Rawlings v. Prudential-Bache Properties, Inc.

• Decision Date: 10 November 1993
• Docket Number: No. 92-1588,PRUDENTIAL-BACHE,92-1588
• Citation: 9 F.3d 513
• Parties: Robert W. RAWLINGS, on his own behalf and on behalf of all others similarly situated, Plaintiff, Beigel and Sandler, Ltd., Attorneys-Appellants, v.PROPERTIES, INCORPORATED, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 513

9 F.3d 513

Robert W. RAWLINGS, on his own behalf and on behalf of all

others similarly situated, Plaintiff, Beigel and Sandler, Ltd., Attorneys-Appellants, v. PRUDENTIAL-BACHE PROPERTIES, INCORPORATED, et al.,

Defendants-Appellees.

No. 92-1588.

United States Court of Appeals, Sixth Circuit.

Argued Aug. 10, 1993.

Decided Nov. 10, 1993.

Ronald A. Schy, Norman Rifkind (argued and briefed), Herbert Beigel, Beigel & Sandler, Chicago, IL, for plaintiff.

Bradley J. Schram, Gary M. Saretsky, Hertz, Schram & Saretzky, Bloomfield Hills, MI, Miriam G. Bahcall, Timothy A. Nelsen, Skadden, Arps, Slate, Meagher & Flom, Chicago, IL, for Prudential-Bache Properties, Inc., Prudential-Bache Securities, Inc.

Ellen M. Tickner, Michael P. Coakley, Miller, Canfield, Paddock & Stone, Detroit, MI, for TGF Investors.

Stephen F. Wasinger, Raymond W. Henney, Honigman, Miller, Schwartz & Cohn, Detroit, MI, for Laventhal and Horwath.

Robert G. Russell, Kerr, Russell & Weber, Detroit, MI, for Fireman's Fund Ins. Co. of Newark.

Before: JONES and NORRIS, Circuit Judges; and JARVIS, Chief District Judge. ^*

ALAN E. NORRIS, Circuit Judge.

In this appeal we are asked to select the proper way to calculate attorney's fees when a successful class action has resulted in the creation of a common fund to be distributed among members of the class. Class counsel contend that the district court abused its discretion by adopting the wrong methodology. Upon review, we conclude that the district court properly tailored the lodestar method to fit the facts of this case. Accordingly, we affirm.

I. BACKGROUND

In April 1990, Beigel & Sandler ("class counsel") filed this action naming Robert W. Rawlings as plaintiff, individually and on behalf of the class of purchasers of interests in CSH-I Hotel Limited Partnership, a real estate limited partnership that owned several hotels. Defendants sold the limited partnership interests, managed the partnership's properties, offered opinions on the financial projections found in the partnership's offering materials, and acted as sureties for the promissory notes that class members used to purchase their interests. Essentially, the complaint charged that defendants misstated or omitted material facts in the offering materials for the partnership interests in violation of both federal and common law.

After initiating suit, class counsel sought class certification, pursued discovery, responded to motions by defendants, including motions to dismiss and for summary judgment, and negotiated settlements with some defendants. In May and April of 1991, the court denied defendants' motions to dismiss, granted class certification, and tentatively set trial for the beginning of 1992. Soon thereafter, the parties entered into serious settlement negotiations.

By April 1992, the parties had reached an agreement by which defendants would pay the class $3.9 million ("the common fund"). In requesting that the district court approve the settlement, class counsel sought attorney's fees calculated at twenty-five percent of the common fund ($964,062), and reimbursement of expenses in the amount of $22,514. Alternatively, counsel requested a fee calculated by multiplying the reasonable number of hours expended by a reasonable hourly rate, with the resulting "lodestar" of $283,668 being enhanced by a multiplier of 3.3, the combination of which would yield a result similar to the twenty-five percent figure. The district court conducted a hearing at which it approved the settlement agreement, agreed to the reimbursement of expenses, and allowed attorney's fees in the amount of $567,337. In arriving at that figure, the court declined counsel's invitation to follow the percentage of the fund method and, instead, utilized the lodestar method, with a multiplier of 2 instead of 3.3.

This appeal followed. Because the fees are to be paid from the common fund recovered for plaintiffs, defendants have no direct interest in the outcome of this appeal and did not file a brief or otherwise appear.

II. DISCUSSION

The appeal raises two issues. The first is whether the district court erred in applying the lodestar method rather than the percentage of the fund method. As our analysis of this issue leads us to answer "no," we must address a second issue: whether the district court abused its discretion when it selected a multiplier of 2.

A. Lodestar Versus Percentage of the Fund

Class counsel argues that the percentage of the fund method is the appropriate way to calculate attorney's fees in common fund cases.

We are aware of the recent trend towards adoption of a percentage of the fund method in such cases. See Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261 (D.C.Cir.1993); Camden I Condominium Ass'n, Inc. v. Dunkle, 946 F.2d 768 (11th Cir.1991); Court Awarded Attorney Fees, Report of the Third Circuit Task Force, 108 F.R.D. 237 (1985) ("Task Force Report"). Nonetheless, a number of our sister courts of appeals have recognized that the appropriate method for use in common fund cases depends upon the circumstances of each case. See Harman v. Lyphomed, Inc., 945 F.2d 969, 975 (7th Cir.1991); Florida v. Dunne, 915 F.2d 542, 545 (9th Cir.1990); Brown v. Phillips Petroleum Co., 838 F.2d 451, 454 (10th Cir.), cert. denied, 488 U.S. 822, 109 S.Ct. 66, 102 L.Ed.2d 43 (1988). In this circuit, we require only that awards of attorney's fees by federal courts in common fund cases be reasonable under the circumstances. Smillie v. Park Chem. Co., 710 F.2d 271, 275 (6th Cir.1983).

In assessing the reasonableness of requests for fees in class actions resulting in the creation of a common fund, a court must consider factors that are not present in statutory fee shifting cases. The interest of class counsel in obtaining fees is adverse to the interest of the class in obtaining recovery because the fees come out of the common fund set up for the benefit of the class. In addition, there is often no one to argue for the interests of the class (that their recovery should not be unfairly reduced), since it is to be expected that class members with small individual stakes in the outcome will not file objections, and the defendant who contributed to the fund will usually have scant interest in how the fund is divided between the plaintiffs and class counsel. ¹ Task Force Report at 255 ("In these situations, the plaintiffs' attorney's role changes from one of fiduciary for the clients to that of a claimant against the fund created for the clients' benefit.").

When awarding attorney's fees in a class action, a court must make sure that counsel is fairly compensated for the amount of work done as well as for the results achieved. Lindy Bros. Builders, Inc. of Phila. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161, 166-68 (3d Cir.1973). The lodestar method better accounts for the amount of work done, while the percentage of the fund method more accurately reflects the results achieved. For these reasons, it is necessary that district courts be permitted to select the more appropriate method for calculating attorney's fees in light of the unique characteristics of class actions in general, and of the unique circumstances of the actual cases before them.

In order for us to review the court's exercise of discretion, the district court must provide a clear statement of the reasoning used in adopting a particular methodology and the factors considered in arriving at the fee. Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S.Ct. 1933, 1941, 76 L.Ed.2d 40 (1983) ("It remains...