IN RE TERRA-DRILL PARTNERSHIPS SECURITIES LIT.

• Decision Date: 27 March 1990
• Docket Number: MDL Docket 791. Civ. A. No. H-86-3808.
• Citation: 733 F. Supp. 1127
• Parties: In re TERRA-DRILL PARTNERSHIPS SECURITIES LITIGATION. Alan WESTHEIMER, et al., Plaintiffs, v. Herman FINESOD, et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

733 F. Supp. 1127

In re TERRA-DRILL PARTNERSHIPS SECURITIES LITIGATION Alan WESTHEIMER, et al., Plaintiffs, v. Herman FINESOD, et al., Defendants.

MDL Docket 791 Civ. A. No. H-86-3808.

United States District Court, S.D. Texas, Houston Division.

March 27, 1990.

Susman Godfrey by William H. White, Richard Drubel and Karen Appel Oshman, Weiner, Strother & Blustein by R. Leonard Weiner, Houston, Tex., and Beigel & Sandler by Leigh R. Lasky, New York City, for plaintiffs.

Porter & Clements by Daniel K. Hedges, Richard O. Patterson and David L. Burgert, Houston, Tex., for defendant Laventhol & Horwath.

DECISION AND OPINION

MILTON POLLACK, Senior District Judge.^*

This litigation has resulted in a recovery which when fully collected will provide a cash fund in court for the benefit of the class plaintiffs of $14,600,000. Additionally, the plaintiff class members will have been relieved of obligations on promissory notes in the face amount in excess of $150,000,000.

Counsel for the plaintiffs, three law firms, have applied for allowance of attorneys fees and reimbursement of expenses to be paid out of the fund in court. Consistent with the law of this circuit, counsel have cast their joint applications on the so-called "lodestar" analysis of the value of the services rendered based on the customary reasonable hourly fees charged by counsel, to be adjusted up or down by factors known as "multipliers," such as the results obtained, the quality of work performed, contingency of compensation dependent on success and other relevant considerations.

For the reasons appearing hereafter, the applications based on the theory assigned will be granted and the lodestar analysis with an appropriate multiplier will be applied to the extent applicable.

The Petitioners

Petitioners consist of three law firms: Susman Godfrey; Weiner, Strother & Blustein, P.C.; and Beigel & Sandler, Ltd. Susman Godfrey acted as lead counsel in litigating this action on behalf of the class and was formally appointed lead counsel on the case by this Court's order of June 26, 1989. The Weiner firm assisted Susman Godfrey in initially organizing the class and from time to time in helping with discrete tasks assigned by Susman Godfrey, such as assisting in responding to motions, preparing certain discovery and defending class members' depositions. The Beigel firm assisted Susman Godfrey initially in locating one of the former general partners of the Terra-Drill partnerships, Sam Simon, whose affidavit helped the class successfully resist defendants' initial motions for summary judgment. The Beigel firm also assisted the class in providing general information about Herman Finesod and his companies, in responding to defendants' motion before the Panel on Multi-District Litigation to transfer this case to New York and in defending the deposition of a class member. Although Beigel & Sandler initially filed individual, non-class actions in New York on behalf of certain Terra-Drill investors, these investors ultimately dismissed their suits in New York in order to participate as members of the class in this action. The Beigel firm seeks compensation in this fee petition only for work performed on behalf of the class.

The Litigation

The Terra-Drill Securities Litigation, so-called, was commenced in October 1986 with the initial filing of a class suit against 30 defendants asserting federal securities claims and pendent common law fraud claims involving a tax shelter scheme for the promotion of a patented terra-drill. Other later suits were ultimately centralized in this District and consolidated for coordinated pre-trial purposes by the Judicial Panel on Multi-District Litigation. At the request of Chief Judge DeAnda of the Southern District of Texas, because of congested calendar conditions, and with the approval of the Intercircuit Assignment Committee pursuant to 28 U.S.C. § 294(d), the undersigned was assigned to complete the pending discovery proceedings and to preside at the trial. Preparation having been completed, the case proceeded to trial by jury. Shortly before trial, settlements were concluded with the defendants available out of the original 30, with the exception of one defendant, Laventhol & Horwath, who was unable to reach a settlement with plaintiffs and elected to stand trial. As part of each plaintiff's investment in the Terra-Drill partnerships, each plaintiff had signed a full recourse note due at various times after 1991 to the various Terra-Drill partnerships. Each of the plaintiffs also assumed a portion of each Terra-Drill partnership's sublicense obligation to Mitchell Petroleum. As part of the pre-trial settlements with Mitchell Petroleum and each of the partnerships, the partnerships and Mitchell agreed to release plaintiffs from all notes and other obligations. This meant cancellation of full recourse notes of more than $150 million. In addition, cash settlements had been obtained from the defendants other than Laventhol & Horwath in the amount of $1.1 million which were paid into a settlement fund in the Registry of the Court.

