IN THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ARTHUR RAY BOWLING, et al.,
STANLEY M. CHESLEY, et al.,
SIDKOFF, PINCUS & GREEN, P.C., et al.,
ELIZABETH W. RIDGEWAY, et 9al.,
JEFFREY A. CRANE; GENE RANDALL; GERARD BENEDIK,
PFIZER, INC.; SHILEY, INC.,
On Appeal from the United States District Court
BRIEF OF APPELLANTS/CROSS-APPELLEES JEFFREY A. CRANE, GENE
1. In a class action, did the district court abuse its discretion in awarding plaintiffs' counsel $10.25 million in fees, equal to 10% of the common fund or more than 2.4 times counsel's lodestar, plus the opportunity to earn as much as $6.25 million in fees for future work?
2. In a case in which class counsel requests $33 million in attorney's fees from a common-fund settlement, should the fee-sharing agreements between lead counsel for the class and counsel for other plaintiffs be disclosed to absent class members who have filed objections to the fee request, where the other plaintiffs' counsel had originally objected to the settlement, but later withdrew their objections and agreed to share in class counsel's fee award?
In this brief, Intervenors Jeffrey A. Crane, Gene Randall, and Gerard Benedik (hereafter collectively "Crane") argue that the district court did not abuse its discretion in limiting plaintiffs' class counsel to a $10.25 million fee for work already performed, plus the right to seek additional fees of up to $6.25 million for future work over the next 10 years. In addition, in the final portion of this brief, Crane replies, as appellant in No. 96-3568, to class counsel's argument that it is proper for him to maintain the secrecy of his fee-sharing agreements with other plaintiffs' counsel.
We recognize that this case will be argued on November 18, 1996, before a panel of this Court that is already apprised of the underlying facts. And, although we believe that class counsel has mischaracterized some of the key components of the settlement and of Judge Nangle's decisions below, it will be sufficient generally to rebut class counsel's statements in the argument section below. In order to provide some context, however, we briefly review the settlement and the decisions below.
The Class Action Settlement
This case concerns a worldwide class action settlement involving the claims of thousands of individuals implanted with the Bjork-Shiley Convexo-Concave heart valve manufactured and sold by the defendants. The valve has a tendency to fracture, which has caused hundreds, if not thousands, of deaths and serious injuries to valve patients. The settlement was proposed by class counsel in early 1992. At that juncture, individual class members, as well as patient advocacy groups, came forward to object to the settlement's deficiencies. Because of those objections, some of which were noted by the court in an interim decision, Bowling v. Pfizer, 143 F.R.D. 138 (S.D. Ohio 1992), the settlement was improved substantially.
As modified, the settlement provides all class members with modest cash payments from a $90 million Medical and Psychological Consultation Fund ("MPCF"), which includes a separate $10 million fund dedicated solely to the spouses of valve patients. In addition, the settlement establishes a $75 million Patient Benefit Fund ("PBF"), the principal purpose of which is to fund research to invent a non-invasive device to detect fracture-prone valves. The PBF was established with an initial $12.5 million payment from the defendants, to be followed by 10 additional annual payments of $6.25 million that began in October 1996.
The PBF's research is conducted under the auspices of a Supervisory Panel consisting of physicians, other scientists, and a lay chairperson. If a diagnostic device ultimately is approved by the federal Food and Drug Administration, class members would be entitled to undergo testing paid for with remaining PBF funds. In addition, under the PBF, a narrow category of class members with high-risk valves may obtain free valve replacement surgery and other benefits to pay for the losses associated with the surgery.
The settlement also provides a compensation system for both U.S. and foreign class members who suffer valve fractures. That system allows class members to recover from a sliding scale grid of payments, to arbitrate their claims, or to sue in the tort system.
We agree with class counsel that the settlement provides considerable benefit to the class members. But as we explained to the district court during the proceedings concerning class counsel's fee request, the settlement has its shortcomings as well. (See R. 652, at 3-9, Memorandum in Partial Opposition to Fee Applications of Class Counsel and Special Counsel James Capretz). Most of our concerns about the settlement are discussed below, in response to class counsel's attacks on Judge Nangle's fee rulings.
The Fee Request And The District Court's Fee Decisions
Class counsel and his Special Counsel jointly requested a fee of $33 million, or 20% of the nominal value of the settlement's two monetary funds, plus full recovery of their litigation expenses. After discovery and the submission of comprehensive fee applications, a hearing was held before the Honorable John F. Nangle, at which fee-seeking counsel and the Chair of the Supervisory Panel presented argument under oath. Thereafter, Judge Nangle issued a comprehensive 62-page opinion, granting counsel $10.25 million in fees for their work performed to date, plus more than $475,000 in expenses. See Bowling v. Pfizer, 922 F. Supp. 1261 (S.D. Ohio 1996). The court used the percentage-of-the-fund method for computing fees, id. at 1278-80, and awarded 10% of the total amount that had been paid by the defendants into the two monetary funds. Id. at 1283. Although it used the percentage approach, the court noted that the award represented, at the very least, a fee equal to the lodestar of all counsel, with a multiplier of 2.4. See id. at 1281; Bowling v. Pfizer, 927 F. Supp. 1036, 1042 (S.D. Ohio 1996)
As for future fees to implement the settlement, the court held that counsel could seek fees on an annual basis, for up to 10% of the payments deposited into the PBF, or a total fee of up to $6.25 million over the next 10 years. Id. at 1284. In doing so, the district court rejected class counsel's far larger fee request, holding that "$33 million is entirely too much money for legal fees given the facts and circumstances of this case." Id. at 1283.
Class counsel sought reconsideration on the basis of the district court's alleged misunderstandings of the settlement. In another comprehensive opinion, the court rejected each of class counsel's contentions and affirmed the fee award, although it did increase one lawyer's expense award on the basis of newly presented information, bringing the total expense award to more than $550,000. Bowling v. Pfizer, 927 F. Supp. 1036. Class counsel then brought this appeal.
I. The district court's $10.25 million award for work performed to date was well within its broad discretion. The district court did not err in basing the fee on 10% of the common fund, and then cross-checking the fee against class counsel's lodestar. See Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d 513 (6th Cir. 1993). There is little doubt that the 10% fee is reasonable, since it is equal to counsel's full lodestar, with a multiplier of at least 2.4.
The district court's award for counsel's future work is similarly generous, in that it permits counsel to seek fees of up to $6.25 million on a periodic basis as additional money is paid into the settlement fund over the next 10 years. None of class counsel's attacks on the district court's understanding of the settlement terms are accurate, and even if they were, they would not overcome one fundamental fact: the fee award here amply compensates counsel for the work performed, and will not dissuade other counsel from bringing similar cases.
II. The district court abused its discretion in allowing counsel's fee-sharing agreements with his co-counsel to remain secret. Class counsel points to no discovery privilege or case law that would allow him to keep these agreements from his own clients, and he has ignored fundamental class action principles and the Code of Professional Responsibility, which require the disclosure sought by the intervening class members here.
I. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION IN AWARDING $10.25 MILLION TO CLASS COUNSEL AND HIS ASSOCIATED COUNSEL, AND AUTHORIZING SUBSTANTIAL ADDITIONAL AWARDS FOR FUTURE WORK.
Class Counsel argues that the district court abused its discretion by not granting his full $33 million request. Class counsel bases this argument entirely on the district court's alleged misinterpretations of the settlement. Thus, the argument goes, counsel would have been awarded $33 million up front, rather than $10.25 million plus the opportunity for substantial future fees, if only the district court had better understood the settlement.
As we show below, class counsel's position is fraught with problems, not the least of which is that it ignores the overall generosity of the fee award. Thus, in Part A, we explain that, even if class counsel were correct that the district court misunderstood one or more of the settlement terms (which he is not), the amount awarded was not an abuse of discretion using either a percentage-of-the-fund or lodestar analysis. Then, in Part B, we show that the district court did in fact properly interpret the settlement agreement and in no way understated the value of counsel's services in arriving at its generous fee award. In Part C, we explain that the court's method for compensating counsel for future work--which may amount to as much as $625,000 per year over the next 10 years--was well within its discretion. Finally, in Part D, we address the concerns of the Pennsylvania Class Objectors, who claim that the fee award was grossly excessive.
A. The $10.25 Million Fee Award For Work Already Performed Was Well Within The District Court's Discretion.
The fee award in this case was not made in haste or without careful review of the record. The district court permitted a lengthy period for fee-related discovery. (R. 430, at 14, Order Granting Discovery). The fee applications were voluminous. Class counsel submitted an original application and updates which, all told, were the size of several big-city phone books. (E.g., R. 276). Counsels Johnson and Capretz made their own massive submissions. (E.g., R. 281, 282). Each contained not only time and expense records, but extensive briefs explaining why the requested awards should be granted.
Thereafter, the court held a lengthy hearing on September 14, 1995, after which it took the matter under advisement for nearly six months. It then issued a painstakingly detailed opinion of more than 60 pages. That opinion carefully reviewed the settlement, each fee application, each argument in favor and against each application, and the governing law, and then awarded fees on a percentage basis, while taking into account class counsel's lodestar to assure that the percentage award was not excessive. See generally Bowling, 922 F. Supp. 1261.
