Washington Public Power Supply System Securities Litigation, In re

• Decision Date: 23 March 1994
• Docket Number: 91-16685 and 91-16687,No. 1,Nos. 91-16669,1,s. 91-16669
• Parties: , Fed. Sec. L. Rep. P 98,137 In re WASHINGTON PUBLIC POWER SUPPLY SYSTEM SECURITIES LITIGATION. CLASS PLAINTIFFS; Chemical Bank, in its representative capacity as Trustee for Bondholders, Plaintiffs, and Bernstein, Litowitz, Berger & Grossman; Milberg, Weiss, Bershad, Specthrie & Lerach; Molloy, Jones & Donahue, P.C.; et al., Appellants, v. CITY OF SEATTLE; Oregon Public Entities, Benton Rural Electric Association, Washington; Washington Public Power Supply System; R.W. Beck and Associates; Ebasco Services Incorporated; United Engineers & Constructors, Inc.; Director Defendants, Participants' Committee Defendants; Public Utility District, of Klickitat County; United States of America, on Behalf of Itself and its Agency, The Bonneville Power Administration; State of Washington; Bonneville Power Administration, Defendants-Appellees. CLASS PLAINTIFFS, Plaintiff, and Lawrence Laub, Plaintiff-Appellant, v. CONTINENTAL ASSURANCE COMPANY, Plaintiff-Appellee, v. CITY OF SEATTLE; Oregon Public Entities, Benton Rural Electric Association, Washington; Washington Public Power Supply System; R.W. Beck and Associates; Ebasco Services Incorporated; United Engineers & Constructors, Inc.; Director Defendants, Participants' Committee Defendants; Public Utility District, of Klickitat County; United States of America, on Behalf of Itself and its Agency, The Bonneville Power Administration; State of Washington; Bonneville Power Administration, Defendants-Appellees. CLASS PLAINTIFFS, Plaintiff, and Continental Assurance Company, Plaintiff-Appellee, v. BERGER & MONTAGUE, P.A., Appellant, v. CITY OF SEATTLE; Oregon Public Entities, Benton Rural Electric Association, Washington; Washington Public Power Supply System; R.W. Beck and Associates; Ebasco Services Incorporated; United Engineers & Constructors, Inc.; Director Defendants, Participants' Committee Defendants; Public Utility District, of Klickitat County; United States of America, on Behalf of Itself and its Agency, The Bonneville Pow
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1291

19 F.3d 1291

62 USLW 2610, Fed. Sec. L. Rep. P 98,137

In re WASHINGTON PUBLIC POWER SUPPLY SYSTEM SECURITIES LITIGATION.

CLASS PLAINTIFFS; Chemical Bank, in its representative

capacity as Trustee for Bondholders, Plaintiffs,

and

Bernstein, Litowitz, Berger & Grossman; Milberg, Weiss,

Bershad, Specthrie & Lerach; Molloy, Jones &

Donahue, P.C.; et al., Appellants, v. CITY OF SEATTLE; Oregon Public Entities, Benton Rural

Electric Association, Washington; Washington Public Power

Supply System; R.W. Beck and Associates; Ebasco Services

Incorporated; United Engineers & Constructors, Inc.;

Director Defendants, Participants' Committee Defendants;

Public Utility District No. 1, of Klickitat County; United

States of America, on Behalf of Itself and its Agency, The

Bonneville Power Administration; State of Washington;

Bonneville Power Administration, Defendants-Appellees.

CLASS PLAINTIFFS, Plaintiff, and Lawrence Laub, Plaintiff-Appellant, v. CONTINENTAL ASSURANCE COMPANY, Plaintiff-Appellee, v. CITY OF SEATTLE; Oregon Public Entities, Benton Rural

Electric Association, Washington; Washington Public Power

Supply System; R.W. Beck and Associates; Ebasco Services

Incorporated; United Engineers & Constructors, Inc.;

Director Defendants, Participants' Committee Defendants;

Public Utility District No. 1, of Klickitat County; United

States of America, on Behalf of Itself and its Agency, The

Bonneville Power Administration; State of Washington;

Bonneville Power Administration, Defendants-Appellees.

