Mokover v. Neco Enterprises, Inc., Civ. A. No. 89-0505B

• Decision Date: 02 March 1992
• Docket Number: Civ. A. No. 89-0505B,89-0693B and 90-0202B.
• Citation: 785 F. Supp. 1083
• Parties: Abraham M. MOKOVER as Trustee for Manor Furs Inc. Pension Plan v. NECO ENTERPRISES, INC., et al. Roger MONDSCHEIN v. NECO ENTERPRISES, INC., et al. Abraham M. MOKOVER, as Trustee for Manor Furs Inc. Pension Plan, and Roger Mondschein, on behalf of themselves and all others similarly situated v. NECO ENTERPRISES, INC., David LaRoche, Paul Buff, David Ryan, Bernard Dutra, Richard Hayes and Elliot Cohen.
• Court: U.S. District Court — District of Rhode Island

785 F. Supp. 1083

Abraham M. MOKOVER as Trustee for Manor Furs Inc. Pension Plan v. NECO ENTERPRISES, INC., et al.

Roger MONDSCHEIN v. NECO ENTERPRISES, INC., et al.

Abraham M. MOKOVER, as Trustee for Manor Furs Inc. Pension Plan, and Roger Mondschein, on behalf of themselves and all others similarly situated v. NECO ENTERPRISES, INC., David LaRoche, Paul Buff, David Ryan, Bernard Dutra, Richard Hayes and Elliot Cohen.

Civ. A. Nos. 89-0505B, 89-0693B and 90-0202B.

United States District Court, D. Rhode Island.

March 2, 1992.

Jonathan M. Plasse, Goodkind, Labaton & Rudoff, Richard Appleby, Lawrence P. Kolker, Wolf, Haldenstein Adler, Freeman & Herz, New York City, Matthew F. Medeiros, Flanders & Medeiros, Providence, R.I., for plaintiffs.

William M. Kolb, Temkin & Miller, Mark Pogue, S. Michael Levin, Stephen A. Fanning, Thomas H. Quinn, Jr., Edwards & Angell, Barry J. Kusinitz, Corrente, Brill & Kusinitz, Marc DeSisto, Carroll, Kelly & Murphy, Providence, R.I., for defendants.

OPINION

FRANCIS J. BOYLE, Chief Judge.

This case involves a stockholders' class action and two derivative stockholder actions brought against the directors of Neco Enterprises, Inc. ("NECO"), a Rhode Island corporation. The complaints allege that the Defendant directors breached their fiduciary duty to the corporation and violated Rule 14(a)-9 of the Securities Exchange Act of 1934, which prohibits the issuance of materially false or misleading proxy statements. Defendant David LaRoche is the pivotal person. He was an owner of the properties sold to NECO, and he owned 52% of the stock of NECO. The transactions that gave rise to these suits include the purchase by NECO of all the outstanding stock in Quechee Lakes, Quechee Service Co., Quechee Water Co. ("Quechee companies") and Mark Enterprises Inc. ("Mark Enterprises"); and the sale to Eastern Utilities Association ("EUA") of Newport Enterprise, Inc. ("Newport"), a utility company owned by NECO, in exchange for 530,000 EUA shares in August of 1989. The Plaintiffs alleged that Defendant David LaRoche, chairman of the NECO Board of Directors and Chief Executive Officer of NECO, owned the Quechee companies and indirectly owned Mark Enterprises.

Initially, the Defendant directors approved the purchase by NECO of the Quechee companies and Mark Enterprises but later decided to submit the proposed purchases to the NECO shareholders for ratification. Additionally, the directors sought shareholder approval of the sale of Newport to EUA. They scheduled a Special Stockholders' Meeting for March 1990, the purpose of which was to ratify NECO's purchases of the Quechee companies and Mark Enterprises and to approve NECO's sale of Newport to EUA. Thereafter, on February 14, 1990, NECO issued a proxy statement to its shareholders which solicited ratification at the Special Stockholders' Meeting of NECO's purchase of the Quechee companies and Mark Enterprises as well as shareholder approval of the sale of Newport to EUA.

On September 13, 1989, only one month after the transactions which underlie this action, Plaintiff Abraham Mokover as trustee for Manor Furs Inc. Pension Plan filed a stockholders' derivative complaint in this Court alleging that the individual directors breached their fiduciary duties to NECO by approving the purchase of the Quechee companies and Mark Enterprises. Mokover was represented by three law firms: the law firm of Goodkind, Labaton & Rudoff and the Law Office of Richard Appleby, both having offices in New York City; and the Providence, Rhode Island, firm of Flanders & Medeiros as local counsel whose partners and associates are members of the Bar of this Court.

In December 1989, Plaintiff Roger Mondschein filed a similar stockholder derivative complaint. Mondschein was represented by the firm of Wolf, Haldenstein, Adler, Freeman & Herz, also a New York law firm, and by Flanders & Medeiros as local Rhode Island counsel.