After the district court's decision, class counsel moved for reconsideration, stating that the fee was too low because the court had misunderstood the settlement. The district court, in a 23-page opinion, meticulously considered each alleged error, and refused to increase the fee award. See Bowling, 927 F. Supp. 1036 (See Footnote 1). The end result of this lengthy process was a very substantial award: $10.25 million in fees for work performed to date, based on 10% of the amount paid by the defendants into the common fund at that juncture, plus over $550,000 in expenses, plus the opportunity for counsel to earn up to $6.25 million in future fees.
In light of the careful review and re-review of the settlement and the fee request by the court below, class counsel's current attack on the fee award is nothing more than a grab-bag of peripheral (and inaccurate) complaints about Judge Nangle's discussion of the settlement terms. But even assuming the accuracy of these petty criticisms, class counsel's brief is conspicuously silent on one fundamental issue: whether the overall amount of the $10.25 million award, judged under a percentage or lodestar regime, represents an abuse of the district court's discretion. Because that is the only issue presented by class counsel's appeal, we first address the percentage approach and then the lodestar, which Judge Nangle properly used to cross-check his percentage award. See Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d 513 (6th Cir. 1993).
1. The Percentage Awarded Was Entirely Proper.
Class counsel yearns for a higher percentage award to enable him to obtain the $33 million fee he originally requested. But he points to no case--and as far as we know there are none--in which a court of appeals has held that a trial court abused its discretion in limiting the fee award to 10% in a class action involving a large fund like the one here.
In the court below, class counsel claimed that his request for 20% of the $165 common fund, up from his earlier 13% request, was reasonable because many common-fund fee recoveries meet or exceed 20%. That argument fails for two related reasons. First, this case involves a large fund, the creation of which involved huge economies of scale. In such a case, to prevent excessive fees, the law demands percentage recoveries that are much lower than the normal percentage fee used in individual tort litigation. As Judge Shoob explained in the airline antitrust case:
<BLOCKQUOTE>[W]hen the fund is extraordinarily large, the application of a normal range of fee awards may result in a fee that is unreasonably large for the benefits conferred. Thus, based on empirical research covering settlements as a late as 1991, [the late Herbert] Newberg notes that percentage awards tend to decline as the size of the recovery increases. Herbert P. Newberg, Attorney Fee Awards 2.09 (1986). Where fund recoveries range from $51-$75 million, fee awards usually fall in the 13-20% range. [footnote omitted] In megafund cases where extraordinarily large class recoveries of $75-$200 million and more are recovered, courts most stringently weigh the economies of scale inherent in class actions in fixing an appropriate per cent recovery for reasonable fees. Id. Accordingly, fees in the range of 6-10% and even lower are common in this large scale litigation. </BLOCQUOTE>
In re Domestic Air Transportation Antitrust Litig., 148 F.R.D. 297, 350-51 (N.D. Ga. 1992)(citing cases in footnotes and awarding 5.25% of fund, or 4.71% for fees, plus litigation expenses); compare also, e.g., Granada Investments, Inc. v. DWG Corp., 962 F.2d 1203, 1207 (6th Cir. 1992)(awarding fee of 4.3% of $108 million fund, including expenses), and Enterprise Energy Corp. v. Columbia Gas Transmission Corp., 137 F.R.D. 240, 250 (S.D. Ohio 1991)(fee equalled 8% of $56.65 million present value of settlement), with In re Brooktree Securities Litig., 915 F. Supp. 193, 198-99 (S.D. Cal. 1996)(rejecting counsel's request for award of 30% of $5.5 million fund, and awarding 15%); Efros v. Dickhoner, Fed. Sec. L. Rep. (CCH) 92,840 (S.D. Ohio 1986) (fee of $580,923, or 11% of $5.3 million fund).
Second, the underlying justification for a high-percentage contingent fee is the risk of non-recovery, especially in cases where the lawyer has made heavy investments not only of time, but of expenses prior to a finding of liability. Thus, attorneys sometimes justify a healthy contingency award based on the possibility that, had the suit come to naught, all their investment would have also come to naught. Here, however, this factor weighs against a high-percentage fee, and further supports the 10% fee awarded by the district court.
There were essentially two contingencies in this case: the risk that no settlement or favorable verdict would be obtained, and the risk that, once settlement was reached, it would not be approved by the court. As to the first contingency, this case was unusual in that it was brought for the purposes of settlement, with no realistic belief that it could be litigated. See In re General Motors Corp. Pick-up Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768, 794 (3d Cir.)(discussing settlement classes), cert. denied, 116 S. Ct. 88 (1995). Thus, counsel engaged in very little formal discovery, and no important motions were decided by the Court. See Bowling v. Pfizer, 143 F.R.D. 141, 161-62 (S.D. Ohio 1992)(stating "Class Counsel has admitted that only nominal discovery was taken before the settlement of the case," and noting that class counsel had access to public information and "discovery in other cases"); cf. In re Cincinnati Gas & Elec. Co. Securities Litig., 643 F. Supp. 148, 153 & n.3 (S.D. Ohio 1986)(court awarded higher fee than in prior case because, as here, plaintiffs in prior case had access to discovery taken by others and because, as here, court never had to rule on significant pre-trial motion). In short, relatively few hours were spent, particularly by senior lawyers, and little cash investment was made prior to the settlement, which was struck in principle just a few months after the case was filed. (See R. 276, at Ex. A, Class Counsel's Fee Application (time sheets for Mr. Chesley, Ms. Stilz, and Ms. Abaray)).
The risk that the settlement would not be approved was also small. Although the settlement was not approvable as originally submitted by class counsel, the claims of the objectors and the lower court's gentle prodding, see Bowling, 143 F.R.D. 138 (pointing out settlement's inadequacies), quickly reduced the risks of non-approval. The settlement approval here was consistent with the experience in the vast majority of class settlements, indicating that the risks of non-recovery are quite small indeed. See Empirical Study of Class Actions in Four Federal District Courts 58 (Federal Judicial Center 1996)(comprehensive study in four district courts showing that "[a]pproximately 90% or more of the proposed [class] settlements were approved without changes"); see also Granada Investments, 962 F.2d at 1205-06 (class settlements come to court with presumption of fairness); Bowling, 143 F.R.D. at 150-51 (same).
Moreover, after the district court approved the settlement, the contingency went away almost entirely. Although there were appeals on the merits before this Court, the settling parties always characterized them as meritless, and there was, in our view, no contingency once the Supreme Court denied certiorari on the first set of merits appeals in October 1994. Accord Northcross v. Bd. of Educ. of the Memphis City School, 611 F.2d 624, 638 (6th Cir.)("In a long and complicated lawsuit such as this one, only a portion of the time expended can reasonably be regarded as contingent; once liability is established, the attorney is assured of compensation"), cert. denied, 447 U.S. 911 (1980); Berry v. School Dist. of City of Benton Harbor, 703 F. Supp. 1277, 1285 (W.D. Mich. 1986)(no multiplier for hours expended after defendant's motion for new trial was denied) (See Footnote 2).
Thus, the particular circumstances of this case, coupled with the case law holding that a 10% fee is at the high end of awards where the common fund exceeds $75 million, demonstrate that the district court did not abuse its discretion in awarding counsel $10.25 million in fees, plus expenses, for work performed to date.
2. The Lodestar Calculation Underscores The Propriety Of The District Court's Award.
Even if there were some concern about the propriety of the district court's award, consideration of counsel's lodestar would eliminate it. The district court generously assumed the full compensability of class counsel's claimed lodestar; it assumed the propriety of every single hour claimed by every lawyer, paralegal, and clerical worker from every law firm on class counsel's fee application; and it assumed that the hourly rates claimed for each person were appropriate. Based on these optimal assumptions, taken from counsel's own time records, the lodestar for class counsel and all of his Special Counsel came to $4.24 million. Bowling, 927 F. Supp. at 1042. This means that, despite the relatively low contingency at the beginning of the case, and the diminishing contingency after the settlement was struck, the $10.25 million fee nonetheless equalled the full lodestar, with a multiplier exceeding 2.4, not including the court's full award of expenses! Thus, using the lodestar as a cross-check against the percentage fee awarded by Judge Nangle forcefully underscores the appropriateness of the district court's award.
