Petition for Writ of Certiorari — General Motors Corp. v. Skelton
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BS
No.
—
Supreitia Court, U.S,
1848 FILED
) MAY 12 1808
JOSEPH F. SPANIOL, JR,
CLERK
In the Supreme Court of the United States
OCTOBER TERM, 1988
GENERAL MOTORS CORPORATION, PETITIONER
v.
ARLIE GLEN SKELTON, ET AL., RESPONDENTS
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Louis H. LINDEMAN, JR.
LEE A. SCHUTZMAN
General Motors Corporation
8031 West Grand Boulevard
Detroit, Michigan 48202
(313) 974-1672
STEPHEN M. SHAPIRO
Counsel of Record
KENNETH S. GELLER
JOHN E. MUENCH
MARK I. LEvy
KAREN C, LIEBERMAN
Mayer, Brown & Platt
190 S. La Salle Street
Chicago, Illinois 60603
(312) 782-0600
Counsel for Petitioner
WILSON - EPES PRINTING Co., INC - 789-0096 - WASHINGTON, D.C. 20001
QUESTION PRESENTED
In Pennsylvania Vv. Delaware Valley Citizens’ Council,
107 S. Ct. 3078 (1987), this Court held that an attorneys’
fee multiplier reflecting the risk of loss in litigation is
unavailable under federal fee-shifting statutes. Never-
theless, the court of appeals authorized a risk multiplier
in this class action brought under the Magnuson-Moss
Act, holding that Delaware Valley and the express limi-
tation on attorneys’ fees contained in the Act were irrele-
vant because the parties reached a settlement that re-
sulted in the creation of a monetary fund to compensate
the plaintiff class. The question presented is as follows:
Whether, in class actions filed under federal statutes
that provide for.an award of attorneys’ fees, a “risk
multiplier” is available, notwithstanding this Court’s de-
cision in Delaware Valley and Congress’s express limita-
tion on the amount of attorneys’ fees, whenever there is
a settlement that produces a monetary fund for the plain-
tiff class.
li
PARTIES TO THE PROCEEDING
AND RULE 28.1 STATEMENT
Respondent Arlie Glen Skelton is the named represen-
tative of a plaintiff class consisting of:
All original owners (other than solely for purposes
of resale) of a General Motors 1976-1980 model year
vehicle equipped with a THM 200 transmission pur-
chased in the United States, its possessions and ter-
ritories, or the District of Columbia, who incurred
any transmission repair expense within the first
50,000 miles of use of that vehicle.
Respondent law firms seeking attorneys’ fees. are: Sach-
noff, Weaver & Rubenstein; Charles A. Boyle & Associ-
ates; Corinblit & Seltzer; Abraham N. Goldman & Asso-
ciates, Ltd.; Goodkind, Weschler, Labaton & Rudoff;
Frances E. Goodman, P.C.; William J. Harte, Ltd.;: Law
Offices of Beverly C. Moore, Ltd.; and Zwerling, Schacter
& Zwerling.
Petitioner General Motors Corporation’s subsidiaries
(excluding wholly-owned subsidiaries) and affiliates are
listed in App., infra, T7a-79a.
OPINIONS BELOW
TABLE OF CONTENTS
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STATUTORY PROVISION INVOLVED
STATEMENT
A.
REASONS FOR GRANTING THE PETITION
:.
II.
Il.
Background
1. General attorneys’ fee principles
2. This litigation and the settlement agree-
ment
Respondents’ Claim For Attorneys’ Fees And
The District Court’s Ruling
. The Court Of Appeals’ Ruling And The District
Court’s Decision On Remand
THE COURT OF APPEALS HAS RESOLVED
A RECURRING AND IMPORTANT ATTOR-
NEYS’ FEE QUESTION IN A MANNER
THAT CONFLICTS WITH PAST DECISIONS
OF THIS COURT AND WITH STATUTORY
STANDARDS PRESCRIBED BY CONGRESS..
THE COURT OF APPEALS’ HOLDING
THAT RISK MULTIPLIERS ARE AVAIL-
ABLE WHEN CLASS ACTION SETTLE-
MENTS RESULT IN THE CREATION OF
A MONETARY FUND IS PLAINLY IN ER-
ROR AND SHOULD BE REVERSED
REVIEW IS WARRANTED AT THIS TIME..
hated sisegnaneccneccntnonssvsiissnnsnnnnennseones
(iii)
16
24
26
iv
TABLE OF CONTENTS—Continued
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
APPENDIX E
APPENDIX F
TABLE OF AUTHORITIES
Cases: Page
Alyeska Pipeline Co. v. Wilderness Society, 421
Airs, Se NOE salah es Se hh 3
Blanchard v. Bergeron, 109 S. Ct. 939 (19G2).....:.. 10, 11,
19, <8
Blum v. Stenson, 465 U.S. 886 9 | eee 7, 10, 22
Boeing Co. v. Van Gemert, 444 U.S. 472 (1980)... 20
Churchfield Mgt. & Inv. Corp., In re, No. 84 B
7409 (Bankr. N.D. Ill. Mar. 7, 1989) | 24
Dutchak v. International Brotherhood of Team-
sters, Nos. 76 C 3803, 78 C 342, and 79 C 1725
aecRe. Eee WO Oe RO ee et) 24
Friends of the Earth v. Eastman Kodak Ce. 834
Fue ape (ae tas, 3087) |. ee, 19, 23
Garmong Vv. Montgomery County, 668 F. Supp.
Rene: CTSA, - RE ED cE ye eet 15
Hensley Vv. Eckerhart, 461 U.S. 424 & - e 10, 25
Maher v. Gagne, 448 U.S. 122 (1980) .. 23
McGuire v. Sullivan, No. 88-1097 (7th Cir. Avr.
ee | a EE UNO SORE aN Ee SMa UY Seo 24-25
Norman V. Housing Authority of City of Mont-
gomery, 836 F.2d 1292 (11th Cir. 1988)... 15
Pennsylvania Vv. Delaware Valley Citizens’ Council,
fro Sc. OGG CIOOG) .... 7,10, 11
Pennsylvania v. Delaware Valley Citizens’ Council,
aCe G4. Dee CIN) a a passim
PSFS Sec. Litig., In re, No. 85-4978 (E.D. Pa.
PRs WO WD let eutinn cto er 15
Public Service Co. of Ind. Derivative Litig., In
re, Nos. IP-84-219-C and IP-84-358-C (S.D. Ind.
ORs Say. Tk ee ee 24
Riverside v. Rivera, 477 U.S. 561 Seen css 10, 11
Save Our Cumberland Mountains, Inc. v. Hodel,
826 F.2d 43 (D.C. Cir. 1987), vacated in part
on other grounds, 857 F.2d 1516 (1988) (en
es CE ERPS Dey AR ee a ANU w), 19, 23
Schwartz v. Novo Industri A/S, 119 F.R.D. 359
jk ae | eee tare n en SMF 15
Student Pub. Int. Res. Group \ V. AT & T Bell Lab.,
S42 F.2d 1436 (3d Cir. 1988)................................. 15
TABLE OF AUTHORITIES—Continued
Texas State Teachers Ass’n V. Garland I?
School Dist., 109 S. Ct. 1486 (1989)
Trustees V. Greenough, 105 U.S. 527 (1882
Wicat Sec. Litig., In re, 671 F. Supp. 726 (D.
Utah 1987)
S 4 Hay .
statute :
Magnuson-Moss Warranty—Federal Trade Com-
mission Improvement Act, 15 U.S.C. §§ 2301
et seq. Reuben eee
§ 2310(d) (2) 2, 4, 6, 13,
Miscellaneous:
Derfner, M., & Wolf, A., Court Awarded Attorney
I ie INNS | a ccs oa caabmatenacianbesea Pee
Federal Judicial Center, Settlement Strategies for
Federal District Judges (1986) ’ ;
Jones, An Empirical Examination of the Resolu-
tion of Shareholder Derivative And Class Action
Lawsuits, 60 B.U.L. Rev. 542 (1980)
Rader, The Fee Awards Act of 1976: Examining
the Foundation for Legislative Reform of At-
torney’s Fees Shifting, 18 J. Marshall L. Rev.
EE ce
S. 986, 92d Cong., Ist Sess. (1971)
S. 356, 93d Cong., Ist Sess. (1973)
S. Rep. No. 151, 93d Cong., Ist Sess. (1973)
In the Supreme Court of the United States
OCTOBER TERM, 1988
No.
GENERAL MOTORS CORPORATION, PETITIONER
Uv.
ARLIE GLEN SKELTON, ET AL., RESPONDENTS
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
General Motors Corporation (“GM”) respectfully peti-
tions for a writ of certiorari to review the judgment of
the United States Court of Appeals for the Seventh Cir-
cult in this case.
OPINIONS BELOW
The opinion of the court of appeals (App., infra, la-
20a) is reported at 860 F.2d 250. The initial opinion of
the district court ‘App., infra, 2la-68a) is reported at
661 F. Supp. 1368. The opinion of the district court on
remand from the court of appeals (App., infra, 69a-72a)
is unreported.
JURISDICTION
The judgment of the court of appeals was entered on
October 14, 1988 (App., infra, la). A timely petition
for rehearing with suggestion for rehearing en bane was
denied on January 13, 1989 (id. at 73a). On March 27,
1989, Justice Stevens extended the time for filing a peti-
tion for a writ of certiorari to and including May 18,
1989 (id. at 76a). The jurisdiction of this Court is in-
voked under 28 U.S.C. § 1254(1).
(1)
STATUTORY PROVISION INVOLVED
The Magnuson-Moss Warranty—Federa! Trade Com-
mission Improvement Act (‘“Magnuson-Moss Act”) au-
thorizes awards of attorneys’ fees subject to the following
limitations (15 U.S.C. § 2310(d) (2)):
If a consumer finally prevails in any action brought
under paragraph (1) of this subsection, he may be
allowed by the court to recover as part of the judg-
ment a sum equal to the aggregate amount of cost
and expenses (including attorneys’ fees based on ac-
tual time expended) determined by the court to have
been reasonably incurred by the plaintiff for or in
connection with the commencement and prosecution
of such action, unless the court in its discretion shall
determine that such an award of attorneys’ fees
would be inappropriate.
STATEMENT
The question in this case is whether respondent law
firms may be awarded an attorneys’ fee multiplier—over
and above the reasonable lodestar fee based on time ac-
tually expended and reasonable hourly rates—because
their receipt of fees was contingent upon prevailing in
this action. In Pennsylvania v. Delaware Valley Citizens’
Council, 107 S. Ct. 8078 (1987) (“Delaware Valley II’’),
this Court held that litigation risks do not justify a mul-
tiplier to the lodestar fee. Nevertheless, the court of ap-
peals held that a risk multiplier can be awarded here on
the theory that the fees would be paid from a monetary
fund established by a settlement.
