McLendon v. Continental Group, Inc.
| Decision Date | 16 December 1994 |
| Docket Number | 89-4009 (HLS) and 89-4066 (HLS).,Civ. No. 83-1340 (SA) (HLS) |
| Citation | 872 F. Supp. 142 |
| Parties | Cecil McLENDON, et al., Plaintiffs, v. The CONTINENTAL GROUP, INC., et al., Defendants. Albert J. JAKUB, et al., Plaintiffs, v. The CONTINENTAL GROUP, INC., et al., Defendants. Robert GAVALIK, et al., Plaintiffs, v. The CONTINENTAL GROUP, INC., et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
Roslyn Litman, Litman Litman Harris and Brown, P.C., Pittsburgh, PA.
John Jacobs, Plotkin & Jacobs, Ltd., Chicago, IL.
Altshuler, Berzon, Nussbaum, Berzon & Rubin, San Francisco, CA.
Prof. George L. Priest, Sp. Master, Yale Law School, New Haven, CT.
In matters in which the court is permitted by statute to award attorneys' fees, the amount of the award must serve varied and multiple purposes. Counsel who have served and succeeded should be reasonably compensated. The award should serve to induce and encourage other counsel to undertake similar cases. The unsuccessful party should be required to pay such fees in order not to reduce the plaintiffs' award. The compensation received by plaintiffs should make them whole to the extent possible and should not be diminished by the expense of obtaining it. Litigants without the financial resources should have the means to pursue valid claims. The method and formula for determining such fees should be accomplished with the least possible expense and judicial time. And finally, the amount of the award should promote public confidence in the judicial system. It should not be viewed as a windfall to lawyers, but rather as just and reasonable compensation for the time spent, the delays encountered, the risks assumed, and the results obtained.
This court is in the unique position of having been chair of the Third Circuit Task Force on Court Awarded Attorney Fees, see 108 F.R.D. 237 (1985), cited frequently by the Special Master and all counsel. Many of the conclusions contained in that report are applicable here.
Initially the Task Force enumerated the deficiencies of the lodestar method of calculating fees. It has created satellite litigation and necessitated time-consuming review of billing records and other documentation. It is virtually impossible for a court in retrospect to determine what work was necessary or reasonable. In this matter the court has had the extraordinary assistance of the Special Master. However, the problem exists even if it is delegable.
The awards are frequently inconsistent and lack uniformity. Determining market or customary rates is difficult, inefficient, and time-consuming. Most significantly, payment based upon the number of hours devoted discourages early settlement and encourages abuses and unnecessary work. Finally, there is a substantial lack of predictability, leaving counsel uncertain as to how they will be compensated. This case is a prime example of that uncertainty.
Undoubtedly aware of the foregoing litany of problems arising from the use of the lodestar method, the United States Supreme Court in City of Burlington v. Dague, ___ U.S. ___, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992), nevertheless has recently reaffirmed its applicability in statutory fee cases and has virtually precluded enhancement for the risks undertaken by counsel. Plaintiffs' counsel argue that this ruling has no applicability to common fund cases; that this is a common fund cases; and thus they are entitled to enhancement or a percentage of the fund compensating them for the success achieved and the risks endured.
It is undisputed that defendants faced liability for statutory fees and that the amount paid in settlement included, in part, payment for that potential liability, but not allocated as such. Indeed, any such allocation might be unethical and would be subject to court review and approval in any event. The primary issue before the court is whether the Dague restrictions apply under these circumstances. Should plaintiffs' counsel be entitled to a larger fee if it is the plaintiffs, in effect, who are paying it rather than the defendants? The court believes that the answer to that question is in the affirmative.
In a statutory fee case, by requiring the defendant to pay fees, the plaintiff is made whole and the recovery is not diminished by the expense incurred in obtaining it. If risk of success were factored into the calculation, the stronger the defense—the greater the fee. Thus, a defendant who had a greater justification for defending a case would be penalized more than one who had no or a weak defense. Thus, with considerable justification the Supreme Court has reasoned that the risk undertaken by plaintiff's counsel should not be assumed or compensated by the unsuccessful defendant. However, no like concerns exist when the compensation is paid by the plaintiff, even though the original source of the fund comes in part from the settlement of the statutory fee claim.
