Krause v. Rhodes, s. 79-3115

• Decision Date: 27 March 1981
• Docket Number: Nos. 79-3115,79-3202,s. 79-3115
• Citation: 640 F.2d 214
• Court: U.S. Court of Appeals — Sixth Circuit
• Parties: Arthur KRAUSE et al., Plaintiffs, v. James A. RHODES, et al., Defendants, Sindell, Lowe & Guidubaldi, A Partnership et al., Appellants, Attorney General of Ohio, Intervenor, Appellee.

Page 214

640 F.2d 214

Arthur KRAUSE et al., Plaintiffs, v.James A. RHODES, et al., DefendantsSindell, Lowe & Guidubaldi, A Partnership et al., AppellantsAttorney General of Ohio, Intervenor, Appellee.

Nos. 79-3115, 79-3202.

United States Court of Appeals Sixth Circuit.

Argued Feb. 4, 1981.

Decided March 27, 1981.

James A. Lowe, Sindell, Lowe & Guidubaldi, Cleveland, Ohio, for appellants.

Sanford Jay Rosen, Rosen & Remcho, San Francisco, Cal., Nelson G. Karl, Cleveland, Ohio, David E. Engdahl, Denver, Colo., Rees Davis, Mansfield, Ohio, William J. Brown, Atty. Gen., Steven R. Keller, Columbus, Ohio, Robert Blakemore, Blakemore, Rosen & Norris, Akron, Ohio, Charles E. Brown, Crabbe, Brown, Jones, Potts & Schmidt, N. Victor Goodman and Stephen Lewis, Topper, Alloway, Goodman, DeLeone & Duffey, Columbus, Ohio, Eugene Selker, Cleveland, Ohio, Charles Shanklin, George, Greek, King, McMahon & McConnaughey, Columbus, Ohio, Bruce J. Ennis, New York, John P. Adams, Bd. of Church & Soc. United Methodist Church, Washington, D. C., Bruce T. Wick, Westlake, Ohio, Joseph Kelner, Kelner, Kelner, Stelljes & Glotzer, New York City, Fred Mandel, Mandel & Goldsmith, Cleveland, Ohio, Alfonse J. Damico, Syracuse, N. Y., John Lawson, Stephen T. Parisi, Paul S. Lefkowitz, Cleveland, Ohio, for appellee.

Burton Fulton, Gallagher, Sharp, Fulton, Norman & Mollison, Cleveland, Ohio, for defendant and intervenor.

Stephen V. Bomse, San Francisco, Cal., for plaintiffs-appelleesbeneficiaries.

Before EDWARDS, Chief Judge, LIVELY, Circuit Judge and PHILLIPS, Senior Circuit Judge.

EDWARDS, Chief Judge.

Steven Sindell, the original counsel for 12 of the plaintiffs in the 1970Kent State shooting cases, ¹ appeals from orders entered by Judge William K. Thomas approving a settlement of this lengthy and bitterly fought litigation.

Sindell contends that his 33 1/3 contingency fee contracts for representation of these plaintiffs invalidate the limitation and allocation of attorneys' fees occasioned by the District Court's approval of a $675,000 "settlement" between the State of Ohio² and the litigants.As appellant Sindell's counsel states the matter:

None of the substantive or procedural issues of the case in chief are presented here for review.Rather, this appeal challenges the authority of the District Court to have extinguished, as an integral part of the settlement, private contractual agreements between the plaintiffs and their attorneys and to have substituted therefore a "reasonable" attorney's fee, all without the benefit of any hearing, evidence or briefs whatsoever.³

The record in this case is a long and tortuous one.The complaints, originally filed in 1970, were dismissed by the District Court on the theory that essentially the action was against the State of Ohio and barred by the Eleventh Amendment.On appeal, this court affirmed these dismissals by a divided panel.SeeKrause v. Rhodes, 471 F.2d 430(6th Cir.1972).The United States Supreme Court, however, unanimously reversed the judgments below and remanded for trial.Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90(1974).After the first trial, the jury returned a verdict for defendants of no cause for action.

Subsequent to this adverse jury verdict, all plaintiffs and their counsel(including Steven Sindell) signed an agreement naming the American Civil Liberties Union (ACLU) as lead counsel"for purposes of all appellate proceedings in this litigation."Sanford Jay Rosen headed a team of ACLU lawyers in prosecuting the successful appeal to this court, which reversed for new trial.Krause v. Rhodes, 570 F.2d 563(6th Cir.1977), cert. denied, 435 U.S. 924, 98 S.Ct. 1488, 55 L.Ed.2d 517(1978).Rosen and his team also represented plaintiffs in the first four days of the second trial of this case and in the discussions which led to settlement.