The court of appeals’ ruling is flatly inconsistent with
the rationale of De/aware Valley II and distorts the liti-
gation system in ways that are totally at odds with con-
gressional intent. The decision below leads to the un-
tenable result of providing the largest awards of attor-
neys’ fees in the least meritorious cases, thereby encour-
aging the filing of marginal suits that consume scarce
3
litigation resources and diverting lawyers from more
substantial claims whose prosecution would better pro-
mote federal statutory policies. Equally disturbing, by
making the availability of fee multipliers turn on the
existence of a monetary settlement, the decision below
gives class counsel a direct financial stake in settling a
case regardless of the best interests of the class, thus
engendering an intolerable conflict of interest between
the class members and their attorneys.
The court of appeals’ decision is both bad law and bad
policy. In Delaware Valley II, this Court sought to put
an end to attorneys’ fee multiplier claims in cases brought
under federal fee-shifting statutes. Contrary to the
court of appeals’ reasoning, the commonplace occurrence
of a monetary settlement does not alter the governing
principles that preclude multipliers in such cases or jus-
tify the attempt of respondent law firms to appropriate
more than $1 million that otherwise would go to their
class-member clients. As a practical matter, the decision
below, unless reversed, will make Delaware Valley II a
dead letter in the vast number of class action eases in
which a settlement is negotiated.
A. Background
1. General attorneys’ fee principles
In the American legal system, the party that prevails
in litigation traditionally must pay its own attorneys’
fees. See Alyeska Pipeline Co. v. Wilderness Society, 421
U.S. 240 (1975). The courts have recognized an excep-
tion to this American Rule in so-called “common fund”
cases in which attorneys’ fees are payable from a mone-
tary award that the lawsuit achieves for the benefit of
claimants in addition to the named plaintiff. See, e.¢.,
Trustees V. Greenough, 105 U.S. 527 (1882). This doc-
trine rests on the principle that it would be inequitable
to allow the beneficiary class to enjoy the fruits of a law-
suit without contributing to the costs of the litigation.
4
In recefit years Congress also has enacted statutory ex-
ceptions to the American Rule. Approximately 150 fed-
eral statutes, including the Magnuson-Moss Act, now al-
low a prevailing plaintiff to receive attorneys’ fees from
the losing defendant, and another 50 such statutes au-
thorize fees to be awarded to the prevailing plaintiff’s
counsel from the plaintiff’s recovery. See 1 M. Derfner
& A. Wolf, Court Awarded Attorney Fees 5-3 to 5-7
(1989).
9. This litigation and the settlement agreement
This litigation was brought under the Magnuson-Moss
Act. 15 U.S.C. §§ 2301 et seg. The consolidated class ac-
tion complaints challenged the performance of transmis-
sions in certain lines of GM automobiles (App., infra,
21a).
Following extensive preliminary proceedings, the par-
ties entered into a comprehensive settlement agreement.
Pursuant to the agreement, GM established a $17 mil-
lion fund to reimburse the consumer class members for
service and repair costs incurred as a result of trans-
mission failure. After giving notice to the class and con-
ducting a fairness hearing, the district court approved
the settlement. a
The settlement agreement also addressed the issue of
attorneys’ fees. The Magnuson-Moss Act allows a con-
sumer who “finally prevails” in litigation under the Act
to he awarded “as part of the judgment a sum equal to
the aggregate amount of cost and expenses (including
attorneys’ fees based on actual time expended) deter-
mined by the court to have been reasonably incurred by
the plaintiff.” 15 U.S.C. § 2310(d) (2) (emphasis
added); see page 2. supra. In the present case, the set-
tlement agreement provided that attorneys’ fees would
be paid solely from the settlement fund and would be
determined by the court “based on compensation for ac-
tual hours spent (the ‘lodestar figure’) ’ yather than on a
percentage of the settlement. Settlement Agreement, {| 34.
The settlement agreement also contained a ‘“reverter”
clause that provided that any portion of the settlement
fund remaining after the recovery of attorneys’ fees and
the distribution to plaintiff class members would revert
to GM. Settlement Agreement, {] 25.
In addition to seeking the lodestar amount, respondent
law firms stated their intention to request a “multiplier”
payable out of the class settlement fund. GM stated that
it would oppose such a claim, and the settlement agree-
ment specifically reserved the parties’ right to appeal the
court’s ruling on the multiplier issue. Settlement Agree-
ment, { 34.
B. Respondents’ Claim For Attorneys’ Fees And The
District Court’s Ruling
In response to the request of respondent law firms for
a lodestar determination based on time expended and
hourly rates, the district court awarded a total lodestar
of approximately $2 million in attorneys’ fees (plus
$680,000 in expenses). This lodestar reflected an allowed
total of 12,700 billable hours and an approved hourly
rate as high as $240. App., infra, 66a-67a, 70a.
Respondent law firms also sought an attorneys’ fee
“multiplier” of 1.75 times this substantial lodestar amount.
The asserted justification for this multiplier was “the
contingent nature of the lawsuit and the significant risks
undertaken by [the attorneys] in this case” (App., infra,
57a). Such a multiplier would have infiated the district
court’s granted lodestar to $3.5 million. Put differently,
this multiplier would have had the practical effect of rais-
ing respondent law firms’ top rate to $420 per hour or,
alternatively, of increasing the total compensable hours
to some 22,000—over 9,500 of which were not actually
expended but for which respondent law firms nonetheless
would be paid.
6
The district court rejected the request for a multiplier
(App., infra, 57a-65a). The court first concluded that
“the standards for determining reasonable attorneys’ fees
in common fund eases and statutory fee cases should not
be significantly different” (id. at 29a). It explained that
“the use of statutory fee guidelines to determine a proper
fee award is especially relevant’”’ in cases like the present
one that are “commenced and prosecuted under a federal
statute which specifically provides for an award of at-
torneys’ fees. When parties settle a case involving stat-
utory fees, the amount ultimately awarded should not be
dependent upon whether the fees are assessed directly
against the defendant, or against a fund created by the
defendant” (ibid.) ; see also id. at 57a-58a.
The district court thus determined that the congres-
sional policy underlying the attorneys’ fee limitation in
the Magnuson-Moss Act was fully applicable to the re-
spondent law firms’ request for a multiplier (App., infra,
57a-d8a) :
[Elven if the fee award is based on the common
fund doctrine, any limitation contained in the Mag-
nuson-Moss Warranty Act is a relevant consideration
in determining whether to award a “risk” multi-
plier in this case. The structure of the settlement
agreement should not divert the court from the Con-
gressional intent underlying the passage of this Act.
Finding that “Section 2310(d) (2) evinees a Congres-
sional intent to limit the fee award to the time actually
expended in pursuit of a plaintiff's claim,” the court held
that “a plaintiff in a Magnuson-Moss case is not entitled
to an upward multiplier adjustment of the fees awarded”
(id. at 58a).
In addition, the district court ruled that no multiplier
was justified under general attorneys’ fee principles.’
1The court’s ruling was issued prior to, but anticipated, this
Court’s decision in Delaware Valley 11.
i
The court noted that the lodestar computed from reason-
able time and rate figures “ ‘is presumed to be the reason-
able fee’”’ (App., infra, 60a-6la (emphasis in original),
quoting Blum v. Stenson, 465 U.S. 886, 897 (1984)).
Moreover, “ ‘{t]he novelty and complexity of the issues’ ”’
—which constitute the principal reasons for the riskiness
of the litigation (see Delaware Valley II, 107 S. Ct. at
3087) —“ ‘presumably were fully reflected in the number
of billable hours recorded by counsel’ ” and therefore are
not “ ‘appropriate factor{s| in determining whether to
increase the basic fee award’” (App., infra, 61a, quot-
ing Blum, 465 U.S. at 898). As the court explained
(App., infra, 44a-45a, 64a), its lodestar calculation had
taken
into account all relevant factors, including * * * the
skill and the difficulty of the legal work completed,
* * * [the] results obtained, * * * and the contin-
gency of the fee.
* * * * *
The attorneys’ fees that this court has included in
its calculation of the lodestar amounts * * * ade-
quately compensate[] these firms for the “risk” in-
volved in prosecuting this case.
In rejecting the requested multiplier, the district court
heeded this Court’s admonition that attorneys’ fees are
not “‘a form of economic relief to improve the financial
lot of attorneys’”’ but instead serve “ ‘to enable private
parties to obtain legal help in seeking redress for in-
juries’” (App., infra, 62a, quoting Pennsylvania v. Dela-
ware Valley Citizens’ Council, 478 U.S. 546, 565 (1986)
(“Delaware Valley I’’\). While “mindful of the chilling
effect on future consumer class actions that might result
from failure to adequately compensate counsel for their
efforts in this litigation’ (App., infra, 45a), the court
found that the lodestar constituted a fully adequate at-
torneys’ fee and that “an upward multiplier of the basic
lodestar fees is neither necessary nor appropriate” (2d.
at 64a).
8
C. The Court Of Appeals’ Ruling And The District Court’s
Decision On Remand
In an opinion by Judge Cudahy, the Seventh Circuit
reversed the district court’s multiplier ruling (App., i-
fra, la-20a). The court of appeals did not dispute the
substantial objections voiced in the opinions of this Court
(including the recent Delaware Valley II decision) to
awards of multipliers under fee-shifting statutes. In
cases governed by fee-shifting statutes, the court ac-
knowledged, there are “stringent requirements for award-
ing [multipliers|” (id. at 7a).
The court of appeals concluded, however, that this
case, although brought under the Magnuson-Moss Act,
was governed by equitable common fund principles rather
than the Act’s express fee-shifting provision because the
attorneys’ fees would be paid from a settlement fund. In
the court’s view, “when a settlement fund is created in
exchange for release of the defendant’s liability both for
damages and for statutory attorneys’ fees, equitable fund
principles must govern the court’s award of the attor-
neys’ fees” (App., infra, 12a). For this reason, “the fee-
shifting provision of the Magnuson-Moss Act should [not |
affect the fee determination in this case, which was set-
tled, resulting in a common fund” (id. at 9a).
Having concluded that the present case is governed by
equitable common fund principles rather than the Mag-
nuson-Moss Act’s fee provision, the court of appeals next
determined that “equitable fund principles allow for an
upward adjustment of the lodestar” (App., infra, 10a).
Such a multiplier was justified, the court stated, because
“at least in the common fund context, attorneys whose
compensation depends on their winning the case, must
make up in compensation in the cases they win for the
lack of compensation in the cases they lose” (id. at 8a).
Under this approach, the court indicated that a multi-
plier of two—that is, a 100% increase over the lodestar
—would generally be appropriate (id. at 16a).
9
Although it held that the concerns raised by risk mul-
tipliers under fee-shifting statutes are not applicable in
the common fund context, the court of appeals was forced
to concede that those same concerns rendered it “diffi-
cult{ |” to determine the magnitude of any multiplier
(App., infra, 15a). “This task,” the court stated, “is not
without its problems” (id. at 16a). Nevertheless, and
without providing any standard to guide the inquiry,
the court of appeals remanded the case to the district
court to “‘assess the riskiness of [this] litigation” in or-
der “to account for the contingent-nature of the com-
pensation” (ibid.).
Pursuant to the court of appeals’ mandate, the district
court, after conducting further proceedings on the issue
of the risk multiplier, reversed its prior decision and ap-
proved a multiplier of 1.6 (App., infra, 69a-72a). This
resulted in an effective increase in the maximum hourly
billing rate from $240 to approximately $385 or, stated
otherwise, an enhancement of the total compensable hours
from 12,700 to more than 20,300. As a consequence, re-
spondent law firms were awarded a bonus of $1.2 mil-
lion for commencing and settling a “risky” lawsuit—a
bonus that will be extracted from the pockets of the con-
sumer class members.
