Merola v. Atlantic Richfield Co.

• Decision Date: 29 April 1975
• Docket Number: No. 74-1628,74-1628
• Citation: 515 F.2d 165
• Parties: 1975-1 Trade Cases 60,301 Frank S. MEROLA and Frank J. Merola, Jr., Individually and t/d/b/a Merola's Arco, on their own behalves and on behalf of all others similarly situated, Appellants, v. ATLANTIC RICHFIELD COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 165

515 F.2d 165

1975-1 Trade Cases 60,301

Frank S. MEROLA and Frank J. Merola, Jr., Individually and

t/d/b/a Merola's Arco, on their own behalves and

on behalf of all others similarly

situated, Appellants, v. ATLANTIC RICHFIELD COMPANY, a corporation, Appellee.

No. 74-1628.

United States Court of Appeals, Third Circuit.

Argued Feb. 10, 1975.

Decided April 29, 1975.

Thomas M. Kerr, Pittsburgh, Pa., for appellants.

Howard A. Specter, David R. Brown, Litman, Litman, Harris & Specter, P.A., Thomas M. Kerr, Pittsburgh, Pa., for appellants.

M. Richard Dunlap, David J. Armstrong, Dickie, McCamey & Chilcote, Pittsburgh, Pa., for appellee.

Before SEITZ, Chief Judge, and ALDISERT and GARTH, Circuit Judges.

OPINION OF THE COURT

SEITZ, Chief Judge.

This case is before us for the second time on the sole question of an appropriate award of attorneys' fees following the settlement of an antitrust action. The first appeal, 493 F.2d 292 (3rd Cir. 1974), resulted in remand of the case in order that the district court might reconsider its award of $5,000 plus expenses in light of this court's decision in Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3rd Cir. 1973) (hereinafter Lindy ). After remand, the district court reaffirmed its award of $5,000 and this appeal followed.

Factual Background

In a complaint filed October 29, 1971, plaintiffs, Frank S. Merola and Frank J. Merola, Jr. ("the Merolas") charged defendant, Atlantic Richfield ("Atlantic") with violation of the antitrust laws. The suit was filed in behalf of a class of all persons who within four years prior to the filing of the complaint had operated service stations as company lessees in Atlantic's Pittsburgh district. The complaint charged that "by coercive measures including, but not limited to, threats of lease cancellation and/or non-renewal," Atlantic had regulated the hours of operation and retail prices of its lessees and had forced the lessees to participate in company promotions and to purchase tires, batteries and accessories from designated suppliers. In addition to treble damages, the Merolas sought injunctive relief against further coercion and an order requiring renewal of their lease.

The Merolas filed a Motion for Determination of Class Action contemporaneously with the filing of their complaint. Subsequent thereto, discovery directed toward the merits and the propriety of a class action was undertaken. However, prior to any determination of whether a proper class was present, two settlements were reached by the parties. The first pertained solely to the Merolas and related to claims asserted by them against Atlantic in addition to those within the scope of the complaint. The individual settlement involved the payment to the Merolas of $10,000 and required that they surrender their lease and never seek a new one.

For purposes of settlement, the district court recognized a settling class composed of all present and future Atlantic dealers in the Pittsburgh district. ¹ Former lessees were not included in the settling class and their claims were ultimately incorporated in another lawsuit which is apparently still pending before the same district judge.

Under the terms of the class settlement approved by the district court on December 20, 1972, Atlantic agreed to alter its service station leasing policies for a period of 15 years. Atlantic's former practice had been to grant a one-year lease to a new lessee, followed by another one year lease and then by a three-year term (a 1-1-3 system). Under the settlement, Atlantic agreed to institute a 1-3-5 system subject always to its willingness to renew a lease at its expiration. Under the new system, a dealer's first lease would be for one year, his second for three years and all subsequent leases for five-year terms.

Attorneys' fees were not the subject of negotiations incident to the class settlement. However, Atlantic has admitted the allegation of plaintiffs' counsel in their application for award of attorneys' fees that "(i)t was agreed that . . . the defendant would be liable for attorneys' fees, expenses and costs . . . (to) be determined by the Court. . . . " In the fee application, plaintiffs' attorneys sought an award of $250,000 based on the expenditure of 871 hours and on the assertion that the settlement had a minimum economic value of $5 million to members of the settling class. ²

Because it was drafted prior to this court's decision in Lindy, the fee petition did not provide the district court with information required for determination of a reasonable attorneys' fee under the guidelines of that case. The 871 hours claimed were divided among eight named attorneys and a law clerk. However, no information was given concerning an appropriate hourly rate for each of these individuals, even though the petition did claim a "productive value" of $57,450 for the time alone, apart from any benefit produced to the settling class.