However, equating the present fee award to a lodestar with a 2.4 multiplier is far too charitable to class counsel. As the district court noted on class counsel's motion for reconsideration:
<BLOCKQUOTE>Having pored over Counsel's fee application and supplements, the Court can assure Counsel that under any sort of rigorous lodestar analysis, a significant portion of their claimed hours and billing rates would be seriously questioned. [footnote omitted] The Court clearly gave Counsel the benefit of the doubt in accepting their fee application at face value, and to say that $4,234,542.94 is a generous valuation of their services on an hourly basis is to put it mildly.</BLOCKQUOTE>
Bowling, 927 F. Supp. 1042. Rather than review each of the concerns with counsel's lodestar calculation, we highlight only the most problematic:
a. Billing Of Overhead Costs. Class counsel's fee application stated that "staff"--individuals who copy documents, deliver papers, do data entry, provide transportation, and perform other clerical tasks--worked some 8410.25 hours, at a claimed rate of $25 per hour. (R. 640, at Ex. A, Second Supp. Fee App. ("Other Staff")). This type of clerical work is part of overhead, and thus included in the attorneys' hourly billings, not separately compensable under a lodestar formulation. Mississippi State Chapter, Operation PUSH v. Mabus, 788 F. Supp. 1406 (N.D. Miss. 1992); Martin v. Mabus, 734 F. Supp. 1216, 1226 (S.D. Miss. 1990)(also holding that clerical tasks are never separately compensable, even at a minimal rate, even if performed by a lawyer); Held v. Bruner, 496 F. Supp. 93, 100 (D.N.J. 1980); see also Honorable J. Thomas Greene, "How to Be Effective and Contented in the Law," 162 F.R.D. 375, 378-79 & n.4 (1995)(decrying attempts by attorneys to charge clients with overhead costs already contained in hourly billings). Lawyers do not charge their clients for their time on an hourly basis and then charge an hourly rate for their secretary's time in answering the phone, typing a brief, organizing the client's file, or delivering a document. To charge separately for such overhead costs in assessing a lodestar fee would therefore constitute double dipping (See Footnote 3).
b. Duplication of Effort. Class counsel's fee application reflects considerable duplication of effort and overstaffing. A few examples will suffice. A review of Mr. Chesley's initial work on the case, from February through May 1991, when cross-referenced with the records of his colleagues Goodman, Hondorf, McBride, Abaray, and, to some extent, Stilz, show that there were numerous meetings among many lawyers, with no explanation as to why that was necessary (the records generally do not indicate specifically what the meetings were about). (See generally, R. 276, at Ex. A, Class Counsel's Fee Application (various attorney time records)). The same was true for the plethora of lawyers who read the 1990 Congressional Report concerning the Shiley heart valve, again without explanation as to why such duplication was deemed necessary. (Id.) (See Footnote 4) Similarly, at least six lawyers--Chesley, Stilz, Grunes, DeMarco, Goodman, and Hondorf--attended the fairness hearing (many, if not all, of them at the same time), again without indication in the record what different tasks each was performing. This Court has been very concerned about duplication of effort and has not hesitated to approve across-the-board reductions in fees on that basis. See Kelley v. Metropolitan County Bd. of Educ., 773 F.2d 677, 683-84 (6th Cir. 1985), cert. denied, 474 U.S. 1083 (1986); see also Northcross, 611 F.2d at 636-37; Oliver v. Kalamazoo Bd. of Educ., 576 F.2d 714, 715 n.2 (6th Cir. 1978); Basile v. Merrill Lynch, 640 F. Supp. 697, 705 (S.D. Ohio 1986).
c. Inadequate Description of Work. There are numerous examples of tasks that are not adequately described, therefore making it impossible to understand what the lawyer was doing and how it related to the litigation. Again, a few examples will suffice. Dozens of Ms. Hondorf's entries from January 1992 through September 1992, simply labeled "phone calls" or "phone calls and letters," do not come close to providing the detail required for an award of fees (See Footnote 5). This involves very significant amounts of time, as many of the entries are for three hours or more (R. 276, at Ex. A, Class Counsel's Fee App. (Hondorf time records)), at Ms. Hondorf's claimed rate of $175 per hour. (See R. 560, at Ex. B, Supp. Fee App.). Similarly, Mr. DeMarco states that he "talk[ed]" with Mr. Chesley on numerous occasions, but he doesn't say about what. (See id., at Ex. F) (See Footnote 6). A review of the time records reveal other such entries that do not meet the Sixth Circuit's standard for specificity set out in United Slate, Tile & Composition v. G & M Roofing and Sheet Metal Co., 732 F.2d 495, 502 n.2 (6th Cir. 1984)("documentation offered in support of the hours must be of sufficient detail and probative value to enable the court to determine with a high degree of certainty that such hours were actually and reasonably expended in the prosecution of the litigation").
d. Non-Attorney Work Charged At Attorney Rates. Some of the time listed by class counsel as having been done by attorneys does not appear to have required the work of an attorney. For instance, almost all of the work of attorneys Goodman and Hondorf set out in class counsel's supplemental fee application appears to involve routine communications with class members. This amounts to hundreds of hours at substantial hourly rates. (See R. 560, at Exs. G and H, Supp. Fee App.; see also R. 640, at Ex. A, Second Supp. Fee App. (Total Time Analysis By Individual, indicating that on the second fee application alone Goodman and Hondorf logged 636 and 572.5 hours, respectively, most of which was for phone calls)). This work is important in prosecuting a class action, presumably involving tasks such as answering class member inquiries about the filing of claims, when relief will be forthcoming, and correlating class members' valve types with the reoperation guidelines. (The time records themselves do not specify what the conversations entailed). Although some work of this nature is inevitably done by lawyers, most of it could have been done by paralegals or law clerks, as evidenced by class counsel's time records, which indicate that class counsel also used law clerks, paralegals, and "other staff" to do the very same task over the same time period. (See R. 560, at Exs. I, J, and K, Supp. Fee App.). These types of tasks may be included in the lodestar, if at all, only at reduced non-lawyer rates. Martin, 734 F. Supp. at 1226; Wuori v. Concannon, 551 F. Supp. 185, 195 (D. Me. 1982); Palmigiano v. Garrahy, 466 F. Supp. 732, 744 (D.N.J. 1979), aff'd, 616 F.2d 598 (1st Cir. 1980).
e. Improperly Billed Law Clerk And Paralegal Work. Although some of the work expended by class counsel's law clerks and paralegals called for specialized legal or other knowledge--such as digesting or reading legal and scientific materials, cite checking, and proof reading briefs--much of it did not. There are numerous time entries for these paralegals and law clerks for clerical tasks, such as copying, delivering documents, and data entry. (See, e.g., R. 276, at Ex. A, Class Counsel's Fee App. ("Other Staff")). Again, these items are part of attorney overhead and thus not properly included in the lodestar. See, e.g., Mississippi State Chapter v. Mabus, 734 F. Supp. at 1226. In any event, such work could not command the $60 hourly rate stated in the fee applications (See Footnote 7).
f. The Work of "Special Counsel" Johnson. John Johnson, one of the counsel who joined in class counsel's fee application and with whom class counsel has a secret fee-sharing agreement, did considerable work in this class action and is entitled to a substantial fee. See Bowling, 922 F. Supp. at 1274. However, Mr. Johnson's fee request (and, we suspect, his fee agreement with class counsel) sought compensation for years of work prior to Bowling, in a Texas personal-injury case called Lauterbach v. Shiley, and other personal-injury cases in Great Britain (hereafter referred to collectively as "Lauterbach"). In Lauterbach, Mr. Johnson uncovered much of Shiley's deceptive manufacturing practices, including a scheme whereby manufacturing records were doctored and reconditioned valves were shipped out under the employee identification number of a worker who, according to defendants, did not exist. Mr. Johnson's discoveries naturally caused the defendants grave concern. (See R. 276, at 25-41, Class Counsel's Fee App.).
Mr. Johnson claimed that he was entitled to a fee in this class action for his Lauterbach work because it caused the defendants to seek a global solution to an impending tort disaster. (See R. 276, at Ex. B, Class Counsel's Fee App. (voluminous time records from 1987-1991 relating to Lauterbach, pre-dating Bowling, and making no reference to class action litigation)). Although such a cause and effect is not beyond the realm of possibility, Mr. Johnson presented no direct evidence that this was the case, and he ignored the fact that pressure from other lawyers, advocacy groups, and a Congressional investigation also caused worry for the defendants. See Bowling, 922 F. Supp. at 1283 (noting influence of advocacy groups and Congress). In short, this was too slim a reed upon which Mr. Johnson could be awarded a fee for work in entirely separate individual tort litigation (See Footnote 8).
There may be another, independent reason why Mr. Johnson's Lauterbach hours are not properly part of class counsel's lodestar. As the court below noted, Mr. Johnson may have settled some or all of his other litigation on terms favorable to his clients, with Mr. Johnson obtaining a contingent fee. Bowling, 922 F. Supp. at 1275. If that were the case--Mr. Johnson has not, to our knowledge, disputed this contention--it would be inappropriate for Mr. Johnson to obtain an additional fee for the same work in Bowling (See Footnote 9).
f. The Failure Of Mr. Magaña To Submit Time Records. The district court's cross-check lodestar "include[d], quite generously, a fee allowance of $50,000.00 for Special Counsel Magaña's fees even though Mr. Magaña did not bother to submit time records." Bowling, 927 F. Supp. at 1042. Plainly, if an actual lodestar analysis had been done, this work would not have been compensable.
