Prandini v. National Tea Co.

• Decision Date: 31 March 1977
• Docket Number: No. 76-2190,76-2190
• Citation: 557 F.2d 1015
• Parties: 16 Fair Empl.Prac.Cas. 963, 14 Empl. Prac. Dec. P 7681 Jean H. PRANDINI, Individually, and on behalf of all other persons similarly situated, Appellants, v. NATIONAL TEA COMPANY and the Amalgamated Food Employees Union Local 590. . Submitted under Third Circuit Rule 12(6)
• Court: U.S. Court of Appeals — Third Circuit

Page 1015

557 F.2d 1015

16 Fair Empl.Prac.Cas. 963, 14 Empl. Prac.

Dec. P 7681

Jean H. PRANDINI, Individually, and on behalf of all other persons similarly situated, Appellants, v. NATIONAL TEA COMPANY and the Amalgamated Food Employees Union Local 590.

No. 76-2190.

United States Court of Appeals Third Circuit.

Submitted under Third Circuit Rule 12(6) March 31, 1977.

Decided June 29, 1977.

Michael P. Malakoff, Louise R. Malakoff, Berger, Kapetan & Malakoff, and Martin Lubow, Pittsburgh, Pa., for appellants.

Walter P. DeForest, Reed, Smith, Shaw & McClay, and J. M. Maurizi, Balzarini, Walsh & Maurizi, Pittsburgh, Pa., for appellees.

Before ADAMS, ROSENN and WEIS, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

In certain types of litigation, a successful plaintiff may receive attorneys' fees in addition to the customary damages for his claim. Although the negotiation of a fee contemporaneously with the evaluation of damages may be conducted with diligence and honesty, the potential for impropriety gives rise to possible misunderstanding by the public. We agree with the district court's disapproval of the procedure, but remanded for further findings of fact necessary in calculation of reasonable fees.

As part of the settlement of a class action based upon sex discrimination in employment, counsel for the class requested court approval of statutorily authorized attorneys' fees. 42 U.S.C. § 2000e-5(k). The proposed settlement petition provided for payment to the class of $97,000, later recalculated to $99,664, and recited the parties' agreement on counsel fees:

"6. Within ninety days after final dismissal of Civil Action No. 72-870, Defendant National Tea Company shall pay Plaintiffs' attorney's fees in the following amounts:

a. The sum of TWENTY-FOUR THOUSAND DOLLARS ($24,000) to Berger & Kapetin;

b. The sum of SIXTEEN THOUSAND DOLLARS ($16,000) to Rosenberg & Lubow; and

c. The sum of TEN THOUSAND DOLLARS ($10,000) to Sylvia Roberts, Esquire."

An affidavit attached to the petition stated that at normal billing rates the fees of the Berger & Kapetan (later restyled Berger, Kapetan & Malakoff) and Rosenberg & Lubow firms would be $42,910, and that Sylvia Roberts' fee was based on a contractual right to receive 20% of the total attorneys' fees awarded. The petition suggested that normal billing rates should be increased by 20% because of the contingent nature of the case and the quality of the work. The petition also requested payment of $3,000 for expenses incurred, including amounts paid to experts, para-professionals, court reporters, postage, copying and similar items. There was no request for counsel fees to be paid from the fund itself.

At the hearing for approval of the settlement, the district judge expressed concern about the request for counsel fees, particularly with the allocation to Ms. Roberts based on a percentage referral arrangement rather than on work performed. The award to the class was approved, but a separate proceeding was scheduled to address the issue of attorneys' fees. At the outset of that hearing, the court stated its dissatisfaction with settlement proposals that include both allowances for attorneys' fees and payment to the class because the combination may create a possible conflict of interest.

Ms. Roberts submitted a letter and affidavit in which she disclaimed any interest in a "referral fee" or a "broker's fee" and submitted an itemization of the time that she had spent on the case. She suggested that an hourly charge of $100 would be reasonable for the 22.75 hours that she had devoted to the matter.

The district court awarded fees as follows:

No specific amount was awarded to Ms. Roberts, the court stating that she should be paid by counsel with whom she had consulted.

Beginning with the maximum of $50,000, to which defendants had agreed, the court began its calculations by first excluding the $10,000 "referral" fee as being forbidden by the Code of Professional Responsibility. The total was further reduced by $5,000 on the ground that Ms. Prandini, the named plaintiff, had received a $15,000 award but had borne no share of the attorneys' fees. The court stated that 331/3% was a reasonable share of her recovery which should have been charged by the attorneys, despite counsel's contention that Prandini had worked as a key punch operator in preparing the case. Thus, the fee fund was reduced to $35,000. In the settlement petition, the two firms had agreed to accept $24,000 and $16,000 respectively, and the court allocated the remaining fee fund in the same proportions.

