers for not prevailing against defendants in other cases." Del. Valley II , 483 U.S. at 724-25, 107 S.Ct. 3078. The defendant, however, has no responsibility to compensate an attorney for risk in the attorney’s other cases and would be unfairly penalized if it were forced to subsidize an attorney’s other ventures. Thus, where counsel receives a fee award pursuant to a fee-shifting statute authorizing a reasonable fee, we presume that the unenhanced lodestar is a reasonable fee. Perdue , 559 U.S. at 552, 130 S.Ct. 1662.

In contrast to fees awarded pursuant to fee-shifting provisions, fees awarded pursuant to the common-fund doctrine do not extract a tax on the losing party but instead confer a benefit on the victorious attorney for her representation of her client and the class members. See Boeing , 444 U.S. at 478, 100 S.Ct. 745. "The 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." Id. The common-fund doctrine is therefore rooted in the courts’ "historic power of equity to permit" a person who secures a fund for the benefit of others to collect a fee directly from the fund. Alyeska Pipeline Serv. Co. , 421 U.S. at 257, 95 S.Ct. 1612 (citing Trustees v. Greenough , 105 U.S. 527, 531-33, 26 L.Ed. 1157 (1881) ). Under...