We have no quarrel with the district court's decision to use a percentage fee in this case, and then use a rough, quite lenient lodestar analysis to cross-check the reasonableness of the $10.25 million award. That approach is fully consistent with the law in this circuit under which the court may use either approach and then cross-check the reasonableness of the award by looking at the other methodology. See Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d 513 (6th Cir. 1993); accord In re Washington Public Power Supply System Litig., 19 F.3d 1291, 1295 (9th Cir. 1994); see also Smillie v. Park Chemical Co., 710 F.2d 271 (6th Cir. 1983)(attorney's fees in common-fund cases should be based, among other things, on value of benefit rendered and value of services on an hourly basis) (See Footnote 10).
However, as shown above, if a strict lodestar analysis had been used here, there is little doubt that class counsel's claimed lodestar would have been substantially reduced. Therefore, the multiplier implicit in class counsel's $10.25 million award is actually far greater than the 2.4 multiplier contained in the district court's rough lodestar cross-check. See Rawlings, 9 F.3d 513 (district court did not abuse its discretion in awarding a multiplier of 2 instead of 3.3 as requested by class counsel); Brooktree, 915 F. Supp. at 199-200. This underscores, once again, that the $10.25 million fee award was quite generous, and certainly was not an abuse of discretion.
B. The District Court's Factual Conclusions Are Fully Supported By The Record.
Class counsel does not challenge any of the district court's legal conclusions. Rather, his quest to obtain a gargantuan $33 million fee is tied solely to the district court's alleged factual errors concerning the value of the settlement. See Red Brief, at 2, 15. In the pages that follow, we show that the district court's factual findings were correct. Before doing so, however, we address two preliminary points.
First, even assuming that the court erred in describing one or another of the settlement terms, there was clearly no abuse of discretion on the issue presently before the Court: the amount of fees awarded. As shown above, the amount awarded was, if anything, generous, since it compensated all counsel, under the most generous lodestar calculation possible, at well more than twice their hourly billings, while reimbursing all of the expenses claimed in this litigation. Thus, for instance, even if the Court erred in its characterization of the Patient Benefit Fund (which it did not), that would not make the amount of the award an abuse of discretion. Similarly, although the district court was correct in stating that the number of class members was diminishing fairly rapidly, even if it had erred, it is difficult to see how this would have any bearing on the propriety of the $10.25 million award. In short, class counsel's assault on the district court's fact findings are not only wrong, they are irrelevant in light of the generosity of the award.
Second, although class counsel concedes that his appeal is premised on alleged factual errors and that the proper standard of review is abuse of discretion, he fails to describe that standard in any detail. In fact, "[w]hen an appellate court reviews a district court's factual findings, the abuse-of-discretion and clearly erroneous standards are indistinguishable[.]" Cooter & Gell v. Hartmarx Corp., 496 U.S. 399, 401 (1990). Under the clearly erroneous standard, "[i]f the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Anderson v. Bessmer City, 470 U.S. 564, 573-74 (1985).
Thus, even if there were some doubt about the lower court's factual determinations, and even if it were assumed that those determinations had some bearing on the ultimate issue in this appeal, this Court would still be required to affirm under this "deferential" standard which "requires the appellate court to uphold any district court determination that falls within a broad range of permissible conclusions." Cooter & Gell, 496 U.S. at 400. We now turn to the factual issues presented by class counsel and show that the district court properly resolved each of them.
1. The District Court Properly Based Its Fee On The Nominal Value of the Patient Benefit Fund.
Class counsel accuses the district court of misstating the value of the Patient Benefit Fund ("PBF") as $37.5 million, which "devalued the monetary basis for the award of attorney's fees." Red Brief, at 20. This is grossly unfair and inaccurate. To be sure, in its original fee Order, the district court did state erroneously that defendants were only obligated to pay in $37.5 million, with the remaining $37.5 million contingent on the need for further research. Bowling, 922 F. Supp. at 1281. However, this statement was made in reliance on class counsel's own statement, under oath, at the fee hearing in which he said exactly what the court said. See Bowling, 927 F. Supp. at 1039 (quoting Mr. Chesley). Obviously, the district court cannot be faulted for relying on the sworn statement of the fee-seeking lawyer who negotiated the settlement.
In any event, for the purpose of calculating the 10% fee, the district court used the full nominal value of the PBF. Bowling, 922 F. Supp. at 1283-84. Therefore, any "error," whether perpetuated by class counsel's own statement or otherwise, was harmless. Indeed, because counsel are permitted to seek fees annually after the defendants make new contributions into the PBF, the fact that there are 11 total payments totalling $75 million, rather than 6 payments totalling $37.5 million, means that there will be "more money available in the future from which Counsel may seek an award of fees." Bowling, 927 F. Supp. at 1041 (emphasis added).
Moreover, the PBF's value to the class members is less than clear. Although defendants are obligated to pay a total of $75 million, several other factors suggest that the value to the class members is substantially below that stated amount. First, because the funds are paid in on a periodic basis, the present value of the PBF is far less than $75 million. In 1991, class counsel told the court that its present value to the class was then only $54 million. (See R. 33, at 25, Nov. 19, 1991 Tr.); see also Wyatt v. United States, 783 F.2d 46 (6th Cir. 1986)(fee in structured settlement under Federal Tort Claims Act must be limited to percentage of settlement's present value, excluding speculative and intangible benefits).
The value of the heart-valve related medical research to the class--which is the main purpose of the PBF--is also unclear. The purpose of the research is to find a non-invasive diagnostic tool for detecting fracture-prone valves. If such a tool is approved by the FDA--a very difficult and time-consuming process--the PBF will, within its monetary limits, fund diagnostic testing for the class members. Bowling, 143 F.R.D. at 149. Research is on-going, and one study shows encouraging, although inconclusive, results. See O'Neill, et al., "Radiographic Detection of Strut Separations in Bjork-Shiley Convexo-Concave Mitral Valves," The New England Journal of Medicine 414 (Aug. 17, 1995). But there is, of course, no guarantee that the class members will obtain access to an FDA-approved test.
More importantly, as defendants conceded at the fee hearing, Shiley was performing much of this type of research prior to the settlement, and, in some instances, the Supervisory Panel simply took it over. (See R. 677, at 21-22, Transcript of Fee Hearing; R. 670, Civil Minutes, Exhibit 13, at Appendix 3, at 1-3, 5, Third Report of the Special Masters/Trustees ("Third Report"), cited in Bowling, 922 F. Supp. at 1040 n.4). Indeed, as the Third Report indicates, the amounts the defendants expended for research prior to the settlement--but now have ceased to fund entirely--vastly outstrip that which has been devoted to research under the settlement. (See id. at Appendix 3, at 5). Finally, at the time of the Third Report, of the $12.5 million (plus $451,483 of accrued interest) paid to the PBF only about $1.4 million had been expended, and the majority of that had been devoted to the salaries and expenses of the Supervisory Panel and other administrative costs, rather than the research projects themselves. (See id. at Appendix 4). Thus, it is unclear whether the full $75 million will ever inure to the class members' benefit (See Footnote 11).
Finally, the thrust of the lower court's original statement that the last $37.5 million might not be devoted to research or diagnostic services is a matter of grave concern. The true value of the fund is difficult to ascertain because the class members do not know whether this money will ever go to research or, as the settlement agreement says, "some other purpose for the benefit of the Settlement Class." (R. 245, at 5.5, Supplemented Agreement of Compromise and Settlement). We know only that these moneys may not go toward "direct distribution to class members" (id.), and, thus, the value of the final $37.5 million to the class is unclear even apart from the concern about present value.
In fact, the settlement is deliberately vague on whether even the first $37.5 million must be devoted to research. Under 5.3.1 of the settlement, the Supervisory Panel "may" initially devote up to $37.5 million for research toward development of a technique to diagnose risky valves (and for payments to allow class members to undergo diagnosis if such a technique is developed). If the entire $37.5 million is expended, the Supervisory Panel "may, subject to approval of the Court," allocate additional amounts for such research. (Id. (emphasis added)). If the remainder of the fund is not expended for such research, however, it may then be devoted to the payment of expenses for valve replacement surgery. (Id. 5.3). However, under 5.5, "[i]f the Supervisory Panel at any time determines that any money remaining in the Patient Benefit Fund cannot productively be spent for the specific purposes set forth herein, including payments of benefits for valve replacement surgery, it may recommend to the Court that such remainder should therefore be devoted to some other purpose for the benefit of the Settlement Class (other than direct distribution to class members)"(emphasis added). Thus, the absolute amount from the PBF to be devoted to the research and other benefits set out in the settlement is unknowable at this juncture.
In its opinion on reconsideration, the district court relied on precisely these factors in holding that it would continue to base its percentage fee on the full amounts paid into the PBF (plus the $90 million MPCF), but would not augment the fee beyond the already generous $10.25 million award. Bowling, 927 F. Supp. at 1040-41. In sum, class counsel points to no error in the lower court's understanding of the PBF, or in the resulting fee award (See Footnote 12).
2. The District Court Did Not Misunderstand The "Open Ended" Nature Of The PBF.
As class counsel points out, if, after the year 2005 (the date of the last payment into the PBF), the PBF has a zero balance, additional payments may be made to qualifying class members for valve replacement surgery. Nothing in Judge Nangle's opinion remotely suggests that he misunderstood this feature of the settlement, and thus no error was committed in valuing the settlement for fees purposes.