REASONS FOR GRANTING THE PETITION
I. THE COURT OF APPEALS HAS RESOLVED A RE-
CURRING AND IMPORTANT ATTORNEYS’ FEE
QUESTION IN A MANNER THAT CONFLICTS
WITH PAST DECISIONS OF THIS COURT AND
WITH STATUTORY STANDARDS PRESCRIBED
BY CONGRESS
A. The enormous practical importance of attorneys’
fee issues for the legal system can hardly be questioned.
Congress has enacted some 200 attorneys’ fee statutes
(see page 4, supra), and attorneys’ fee litigation has
become a virtual cottage industry for lawyers. In recog-
10
nition of the great public significance of these issues,
this Court has repeatedly granted review in attorneys’
fee cases in recent years.” The decision below—which ef-
fectively renders class action settlements creating mone-
tary funds “a form of economic relief to improve the
financial lot of attorneys” (Delaware Valley I, 478 U.S.
at 565)—-pointedly demonstrates the critical need for this
Court’s continued supervision.
To date, this Court has struggled to restrain the cen-
trifugal forces that produce large awards of attorneys’
fees and to conform fee awards to the needs of the liti-
gation system. In particular, the Court’s decisions have
recognized that risk multipliers present ‘‘a wide variety
of problems” and create “ ‘perverse penalt!ies]’” and
undesirable incentives for “ ‘marginal litigation’ ” (Del-
aware Valley II, 107 S. Ct. at 3083). In addition, be-
cause risk multipliers entail substantial “difficulties in
administration” (id. at 3087) and require “protracted,
complicated and exhausting” proceedings (id. at 3085),
their use is contrary to the Court’s admonition that fee
disputes “should be simplified to the maximum extent
possible” (ibid.) and “should not result in a second ma-
jor litigation.” Hensley v. Eckerhart, 461 U.S. 424, 437
(1983).
It is now well settled that the lodestar, “the ‘product
of reasonable hours times a reasonable rate[,]’ normally
provides a ‘reasonable’ attorneys’ fee.” Blum v. Stenson,
465 U.S. 886, 897 (1984), quoting Hensley, 461 U.S. at
434; see also, e.g., Blanchard v. Bergeron, 109 S. Ct. 939
(1989). There is a “strong presumption” that the lode-
star figure provides adequate compensation (Delaware
‘
2 See, e.g., the following decisions and the cases cited therein:
Texas State Teachers Ass’n V. Garland Indcp. School Dist., 109
S. Ct. 1486 (1989); Blanchard v. Bergeron, 109 S. Ct. 939 (1989) ;
Delaware Valley II, supra; Delaware Valley I, supra; Riverside y.
Rivera, 477 U.S. 561 (1986); Blum v. Stenson, 465 U.S. 886 (1984) ;
Hensley v. Eckerhart, 461 U.S. 424 (1983).
11
“Valley I, 478 U.S. at 565). In all but the rarest and
most exceptional case (see ibid.), “the lodestar figure
includes most, if not all, of the relevant factors consti-
tuting a ‘reasonable’ attorney’s fee” and “leaves very
little room for enhancing the award” (id. at 566).
In Delaware Valley II, this Court specifically held that
a multiplier to the reasonable lodestar fee is unavailable
to reflect the “risk” that the plaintiff might not have
prevailed in the litigation. The only suggested exception
to this governing principle is if “the applicant can es-
tablish that without an adjustment for risk the prevail-
ing party ‘would have faced substantial difficulties in
finding counsel in the local or other relevant market’ ”
(107 S. Ct. at 8091 (O’Connor, J., concurring in part
and concurring in the judgment) )—-—an exception that the
court below did not even purport to rely upon. Signifi-
cantly, none of the Justices in Delaware Valley II would
have upheld a multiplier of the sort allowed by the Sev-
enth Circuit here based on the perceived riskiness of the
particular lawsuit. See id. at 3089 (plurality opinion of
White, J.); ad. at 3091 (O’Connor, J., concurring) ; id.
at 3097-3098 (Blackmun, J., dissenting).
The decision below is a patent evasion of Delaware
Valley II. While this Court has recognized that fee
awards are not designed to provide “economic relief” for
attorneys or to “replicate exactly the fee an attorney
could earn through a private fee arrangement with his
client” (Delaware Valley I, 478 U.S. at 565),° the court
of appeals reasoned that multipliers are justified to en-
able lawyers to “make up in compensation in the cases
3 See also, e.g., Blanchard v. Bergeron, 109 S. Ct. at 945 (“we
have not accepted the contention that fee awards in § 1983 damages
cases should be modeled upon the contingent fee arrangements used
in personal injury litigation”); Riverside v. Rivera, 477 U.S. at
578 n.9 (plurality opinion of Brennan, J.) (“Congress clearly re-
jected the notion that attorney’s fees under $ 1988 should be based
on private-sector fee arrangements’’).
12
they win for the lack of compensation in the cases they
lose” and to reproduce “exactly what the attorneys would
have earned from clients who agreed to pay for services
regardless of success” (App., infra, 8a, 16a). While the
plurality and concurring opinions in Delaware Valley IT
concluded that the lodestar “‘is flexible enough to account
for great variation in the nature of the work performed
in, and the challenges presented by, different cases”
(Delaware Valley IJ, 107 S. Ct. at 3091 (O’Connor, J.,
concurring) ), and that multipliers are “superfluous” and
lead to “windfall{s]” for lawyers (7d. at 3087 (plurality
opinion) ), the court of appeals declared that multipliers
over and above the lodestar are routinely necessary to
yield reasonable attorneys’ fees. And while this Court
has emphasized that multipliers are “a particularly un-
certain matter” to assess (id. at 3085) and result in “‘in-
equities” and administrative “difficulties” (id. at 3087
(plurality opinion)), the court of appeals swept aside
all of these practical objections.
The Seventh Circuit’s decision thus turns established
attorneys’ fees principles on their head. In effect, the
court of appeals, precisely contrary to Delaware Valley
II, created a strong presumption—if not an outright
rule—in favor of multipliers to compensate counsel for
the riskiness of class actions that result in a monetary
settlement. Since complex litigation (particularly class
action litigation) always involves some significant risk
of loss, the court of appeals’ theory routinely would re-
quire risk multipliers. See Delaware Valley II, 107 S.
Ct. at 3086 (plurality opinion) (‘“[b]ecause it is difficult
ever to be completely sure that a case will be won, en-
hancing fees for the assumption of the risk of nonpay-
ment would justify some degree of enhancement in almost
every case’’).
This concern is not speculative or hypothetical. The
district court in this very case, applying the court of ap-
peals’ decision on remand, felt obliged to reverse its orig-
13
inal determination and to approve a substantial 1.6 mul-
tiplier. This decision increased the fee award payable
out of the settlement fund from $2 million to $3.2 mil-
lion, which correspondingly diminished the funds avail-
able to consumer class members.
B. The court of appeals sought to avoid Delaware
Valley II by seizing on the fact that the attorneys’ fees
in this case, unlike in Delaware Valley II, would be pay-
able from a settlement fund financed solely by the defend-
ant, rather than directly from the defendant’s purse un-
der a fee-shifting statute. In the court’s view, the settle-
ment transformed a fee-shifting case into a common fund
case, and as a result both Delaware Valley II and the
policies of Congress governing attorneys’ fee awards be-
came completely irrelevant.
The critical question—and the question never answered
by the court of appeals—is why? Why should Delaware
Valley II be rendered entirely inapplicable in this con-
text? Why should the limitations carefully fashioned by
Congress in the attorneys’ fee provision of the Magnuson-
Moss Act (and in numerous other statutes)—under
which a multiplier would clearly have been barred if this
case had proceeded to trial (see page 22, infra)—
suddenly drop out of this case simply because the parties
reached a pretrial settlement that produced a monetary
fund? Why should the adverse consequences of multi-
pliers for the judicial system, which both this Court and
Congress have recognized, be suffered whenever a mone-
tary settlement is negotiated?
4 The court of appeals’ decision, while by no means limited to
the Magnuson-Moss Act, is especially wrong in cases arising under
that statute, whieh makes explicit Congress’s intention that rea-
sonable attorneys’ fees be “based on actual time expended” (15
U.S.C. § 2310(d)(2)). This express and unambiguous statutory
language conclusively demonstrates that multipliers are inconsistent
with congressional policy. See page 22, infra.
14
As we discuss in the next section of this petition, the
court of appeals’ ruling cannot be reconciled with the
decisions of this Court and the attorneys’ fee statutes
enacted by Congress. That erroneous ruling, if allowed
to stand, will encourage the filing of marginal cases as a
kind of lottery for plaintiffs’ counsel seeking a bonanza
of fees if they manage to negotiate a settlement. What
is more, by giving plaintiffs’ counsel a powerful incen-
tive to settle cases regardless of the best interests of the
class, the court of appeals’ decision will create a severe
conflict between class counsel and their clients. Finally,
the decision below will inevitably generate an ongoing
spate of complex and time-consuming fee disputes—dis-
putes that are entirely collateral to the underlying con-
troversy between the parties, and for which the court of
appeals provided no meaningful standards or guidance.
Such harmful consequences were not tolerated in Dela-
ware Valley IJ, and they should not be tolerated here.
Indeed, the practical significance of the present case is
even greater than that of Delaware Valley II, The over-
whelming majority of cases in civil litigation are re-
solved by settlement.’ If a class action settlement result-
ing in the creation of a damages fund is all that is nec-
essary to escape the “stringent requirements” (App.,
infra, Ta) of Delaware Valley II, the applicability of that
decision will be severely limited, and this Court’s effort
to restrain runaway attorneys’ fee multipliers will be
largely nullified.
C. Other circuits, contrary to the decision below, have
given full effect to Delaware Valley II by rejecting risk
multipliers in class action settlements resulting in the
5 See Federal Judicial Center, Settlement Strategies for Federal
District Judges 7 (1986) (noting that the “vast majority” of civil
cases in federal court terminate by settlement and that the propor-
tion of cases resolved by settlement has steadily increased in recent
years). Accord Jones, An Empirical Examination of the Resolution
of Shareholder Derivative and Class Action Lawsuits, 60 B.U.L.
Rev. 542, 545 (1980).
15
creation of monetary funds. For example, in Norman Vv.
Housing Authority of City of Montgomery, 886 F.2d
1292 (11th Cir. 1988), the Eleventh Circuit held that
class counsel was not entitled to a multiplier after the
case had been settled for $1 million in damages; noting
that Delaware Valley II allowed an enhanced award “only
where it is shown that such enhancement is necessary to
assure the availability of counsel” (id. at 1802), the
court denied a multiplier because “the record is abso-
lutely devoid of any evidence that would suggest that
enhancement over the [lodestar] rates requested is nec-
essary to attract competent counsel into the field” (id.
at 1306). Likewise, in Student Pub. Int. Res. Group Vv.
AT & T Bell Lab., 842 F.2d 1436, 1451-1452 (3d Cir.