At the fee hearing, the chief counsel for plaintiffs stated that 264.2 hours were spent by 5 named members of his firm subsequent to June 19, 1972, a date after which the parties agreed that all work was compensable under Atlantic's agreement to pay fees. He also stated his noncontingent hourly rate and that of one other lawyer involved in the case, and indicated his willingness to be examined by Atlantic on the matters concerning which he had given information to the court. The only sworn evidence offered by plaintiffs' counsel at any time with respect to the fee question was testimony by expert witnesses on the value of the settlement to the class. Atlantic did not accept counsel's offer of cross-examination but did challenge the assertion that 871 hours were spent on class action aspects of the litigation. On the ground that there was no benefit accruing from the settlement to the lessee dealers, Atlantic suggested that an appropriate fee would be no more than $5,000.

In a memorandum opinion filed July 11, 1973, the district judge concluded (1) that counsel had adequately established only that 264.2 hours were spent on class action aspects of the litigation; (2) that the plaintiffs' counsel had "failed to meet his burden of proving that the settlement produced any benefit whatsoever to the class"; and (3) that an award of attorneys' fees of $5,000 was appropriate under the circumstances. On appeal, this court affirmed the finding as to the hours spent, questioned the holding of "no benefit" and remanded the case for reconsideration in light of the criteria set forth in Lindy because the district court's opinion included "neither the specificity mandated by Lindy nor an analysis" of factors outlined in Lindy other than the total hours spent by plaintiffs' counsel. 493 F.2d at 298.

After remand, and according to plaintiffs' counsel, without notice to or comments from the parties, the district court filed a second memorandum opinion April 19, 1974. On the ground that there was "no conflict, except perhaps somewhere in the realm of nebulous semantics" between his approach and that of Lindy to the question of attorneys' fees, the district judge reaffirmed his award of $5,000. This was done apparently without affording the parties an opportunity to present further evidence and without making the specific findings required by the order of remand. On this occasion the district judge described the pecuniary and non-pecuniary benefit bestowed upon the class "to be far less than the amount sought by counsel," and concluded that "only in an unfettered outburst of unwarranted generosity could a value in excess of $5,000 be placed" upon the value of the attorneys' services.

The Duty of the District Court on Remand: Application of Lindy

Lindy approached the award of attorneys' fees by requiring that initially an objective basis for evaluating attorneys' services be established by multiplying the hours spent on a case by a reasonable hourly rate of compensation for each attorney involved. With this objective figure as a backdrop, Lindy injected flexibility into the fee-setting process by requiring that the value of the services be finally determined by consideration of at least two additional factors: (1) the contingent nature of the case, reflecting the likelihood that hours were invested and expenses incurred without assurance of compensation and (2) the quality of the work performed as evidenced by the work observed, the complexity of the issues and the recovery obtained. In settled cases, the second additional factor is reflected largely in the benefit produced. It permits the court to recognize and reward achievements of a particularly resourceful attorney who secures a substantial benefit for his clients with a minimum of time invested, or to reduce the objectively determined fee where the benefit produced does not warrant awarding the full value of the time expended.

Plaintiffs' counsel contend that the district court abused its discretion by failing to follow the mandate of this court to apply a Lindy analysis after remand of this case. We are constrained to agree that the district court's treatment of the case did not satisfy the order for reconsideration. The absence from the court's first opinion of an adequate treatment of the factors deemed significant in Lindy, for which the case was remanded, was not rectified upon reconsideration.

In treating the case after remand, the district court failed to establish the groundwork necessary for an objective valuation of the attorneys' services. Although the total number of hours spent was reiterated by the district court in its second opinion, the court failed to determine by whom the time was spent and what was a reasonable hourly rate of compensation for each of the five attorneys who were involved in class aspects of the case, considering their status (partner, associate) and reputation.

Furthermore, the district court did not properly assess the contingent...