To apply the same rule to plaintiffs would infer an agreement by lawyers to work for nothing if they did not succeed, and be paid only for their time, if they did. To the extent possible a fair and reasonable fee should replicate the marketplace. It is difficult to envision any lawyer agreeing to such a bad bargain.
No one could review the record in this case and help but conclude that the risks were monumental, the dedication and sacrifice of counsel heroic, the quality of performance superb, and the result extraordinary. It is inconceivable to this court that the Supreme Court or Congress intended that after a decade of toil on behalf of this class, counsel should receive compensation solely predicated upon the time devoted without recognition of the risks undertaken, the sacrifices endured and the exceptional result achieved.
Thus, in the court's view, all that remains is to determine how those factors are to be compensated. The Special Master makes the unique and intriguing suggestion that different enhancement should apply to different time periods—that the multiplier should diminish as the risk diminished. That suggestion has great appeal, since a substantial amount of the work in this matter was performed when the risk of no recovery was minimal. However, until the settlement was consummated, the amount of recovery was very much at risk. Furthermore, the risk, if any, in trying to replicate the marketplace, should be determined from the outset. Counsel would not have the right to withdraw except in unique circumstances, no matter in what direction the litigation progressed. In any event, the court is satisfied that plaintiffs' counsel are entitled to enhancement at least until the moment of settlement and to their average historic rates plus interest thereafter in implementing the settlement.
The Third Circuit Task Force strongly recommended the negotiation of a contingent fee at the outset of the litigation with the class represented by independent counsel for that specific purpose. The agreement would be subject to court approval. Such an arrangement would have the obvious advantage of avoiding the calculation and determinations that the lodestar formulation requires. That avenue was not pursued here, because the Report did not exist at the time this action was instituted.
The question remains whether the court should attempt to arrive at a percentage in retrospect, recognizing that all risks have been resolved and the ultimate recovery is known. The obvious difficulty with such an approach is that it is virtually impossible to envision what agreement the parties would have made a decade ago. Furthermore, with the facts now known, a court may simply adjust the percentage to arrive at a gross fee which the court deems to be fair and reasonable under all of the circumstances. (The same risk, of course, also applies in the choice of a multiplier.) Because plaintiffs' counsel has requested that the court fix a percentage, the court will consider the practicability of this method and its usefulness as a check against the multiplier. However, the order of the court will be based upon the lodestar and multiplier.
Before the court is the Report of the Special Master Concerning Fees to the Attorneys for the Class, and the objections of the petitioners and the intervenors to that Report. Having discussed the general parameters which must guide the court's consideration of these matters, the court will address the specific recommendations and the objections thereto.
The factual and procedural background of this litigation is set forth in this court's previous opinions in this matter. See e.g., McLendon v. Continental Group, 802 F.Supp. 1216 (D.N.J.1992); McLendon v. Continental Group, 749 F.Supp. 582 (D.N.J.1989). Briefly, this complex class action litigation began with the filing of a number of class actions across the country, among them Gavalik v. Continental Can Co., filed in 1981; Jakub v. Continental Can Co., filed in 1982; and McLendon v. Continental Group, filed in this district in 1983. These cases were all based upon the same general allegation that Continental Can Co. operated a "liability avoidance plan" to prevent employees from becoming eligible for employee benefits, in violation of § 510 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1140, and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Two trials were conducted, both followed by appeals. In 1987, the United States Court of Appeals for the Third Circuit held that Continental Can had implemented its Liability Avoidance Plan at Plants 72 and 478 Pittsburgh in violation of ERISA. Gavalik v. Continental Can Co., 812 F.2d 834 (3rd Cir.), cert. denied, 484 U.S. 979, 108 S.Ct. 495, 98 L.Ed.2d 492 (1987). In 1989, the Third Circuit Court of Appeals affirmed this court's ruling that Continental Can's Liability...
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