Trial was commenced on November 27, 1989.

On December 8, 1989, the jury returned a verdict of $37,719,000 against the sole remaining defendant, Laventhol & Horwath, which was subsequently reduced to $36,050,310 in order to take into account the previous pre-trial settlements. The jury verdict represented the cash invested by the class members in the terra-drill project. Pre-judgment interest was then added to the judgment, raising the amount of the judgment to $72,625,310. After entry of judgment on the verdict, as amended, counsel were able to negotiate a settlement of the defendants' appeal under which Laventhol & Horwath agreed to pay $13.5 million into the settlement fund for plaintiffs in instalments over the next two years. The settlement was approved by the Court after a hearing held to consider all the relevant facts and circumstances including conditions on which Laventhol & Horwath could proceed on appeal without requirement of a full bond.

The Applicable Law

One of the recognized exceptions to the American rule of allocation of litigation costs is the "common fund" doctrine. Under the "common fund" doctrine, a person who maintains a lawsuit resulting in the creation, preservation or increase of a fund in which others have a common interest, may be reimbursed from that fund for litigation expenses incurred. The "common fund" doctrine contemplates "fair and just allowances for expenses and counsel fees" to be paid by those who have benefited from the efforts expended on their behalf. See Trustees of the Internal Improvement Fund v. Greenough, 105 U.S. 527, 536, 26 L.Ed. 1157 (1881).

In 1973, the Third Circuit decided Lindy Brothers, Inc. of Philadelphia v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir.1973) ("Lindy I"), appeal following remand, 540 F.2d 102 (3d Cir.1976) ("Lindy II"), setting forth fee award guidelines which became commonly known as the "lodestar" method.

This circuit in determining appropriate attorneys' fees follows the twelve-factor approach set out by the court of appeals in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974).¹ Although some district courts have recently chosen to express the award of attorney fees as a percentage of the fund recovered rather than in terms of a lodestar analysis, no court in this district has yet done so and the Fifth Circuit has not approved such an approach. (The factors enumerated by Johnson, however, emphasize "the results obtained" as a component of the fee award.) Whether expressed in terms of the Johnson factors or as a "percentage of recovery," however, the underlying policy is identical: in order to attract competent counsel to represent the class in protracted cases such as this one, courts look to award "customary fees" to class counsel, i.e., what class counsel would otherwise be able to receive from such services in the marketplace. See In re King Resources Co. Securities Litigation, 420 F.Supp. 610, 636 (D.Colo.1976).

The twelve factors enumerated in Johnson are: (1) the time and labor required; (2) the novelty and difficulty of the questions involved; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation and ability of the attorney; (10) the "undesirability" of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases. Id. 717-719.

Although Johnson was a civil rights case involving a statutory fee award pursuant to 42 U.S.C. § 1988, it has been followed in "common fund" cases such as the Terra-Drill litigation.² See, e.g., Piambino v. Bailey, 610 F.2d 1306 (5th Cir.), cert. denied, 449 U.S. 1011, 101 S.Ct. 568, 66 L.Ed.2d 469 (1980).

The Fifth Circuit subsequently modified the way in which the Johnson factors were applied so as to approach the Lindy lodestar method. By first computing a fee using the time/rate factors (first and fifth Johnson factors) and then adjusting that fee either up or down in light of any of the other twelve factors which were applicable, the Fifth Circuit effectively adopted the lodestar approach of Lindy. See Graves v. Barnes, 700 F.2d 220, 222 (5th Cir.1983) ("the Fifth Circuit recently adopted the `lodestar' method of calculating attorney fees") (citations omitted); Copper Liquor, Inc. v. Adolph Coors Co., 684 F.2d 1087, 1092-93 (5th Cir.1982) (Johnson calculation now establishes "a standard much like the lodestar method").

In the years since its adoption, the Lindy/Johnson lodestar approach has come under increased criticism. See Report of the Third Circuit Task Force, October...