In February 1991, Plaintiffs Mokover and Mondschein filed a consolidated derivative complaint. The consolidated complaint essentially restated the initial complaint and added allegations of Securities Acts violations that had occurred after the filing of the initial complaint relating to the effort to obtain stockholder approval of the readily apparent self dealing. All four law firms undertook the joint representation of the Plaintiffs for the consolidated derivative complaint.

In April 1990, Plaintiffs Mokover and Mondschein filed a class action complaint alleging that the proxy statement disseminated by NECO in connection with NECO's March 1990 Special Stockholders' Meeting was false and misleading in violation of Rule 14(a)-9 of the Securities Exchange Act of 1934. Again all four law firms undertook the joint representation of the Plaintiffs.

On May 8, 1991, this Court consolidated the derivative actions and the class action for discovery and trial purposes. The matter appeared about to go to trial. In June 1991, at the urging of the Court, the parties began their first serious discussion of settlement, and shortly after a meeting in the courthouse, the actions were settled. This settlement came after months of intensive and extensive discovery which involved the depositions of at least fifteen witnesses.

In June 1991, the parties entered into a Stipulation of Settlement. The terms of the settlement provided that a cash contribution of $2,900,000 would be deposited on behalf of Defendants into a settlement fund. The settlement further provided that after deduction of attorneys' fees and expenses, 80% would be distributed to the corporation, and 20% would be distributed to stockholders who had filed claims. The Stipulation of Settlement was approved by this Court at a hearing on October 8, 1991.

Counsel for the Plaintiffs now submit a petition for an award of attorney's fees from the settlement fund. The petition seeks an award of a fixed percentage fee of 25% of the fund produced, or $725,000, as a reasonable award of fees. The petition also seeks reimbursement for claimed expenses of $98,260.16, including expert fees of $18,427.76.

In addition to contending that the requested fee is reasonable based upon fees awarded by other courts, the Plaintiffs contend that a 25% fee is less than fees that would be awarded based on hours of services rendered times hourly rates for those services, the so-called "lodestar" method. Plaintiffs contend that using the lodestar method their attorneys would be entitled to a fee of $802,959.10 for 3708.3 hours of services rendered. According to the Plaintiffs, the lodestar approach would yield a fee for the firm of Goodkind, Labaton & Rudoff of $416,367 for 1867.10 hours of services, more than half of which are charged at that firm's highest rate of $320 per hour; Wolf, Haldenstein, Adler, Freeman & Herz a fee of $181,687 for 877.1 hours of services; Law Offices of Richard Appleby a fee of $139,750 for 430 hours of services at a rate of $325 per hour; and Flanders & Medeiros a fee of $62,154 for 534.16 hours of services, 59 of which are charged at that firm's highest rate of $250. According to the Plaintiffs, the 25% fee requested is $77,959.10 less than the lodestar fee.

The balance of the expenses claimed after allowance for expert's fees is $79,832.40. This includes the following items:

                Photocopying                 $24,544.99
                Document Reproduction          1,777.57
                Travel                        15,149.54
                Federal Express                3,885.42
                Facsimile transfer             2,761.91
                The total of these items is  $48,119.53
                

Counsel for NECO filed a memorandum in opposition to the Plaintiffs' application. This memorandum is addressed to the calculation of the lodestar fee only and expresses no opinion as to when a percentage-of-the-fund method of fee determination is appropriate.

Thereafter, counsel for the parties submitted a form of order to the Court which states that "counsel for plaintiffs and NECO engaged in negotiations which resulted in an agreement whereby Plaintiffs' counsel agreed, subject to Court approval, to modify the Petition so as to seek an aggregate award of fees and reimbursement of disbursements equal to $675,000 plus 23.2% of the interest accrued on the Settlement fund from the time that fund is created ... until the date this order is entered...."

After the presentation of this order, one of Plaintiffs' counsel filed an affidavit which in part states: "The agreement was conditioned upon the Court's approval of the reduced application; the parties reserved all rights in the event the Proposed Fee Order was not approved, including Plaintiffs' counsels' right to apply for the full amount initially sought in the Fee Application."

The foregoing statement is not free from ambiguity. It may mean that if the Plaintiffs' counsel are not satisfied with this Court's determination of the issue they reserve the right to take an appeal. The same language could also be read to suggest that an agreement among counsel has some preclusive or binding effect upon the Court's determination. If the latter is what is intended, it must be pointed out that this Court has a fiduciary duty to review the requested counsel fees and reimbursement and to use its best judgement to determine what is a reasonable fee and what are appropriate disbursements. Foley v. City of Lowell, 948 F.2d 10, 19 (1st Cir.1991); Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 523 (1st Cir. 1991). The form of order presented, which requires a finding of the fees awarded as "reasonable," certainly recognizes this obligation.

Because both Plaintiffs and Defendants are in agreement and hold views that are contrary to the conclusions of the Court in this opinion, it is necessary for this Court to set forth in some detail the Court's review of the fee application.

It is well-settled that a "litigant who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney's...