This case was settled by an agreement entered into by all parties and lawyers except Sindell.The State of Ohio(not a party to this litigation) voluntarily offered to pay $675,000 in full settlement, provided that $600,000 of this sum be paid directly to plaintiffs undiluted by legal fees or expenses.Judge Thomas entered a settlement and dismissal order providing for payment of $600,000 to plaintiffs, $50,000 as payment in full to the attorneys, and $25,000 to cover out-of-pocket expenses.The ACLU and most of the other attorneys, including lead counsel Rosen, agreed with the settlement and subsequently agreed to Judge Thomas' distribution of the $50,000 attorneys' fees fund.Judge Thomas limited distribution of the $50,000 to contingent fee contract holders and apparently based the fund's allocation upon work performed prior to the first adverse jury verdict, disregarding for this purpose any of the services rendered by counsel in the successful effort to reverse that verdict and the subsequent retrial which produced the settlement agreement.Thus, law firms associated with appellant Sindell received $33,740 of the $50,000 fund, while the ACLU and the lawyers associated therewith received nothing for their services.⁴

Appellant Sindell's argument before this court is a simple contention that a contingent fee agreement is beyond the power of a federal judge to invalidate or modify on any grounds whatsoever.Judge Thomas, however, based his decision to limit attorneys' fees in these cases in part upon the trial court's traditional power to resolve fee disputes between litigants and their counsel.In this regard, he cited Grimes v. Chrysler Corp., 565 F.2d 841(2d Cir.1977)andAmerican Federation of Tobacco Growers v. Allen, 186 F.2d 590(4th Cir.1951).

We believe it would be helpful to an understanding of this case to incorporate Judge Thomas' discussion of the history and purpose of the settlement, contained in his opinion of February 6, 1979:

By letter dated January 16, 1979, Robert F. Howarth, Jr., President of the State Controlling Board presented to me Ohio's draft in the amount of $675,000.00.

In his letter he stated:

I am authorized to act only pursuant to Controlling Board request No. E47, as approved January 4, 1979.Enclosed herewith, please find a copy of this authorizing document, with this court's Settlement and Dismissal Order incorporated therein and attached thereto as Exhibit A.

His letter continued:

I ask that you carefully note that the subject draft is presented only under the terms of this court's Settlement and Dismissal Order upon which the Controlling Board's approval is conditioned.In other words, any distribution of these funds other than as provided in the Settlement and Dismissal Order would violate the conditions under which the enclosed draft is presented.It is certainly our understanding that Mr. Sanford J. Rosen as Trustee for distribution will be accordingly bound to these terms and conditions.

The attached Controlling Board E47 Request for transfer of the $675,000.00 Kent State Settlement Fund specified:

Attached hereto as "Exhibit A," and incorporated herein by reference, is a document entitled Settlement and Dismissal Order.As contemplated by the Order, OBM's request is conditioned upon the terms and requirements set forth therein.

These documents are attached to Order One of this court pursuant to which I delivered to Sanford J. Rosen the State of Ohio draft in the amount of $675,000.00.Order One specifically provides that Sanford J. Rosen is directed to carry out his trusteeship pursuant to this court's Order of January 4, 1979 and the letter of President Howarth.

As previously read, the order of January 4, 1979 specifies that $50,000 shall be paid in full for attorney fees and $25,000 as out-of-pocket expenses. $600,000 shall be paid to the plaintiffs as itemized in the attached list.

It was this precise breakdown and allocation of the total settlement fund of $675,000 that was presented to and approved by plaintiffs and their counsel when this court met with plaintiffs and their counsel on the morning of Wednesday, December 6, before court opened.Defendants likewise were informed of and approved the settlement and breakdown.

The same total settlement fund and the breakdown of $600,000 as itemized for each of the plaintiffs, $50,000 as payment in full for attorney fees, $25,000 as out-of-pocket expenses, was full disclosed by me to President Oliver Ocasek of the Ohio Senate and Speaker Vernon Riffe of the Ohio House of Representatives.This occurred when these legislative leaders met with me in this court house on the afternoon of December 6, 1978.

Previously informed of the contingent fee contracts of appellant Sindell and other former counsel, I had fixed the $50,000 to provide for any contingent fee claim.

Because I knew that the State of Ohio would not make payment of a settlement fund of $675,000 if the contingent fees were charged against the fund or against any of the individual plaintiffs, I fixed $50,000 as payment in full for all attorney fees.

Without this limitation of attorney fees, there would have been no settlement of the Kent Statecases by the State of Ohio.That is made clear by the express wording of the State Controlling Board request No. E47 which I have just read, as it was approved on January 4, 1979.

Under these circumstances, this court, acting in its discretion under 42 U.S.C. § 1988, as amended, allowed the plaintiffs"a reasonable attorney's fee" of $50,000.

It is appreciated that under some circumstances in a civil rights action prosecuted under section 1983, contingent fees may be charged while additional attorney fees under section 1988 would not be allowed by the court.SeeZarcone v. Perry, 581 F.2d 1039(2nd Cir.)

But under the present circumstances, in order to effect a settlement and to end this litigation which seemed as if it would never end, it was indispensable that this court fix attorney fees under section 1988 and that the fees so fixed should modify and supercede any contractual contingent...