In any event, the effect of this "open ended" feature of the settlement is theoretical at best, because the chance that the balance in the PBF will reach zero is practically nil. As noted above, to date only a small portion of the PBF funds has been expended. (See R. 899, at 8, Fourth Report of Trustees). If current practice is any indication, the annual $6.25 million payments will greatly outstrip expenditures, and there will be a very healthy balance in 2005 and for years thereafter. Moreover, valve replacement benefits are paid only for "qualifying" reoperations. The Supervisory Panel has recently decided to rely on the defendants' reoperation guidelines that pre-dated the settlement, which effectively limits benefits to only a very small portion of the class. (See R. 899, at 7, Fourth Report of Trustees (33 qualifying valve replacement claims as of June 10, 1996)). Finally, and most fundamentally, qualification for valve replacement is based solely on immutable objective criteria, such as the type of valve implanted and the class member's age. (R. 245, at 220.127.116.11). Thus, if a class member qualifies for a reoperation, he or she likely will have already had it, or will have it in the near future; the notion that significant numbers of qualifying class members will undergo reoperations after 2005 is, to put it charitably, unrealistic. In short, the tiny prospect that considerable reoperation benefits will be paid over and above the $75 million PBF is surely not a reason to augment the already healthy fee award.
3. The District Court Did Not Err In Its Discussion Of The Life Expectancy Of The Class Members.
Class counsel claims that the district court somehow erred when it stated that the number of class members was diminishing fairly rapidly. This comment was first aired at the fee hearing by a neutral--Kermit Smith, the Chair of the Supervisory Panel. His point was a beneficent one--to emphasize the need to get on with Panel-sponsored research and other matters promptly in light of the fact that the class is generally elderly and afflicted with underlying heart disease of some kind. (R. 677, at 119, Fee Hearing Transcript).
Class counsel has turned the lower court's statement into a wholesale attack on the fee award, claiming that the court seriously underestimated the number of class members needing services in the future. We agree with class counsel that some class members--we hope many class members--will live well into the next century, as there are, for instance, a small number of children with valvular disease that were implanted with the C-C valve.
Nonetheless, while it is impossible to determine the life expectancy of the class members with precision, the district court's statements were essentially correct and based entirely on the record. The court's statement--that "there will be relatively few class members remaining in the year 2000"--was not at all inconsistent with the statements of either the defendants or the Supervisory Panel Chair at the fee hearing. (See R. 677, at 119, 125, Fee Hearing Transcript (number of implantees decline at about 5,000 per year, but absolute decline will not remain that high as total population decreases)). There were about 87,000 people who received the value through 1986. (Id. at 118-19, 125) By mid-1992, the defendants estimated that the number had declined to 55,000. Bowling, 143 F.R.D. at 147 n.3. Defendants claimed last March that there were "about 40,000" implantees still alive, and that the number of implantees decline at about 5% per year. (R. 807, at 3, Defendants' Memorandum). These numbers support, rather than undermine, the court's statements.
Class counsel's attempt to use this point to increase his already healthy fee should be rejected for two other, related reasons. First, the deadline for making claims on the cash funds is now closed, with only about 15,000 class members having registered. (R. 899, at 3, Fourth Report of Trustees). That being the case, it is clear--whether because of lack of notice or class member indifference--that many class members with the right to future relief will never seek it, quite apart from the declining class size. Second, the district court's decision amply provides for fees to provide services to class members in the future. As we describe in Part C below, counsel may earn considerable additional fees to compensate them for providing future services to class members.
4. The District Court Correctly Rejected Class Counsel's 13th-Hour Attempt To Require The Court To Base Its Fee On A Fund In Excess Of $350 Million.
Class counsel claims that the lower court erred because the class fund was "really" worth at least $350 million, not the $165 million figure derived from adding together the nominal amounts of the fixed monetary funds. This complaint is premised on class counsel's belief that, had the district court truly understood the other components of the settlement, principally the fracture compensation formulae, it would have awarded a higher fee based on some higher aggregate value. But a review of the decision below--which sets out the court's understanding of the settlement terms in great detail--shows that class counsel is simply wrong. Bowling, 922 F. Supp. at 1265-67.
But more than being wrong, this argument is simply unfair. Because of the difficulty of valuing the settlement, the parties had agreed that the fixed funds would be used both to set the award and to value the settlement. Class counsel told Judge Spiegel as early as November 1991, and reiterated in his original fee application, that his fees would be based on a percentage of the fixed funds. (See R. 33, at 25-26, Nov. 19, 1991 Tr.; R. 276, at 86, Class Counsel's Fee Application).
Moreover, when class counsel began claiming--without any factual explanation--that the settlement was worth at least $350 million, Crane asked class counsel in discovery for the source of that figure. (See R. 443, at Ex. A, at 8-9, Motion For Limitations Upon Discovery (interrogatories nos. 14 and 15)). Class counsel refused to answer those questions, and Crane moved to compel. In response, class counsel argued that the motion to compel should be denied because "[t]he information requested is an inappropriate area of discovery, for the Court has already indicated that it will award fees based only upon the gross amount of monies and benefits received by the class from the Medical and Psychological Consultation Fund and/or the Patient Benefit Fund." (R. 536, at 4, Untitled Pleading of Apr. 20, 1995). Thereafter, a hearing was held before Magistrate Judge Sherman who, in light of counsel's arguments, suggested that discovery in this area would be irrelevant because class counsel had limited himself to calculating the fee based on the fixed monetary funds. (See R. 657, July 6, 1995 Tr.). The Magistrate Judge thereafter denied the motion on that basis. (R. 601, at 3, Order). Thus, it is simply unfair, not to mention directly contrary to Magistrate Judge Sherman's ruling, for class counsel now to argue that the fee should be based on matters that class counsel said were irrelevant and on which Crane was therefore denied discovery. That is especially true here, where the present fee award is quite generous and counsel will be able to seek fees for future work on an annual basis.
Moreover, class counsel neglects to mention the reason that the $165 million figure was used to calculate the fee. There was considerable disagreement as to the overall value of the settlement. (See R. 989, at 2-3, 8-9, at 6-7, A.1, Submission of Stipulated Facts). As noted above, Crane's principal point was that, because of issues of present value, the defendants' prior funding of research, difficulty in ascertaining the outcome of research, and similar matters, the actual value of the PBF was considerably lower than its nominal $75 million value. Moreover, as to fracture compensation, Crane pointed out that, although this provision is a valuable option to class members, payments under it cannot be counted dollar for dollar for fees purposes. As class counsel conceded at the fee hearing, the defendants were settling these claims, and would continue to do so, regardless of the class action settlement. (R. 677, at 142, lines 21-24, Fee Hearing Transcript) (See Footnote 13).
In any event, class counsel's 13th-hour attempt to require the use of a higher number is both unfair and without any basis in the record. As with all of class counsel's other attacks on the district court's understanding of the settlement, that court was well within its discretion is using the nominal value of the fixed monetary funds in calculating its 10% fee. Cf. Wyatt, 783 F.2d at 47.
Finally, although we support the court's decision to use the full $90 million value of the Medical and Psychological Consultation Fund ("MPCF") in calculating the fee, concerns about the adequacy of the MPCF bolster the district court's decision not to base its fee on anything more than the nominal value of the monetary funds. The MPCF is the part of the settlement that assures value to the class because it permits every class member with notice of the settlement to seek a cash recovery. It appears that about 15,000 claimants will ultimately be deemed eligible, as large numbers of class members either never received notice of the benefits or neglected to request them. (R. 899, at 2-3, Fourth Report of the Trustees). About $37 million of the $90 million fund has been paid out to date (id. at 3), and, when fully distributed, eligible class members will receive a modest recovery of $4,000-$5,000 (with spouses receiving much less), depending on deductions for attorney's fees and expenses. Over the voices of some objectors, the lower court held that these payments were adequate mainly because of the difficulty of establishing a cause of action for individuals with working valves. Bowling, 143 F.R.D. at 162.
However, shortly after the court issued its final judgment approving the settlement in September 1992, defendants entered into a pre-trial settlement with 340 individuals with working valves who had opted out of Bowling. It appears that these individuals, represented by a Minneapolis law firm, each received, on average, in excess of $100,000 (See Footnote 14).
Pfizer then settled the cases of dozens of working-valve claimants who had been opted out of Bowling by the Robles & Gonzalez law firm of Miami, Florida. Finally, Pfizer entered into another settlement in the midst of a trial involving hundreds of working-valve plaintiffs who had opted out of Bowling, represented by Special Counsel Capretz, which, as we understand it, was comparable to the Minneapolis settlement.
It is noteworthy that, as class counsel stipulated below, the three U.S. law firms that represented large numbers of claimants with working valves (i.e., the same individuals upon whose behalf the class action was brought)--the Minneapolis and Miami law firms referenced above, and the Capretz firm--opted their clients out en masse. (See R. 989, at 2-3, 8-9, at 6-7, A.1, Submission of Stipulated Facts; see also R. 652, at Ex. 2, Memorandum in Partial Opposition to Fee Applications of Class Counsel and Special Counsel James Capretz (lists of the hundreds of clients who were opted out by the three law firms referred to above)). In sum, there were two reactions to the settlement: lawyers with significant numbers of clients thought that their clients could do better than what the settlement offered, and class members without lawyers generally acquiesced to its terms.
