Purdy v. Security Sav. & Loan Ass'n

• Decision Date: 22 December 1989
• Docket Number: 88-C-405.,No. 88-C-313,88-C-313
• Citation: 727 F. Supp. 1266
• Parties: Karroll L. PURDY and Dorothy D. Purdy, individually and on behalf of all other similarly situated, Plaintiffs, v. SECURITY SAVINGS & LOAN ASSOCIATION, et al., Defendants. Ronald B. GALECKE, individually and on behalf of all others similarly situated, Plaintiffs, v. SECURITY SAVINGS & LOAN ASSOCIATION, et al., Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

727 F. Supp. 1266

Karroll L. PURDY and Dorothy D. Purdy, individually and on behalf of all other similarly situated, Plaintiffs, v. SECURITY SAVINGS & LOAN ASSOCIATION, et al., Defendants.

Ronald B. GALECKE, individually and on behalf of all others similarly situated, Plaintiffs, v. SECURITY SAVINGS & LOAN ASSOCIATION, et al., Defendants.

Nos. 88-C-313, 88-C-405.

United States District Court, E.D. Wisconsin.

December 22, 1989.

Robert Silverstein, Silverstein & Associates, Thomas K. Archie, Milwaukee, Wis., Art Aufman, Edward Joyce, Joyce & Kubasiak, Chicago, Ill., for plaintiffs.

William H. Alverson, Michael Ash, Godfrey & Kahn, S.C., Michael L. Sorgi, Schoendorf & Sorgi, Milwaukee, Wis., for defendants Security Financial Corp. & Security Savings & Loan Assn.

Jon P. Christiansen, Foley & Lardner, Milwaukee, Wis., for defendants Security Spring & Boe Investors, Ltd.-82, Larry K. Boe and William A. Spring.

Daniel Conley, Quarles & Brady, Milwaukee, Wis. (Miriam F. Miquelon, Miquelon & Associates, Chicago, Ill., of counsel), for defendants Security Spring & Boe Inv. Corp., Spring & Boe Companies, Inc., Security Spring & Boe 82 Partners, Security Spring and Boe Financial Companies, Inc.

OPINION AND ORDER

CURRAN, District Judge.

I. PRIOR PROCEEDINGS

Three disappointed investors commenced the two above-captioned cases which have been consolidated for purposes of settlement. Karroll and Dorothy Purdy (Case No. 88-C-313) and Ronald B. Galecke (Case No. 88-C-455) are suing Security Savings and Loan Association, Security Spring and Boe Investment Corporation, Security Savings & Boe Financial Companies, Inc., Larry K. Boe and William A. Spring¹ seeking money damages and attorney fees. In their twenty-seven count First Amended Complaint, the Purdys claim that the defendants defrauded them of the profit and value of their investment in a real estate limited partnership (Security Spring & Boe Investors, Ltd.-82) by violating all four sections of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(a), (b), (c) & (d). They also assert state law claims for violations of the Wisconsin Organized Crime Control Act, Wis. Stat. §§ 946.80-.87. In his Complaint, Galecke seeks treble damages for RICO violations in connection with a similar limited partnership investment in Security Investors, Ltd.-II. The court has jurisdiction over these claims pursuant to 18 U.S.C. § 1964(a) & (c); 28 U.S.C. § 1331; and the doctrine of pendent jurisdiction.

After the defendants' motion seeking summary judgment in the Purdys' case was denied, the court convened a settlement conference and, several weeks thereafter, the parties agreed, in principal, to settle both cases. To implement the settlement and pursuant to the agreement of the parties, the court certified a class of plaintiffs for settlement purposes. This class is described thus:

The Settlement Class for all purposes contemplated by the Settlement Agreement shall be defined as "all of the original purchasers of one or more limited partnership interests in Security Spring & Boe Investors, Ltd. 82 and/or Security Investors, Ltd. II and their respective transferees;" and, for purposes of the final distributions from the Settlement Fund, as "all persons, other than the Defendants, who were the original purchasers of one or more limited partnership interests in Security Spring & Boe Investors, Ltd. 82 and/or Security Investors, Ltd. II excepting any person who has asserted a claim against any of the Defendants based upon that person's purchase of limited partnership interest(s) in either of the Partnerships and has executed a release of one or more of the Defendants in compromising such claim."

Order of August 17, 1989 at ¶ A.

After a hearing on August 15 and 16 of 1989, this court determined that the proposed settlement between the class members and the defendants was fair, reasonable and adequate. See Order of August 17, 1989. The terms are set forth in the "Settlement Agreement" filed June 13, 1989. The Settlement Fund available for distribution under these terms now totals approximately $4,000,000.00, plus accrued interest.