1988), the Third Circuit held that a requested “con-
tingeney multiplier would present vast administrative
problems” and denied any post-settlement fee enhance-
ment under Delaware Valley II. Accord Schwartz v.
Novo Industri A/S, 119 F.R.D. 359 (S.D.N.Y. 1988).
In order for fee-shifting statutes to serve their legiti-
mate purposes without imposing undue costs on the judi-
cial system, there is a compelling need to dispel this
disagreement concerning Delaware Valley I, particularly
in cases that terminate by settlement—by far the most
common disposition of class action suits in federal court.
Federal district courts, which face extraordinary burdens
in administering class actions and in reviewing and ap-
proving settlements, are in need of further guidance from
Pa. Nov. 30, 1987) (available on LEXIS, Genfed library, Courts
file) (“[i]t is not clear whether [the Delaware Valley II limita-
tions| also apply to this [multiplier] factor in common fund
cases”); In re Wicat Sec. Litig., 671 F. Supp. 726, 738 (D. Utah
1987) (stating that Delaware Valley II “may raise more questions
than it answers”); Garmong V. Montgomery Couniy, 668 F. Supp.
1000, 1008 (S.D. Tex. 1987) (expressing confusion over the scope of
Delaware Valley I).
16
The Seventh Circuit’s holding that Delaware Valley II
has no application to monetary settlements will be relied
on not only in cases brought under the Magnuson-Moss
Act, but also in class action suits brought under a host of
other federal fee-shifting statutes, most of which result
in settlement and the creation of a “common fund” for
the plaintiff class. In these circumstances, this Court’s
intervention is necessary to prevent wide-spread circum-
vention of Delaware Valley II and to protect the federal
judicial system from the burdens and dislocations caused
by claims for “multipliers” of attorneys’ fees.
Il. THE COURT OF APPEALS’ HOLDING THAT RISK
MULTIPLIERS ARE AVAILABLE WHEN CLASS
ACTION SETTLEMENTS RESULT IN THE CREA-
TION OF A MONETARY FUND IS PLAINLY IN
ERROR AND SHOULD BE REVERSED
The Seventh Circuit did not and could not deny that
Delaware Valley Il, if applicable to this case, would pre-
clude the risk multiplier that the court authorized. Under
Delaware Valley Ill, ‘“‘any enhancement [of the pre-
sumptively reasonable lodestar fee] based on ‘legal’ risks
or risks_peculiar to the case” is impermissible (107 S. Ct.
at 3091 (O’Connor, J., concurring)); see page 11,
supra. As the plurality noted, such risk enhancement
“result{[s] not in a ‘reasonable’ attorney’s fee, but in a
windfall for an attorney who prevailed in a difficult
ease” (id. at 3087).
The court of appeals reasoned, however, that negotia-
tion of a monetary settlement for the plaintiff class takes
the case out of the attorneys’ fee provision of the Mag-
nuson-Moss Act under which it was being litigated and
therefore out of the principles of Delaware Valley II.
In that situation, according to the court below, this
Court’s rationale in Delaware Valley II and the policies
of Congress are completely beside the point, and the case
is controlled by an entirely different legal standard based
on the equitable “common fund” doctrine.
ee |
17
But the decisions of this Court and the enactments of
Congress cannot be so easily swept aside. As we now
show, there is no reasoned basis for the court of appeals’
broad exemption of class action settlements from the pro-
hibition that would otherwise apply under federal fee-
shifting statutes to risk multipliers. The law cannot
sensibly distinguish between settled and litigated cases
for purposes of awarding risk bonuses or lavishly reward
plaintiffs’ counsel for bringing and settling “risky”
cases.
A. Delaware Valley II rested on this Court’s recogni-
tion that risk multipliers under fee-shifting statutes lead
to harmful results that cannot be squared with the re-
quirements of scund judicial administration or the in-
tention of Congress. Contrary to the court of appeals’
belief, risk multipliers in class action settlements are sub-
ject to precisely the same objections.
To begin with, this Court in Delaware Valley II em-
phasized that a risk multiplier substantially duplicates
elements of compensation that already are included in
the lodestar:
The reasons a particular lawsuit [is] considered to
be “risky” for an attorney are because of the novelty
and difficulty of the issues presented, and because of
the potential for protracted litigation. Moreover,
when an attorney ultimately prevails in such a law-
suit, this suecess will be primarily attributable to
his legal skills and experience, and to the hours of
hard work he devoted to the case. These factors,
however, are considered by the court in determining
the reasonable number of hours expended and the
reasonable hourly rate for the lodestar, and any
further increase in this sum based on the risk of not
prevailing would result not in a “reasonable” attor-
ney’s fee, but ina windfall for an attorney who pre-
vailed in a difficult case.
107 S. Ct. at 3087 (plurality opinion) (emphasis added) ;
see also id. at 3089 (O’Connor, J., concurring). Whether
18
a case is tried or settled, the elements of the lodestar
calculation—reasonable hours and reasonable hourly rates
—are the same. If, as Delaware Valley II held, the use
of a risk multiplier confers an unconscionable windfall
on attorneys in a case that goes to trial, settlement obvi-
ously cannot transform that windfall into a “reasonable”
attorneys’ fee.
Similarly, the use of risk multipliers to calculate fee
awards produces the “highest fees in cases least likely to
be won” (Delaware Valley II, 107 S. Ct. at 3086 (plural-
ity opinion)). That perverse result encourages marginal
litigation and tends to “attract competent counsel away
from prosecuting clear violations of rights in favor of
cases with a higher potential award.” Rader, The Fee
Awards Act of 1976: Examining the Foundation for
Legislative Reform of Attorney’s Fees Shifting, 18 J.
Marshall wu. Rev. 77, 105 (1984). In this way, risk multi-
pliers—wherever used—run directly counter to Congress’s
primary purpose of encouraging suits that vindicate the
core policies of federal law.
In addition, risk enhancement, which “compensate|s]
plaintiff’s lawyers for not prevailing against defendants
in other cases!/,| * * * is not consistent with Congress’
decision to adopt the rule that only prevailing parties
are entitled to fees” (Delaware Valley II, 107 S. Ct. at
3086 (plurality opinion)). This Court’s reasoning can-
not be squared with the court of appeals’ announced ob-
jective of enabling plaintiffs’ attorneys to “make up in
ecmpensation in the cases they win for the lack of com-
pensation in the cases they lose” (App., infra, 8a). If it
is unfair to require defendants in fee-shifting cases to
subsidize plaintiffs’ attorneys for unsuccessful litigation
elsewhere, it is equally unfair to impose that burden on
the plaintiff class in monetary settlements.
Finally, the court of appeals’ ruling leads to irra-
tional distinctions in the cases in which attorneys’ fee
multipliers can be awarded. For instance, Delaware Val-
19
ley II consistently has been applied to class action settle-
ments involving equitable relief. See, e.g., Save Our
Cumberland Mountains, Inc. v. Hodel, 826 F.2d 48, 53
(D.C. Cir. 1987) (‘“[slince the district court in this case
based its award of a non-payment multiplier on * * * the
court’s assessment of the difficulty and risk unique to
this case, Delaware Valley II compels us to reverse the
district court’s [post-settlement] award of a 10% risk
multiplier”), vacated in part on other grounds, 857 F.2d
1516 (1988) (en bane); accord Friends of the Earth v.
Eastman Kodak Co., 834 F.2d 295, 298 (2d Cir. 1987).
However, under the Seventh Circuit’s rationale, if an
identical class action results in a settlement creating a
monetary fund, class counsel could claim a risk-enhanced
fee. Congress clearly could not have intended such an
arbitrary result. As this Court recently has observed,
federal fee-shifting statutes “make[] no distinction be-
tween actions for damages and suits for equitable relief”
(Blanchard v. Bergeron, 109 S. Ct. at 945).
B. The court of appeals’ decision also creates an in-
tolerable conflict of interest between counsel and the
class. Under a fee-shifting statute, if a class action is
tried on the merits and a favorable judgment is secured,
the class would recover an award of damages unreduced
by any attorneys’ fees, and class counsel would receive
payment from the losing defendant at the ordinary lode-
star rate. Under the Seventh Circuit’s common fund ra-
tionale, by contrast, a pretrial settlement would justify
a large multiplier, and the entire award of fees would be
borne by the plaintiff class. From the vantage point of
class counsel, the fact that a multiplier is routinely avail-
able following settlement—but is not available if the case
proceeds to trial—creates a powerful temptation to set-
tle cases regardless of the best interests of the class. The
multiplier places overwhelming economic pressure on
class counsel to settle even though a larger judgment
could be obtained at trial, and even though attorneys’
20)
fees in the settled case would come out of the plaintiffs’
pockets rather than from the defendant.
The court of appeals offered no justification for pitting
class counsel] against the class in this fashion. Further-
more, it is simply illogical to construe Delaware Valley
II to protect defendants who are adjudged to be violators
of federai statutes from having to pay “risk multipliers.”
while exposing plaintiffs—who are the beneficiaries of
these statutes and the intended recipients of any settle-
ment fund—to significant reductions in their recoveries
in order to pay an enhanced attorneys’ fee.
Contrary to the court of appeals’ assumption, “equl-
table principles” inherent in the ‘common fund” doctrine
do nothing to justify this glaring conflict between class
counsel and the class members. The “common fund” doc-
trine rests on the equitable principle that “a litigant or
a lawyer who recovers a common fund for the benefit of
persons other than himself or his client is entitled
reasonable attorney’s fee” and that “‘persons who obtain
the benefit of a lawsuit without contributing to its cost
are unjustly enriched at the successful litigant’s ex-
pense.” bor bi! Co. Vv. Van Gemert, 444 U.S. 472, 478
(1980). In contrast to such a “reasonable” fee, which is
already reflected in the lodestar, a risk multiplier repre-
sents a “windfall.” Thus, the court of appeals’ decision
is entirely unnecessary to prevent the unjust enrichment
of absent class members: it serves only to confer a lavish
bonus on class counsel that is duplicative of the lodestar
award. That bonus constitutes unjust enrichment of
of ae
counsel at the expense ot nel) class-membe} clients.
The court of appeals also was plainiy wrong in sug-
gesting (see App.., intra, 6a-Ta that its decision will
have no impact on defendants. The court ignored the
fact that improper attorneys’ fee awards can deprive de-
fendants of tne benent or settiement agreements.
21
Defendants have a strong interest in seeing that the
proceeds of a settlement go to the plaintiffs rather than
the plaintiffs’ attorneys. Here, for example, GM sought
to ensure that the class members would receive the maxi-
mum benefit of the settlement and that any excess amount
would revert to GM rather than accrue to respondent law
firms. Accordingly, GM expressly reserved its right to
challenge any request for a risk multiplier on the ground
that such a bonus was not authorized by law. See page
5, supra. The upshot of the court of appeals’ multiplier
ruling is that, while GM paid millions of dollars to reach
an amicable resolution of this suit and promote its good-
will with past and prospective customers, an additional
$1.2 million now has been diverted from the intended
beneficiaries to class counsel.