Thus, it is now clear that the class' working-valve claims were worth well in excess of what they will receive. We do not mean to suggest that, at this stage of the proceedings, this weakness in the settlement renders the overall settlement unfair. However, there is no doubt that the opt outs fared much better monetarily, which is highly relevant to class counsel's claim that his $33 million fee request should have been granted. See Rosenbaum v. MacAllister, 64 F.3d 1439, 1445-46 (10th Cir. 1995)(even where merits of settlement are not appealed, court may look at value of settlement in ruling on fee request).
C. The Award For Future Work Was Entirely Proper.
In addition to the generous $10.25 million award, class counsel is entitled to seek future fees, which may amount to as much as $6.25 million over the next 10 years. Class counsel makes only three weak complaints about this procedure. First, he claims that it is unfair to allow the fees to be paid only through 2005, since some class members will need services past that date. Red Brief, at 14, 24. Second, he complains of the burden of filing multiple fee applications. Id. at 11 & n.11. Third, he warns of the possibility, however remote, that no monies will be available to cover his fees and expense. Id. at 24. Before responding to each of these grievances, some background is necessary.
The idea of holding back fees because of the need to provide future services arose not with Judge Nangle, but with Judge Spiegel. At the fairness hearing in 1992, the court said that it contemplated paying the fee over time, as the settlement was implemented, in order "to keep the class counsel's feet to the fire in representing the class ... ." (R. 251, at 149). Indeed, class counsel appeared to accept this general concept in late 1991 when the settlement was first presented to the court in chambers. (See R. 33, at 26, Nov. 9, 1991 Tr. (class counsel willing to take fee "over time or something like that" so as not to unduly deplete the research fund)).
At the fee hearing, Judge Nangle expressed serious concerns about devising a method to compensate counsel for future services to the class, and directed counsel to address the question. (See, e.g., R. 677, at 61, 145). Class counsel responded with a one-page letter to Judge Nangle, saying that he "would much prefer" to receive the entire $33 million request in 1995, but, if necessary, he would take $18 million up front, with $15 million in guaranteed automatic payments over the next 10 years ($10 million the first 5 years, and $5 million the latter 5 years), regardless of the nature or amount of future work performed. (See R. 685, at Ex. A, Letter From Stanley Chesley to Judge Nangle, dated Sept. 27, 1995).
Crane objected to this procedure, noting that it involved entirely too much money and did not tie the fee to the performance of future work. (R. 685, Mem. in Response to Proposed Payment Schedule). Crane submitted a counter-proposal, under which future fees would be earned on a pay-as-you-go basis, with applications made to the Claims Administrator who would make initial decisions on future fee awards (with final review by the trial court). The court adopted this proposal in part, but substituted the Trustees for the Claims Administrator, and added a innovative method for determining the maximum fee to be awarded in any year. See Bowling, 927 F. Supp. at 1044 (noting that class counsel's proposal was "patently unacceptable"). As payments are made into the fund, at a rate of $6.25 million per year, counsel could apply for up to 10% of that amount. Bowling, 922 F. Supp. at 1284. As Judge Nangle noted on reconsideration, the 10% figure provides adequate incentive to provide quality legal services, since the settlement is final, and counsel is not operating under any contingency of non-recovery nor any significant delay in payment. Bowling, 927 F. Supp. at 1044. We now turn to class counsel's specific arguments against the future-fees mechanism (See Footnote 15).
1. The Structured Fee Award Was Appropriate.
Class counsel's claim that the lower court failed to account for fee payments beyond 2005 is more than a little ironic. Class counsel maintained in his letter to Judge Nangle and in his reconsideration motion that he should get the entire fee up front; how can he now seriously gripe that the fee is not stretched out far enough? Obviously, his real complaint is the overall amount, which as explained above, is more than adequate for the work performed to date. As to the future fees, as the court below explained, if the lodestar for work to date for all counsel, under the most generous calculation possible, was $4.24 million, it "defies credibility" to suggest that up to $6.25 million, plus expenses, will not be enough to implement the settlement in future years. See Bowling, 927 F. Supp. at 1044.
As noted earlier, the vast majority of qualifying valve replacement surgeries have already, or will shortly, take place. Given the diminishing numbers of class members, research must go forward as soon as possible, and, we assume, will be well underway, if not nearly complete, by 2005. Tragically, fractures may continue past 2005, but they will be few in number, and, since fracture compensation is generally, although not always, paid automatically through the Claims Administrator, any ancillary work of counsel will have been amply rewarded in the original fee award. Again, counsel's previous position was that an up-front fee award would be enough to allow him to provide services to the class throughout the life of the settlement; he cannot now be heard to say that future payments must continue until the very last benefit is paid out.
Finally, the court's award is consistent with the structure of the settlement. Counsel may seek fees as the monies are paid into the fund. To calculate fees on a percentage-of-the-fund basis on the pretense that the funds presently exist, when in fact they do not, makes little sense. The district court's resolution of this problem, on the other hand, makes perfect sense: it permitted a fee for already-completed services to paid on amounts which had already been deposited into the common fund, and future fees to be paid on amounts which were to be paid in the future. To do otherwise, would have permitted a fee to be calculated on monies not available for the benefit of the class, and concomitantly would have eliminated the possibility, in Judge Spiegel's words, "to keep the class counsel's feet to the fire in representing the class ... ." (R. 251, at 149).
2. There Is No Undue Burden.
The filing of annual fee applications presents no undue burden on class counsel, especially when one considers the unbridled alternative proposed by class counsel in his letter to Judge Nangle: guaranteed, automatic payments of $15 million over 10 years, regardless of the amount and quality of the work performed. Indeed, it is commonplace for courts to entertain post-judgment fee applications for future work (such as enforcement proceedings and settlement implementation in injunctive class actions), and class counsel here should be treated no differently. See Alba Conte, Attorney Fee Awards 4.22, at 217-24 (2d ed. 1993). Finally, the Trustees, Supervisory Panel members, and others in this case have been required on dozens of occasions to make application to the trial court for compensation (see, e.g., R. 766-71, 795), and we see no reason that class counsel should be given special treatment in this regard.
3. Monies Will Be Available For The Payment Of Future Fees.
Class counsel's claim that the PBF may not contain monies for payment of future fees is a red herring. First, as a factual matter, the PBF is overfunded, with $12.5 million paid in as of last April 30, and a balance of more than $9.6 million. (R. 899, at 2-3, Fourth Report of the Trustees) (See Footnote 16). Thus, if the past is any indication, the PBF will continue to maintain a healthy balance. Second, as Judge Nangle held in his reconsideration opinion, nothing would prevent adjustments to be made to the future fee plan in the highly unlikely event that class counsel is required, for instance, to do a huge amount of work in a particular future year. Bowling, 927 F. Supp. at 1044. Third, if the PBF balance became dangerously low, monies properly could be held back to cover a forthcoming fee application. This is precisely what is occurring now, as the Trustees are effectively holding cash otherwise due the class from the MPCF, during the pendency of this appeal.
Like all of class counsel's other arguments, his complaints about the district court's ruling regarding future fees is a thinly-disguised criticism meant to mask his real objection: that he should have been awarded $33 million up front, without any controls over future work for the class. The district court properly rejected this extraordinary request, and this Court should do so as well.
D. The Issues Raised By The Pennsylvania Class Objectors Do Not Warrant Re-Evaluation Of Class Counsel's Fee Award, But Do Require A Very Limited Remand To Assess Their Entitlement To A Fee.
The Pennsylvania Class Objectors ("PCO") raise two distinct points relevant to these appeals. First, they maintain that their lawyers are entitled to a fee because their work contributed to the settlement. Second, they claim that the fee awarded to class counsel is far too generous and was the product of collusion, and that, therefore, the PCO should have been allowed to take discovery of counsel and appear at the fee hearing in opposition to the fee request. We respond to each contention in turn.
1. The PCO Are Entitled To Seek Fees.
It has been Crane's position throughout these proceedings that the PCO's attorneys are entitled to a fee because they, along with other objectors, contributed to the settlement. Crane filed a lengthy memorandum, which meticulously canvassed the work of the PCO's attorneys and their time records, and concluded that the PCO's attorneys were entitled to an award of nearly $600,000, based on a lodestar plus multiplier analysis (See Footnote 17).
Further, the PCO's attorneys should not have been shut out of the fee hearing. We agree that the district court's sua sponte determination, prior to the fee hearing, that the PCO had not benefitted the class was erroneous, especially in light of previous statements by the defendants, the plaintiffs, and the court indicating that the PCO had, in fact, benefitted the class. Therefore, this Court should remand for the limited purpose of permitting the PCO to seek a fee before the district court.