CLASS PLAINTIFFS, Plaintiff, and Continental Assurance Company, Plaintiff-Appellee, v. BERGER & MONTAGUE, P.A., Appellant, v. CITY OF SEATTLE; Oregon Public Entities, Benton Rural

Electric Association, Washington; Washington Public Power

Supply System; R.W. Beck and Associates; Ebasco Services

Incorporated; United Engineers & Constructors, Inc.;

Director Defendants, Participants' Committee Defendants;

Public Utility District No. 1, of Klickitat County;

United States of America, on Behalf of Itself and its

Agency, The Bonneville Power Administration; State of

Washington; Bonneville Power Administration, Defendants-Appellees.

Nos. 91-16669, 91-16685 and 91-16687.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 14, 1993.

Decided March 23, 1994.

Arthur R. Miller, Cambridge, MA. Edward A. Grossman, Bernstein Litowitz Berger & Grossman, New York City. Michael J. Meehan, Molloy Jones & Donahue, Tucson, AZ. Leonard B. Simon, Melvyn I. Weiss, William S. Lerach, Milberg Weiss Bershad Specthrie & Lerach, San Diego, CA, and New York City, for appellants in No. 91-16669.

James E. Spiotto, Ann Acker, Wendy A. Grossman, Rosanne Ciambrone, Chapman and Cutler, Chicago, IL, for appellees.

David B. Gold, Paul F. Bennett, Alan R. Plutzik, San Francisco, CA, for appellants in No. 91-16685.

David Berger, Jay Robert Stiefel, William Appleby-Kellett, Berger & Montague, Philadelphia, PA. Michael J. Meehan, Molloy Jones & Donahue, Tucson, AZ, for appellants in No. 91-16687.

Appeal from the United States District Court for the District of Arizona.

Before: NORRIS, WIGGINS, and LEAVY, Circuit Judges.

WILLIAM A. NORRIS, Circuit Judge:

Appellants are 25 law firms ("Class Counsel") who represented bondholders ("Class Plaintiffs") in the largest municipal bond default in history. From 1977 to 1983, the Washington Public Power Supply System ("WPPSS") sold bonds with a face value of $2.25 billion to finance construction of two nuclear power plants. The plants were never completed and WPPSS defaulted on its bond payments. In 1983, purchasers of the bonds filed a class action against WPPSS and nearly 200 other defendants alleging violations of state and federal securities laws in the sale of the bonds. ¹ The claims of class members totalled almost $1.47 billion. The case was ultimately resolved through 22 separate settlement agreements, which created a settlement fund of $687 million.

Class Counsel requested attorneys' fees totalling $103 million from the settlement fund, which they asserted was a reasonable fee under either the percentage-of-the-fund method or the lodestar/multiplier approach. ² See In re Washington Pub. Power Supply Sys. Sec. Litig., 779 F.Supp. 1063, 1084 (D.Ariz.1990) [hereinafter WPPSS II ]. Under the lodestar approach, Class Counsel reached their $103 million figure by enhancing a lodestar of nearly $33 million by various multipliers which, in the aggregate, constituted a "blended" multiplier of 3.1. In the alternative, Class Counsel claimed that their $103 million lodestar figure would be reasonable under the percentage method because it represented only 13.6 percent of the settlement fund. Id. at 1081.

Employing the lodestar rather than the percentage method, the district court made certain reductions from Class Counsel's $103 million figure, ultimately arriving at a lodestar of $27 million. The court denied most of Class Counsel's requests for multipliers, but enhanced the awards to eleven individual attorneys for the exceptional quality of their representation. These individual enhancements resulted in a blended multiplier of 1.2, which yielded a final award of $32 million.