C. In the final analysis, the court of appeals’ decision
rests heavily on a policy judgment that the private mar-
ket model should govern attorney compensation in class
actions. As the court below candidly acknowledged, its
risk-enhancement requirement replicates the private mar-
ket by compensating class counsel in “the way a plain-
tiff’s attorney may be corapensated by a contingent fee”
(App., infra, 4a\; by effectively compensating counsel
for the cases they lose as well as the ones they win, the
multiplier provides “exactly what the attorneys would
have earned from clients who agreed to pay for services
regardless of success” (id. at 16a). However. this Court
consistently has rejected the proposition that the private
market model should govern the determination of “rea-
sonable attorneys’ fees” under federal fee-shifting stat-
utes (see page 11 & note 3, supra'. Instead, fees should
provide “reasonable compensation, in light of all of the
circumstances, for the time and effort expended by the
attorney for the prevailing plaintiff, no more and no less”
(Blanchard v. Berqeron, 109 S. Ct. at 944 (emphasis
added) }. Since Congress has not permitted such multi-
pliers, it plainly was inappropriate for the court of ap-
peals to do so under judge-made “equity” principles.
on
Nowhere is the clash between the court of appeals’
common fund theory and the congressional policy under-
lying federal fee-shifting provisions more pronounced
than in class actions brought under the Magnuson-Moss
Act. The Act allows a court to award a prevailing plain-
tiff reasonable attorneys’ fees “based on actual time ex-
pended” (15 U.S.C. § 2310(d)(2) (emphasis added) ).
This language plainly evidences Congress’s intent to limit
fee awards to the reasonable lodestar—a determination
that squarely forecloses a risk multiplier over and above
the lodestar.’
The court of appeals attempted to skirt this unambig-
uous congressional objective by asserting that “[b]ecause
a risk enhancer is applicable to the lodestar—it multi-
plies the lodestar by a number representing the probabil-
ity of loss—it is based on the number of hours the at-
torneys worked and * * * [therefore] is ‘based on actual
time expended’” (App., infra, 14a). But the court’s
strained effort to reconcile its decision with the statutory
language is unavailing. By no stretch of the English lan-
guage can the phrase “based on actual time expended”
be construed to authorize a multiplier of up to twice the
actual time expended. The Magnuson-Moss fee-shifting
provision, which was designed to protect consumers while
restraining undeserved awards to counsel, plainly pro-
hibits the use of risk multipliers in litigation commenced
under the Act. Certainly nothing in the statute or its
history justifies the court of appeals’ theory that fees
should be awarded to counsel in their successful cases in
order to compensate them for their losses in other cases.
* The legislative history reinforces the conclusion that Congress
intended to preclude any enhancement of lodestar fees under “com-
mon fund” principles. See S. Rep. No. 151, 93d Cong., Ist Sess. 24
(1973) (“an attorney’s fee is to be based upon actual time ex-
pended rather than being tied to any percentage of the recovery”).
As this Court explained in Blum y. Stenson, 465 U.S. at 900 n.16,
a “percentage of the fund” generally refers to a “common fund”
fee award.
23
The court of appeals also Suggested that, even if the
Magnuson-Moss fee-shifting provision prohibits risk mul-
tipliers in litigated cases, it does not apply to settlements.
The court stated that it was unable to find “any evidence
in the legislative history of Congress’ intent to apply the
fee-shifting provision to common fund or settlement cases
of any kind” (App., infra, 12a).
The court of appeals could not find this evidence be-
cause it looked to the wrong legislative materials.’ In
fact, the legislative history of the Magnuson-Moss Act
makes clear that Congress intended the fee-shifting pro-
vision to apply to settlements. See S. Rep. No. 151, 93d
Cong., Ist Sess. 22-23 (1973) (““[a] purchaser * * * may
resort to formal adversary proceedings with reasonable
attorney’s fees available if successful in the litigation
(including settlement)”) (emphasis added). This under-
standing comports with the general rule that the applica-
bility of fee-shifting provisions is not conditioned on “full
litigation of the issues or on a judicial determination
that the plaintiff’s rights have been violated.” Maher vy.
Gagne, 448 U.S. 122, 129 (1980). See also Friends of
the Earth v. Eastman Kodak: Co., 834 F.2d at 297; Save
Our Cuwnherland Mountains, Ine. v. Hodel, 826 F.2d at
46. Thus, the court-of appeals plainly erred in import-
ing into the statute a novel “adjudication-on-the-merits”
requirement in an attempt to justify an otherwise im-
permissible fee multiplier.
5 The court below considered the legislative history of a prede-
cessor (S. 986, $2d Cong., 1st Sess. (1971) ) to the bill that even-
tually was passed into law (S. 356, 93d Cong., Ist Sess. (1973)).
See S. Rep. No. 151, 93d Cong., Ist Sess. 5-6 (1973). In so doing,
it ignored the subsequent history of the enacted bill that specifi-
cally recognized the applicability of the attorneys’ fee provision to
cases that are settled.
24
Ill. REVIEW IS WARRANTED AT THIS TIME
The foregoing discussion demonstrates that the attor-
neys’ fee question decided by the Seventh Circuit merits
this Court’s review. And for the same reasons, review
is warranted at this time. Under the mandate of the
court of appeals, the district court has now approved a
1.6 multiplier. The court of appeals’ decision thus has
resulted in a complete reversal of the district court’s
final judgment and a substantial increase in the attor-
neys’ fee award.
More generally, the court of appeals has held as a mat-
ter of law that a risk multiplier is available to compen-
sate class action lawyers whose settlements create a mon-
etary fund. The court’s holding finally disposes of that
legal issue, and it is that holding that is flatly inconsist-
ent with this Court’s decision in Delaware Valley II and
with Congress’s controlling policy. It is that holding that
will sow confusion for courts and litigants alike under a
wide variety of attorneys’ fee provisions. And it is that
holding that will increase the incentive for plaintiffs’
attorneys to clog the courts with marginal lawsuits in
the hope of recovering large multipliers, while spawning
complex litigation over the collateral issue of attorneys’
fees.”
Indeed, the court of appeals itself recently followed and
expanded the decision below in McGuire v. Sullivan, No.
— © The court of appeals’ decision already has been followed in other
cases. See In re Putlic Service Co. of Ind. Derivative Litig., Nos.
IP-84-219-C and IP-84-358-C (S.D. Ind. Dec. 22, 1988) (awarding
a risk multiplier of 1.55 to class counsel after settlement of a
derivative suit resulting in a common fund); In re Churchfield
Mat. & Inv. Corp., No. 84 B 7409 (Bankr. N.D. Ill. Mar. 7, 1989)
(awarding a risk multiplier of 1.5 to two law firms in a bankruptcy
class action resulting in a common fund); see also Dutchak vy.
International Brotherhood of Teamsters, Nos. 76 € 3808, 78 C 342,
and 79 C 1725 (N.D. Ill. Apr. 6, 1989) (noting that the court of
appeals in Skelton had “addressed favorably” risk multipliers in
common fund cases).
25
88-1097 (7th Cir. Apr. 24, 1989). That case involved
claims for disability benefits under the Social Security
Act, which (like some 50 federal statutes, see page 4,
supra) allows an award of a reasonable attorneys’ fee
payable out of the plaintiff’s recovery. The federal gov-
ernment specifically argued that the principles of Delaware
Valley IJ were applicable and precluded a risk multiplier
even though the fees would be paid by the claimant rather
than by the losing party; as it stated, “[t]he source of
payment has nothing to do with the issues of fairness,
attorney fee windfalls, and the unpredictable results ad-
dressed in Delaware Valley II’ (Appellant’s Br. 24).
The Seventh Circuit rejected that argument, holding that
a multiplier is authorized and citing its decision here for
the broad proposition that “the lodestar may be enhanced
for contingency” (slip op. 8; see also id. at 11). As a
result, attorneys’ fee multipliers—which constitute a
windfall entirely unrelated to a lawyer’s reasonable ef-
forts expended in representing a chent—will now be
available to greatly reduce the statutory benefits of Social
Security recipients.
In sum, further delay in resolving this critical legal
question would serve only to subject the legal system to
precisely the same undesirable consequences that this
Court sought to avoid in Delaware Valley IJ. The court
of appeals erred by initiating a “second major litigation”
over the multiplier issue (Hensley v. Eckerhart, 461 U.S.
at 437). This Court can bring this already protracted
litigation to a close by reversing the court of appeals’
decision and reinstating the original ruling of the dis-
trict court, which properly awarded the $1.2 million in
controversy to the consumer class members rather than
to respondent law firms.
26
CONCLUSION
The petition for a writ of certiorari should be granted.
Respectfully submitted.
LOUIS H. LINDEMAN, JR. STEPHEN M. SHAPIRO
LEE A. SCHUTZMAN Counsel of Record
General Motors Corporation KENNETH S. GELLER
3031 West Grand Boulevard JOHN E. MUENCH
Detroit, Michigan 48202 MARK I. LEVY
(313) 974-1672 KAREN C. LIEBERMAN
Mayer, Brown & Platt
190 S. La Salle Street
Chicago, Illinois 60603
(312) 782-0600
MAY 1989 Counsel for Petitioner
APPENDICES
la
APPENDIX A
IN THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Nos. 87-1404, 87-1530 and 87-1610
ARLIE GLEN SKELTON, et al., on behalf of themselves and
all others similarly situated, PLAINTIFFS-APPELLANTS
GENERAL MOTORS CORPORATION, DEFENDANT-APPELLEE
Appeals of: Sachnoff, Weaver & Rubenstein, Ltd. and
Law Offices of Beverly C. Moore, Jr.
Northern District of Illinois, Eastern Division
Nos. 79 C 1243, 80 C 2151, and 85 C 4805
John A. Nordberg, Judq
L9S8—DECIDED OCTOBER 14, 1988
> |
nd CUDAHY and COFFE,
Ss cas ses ul
. 0 g st G Mi 3
{ ‘ ' =~ ~ nC eo oth
: motive S
? nes of GM ai ts
( s. New Yo , Was Q
} ( = date | (* ~ é
{ QXY 1 e =+ht ec
er nes GM
l Wan Feder Im-
2a
provement Act, 15 U.S.C. $$ 2301-2312 (the “Magnuson-
Moss Act”). The plaintiffs successfully petitioned the
court for class certification and then settled with GM in
1985. Pursuant to the settlement, GM agreed to establish
a $17 million fund to be distributed among the plaintiffs
whose cars were affected by the substitution. As part of
the settlement, the plaintiffs agreed that the fund would
be the sole source of their attorneys’ fees and that the
fees would be calculated on an hourly rather than on a
percentage-of-the-fund basis.
Class counsel submitted fee petitions based on the hours
they expended multiplied by their hourly rate of pay-
ment. Counsel also requested a 75% enhancement of
their fee awards to compensate for the risks undertaken
in commencing this litigation. In denying the enhance-
ment, the district court reasoned that the determination
of a fee award under common fund principles is not sig-
nificantly different than under a statutory fee-shifting
provision. Thus, the district court held that the fee-shift-
ing provision of the Magnuson-Moss Act is relevant to
the award of fees in this case and that, under that pro-
vision, counsel are not entitled to an upward multiplier.