2. The Case Should Not Be Remanded To Reevaluate Class Counsel's Fee Award.
We also agree with the PCO that it should not have been precluded from opposing class counsel's fee request; the hearing should have been open to any class member seeking to oppose the fee award. However, for the reasons explained below, that error was harmless, and the PCO should not be permitted to challenge further the $10.25 million fee actually awarded.
a. Harmless Error. The error committed by the district court was harmless because a remand for further proceedings will not affect the amount awarded. The settlement in this case, despite its shortcomings, is undoubtedly of considerable benefit to the class. Whatever the true value of settlement, the PCO do not, and cannot, challenge that its value exceeds $100 million to the class. The PCO do not, and cannot, challenge the district court's decision to use the fixed monetary funds against which to calculate a percentage-of-the-fund award, in light of the extreme difficulty in determining the exact value of a settlement of this kind. Nor do the PCO challenge the district court's method for awarding future fees. And although the court's 10% fee was generous for a case involving a fund as large as this one, Domestic Air, 148 F.R.D. at 350-51, it was certainly not so high as to warrant this Court's intervention.
Indeed, it is the hallmark of abuse-of-discretion review that a lower court has leeway to resolve factual disputes in more-or-less the right way without fear of a tit-for-tat reassessment by an appellate court. Anderson v. Bessmer City, 470 U.S. at 573-74. That is all the more true where the amount of attorney's fees is at stake, in light of the Supreme Court's admonition that fee requests "should not result in a second major litigation." Hensley v. Eckerhart, 461 U.S. 424, 437 (1983). While class counsel here did settle very early after expending only a modicum of effort, the PCO does not, and cannot, dispute that class counsel, along with his co-counsel, has performed considerable work in renegotiating the original settlement, fending off appeals, and implementing the settlement. Thus, although it would not have been an abuse of discretion to have awarded less than $10.25 million, the amount awarded was also not an abuse of discretion. Had counsel been awarded, say, $8.5 million for work to date, presumably the PCO would be arguing that $8.5 million was also an abuse of discretion. But how can that be in light of the PCO's attorneys' own request, made shortly before the fee hearing, that they alone were entitled to $7.5 million? There is, in short, no reason to think that a new hearing will alter the result (See Footnote 18).
b. Estoppel. This brings us to our second point: that the PCO should be estopped from seeking a remand for the purpose of putting on a full-scale trial regarding class counsel's fee request. When fee applications were first filed in October 1992, the PCO filed a protective fee application, which expressed some unease with the percentage-of-the-fund approach, but requested an award of $7.5 million if the court were inclined to use it and if the PCO's appeals were to fail. (R. 280, Pro Forma Motion). But little more than two months later, the PCO's attorneys appeared with the defendants before a state-court judge in Philadelphia with a deal that was never consummated, apparently because the judge would not give his approval. See Blue Brief, at 5-8. The PCO's attorneys explained that they had agreed to have judgment entered against their clients in their state-court case and to dismiss their clients' Sixth Circuit appeals in exchange for certain payments to them: a $3.5 million fee from defendants, and a $750,000 fee from class counsel to be paid from class counsel's Bowling fee award. (R. 344, at 36-38, Taylor v. Shiley Transcript) (See Footnote 19).
The PCO's attorneys explained to the Pennsylvania judge that their two remaining clients had agreed to accept the Cincinnati settlement and payment of the $4 million directly to the PCO's attorneys, without any further benefit to themselves. (Id. at Ex. C-1, at 4 (letter from PCO attorney to Pennsylvania judge explaining that his clients are pleased with Bowling settlement and consent to $4 million payment)). The day before, class counsel told Judge Spiegel that, in exchange for the payments, the PCO's attorneys "will have no more dealings in the Bowling case." (R. 310, at 10, In-Chambers Transcript). They also reiterated to Judge Spiegel that the deal was based "on the direction that we were given from [our] clients." (Id. at 17). Given these circumstances, it is difficult to see what concern the matters currently before this Court are to the PCO's three clients. Apparently, in December 1992, those clients--two valve patients and a spouse--were happy to have $750,000 paid to their attorneys from the common fund, and to have their attorneys wash their hands of the entire case. Thus, the PCO's clients were willing to drop any objection they might have to any fee award to class counsel, let alone the greatly reduced award that was ultimately made.
Put another way, if the Philadelphia court had approved the deal, the PCO's clients would have acquiesced in class counsel's $33 million fee request, without any concern about an unfair raid on their personal recoveries. That being the case, the PCO should be precluded from changing their position here. Indeed, given their prior position, it is difficult to know whether the PCO's clients actually seek a reduction in class counsel's fee award, and therefore have Article III standing. But even if they do have standing in the constitutional sense, the same considerations that underlie the "prudential" standing doctrine, should at the least estop the PCO from challenging the fee award and forcing a "second major litigation" at this late date. Hensley, 461 U.S. at 437; see, e.g., Gladstone Realtors v. Bellwood, 441 U.S. 91, 99-100 (1979)(prudential limitations on standing); Granfield v. Catholic Univ. of America, 530 F.2d 1035, 1045 (D.C. Cir.) (dismissing for lack of case or controversy because litigants lacked "genuine, undeviating and wholehearted contrariety" to adverse party), cert. denied, 429 U.S. 821 (1976); Brown v. Watkins Motor Line, 596 F.2d 129, 131-32 (5th Cir. 1979).
II. THE DISTRICT COURT ABUSED ITS DISCRETION IN ALLOWING COUNSEL'S FEE-SHARING AGREEMENTS TO REMAIN SECRET.
In our opening brief, we explained that the district court's decision to allow counsel's fee-sharing agreements to remain secret was inconsistent with applicable discovery rules, class action jurisprudence, and the Code of Professional Responsibility. Class counsel has ignored the latter two reasons--each of which independently justifies disclosure--and, therefore, on those matters we rest on our opening brief.
On the discovery issue, a brief response is necessary. Class counsel relies entirely on the truism that discovery rulings are generally reviewed for an abuse of discretion, but gives no serious consideration to what occurred below. Red Brief, at 18-19. In fact, the Magistrate Judge implicitly ruled that the agreements were relevant by demanding that they be submitted in camera (See Footnote 20). Class counsel points to no privilege that remotely suggests that a class member--one of counsel's very own clients--should be denied access to his or her lawyers' fee-sharing agreements in the course of ordinary discovery. In short, class counsel does not cite a single case to support his position.
Class counsel does mention one aspect of the decision below, in which the Magistrate Judge said, in denying Crane access to the agreements, that he was balancing Crane's justifiable concerns over conflicts of interest with the fact that the district judge, not Crane, would be making the fee determination. See Red Brief, at 17. But that stands our adversary system on its head. As we noted previously (Blue Brief, at 17), the courts, not the litigants, make the rulings, but it is the litigants, not the courts, who are expected to marshal the evidence and make the arguments. Absent any claim of privilege, there simply was no basis to deny Crane access to his lawyers' fee-sharing agreements.
Finally, class counsel's brief is more significant for what it does not say, rather than for what it says. Class counsel says nothing in response to pages 24-31 of our opening brief, where we explain that the arrangements between the counsel in this very case demonstrate why fee-sharing agreements in class actions must not be secret. One agreement, the terms of which have been disclosed, has class counsel paying a former objector an amount wildly out of relation to the work performed (id. at 25-27), while another, it would appear, compensates counsel at an amount in excess of $1,300 per hour (id. at 27-28). And the circumstances surrounding the fee applications of Mr. Capretz and the proposed fee agreement with the PCO's attorneys (id. at 28-31), although on the record, manifest the need, to quote Judge Weinstein, for a "'sunshine' rule ... to protect the interests of the public, the class and the honor of the legal profession." In re Agent Orange Prod. Liab. Litig., 611 F. Supp. 1452, 1454 (E.D.N.Y. 1985).
In sum, class counsel's silence in the face of the facts of this case speaks volumes about the wisdom of Judge Weinstein's words. The decision of the district court protecting the secrecy of class counsel's fee-sharing agreements should be reversed.
For the foregoing reasons, the decision of the district court awarding fees to class counsel should be affirmed in all respects; the decisions denying the PCO's attorneys an opportunity to seek a fee should be reversed and remanded for further proceedings; and the decision denying Crane access to class counsel's fee-sharing agreements should be reversed.
Public Citizen Litigation Group
1600 20th Street, N.W.
Washington, D.C. 20009
Attorney for Intervenor-Appellants/Appellees Gary Crane, et al.
October 22, 1996
1 The court did make an additional expense award to Special Counsel Johnson.
2 Indeed, in this case, class counsel is not only "assured of compensation," Northcross, 611 F.2d at 638, he has in fact been paid his $10.25 million, plus expenses, with interest from the date of judgment. (R. 897, Order; R. 970, Order).
3 See also Bowling, 927 F. Supp. at 1042 n.14 ("Class counsel's 8410.25 hours in 'staff' time, for instance, may well not be compensable at all and certainly would not be billable at the rates claimed in the application").