This appeal was taken by Berger, Kapetan & Malakoff, the other firm, Rosenberg & Lubow, not contesting the amount awarded to it. The defendant has advised us that, since the company had agreed to pay a sum up to $50,000 if approved by the court, it did not contest the fee award in the district court. In the interest of consistency, the company did not deem it appropriate to dispute plaintiffs' counsel's position in this court and, accordingly, has not participated in the appeal. We are presented, therefore, with an ex parte appeal by counsel whose fee was reduced from the $24,000 it had settled upon with the defendant to $21,000 as determined by the court.

The awarding of counsel fees is a matter of discretion with the trial court, but we have provided objective standards to guide and facilitate the sound exercise of that discretion. Lindy Bros. Builders, Inc. of Phila. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973) (Lindy I ), and Lindy Bros. Builders, Inc. of Phila. v. American Radiator & Standard Sanitary Corp., 540 F.2d 102 (3d Cir. 1976), (Lindy II ). The district court is required to employ the formula we devised and to articulate the values of its variable components. The total time expended and a reasonable hourly rate are the elements of the initial computation. That calculation in turn must be adjusted to reflect the quality of the work, benefit to the client, and contingency of the result in order to arrive at a reasonable value of the attorneys' services. If the district court applies this criterion to findings of fact which are not clearly erroneous, it acts within its discretion and the decision will not be disturbed, Lindy II, supra; Pitchford v. Pepi, Inc., 531 F.2d 92, 109 (3d Cir. 1975), cert. denied,426 U.S. 935, 96 S.Ct. 2649, 49 L.Ed.2d 387 (1976); Merola v. Atlantic Richfield Co., 493 F.2d 292 (3d Cir. 1974) (Merola I ), and Merola v. Atlantic Richfield Co., 515 F.2d 165 (3d Cir. 1975) (Merola II ).

The appellants assert that the court failed to make findings of fact on:

1. the number of hours expended by counsel;

2. a reasonable hourly rate;

3. the contingency factor; and

4. the quality factor.

The district judge was aware of our holdings but did not make the required findings because of the posture in which the matter was presented to him. As his opinion explains, counsel had agreed that the total amount to be awarded was not to exceed $50,000, but the number of hours submitted multiplied by the requested rates came to $60,750.00. ¹ The court, therefore, concluded that it could not award fees on the basis proposed and, instead, determined the compensation on a pro rata basis.

We recognize that the circumstances here differ from those in Lindy and the other cases in which we have applied the formula, but the computation described there should have first been followed. Then, proration should have been calculated by using the ratio of the total Lindy calculated fees to the total sum available. That ratio in turn should have been applied to the claims of each firm. ² Since the underlying findings have not been made, we are unable to make the necessary calculations and must remand to the district court. ³

The trial court's opinion, however, raises several important issues that require comment. The district judge found that the agreement to pay a percentage of the fee to referring counsel, without regard to the work she had performed, violated established standards of professional conduct, particularly DR2-107 of the American Bar Association Code of Professional Responsibility, Pa.Stat.Ann. tit. 42. That rule reads:

"A lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of his law firm or law office, unless:

(1) The client consents to employment of the other lawyer after a full disclosure that a division of fees will be made.

(2) The division is made in proportion to the services performed and responsibility assumed by each.

(3) The total fee of the lawyers does not clearly exceed reasonable compensation for all legal services they rendered the client."

A division of fees based on a percentage without regard to work performed or responsibility assumed is not in compliance with the standard. Consequently, when he was asked to approve a fee based only upon the percentage agreement, the trial judge properly refused to approve the arrangement. The appellants contend that the judge's attention should have been directed "at what amount it is ethical to receive, not at what share it is ethical to agree upon." Farmington Dowell Products Co. v. Forster Mfg. Co., 436 F.2d 699 (1st Cir. 1970). But in disapproving the initial request for $10,000, the district judge was passing upon the amount to be received. To that extent we do not accept appellant's position.

After Ms. Roberts had submitted a claim for $2,275 based upon hourly charges, the court did not pass upon it but simply reduced the fee fund by $10,000. We agree with appellants that in this respect the court erred. Having been identified as a lawyer who represented the plaintiff and who had requested compensation, Ms. Roberts' fee should have been determined by the same standards applicable to the others and paid from the fee fund. The fund available should not have been reduced by the full $10,000. ⁴

In appraising the fees...