The court alternatively concluded that, even if the Mag-
nuson-Moss Act does not preclude the award of a multi-
plier, plaintiffs’ counsel in this case are not entitled to a
risk multiplier because the litigation never progressed be-
yond class certification.
I.
The issue presented by this case is whether the prin-
ciples governing the shifting of attorneys’ fees as be-
tween a plaintiff and a defendant are equally applicable
to the division of a common fund recovery between a
plaintiff class and its attorneys. The district court rea-
soned
that the standards for determining reasonable attor-
neys fees in common fund eases and statutory fee
ce petite ial
eal
3a
eases should not be significantly different. In the
court’s view, the use of statutory fee guidelines is
especially relevant where the litigation is commenced
and prosecuted under a federal statute which speci-
fically provides for an award of attorneys’ fees.
Skelton v. General Motors Corp., 661 F. Supp. 1368,
1375-76 (N.D. Ill. 1987) (footnote omitted). But there
are a number of reasons, based on the development of
the respective doctrines and on the logic of the two prob-
lems, why these questions must be viewed separately.
The factors which separate them are much more signifi-
cant than those that link them.
Traditionally in the United States, parties to a lawsuit
bear their own expenses. Thus, each litigant must pay
its own attorneys’ fees without regard to the outcome
of the litigation. This has become known as the “Ameri-
ean Rule.” By contrast, for centuries British statutory
authority has allowed an award of fees and costs to the
prevailing party. See Alyeska Pipeline Serv. Co. v. Wil-
derness Soc’y, 421 U.S. 240, 247-64 (1975) (thoroughly
discussing the history and present status of attorney fee
awards). The American Rule continues to govern most
of the cases in this country. However, there are many
cases where the court may determine not only the amount
of fees but which party shall pay them, based on statu-
tory requirements or equitable doctrines. In some of
these cases the court’s determination may take the place
of, supersede or modify fee agreements between a party
and its counsel.
For example, Congress has created exceptions to the
American Rule by inserting fee-shifting provisions in cer-
tain statutes. See, e.g., 15 U.S.C. $§ 78i(e), 78r(a) (Se-
curities Exchange Act of 1934); 15 U.S.C. § 1640‘a)
(Truth in Lending Act); 15 U.S.C. § 2310(d) (2) (Mag-
nuson-Moss Act); 42 U.S.C. § 7604(d) (Clean Air Act) ;
42 U.S.C. § 2000a-3(b) (Civil Rights Act of 1964, Title
4a
II): 42 U.S.C. § 2000e-5(k) Civil Rights Act of 1964,
Title VII): 42 U.S.C. §38612(c) (Fair Housing Act).
Thus. a plaintiff that prevails in an action brought under
4 statute with a fee-shifting provision recovers the
amount of its attorney's fee from the defendant.
In contrast, when a case results in the creation of a
common fund for the benefit of a plaintiff class, a court
will exercise its equitable powers to award plaintiffs’ at-
torneys’ fees out of the fund. Alyeska, 421 U.S. at 257-
58. In this type of case, the defendant deposits a speci-
fied amount with the court for the benefit of the class
in exchange for release of its liability. The attorneys’
fee award is then taken as a share of the fund, thereby
diminishing the sum ultimately retained by the plaintiff
class. Similar to the way a plaintiff's attorney may be
compensated by a contingent fee, a plaintiff class pays
its attorneys by sharing its recovery with them.
Because there is a difference between statutory fee-
shifting cases and common fund cases with respect, inter
alia, to who bears the direct burden of compensating
plaintiffs’ attorneys, different policies may govern the
two types of cases. The common fund doctrine (also
known as the “equitable fund” doctrine and the “fund-
in-court” doctrine) is “based on the equitable notion that
those who have benefited from litigation should share its
costs.’ Report of the Third Circuit Task Force, Court
Awarded Attorney Fees 14 (Oct. 8, 1989), reprinted in
AppenJix of Appellants at 435, 453; see Boeing Co. v.
Van Gemert, 444 U.S. 472, 478 (1980) (“TA] litigant
or lawyer who recovers a common fund for the benefit
of persons other than himself or his client is entitled to
a reasonable attorney’s fee from the fund as a whole.”) ;
Insurance Co. of N. America v. Norton, 716 F.2d 1112,
1115-16 (7th Cir. 1983). Statutory fee-shifting provi-
sions, in contrast, reflect the intent of Congress “to en-
courage private enforcement of the statutory substantive
rights, be they economic or noneconomic, through the
5a
judicial process.” Report of the Third Circuit Task
Force, Court Awarded Attorney Fees 15 (Oct. 8, 1985),
reprinted in Appendix of Appellants at 454. Defendants
who have violated plaintiffs’ rights may be required to
compensate plaintiffs for the costs incurred in enforcing
those rights. Thus, in statutory fee-shifting cases, only
parties (usually plaintiffs) may seek reimbursement
whereas in common fund cases attorneys may seek com-
pensation.
Another difference between the two types of court-
awarded fee arrangements concerns the role of the plain-
tiffs’ attorneys. In common fund cases, once the attorneys
secure a settlement for the class, they petition the court
for compensation from the same fund. Thus, their “role
changes from one of a fiduciary for the clients to that of
a claimant against the fund created for the clients’ bene-
fit.’ Id. at 20, reprinted in Appendix of Appellants at
459. The court becomes the fiduciary for the fund’s bene-
ficiaries and must carefully monitor disbursement to the
attorneys by scrutinizing the fee applications. See In re
Fine Paper Antitrust Litigation, 751 F.2d 562, 583 (3d
Cir. 1984) (fee requests from common fund are subject
to “heightened judicial scrutiny”). Because statutory
fee cases involve the plaintiff (not his attorney) as
claimant and continue to be adversary proceedings, these
concerns do not arise in the same way.
The district court in this case reasoned, however, that
“regardless of any theoretical distinctions between com-
mon fund and statutory fee cases, the courts in this cir-
cuit employ the same general standards to calculate at-
torneys fees in both types of cases.” Skelton, 661 F.
Supp. at 1376. To the extent that, in this circuit, both
fee arrangements generally require the court to employ
the lodestar approach, this observation is correct. See,
e.g., Grekas v. Attorney Registration & Disciplinary
Comm’n, 793 F.2d 846 (7th Cir. 1986) (statutory fee
ease); In re Folding Carton Antitrust Litigation, 84
6a
F.R.D. 245 (N.D. Ill. 1979). However, when a court
must decide whether to compensate attorneys for the
risks they incurred in undertaking the litigation, the
difference between fee-shifting and common fund ar-
rangements is quite significant.
Panels of this court—as well as commentators and
other courts—have expressed the concern that awarding
risk multipliers to prevailing plaintiffs in statutory fee
cases may inequitably burden defendants. For example,
risk multipliers tend to penalize the parties with the
strongest defenses. The stronger the defense, the higher
the risk involved in bringing the suit and the greater
the multiplier necessary to compensate plaintiff’s attor-
ney for bringing the action. Thus, defendants with bet-
ter cases pay higher plaintiff’s attorney fees. See Penn-
sylvania v. Delaware Valley Citizens’ Council for Clean
Air, 107 S. Ct. 3078, 3083, 3085 (1987); Kirchoff v.
Flynn, 786 F.2d 320, 326 (7th Cir. 1986) (“One common
concern with compensation for risk is that the multiplier
should rise as the probability of success falls, soaking
the unlucky defendant who had a good case (more than
a 50% chance of prevailing) but lost anyway and there-
fore faced a huge multiplier.”) ; Laffey v. Northwest Air-
lines, Inc., 746 F.2d 4, 26 (D.C. Cir. 1984), cert. denied,
472 U.S. 1021 (1985); Leubsdorf, The Contingency Fac-
tor in Attorney Fee Awards, 90 Yale L.J. 473, 488-89
(1981). This consideration does not directly apply in a
common fund case. A risk multiplier will not penalize a
defendant with a strong defense since the plaintiff class
(not the defendant) is responsible for compensating its
attorney by sharing its recovery.
Further, assessing risk multipliers against losing
defendants in effect requires these defendants to “sub-
sidize” plaintiffs’ lawyers for their unsuccessful lawsuits
against other defendants. In statutory fee cases, this is
“manifestly inconsistent with Congress’ intent to award
attorney’s fees oniy to prevailing parties.” Delaware
Ta
Valley, 107 S. Ct. at 3083; McKinnon v. City of Berwyn,
750 F.2d 1383, 13892 (7th Cir. 1984) (“The fundamental
problem of a risk bonus is that it compensates attorneys,
indirectly but effectively, for bringing unsuccessful civil
rights suits, even though the attorney’s fee statute is
expressly limited to cases where the party seeking the
fee prevails.”) ; Laffey, 746 F.2d at 34 n.138; Leubsdorf,
supra, at 490. In a common fund case, however, this re-
sult cannot directly occur because the specific amount of
the fee is charged against the plaintiffs, not the defend-
ant; the defendant’s liability is limited to the amount of
the common fund, which is available to provide attorneys’
fees.!
Therefore, the arguments—equitable and statutory—
against risk multipliers in statutory fee cases have much
less application in common fund cases.* This may be the
reason that courts awarding fees in common fund cases
generally do not express the same reluctance to compen-
sate attorneys for the risk of nonpayment.
Although the Supreme Court has recently rejected the
position that risk multipliers are prohibited in statutory
fee cases, it has set forth stringent requirements for
awarding them. Delaware Valley, 107 S. Ct. at 3090-91
1GM argues that the settlement agreement’s reverter clause
(“Any portion of the settlement fund or accrued interest remaining
after the distributions ... shall revert to General Motors.” Settle-
ment Agreement { 25) distinguishes this case from the typical com-
mon fund case. We disagree. In all common fund cases, the de-
fendant has at least “fa colorable claim” to any unclaimed monies.
See Boeing v. Van Gemert, 444 U.S. 472, 481 & n.7 (1980). The
significant feature that distinguishes common fund cases from
statutory fee cases is that, in the former, defendants’ potential lia-
bility has been limited.
2 This circuit has also mentioned that risk multipliers provide
“an incentive to pursue unmeritorious litigation.” Hagge v. Bauer,
827 F.2d 101, 111 (7th Cir. 1987); see also McKinnon v. City of
Berwyn, 750 F.2d 1383, 1892 (7th Cir. 1984).
8a
(O’Connor, J., concurring in part and concurring in the
judgment) ;* see infra. In a common fund case, where
there is no direct or immediate danger of unduly burden-
ing the defendant, a court has more latitude in exercis-
ing its equitable powers to determine whether the plain-
tiff class should compensate its attorneys for their risk of
nonpayment. And it remains arguable that, at least in
the common fund context, attorneys whose compensation
depends on their winning the case, must make up in com-
pensation in the cases they win for the lack of compen-
sation in the cases they lose.
Thus, when a case is initiated under a statute with a
fee-shifting provision and is settled with the creation of
a common fund, the question may arise whether statutory
fee principles should govern in whole or in part the at-
torney fee award. The district court in this case con-
cluded that the fee-shifting provision of the Magnuson-
Moss Act should have a significant impact on the deter-
mination of the fees awarded in this common fund case.