4 The most puzzling of these entries are those for associate Randy Fox, who spent 20.5 hours over a 15-day period almost exclusively dedicated to reading the Congressional Report, yet after April 19, 1991 he did not record a single hour working on the case. (R. 276, at Ex. A, Class Counsel's Fee Application (Fox Tab)). There is no indication that he conveyed anything he learned to any other lawyer or worked on any pleading. Indeed, a law clerk had already prepared a digest of the Congressional Report. (See id., Ex. A (January 1991 entries for paralegal Fellinger)).
5 We assume that most clients would not pay a bill that demanded payment for hundreds of hours described merely as "phone calls" or "letters." Presumably, the client would insist, at the least, on knowing what the letter or phone call was about or to whom the call was placed or the letter written.
6 Although this is but one example of many, we have attempted to determine the content of these conversations by reviewing Mr. Chesley's time records, but have, with one exception, been unable to make such a determination.
7 For instance, no rational client would pay $60 per hour for the delivery of a document on top of the attorney's hourly rate. Nor would that client pay $60 per hour for mailing or data entry, when temporary clerical help for such tasks could be purchased for about $10-$12 per hour. Indeed, class counsel employed temporary help to perform data entry for $12 per hour (in one instance, $9.50 per hour), and has obtained reimbursement for those expenses. See R. 276, at Ex. C, Class Counsel's Fee App. (receipts for "Personnel Search Temporaries")).
8 Mr. Johnson's request for fees for his work in Lauterbach was no small matter. (See R. 640, at Ex. D, Second Supp. Fee App.)(Johnson Tab, Ex. 7)(billing records for approximately $1 million for pre-Bowling work of Mr. Johnson's firms and his British co-counsel)).
9 Although the district court assumed the validity of the full lodestar in cross-checking its percentage award, it appeared to agree with Crane on the non-compensability of Mr. Johnson's pre-1991 work, as it denied reimbursement for his non-Bowling expenses, Bowling, 922 F. Supp. at 1283-84, and expressed skepticism with regard to his non-Bowling fees. Bowling, 927 F. Supp. at 1043 n.15.
10 The recent words of the Third Circuit are also instructive:
<BLOCKQUOTE>Ordinarily, a court making or approving a fee award should determine what sort of action the court is adjudicating and then primarily rely on the corresponding method of awarding fees (though there is, as we have noted, an advantage to using the alternative method to double check the fee).... For example, a court can use the lodestar method to confirm that a percentage of recovery amount does not award counsel an exorbitant hourly rate; similarly, the percentage of recovery method can be used to assure that counsel's fee does not dwarf the class recovery. </BLOCKQUOTE>
General Motors, 55 F.3d 768 at 821 & n.40.
11 We recognize that various research proposals and contracts for research have commenced since the Third Report was issued and that substantial future research is contemplated, but we note that even now only a small percentage of the PBF has been expended on research. (See R. 899, at 8 & Ex. 2, Fourth Report of the Trustees).
12 Class counsel insists that, even in its reconsideration opinion, the district court continued to "misinterpret" the PBF, Red Brief, at 25, by stating that, if valve research is disbanded, the monies may not be distributed directly to the class members. But as class counsel well knows, Judge Nangle was correct on this score because that is precisely what the settlement agreement provides. (See R. 245, at 5.5 (if research is no longer deemed useful, the PBF funds may be "devoted to some other purpose for the benefit of the Settlement Class (other than direct distribution to class members")).
13 See also Bowling, 143 F.R.D. 138, 140 (S.D. Ohio 1992) (Judge Spiegel reviewed fracture settlements in camera to determine fairness of fracture compensation amounts); In re Pfizer Securities Litig., 1990 U.S. Dist. Lexis 17409, *5 (S.D.N.Y. Dec. 21, 1990)(during the 1980's alone, "hundreds of lawsuits" were brought leading to very substantial settlements). Class counsel claims that defendants' policy of settling fracture cases no longer holds true today, but that is wrong. Of the hundreds of valve fracture suits, defendants claimed in a pleading filed this past March that only two had been disposed of favorably to defendants. (R. 807, at 4).
14 See, e.g., "$31-Million Settlement May Be in Works on Shiley Heart Valve," Los Angeles Times, p. D1 (Oct. 17, 1992)(stating that about 340 opt-out claimants obtained settlements in excess of $100,000 per working-valve implantee); (R. 327, at 36, Defendants' Memorandum in Opposition to Motion Under Fed. R. Civ. P. 60(b)(conceding that defendants settled claims of hundreds of plaintiffs represented by two law firms)).
15 Given that there is no contingency, we would expect that all fee-seeking counsel would apply for future fees on a lodestar basis, without requesting a multiplier. Accord Northcross, 611 F.2d at 638 (no fees should be paid on a contingency basis after liability is established, because at that point "the attorney is assured of compensation").
16 Moreover, defendants deposited another $6.25 million into the PBF in early October 1996, creating fund of approximately $15 million.
17 The PCO's attorneys had sought $7.5 million, which Crane opposed as grossly excessive. (See R. 599, Supp. Application of Sidkoff, Pincus & Green, P.C. and Wapner, Newman & Wigrizer For Attorneys Fees and Reimbursement of Costs and Expenses).
18 The PCO claim that their participation is needed, as the true voice of the absentees, because no class members challenged class counsel's fee request. That is simply untrue, as Messr's Crane, Randall, and Benedik have fervently opposed the fee request since November 1992, when they first served fee-related discovery. A quick review of the docket indicates that they have filed more than 20 substantive pleadings on fee issues, took the deposition of one of the Special Counsel, and have appeared in Cincinnati through counsel on their motion to compel before Magistrate Judge Sherman and before the district court at the fee hearing.
From this false premise, the PCO then argue that Crane's participation below was insufficient to protect the class and fell far short of an all-out effort to unearth collusion. This is true, the PCO claim, because Crane's arguments were advanced by attorneys at Public Citizen, which has an "institutional" bias in favor of a lodestar fee (see PCO Red Brief, at 20), which blinded them to other problems, including collusion. With all respect, this is nonsense. Crane argued below that, under this Court's Rawlings decision, the court could employ either the percentage or lodestar method, and, thus, both analyses were included in our principal brief. (See R. 652, at 9-14, 16-31, Memorandum in Partial Opposition to Fee Applications of Class Counsel and Special Counsel James Capretz). Indeed, as Judge Nangle's opinion indicates, Crane ultimately recommended a percentage award for class counsel. Bowling, 922 F. Supp. at 1276.
Following that misstatement, the PCO argue that Crane went easy on class counsel as part of a "quid pro quo" (PCO Red Brief, at 32 n.17), in which class counsel agreed not to object to Crane's attorneys' $105,000 fee request. According to the PCO, Crane's deal with the devil was further evidenced by the fact that his counsel made some good-natured comments toward former objectors'
The PCO accuse Crane of saying that this $4 million side-deal was "secret," PCO Red Brief, at 45, and place that term inside quotation marks as if that is what was said in our opening brief. That is simply false. What we said is based entirely on the facts of record: both the hearing in the Pennsylvania court and the in-chambers conference in Cincinnati were on the record, but were held without any notice to counsel of record in this case, other than those who participated. Indeed, undersigned counsel, who was already representing class members challenging class counsel's fee request, and who has been on the district court service list since May 1992, did not learn of the in-chambers conference until reviewing the docket entries in preparation for filing the opening brief in this appeal.counsel at the conclusion of the fee hearing. PCO Red Brief, at 14-15. This is more than just nonsense; it is an outrageous falsehood.
Although our briefs and oral presentations are shorn of the personal invective that the PCO believe is necessary to show one's true colors, nobody familiar with this litigation can seriously believe that we sold out the class for a fee of $105,000--not, we should note, a fee of $4 million or $7.5 million like the PCO's attorneys sought, in 1992 and 1995, respectively. Nobody opposed our $105,000 fee because, in the words of the district court, it was "a bargain for the Class," Bowling, 922 F. Supp. at 1285, not because we had gone easy on anyone, as our continued persistence on the issues before this Court attest. If there were some substantive basis on which to oppose Crane's fee award, we assume the PCO would have apprised this Court.
Finally, the PCO make the offensive charge that we entered into the "quid pro quo" with class counsel because undersigned counsel, "Mr. Wolfman[,] received a full, unopposed fee in a sum in excess of $105,000." PCO Red Brief, at 32 n.17. As the PCO well know, undersigned counsel has not, and will not, receive one penny from this litigation, as the entire $105,000 inured to the benefit of the non-profit organization for which Mr. Wolfman works.
19 The PCO accuse Crane of saying that this $4 million side-deal was "secret," PCO Red Brief, at 45, and place that term inside quotation marks as if that is what was said in our opening brief. That is simply false. What we said is based entirely on the facts of record: both the hearing in the Pennsylvania court and the in-chambers conference in Cincinnati were on the record, but were held without any notice to counsel of record in this case, other than those who participated. Indeed, undersigned counsel, who was already representing class members challenging class counsel's fee request, and who has been on the district court service list since May 1992, did not learn of the in-chambers conference until reviewing the docket entries in preparation for filing the opening brief in this appeal.
20 We reiterate that, with respect to the secret agreements between class counsel and Mr. Capretz, and Mr. Capretz' former law firm, even an in camera submission has not been made.