II. ATTORNEY FEES

The Settlement Agreement provides that the legal fees of the plaintiffs' counsel shall be paid out of the Settlement Fund in an amount to be fixed by the court. See Settlement Agreement at ¶ 8. Accordingly, on July 11, 1989, plaintiffs' counsel submitted a "Petition and Memorandum in Support of Class Counsels' Application for Attorneys' Fees and the Reimbursement of Litigation Expenses," which includes affidavits documenting the time expended by the plaintiffs' two law firms through June 30, 1989. Because the application did not contain sufficient information, the court ordered the attorneys to submit supplemental materials. See Order of August 17, 1989.

Plaintiffs' attorneys now jointly request an award of attorneys' fees in the amount of $500,000.00 to be paid from the Settlement Fund, together with reimbursement of expenses in the amount of $11,089.13. Based on the current market rates which these attorneys allege they charge, the proposed lodestar amount is $228,704.00 for 2,008.35 hours of work over the course of fifteen months. The attorneys want the court to multiply the lodestar by 2.19 to reflect risk of nonpayment and superior performance.

At the settlement hearing a number of the class members objected to the proposed lodestar fees and particularly to the multiplier on the ground that the Settlement Fund is inadequate. Under the terms of the Settlement Agreement the plaintiffs will receive approximately one-third of the purchase price of each of their shares in the two limited partnerships. The basic thrust of the objections was that the attorneys should not be paid unless or until the plaintiffs are made whole. The plaintiffs will not be made whole by this settlement, but it would be patently unfair to expect class counsel to work for a reduced fee or no fee. These attorneys are not the cause of the plaintiffs' investment losses and without their efforts the class members would likely have suffered a total loss. Class members were apprised of the amount of the requested fees prior to the settlement hearing and each member had the option to opt out of the lawsuit and pursue a separate remedy. See Settlement Agreement at ¶ 8; Notice of Hearing, Proposed Settlement and Conditional Class Action at ¶ 7. Under these circumstances, these objections have limited merit. Nevertheless, because of the concerns expressed by the objectors, the court has taken time to examine the petition carefully and to require additional supporting documentation.

A. Legal Basis

The United States Supreme Court has long recognized that, when a plaintiff-representative successfully establishes or protects a fund in which other class members have a beneficial interest, the costs of litigation may be spread among the fund's beneficiaries. See Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1882); Mills v. Electric Auto-Lite Company, 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Alyeska Pipeline Service Company v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). Class members would be unjustly enriched if they were allowed to benefit from a fund created by the efforts of their attorneys without sharing in the payment of the attorneys' fees. See Boeing Company v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct. 745, 749, 62 L.Ed.2d 676 (1980); Rothfarb v. Hambrecht, 649 F.Supp. 183, 237 (N.D.Cal. 1986); Fickinger v. C.I. Planning Corporation, 646 F.Supp. 622, 632 (E.D.Pa.1986).

When a common fund is available, attorneys for the successful parties may petition for a portion of the fund as compensation for their efforts. See Boeing, 444 U.S. at 478, 100 S.Ct. at 749. Once an attorney files such a petition, his role changes from one of fiduciary for his clients to that of a claimant against the fund created for the clients' benefit. Defendants, having made their contribution to the settlement, are uninterested in the distribution, so (as in this case) they typically do not offer any opposition to the fee petition. It is, therefore, incumbent upon the trial court to become the fiduciary for the fund's beneficiaries and to act with "moderation and a jealous regard to the rights of those who are interested in the fund" in determining what is a reasonable fee to be paid to class counsel for their efforts in settling the litigation and creating the fund. See Skelton v. General Motors Corporation, 860 F.2d 250, 253 (7th Cir.1988), cert. denied, ___ U.S. ___, 110 S.Ct. 53, 107 L.Ed.2d 22 (1989); City of Detroit v. Grinnell Corporation, 495 F.2d 448, 469 (2d Cir.1974), quoting Trustees v. Greenough, 105 U.S. 527, 536, 26 L.Ed. 1157 (1881).

B. Lodestar

Although the plaintiffs' attorneys have urged this court to consider a percentage fee arrangement, the accepted method of determining fees in this circuit is the modified "lodestar" method. First, the court must calculate the lodestar, taking into consideration the number of hours and how they were spent and the value of each attorney's services to the class. Second, the court may adjust the lodestar to reflect the contingent nature of the attorneys' undertaking. This requires the court to assess the likelihood of success in obtaining a judgment or settlement as measured at the time the attorney began work on the case. See Skelton v. General Motors Corporation, 860 F.2d 250, 255 (7th Cir.1988), cert. denied, ___ U.S. ___, 110 S.Ct. 53, 107 L.Ed.2d 22 (1989). The party seeking attorney fees "bears the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates." Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S.Ct. 1933, 1941, 76 L.Ed.2d 40 (1983).

1. Hours

Based on these directives, the court's starting point for determining a just and adequate fee to be paid to counsel for the prevailing plaintiff class in this...