Skelton, 661 F. Supp. at 1389. In the same vein, GM ar-
gues that because the plaintiffs sought relief under the
3 Justice O’Connor agreed with part of the reasoning of the four-
vote plurality and with some of the arguments offered by the four-
vote dissent. Her position on risk multipliers thus represents the
position of a majority of the Court. Justice O’Connor agreed with
the plurality that “no enhancement for risk is appropriate unless
the applicant can establish that without an adjustment for risk the
prevailing party ‘would have faced substantial difficulties in find-
ing counsel in the local or other relevant market.’” Pennsylvania
v. Delaware Valley Citizens’ Council for Clean Air, 107 S. Ct.
3078, 3091 (1987) (O’Connor, J., concurring in part and concurring
in the judgment) (quoting the plurality opinion, 107 S. Ct. at 3089).
Justice O’Connor also observed that “ ‘legal’ risks or risks peculiar
to the case” are not sufficient to warrant an enhancement of the
lodestar. Jd. (citing Blum v. Stenson, 465 U.S. 886, 898 (1984)).
Thus, Justice O’Connor agreed with the dissent that ‘‘compensa-
tion for contingency must be based on the difference of contingent
fee cases as a class, rather than on an assessment of the ‘riskiness’
of any particular case.” Id. at 3089.
9a
Magnuson-Moss Act, its fee-shifting provision should con-
trol the award of their attorneys’ fees. These conclusions
are incorrect and insupportable. Neither the Magnuson-
Moss Act itself nor cases involving common funds and
other fee-shifting statutes lead us to conclude that the
fee-shifting provision of the Magnuson-Moss Act should
affect the fee determination in this case, which was set-
tled, resulting in a common fund.*
When a ease results in a common fund, courts gen-
erally follow the “equitable fund doctrine” in determin-
ing the attorney fee award. See Van Gemert, 444 U.S.
at 478 (“The common fund doctrine reflects the tradi-
tional practice in courts of equity.”); F. MacKinnon,
Contingent Fees for Legal Services 148 (1964) (“pay-
ment of fees by the court from a common fund is stand-
ard practice in all jurisdictions’). In current practice,
the court exercises its equitable powers by first caleulat-
ing the lodestar, taking into consideration number of
hours and how they were spent and the “value of each
attorney’s services to the class.” In re Fine Paper, 751
F.2d at 583. Next, the court may adjust the lodestar to
reflect the “contingent nature of the attorney’s under-
4 The Third Circuit Task Force concluded that:
The traditional common-fund case and those statutory fee cases
that are likely to result in a settlement from which adequate
counsel fees can be paid, should be treated differently than
the more typical statutory fee case involving the declaration
or enforcement of rights or relatively modest sums of money.
Report of the Third Circuit Task Force, Court Awarded Attorney
Fees 21 (Oct. 8, 1985), reprinted in Appendix of Appellants at 435,
460 (emphasis added). The Task Force ultimately recommended
that whenever a settlement fund is created, attorneys’ fees should
be awarded on a percentage, rather than on an hourly basis. /d.
Although there are certainly grounds for believing that a percent-
age fee arrangement would be more efficient than the current ap-
proach (of calculating a lodestar and then determining an enhancer,
where appropriate), we will not overturn what seems to have be-
come the accepted method of determining fees in this circuit.
10a
taking.” * Id. This requires the court to assess the “‘like-
lihood of success in obtaining a judgment or settlement,”
as measured at the time the attorney began work on the
case. Id. Thus, where appropriate, equitable fund prin-
ciples allow for an upward adjustment of the lodestar.
Even in cases initiated under statrtes containing fee-
shifting provisions, other circuits have applied common
fund principles to determine attorneys’ fees when resolu-
tion of disputes results in the creation of common funds.
See, e.g., In re Fine Paper, 751 F.2d 502; City of Detroit
v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974). The Sec-
ond Circuit, in an antitrust class action that resulted in
a $10 million settlement explained that it must use com-
mon fund principles to determine attorneys’ fees because
the Clayton Act, which provides for the award of at-
torneys’ fees in civil antitrust suits generally, does
not authorize award of attorneys’ fees to a plaintiff
who does not recover a judgment or who settles his
claim with the defendant. . . . The only basis for
awarding an attorney’s fees in such cases is the
equitable fund theory doctrine...
Id. at 468-69 (citations omitted). Recognizing that this
doctrine is a part of the federal court’s equity jurisdic-
5 The Third Circuit also allows an upward adjustment of the
lodestar to compensate attorneys for the delay in payment, when
litigation extends over several years, and for the quality of the
representation. In re Fine Paper Antitrust Litigation, 751 F.2d
562, 583-84 (3d Cir. 1984). Whether the lodestar should be ad-
justed to account for any of these factors is not at issue in this
case. In any event, a multiplier may not be the best method for
compensating attorneys for the superior quality of their work.
This should be reflected in the lodestar in the form of a high hourly
rate. Delay in payment may be compensated in either of two ways:
(1) by using the attorneys’ current rates (as the district court
did here); or (2) by using historical rates plus a prime rate en-
hancement. The courts in this circuit generally use current rates.
See Skelton v. General Motors Corp., 661 F. Supp. 1368, 1382 &
n.18 (N.D. Ill. 1987).
lla
tion, the Second Circuit described its underlying rationale
- as follows:
Under this theory claims may be filed not only by
a party to the litigation, but also by an attorney
whose actions conferred a benefit upon a given group
or class of litigants. The underlying principle here
is that the members of the group should pay ‘“com-
pensation as was reasonable” above and beyond re-
imbursement for out-of-pocket expense to the attorney
representing their interests.
Id. at 469.
The Third Circuit more recently explained its position
in a similar case. In re Fine Paper involved a class ac-
tion brought under the Clayton Act, 15 U.S.C. §§ 15, 26,
to enforce the Sherman Act, 15 U.S.C. $1. The lawsuit
was settled and the defendant created a fund “in exchange
for [its] release... from liability both for damages and
for statutorily authorized fees.” 751 F.2d at 582. The
Third Circuit noted that in settling class actions brought
under statutes containing fee-shifting provisions, there
are two approaches for awarding plaintiffs’ attorneys’
fees. A court might take the position that damages to the
class must be settled separately. Once a fund is created
to compensate the plaintiff class for its damages, the
court can “either entertain litigation or consider a sepa-
rate settlement of the defendant!’s] liability for statu-
tory fees.” Jd. at 582. Alternatively, the court may allow
a single settlement that releases the defendant from both
damage and statutory fee liability. The district court in
the present case opted for the latter approach. Although
this approach creates a potential conflict of interest be-
tween class counsel and class members, who are now com-
peting for the same money, it has the possible advantage
of facilitating the settlement of class actions. Jd. at 582-
83. The Third Cireuit described this second approach as
the “conversion” of a statutory fee case into a common
12a
fund case. Id. at 583. Regardless whether we choose to
adopt the “conversion” characterization, it is clear that,
when a settlement fund is created in exchange for release
of the defendant’s liability both for damages and for
statutory attorneys’ fees, equitable fund principles must
govern the court’s award of the attorneys’ fees. See id.
at 582-84; Lindy Bros. Builders, Inc. v. American Radi-
ator & Standard Sanitary Corp., 487 F.2d 161, 164-65
(3d Cir. 1975).
Moreover, looking specifically at the Magnuson-Moss
Act, the fee-shifting provision, by its terms, does not pur-
port to apply to a fee determination in a case settled in
a4 common fund. The provision provides for the award of
attorney’s fees as part of the judgment if the consumer
“finally prevails” in an action brought under the statute.°
15 U.S.C. § 2310(d) (2). Nor is there any evidence in the
legislative history of Congress’ intent to apply the fee-
shifting provision to common fund or settlement cases of
any kind.‘
6 Section 2310(d)(2) provides:
If a consumer finally prevails in any action brought under
paragraph (1) of this subsection, he may be allowed by the
court to recover as part of the judgment a sum equal to the
aggregate amount of cost and expenses (including attorneys’
fees based on actual time expended) determined by the court
to have been reasonably incurred by the plaintiff for or in con-
nection with the commencement and prosecution of such action,
unless the court in its discretion shall determine that such
award of attorneys’ fees would be inappropriate.
15 U.S.C. § 2310(d) (2).
7 With respect to the fee-shifting provision of the Magnuson-
Moss Act, Congress made only the following remarks:
Subsection (c) of section 110 provides for the recovery of court
costs and reasonable attorney’s fees in the event a “nurchaser,”
as defined in Title I, is successful in a suit for breach of an
express or implied warranty or service contract obligation.
This provision would make it economically feasible for con-
sumers to pursue their remedies in state courts. It should
be noted that an attorney’s fee is to be based upon actual
13a
Even in cases in which the Magnuson-Moss Act is ap-
plicable to the fee award (as it would have been had the
plaintiff class won a judgment against GM), the fee-
shifting provision does not prevent the court from award-
ing risk multipliers.» The district court recognized that
this circuit has in recent years disfavored awarding fee
enhancers in statutory fee cases." As we noted above,
however, the Supreme Court has since squarely addressed
this issue. In Delaware Valley, a group of citizens had
prevailed in an action under the Clean Air Act, 42 U.S.C.
§ 7410. Fees were awarded to the plaintiffs (not directly
to their attorneys) under the fee-shifting provision of the
Act, id. § 7604(d). The defendant appealed the district
court’s enhancement of the fee award to compensate the
time expended rather than being tied to any percentage of
the recovery. This requirement is designed to make it eco-
nomically feasible to pursue consumer rights involving inex-
pensive consumer products. Of course where small claims courts
are available, the Committee encourages their use; and to the
extent legal representation is not necessary in such courts,
attorney’s fees would probably not be available.
S. Rep. No. 986, 92d Cong., 1st Sess. 21, 117 Cong. Rec. 39614
(1971).
8 As noted above, see supra p. 4, statutory fee-shifting provides
an award to the plaintiff. Arguably at least, the arrangements
of the plaintiff with its attorneys may differ.
9To the extent that this circuit has previously taken a position
disfavoring risk multipliers in fee-shifting cases, sce, e.g., MeKin-
non, 750 F.2d at 1392, we appear to be withdrawing from that
position. See Kirchoff v. Flynn, 786 F.2d 320, 326 (7th Cir. 1986)
(“Increasing hourly rates for risk and delay is one way of restor-
ing the hourly rate a lawyer could obtain from a paying client,
and a necessary way when the base of the fees must be the hourly
rate.”): Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 776 F.2d 646,
661 (7th Cir. 1985) (‘We do not mean to imply that a multiplier
for the contingent nature of success is inappropriate when lawyers
bear the risk of nonpayment and the delay in payment.”). But see
Hagge, 827 F.2d at 111 (risk of loss is not a basis in this circuit
for enhancing lodestar; Supreme Court has yet to decide this
issue).
14a
plaintiffs’ attorneys for assuming the risk of loss through
nonpayment. Justice O'Connor, casting the deciding vote,
agreed with the plurality that the circumstances of Dela-
ware Valley did not warrant the award of a risk multi-
plier. She agreed with the dissent, however, “that Con-
gress did not intend to foreclose consideration of contin-
gency in setting a reasonable fee under fee-shifting pro-
visions.” 107 S. Ct. at 3089 (O’Connor, J., concurring in
part and concurring in judgment).