Class Counsel moved for reconsideration of the fee award, stating that their "principal assertion ... is that larger multipliers should be awarded." Reply Memorandum of Class Counsel in Support of Reconsideration on Attorneys' Fee Order at 7. They also explained that they were arguing "for a percentage as an alternative method, as a way to test the Kerr [lodestar/multiplier] analysis and to confirm the reasonableness of the proposed multipliers." Id. After reconsidering Class Counsel's arguments, the district court refused to increase its initial fee award of $32 million. In re Washington Pub. Power Supply Sys. Sec. Litig., 779 F.Supp. 1056, 1063 (D.Ariz.1991) [hereinafter WPPSS III ]. Class Counsel appeal this award as unreasonably low. Their principal argument on appeal is that the district court neglected to enhance the lodestar for two of the Kerr factors--risk of nonpayment and results obtained--when calculating their fee. See Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 70 (9th Cir.1975).

I Is the Percentage Method Required in Common Fund Cases?

At the outset, Class Counsel urge us to follow the Eleventh Circuit's lead in mandating the use of the percentage method in common fund cases. See Camden I Condominium Ass'n v. Dunkle, 946 F.2d 768, 774 (11th Cir.1991). ³ Because the law in our circuit is settled on this issue, we are not at liberty to follow the Eleventh Circuit. We instead apply the law of our circuit that the district court has discretion to use either method in common fund cases.

In Florida v. Dunne, where we approved the district court's use of the lodestar method to award fees in a common fund case, we explained:

Despite the recent ground swell of support for mandating a percentage-of-the-fund approach in common fund cases, however, we require only that fee awards in common fund cases be reasonable under the circumstances. Accordingly, either the lodestar or the percentage-of-the-fund approach "may, depending upon the circumstances, have its place in determining what would be reasonable compensation for creating a common fund."

915 F.2d 542, 545 (9th Cir.1990) (quoting Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268, 272 (9th Cir.1989) (emphasis added)). In so holding, Dunne relied on two previous cases in which we approved use of the percentage method in a common fund context, but made it clear that either the percentage or the lodestar method may be appropriate depending on the circumstances. See Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1311 (9th Cir.1990) ("the choice between lodestar and percentage calculation depends on the circumstances"); Graulty, 886 F.2d at 272 (same).

Although Class Counsel ultimately acknowledge, as they must, that we have "not yet adopted Camden's rule that the percentage method is mandatory," they make the further argument that Ninth Circuit law mandates use of the percentage method in common fund cases unless the district court finds "special considerations" that warrant use of the lodestar method. Appellants' Opening Br. at 70. Thus, they contend that the district court erred as a matter of law in choosing the lodestar method without first identifying "any 'special circumstances' that would overcome the presumption in favor of the percentage method." Appellants' Reply Br. at 37.

As authority for their argument, Class Counsel seize upon our statement in Six Mexican Workers that "[a]lthough statutory awards of attorneys' fees are subject to 'lodestar' calculation procedures, a reasonable fee under the common fund doctrine is calculated as a percentage of the recovery." 904 F.2d at 1311 (citing Blum v. Stenson, 465 U.S. 886, 900 n. 16, 104 S.Ct. 1541, 1550 n. 16, 79 L.Ed.2d 891 (1984)). We went on to say that a percentage award "should be adjusted, or replaced ... when special circumstances indicate that the percentage recovery would be either too small or too large in light of the hours devoted to the case or other relevant factors." Id. Class Counsel read too much into these two passages from Six Mexican Workers. Whatever uncertainty in our law these passages may have created, it was resolved in the remainder of the paragraph when we reaffirmed our settled rule that either the lodestar or percentage method may " 'have its place in determining what would be reasonable compensation for creating a common fund,' " id. (quoting Graulty, 886 F.2d at 272), and that "the choice between lodestar and percentage calculation depends on the circumstances." Id. This clarification of our law was sharpened by Dunne, where we approved the district court's use of the lodestar method even though the case involved no special circumstances that might have made the percentage method inappropriate. 915 F.2d at 545. Given this clear circuit precedent, we rej...