In light of the Delaware Valley decision, we cannot
adopt the position that risk multipliers are prohibited in
all statutory fee-shifting cases. GM contends, however,
that the express language of the fee-shifting provision of
the Magnuson-Moss Act prevents courts from awarding
fee enhancers. This provision provides that attorneys’
fees should be “based on actual time expended.” 15 U.S.C.
§ 2310(1d) (2). See supra note 6. In our view, these arts
do not preclude a risk multiplier. Instead, they indicate
Congress’ intent that attorneys’ fees be computed on an
hourly basis “rather than being tied to any percentage
of the recovery.” S. Rep. No. 986, 92d Cong., Ist Sess.
21, 117 Cong. Rec. 39614 (1971). See supra note 7. Be-
cause a risk enhancer is applicable to the lodestar—it
multiplies the lodestar by a number representing the
probability of loss—it is based on the number of hours
the attorneys worked and not the size of plaintiffs’ recov-
ery. Thus a risk multiplier is “based on actual time
expended.”
Il.
Having concluded that plaintiffs’ counsel are not pre-
cluded from seeking a fee enhancer to compensate for
contingency we turn to the question whether under the
circumstances of this case they are entitled to the risk
multiplier they seek. The district court held that a risk
multiplier is unnecessary to fully compensate the attorneys
because “the action never proceeded very far beyond the
initial pleading stages.” Skelton, 661 F. Supp. at 1392.
15a
The district court’s determination of reasonable attorney
fees, including its decision whether to award a risk mul-
tiplier, generally is reviewed only for abuse of discretion.
See In re Illinois Congressional Districts Reapportion-
ment Cases, 704 F.2d 380, 382 (7th Cir. 1983) ; Swanson
American Consumer Indus.., Ine.., 517 F.2d 555, 562
7th Cir. 1975) (“That abuse of discretion is the general
standard for review of trial court awards of attorneys’
fees under the ‘fund’ theory ... is well established.”’).
We will, however, overturn a fee award that is based on
an error of law. Lynch v. City of Milwaukee, 747 F.2d
423, 426 (1984); see also Spanish Action Comm. of Chi-
cago v. City of Chicago, 811 F.2d 1129, 1134 (7th Cir.
1987).
Here the district court erred in basing its denial of a
risk multiplier on the fact that the parties settled at a
relatively early stage in the litigation. The point at which
plaintiffs settle with defendants (or win a judgment
against defendants) is simply not relevant to determin-
ing the risks incurred by their counsel in agreeing to
represent them. Sce In re Fine Paper, 751 F.2d at 583
(risk should be “measured at the point when the attor-
ney’s time was committed to the case”). In the present
case (as in all similar cases), the early settlement is
reflected in the lodestar-plaintiffs’ counsel worked fewer
hours than they would have if the case had gone to trial.
Because we conciude that early settlement is an insuf-
ficient basis for denying a risk multiplier, we remand this
case to the district court to consider whether class counsel
are entitled to compensation for incurring the risk of
nonpayment.
We fully realize the difficulty of this undertaking. The
district court must balance the competing goals of fairly
compensating attorneys for their services rendered on
behalf of the class and of protecting the interests of the
class members in the fund. See Comment, Adjusting At-
16a
torney Fee Awards Through Multipliers in Antitrust
Class Actions, 21 Hous. L. Rev. 801, 812 (1984). Never-
theless, when attorneys’ receipt of payment is contingent
on the success of the litigation, reasonable compensation
may demand more than the hourly rate multiplied by the
hours worked, for that is exactly what the attorneys would
have earned from clients who agreed to pay for services
regardless of success. Thus, to account for the contingent
nature of the compensation, a court should assess the
riskiness of litigation. This task is not without its prob-
lems. First, it entails a retroactive calculation of the prob-
ability of success as measured at the beginning of litiga-
tion. Second, it places plaintiffs’ lawyers in the unseemly
position of convincing the court that their clients’ case
was weak. For these reasons (and others) it has been
suggested that a standard risk multiplier be used in all
contingent fee arrangements. Sce Leubsdorf, supra p. 6,
at 511 ‘suggesting that “lawyers in successful cases re-
ceive a fee twice what they would have received from
clients whose payment is not contingent on success”).
Despite the problems related to subjectiveness inherent
in the determinaion of a risk muliplier, the district court,
familiar as it is with the nature of the litigation, should
retain discretion to decide if and to what extent the plain-
tiffs’ counsel should be compensated for risk. It may be
that a doubling of the lodestar would provide a sensible
ceiling. It would certainly address the concern that ex-
tremely risky cases (those bordering on the frivolous) not
warrant extremely large risk multipliers. Since class
counsel here have requested an amount less than double
their lodestar we need net decide this definitively. Thus,
we instruct the district court to examine plaintiffs’ attor-
neys’ reasons for asserting that this class action was a
risky undertaking and to determine whether these reasons
justify the 75% multiplier’ they seek (or’some multiplier
less than that). '
17a
lil.
One of the plaintiff’s attorneys, Beverly C. Moore, Jr.,
appeals the district court’s determination of his lodestar
award of $396,813.32. GM argues that the settlement
agreement, which the court approved in a separate order
on the same day that it awarded Moore’s lodestar, pre-
cludes Moore from seeking appellate review of the court’s
determination of his lodestar. We agree with GM.
The settlement agreement creates a $17 million fund,
from which compensation for plaintiffs’ attorneys must be
taken. The agreement contains a section that describes
in detail how costs and expenses, including attorney fees,
were to have been recovered. This section requires plain-
tiffs’ attorneys to file with the district court a petition
for fees and costs incurred in the litigation based on com-
pensation for actual hours spent (the “lodestar”) and re-
imbursement for actual costs and expenses. This section
further states that “[bloth parties agreé not to seek ap-
pellate review of any determination of the lodestar figure
or actual costs and expense.” Settlement Agreement { 34,
Appendix of Appellants at 102.
In direct contradiction of the Settlement Agreement,
Moore makes such an appeal. He contends that because
he is not a party to the Settlement Agreement, he is not
bound by its terms. His claim is two-fold: first, he never
signed the agreement; second, the attorneys are not the
“narties” to the agreement. We do not accept either argu-
ment.
Although Moore was not a signatory to it, his conduct
binds him to the agreement. See Soelzer v. Soelzer, 382
Ill. 393, 399, 47 N.E.2d 458, 460 (1943) (acts and con-
duct of adopting parent validated unsigned adoption con-
tract); Amelco Elec. Co. v. Arcole Midwest Corp., 40 Il.
App. 3d 118, 125-26, 351 N.E.2d 349, 354 (1976) (sub-
contractor who did not sign contract was bound because
18a
he did not object to its terms and acted on it).1° Pursuant
. to the settlement agreement, Moore, along with the other
-——attorneys, petitioned the district court for their fees and
expenses. Moore joined the other attorneys in participat-
ing in the October 30, 1986 fairness hearing on the settle-
ment agreement and in the November 10, 1986 hearing on
attorneys’ fees, which was a continuation of the fairness
hearing. Thus, although Moore never signed the agree-
ment, he followed its procedures. Moreover, Moore never
filed an objection to the settlement agreement. And, most
important, he tried his case and accepted his award. A
party may become bound to a contract by accepting its
benefits, even though he did not sign it. Bi-County Prop-
erties v. Wampler, 61 Ill. App. 3d 799, 805, 378 N.E.2d
311 (1978) (“Conduet, including an acceptance of benefits
under a contract, may be sufficient to constitute a ratifica-
tion binding on the party accepting the benefits as if he
had signed the contract.”). Clearly, the settlement agree-
ment is a contract. See Airline Stewards & Stewardesses
Assoc., Local 550 v. Trans World Airlines, Inc., 713 F.2d
319, 321 (7th Cir. 1583) (a settlement agreement is a
“contract and as such the construction and enforcement
of settlement agreements are governed by pfinciples of
local law applicable to contracts generally”). Moore ac-
cepted the benefits of the contract when he cashed his
check. He cannot obtain the quid of the settlement agree-
ment and avoids the quo of foregoing his right to appeal.
We also reject Moore’s contention that because the at-
torneys are not “parties” to the Settlement Agreement,
the promise not to seek appellate review does not apply
to them. Although the Settlement Agreement defines par-
ties as “plaintiffs and defendant General Motors,” Settle-
ment Agreement {11, Appendix of Appellants at 77, the
section governing costs and fees clearly binds the at-
torneys. Drafted in a less-than-perfect manner, that sec-
The Settlement Agreement provides that Illinois law should
govern its construction.
<x lle
19a
tion uses the term “parties” interchangeably with “plain-
tiffs’ counsel’’:
Both parties agree not to seek appellate review of
any determination of the lodestar figure or actual
costs and expenses. Both parties reserve the right
to seek appellate review of the question whether the
Court may grant any multiplier or other enhance-
ment of the lodestar figure .... In the event of an
appeal by General Motors or the plaintiffs’ counsel as
to the question whether the Court may grant any
multiplier . . . plaintiffs’ counsel may apply to the
Court for interim payment of costs and expenses
Id. § 34, Appendix of Appellants at 102 (emphasis added).
Our interpretation of this somewhat confusing paragraph
is that plaintiffs’ counsel and GM have relinquished their
right to appeal the lodestar determination. The intent of
the language taken in context seems to be to preserve
the right of General Motors or of plaintiffs’ counsel (the
two who apparently had an expressed interest) to chal-
lenge on appeal a holding that there could be or that there
could not be, respectively, a multiplier. Closely linked with
this is a renunciation by all concerned of a right to ap-
peal the lodestar. Perhaps these provisions were tailored
primarily to the presumed needs of counsel other than
Moore. But Moore has not indicated that he objected spe-
cifically to this loss of appeal » ~hts. Through his conduct
Moore bound himself to this part of the agreement.
Finally, Moore argues that because the district court’s
fee award is not actually based on the settlement agree-
ment, he retains his right to appeal the award. This case,
however, began when the attorneys petitioned for fees
and expenses in accordance with the terms of the Settle-
ment Agreement. Even though these terms do not include
a specific amount for attorneys’ fees, they do provide for
the court’s determination of attorneys’ fees. Thus, without
20a
the Settlement Agreement, Moore and the other attorneys
would have had no basis for obtaining their fees.
We will not allow Moore to have it both ways. He can-
not accept the benefits of the Settlement Agreement and
avoid the burden of agreeing not to appeal. Moore has
waived his right to appellate review as stated in the
Agreement. We thus affirm the district court’s determina-
tion of Moore’s lodestar figure.
avs
For all the reasons stated, the district court’s attorney
fee awards are
AFFIRMED IN PART,
REVERSED IN PART
AND REMANDED.
A true Copy:
Teste:
Clerk of the United States Court of
Appeals for the Seventh Circuit
2la
APPENDIX B
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
No. 79 C 1243
Judge John A. Nordberg
ARLIE G. SKELTON, JR., et al., PLAINTIFFS,
vi
GENERAL MOTORS CORPORATION, DEFENDANT.
No. 80 C 2151 and Consolidated Cases
Judge John A. Nordberg
JOSEPHINE NEWTON, et al., PLAINTIFFS,
v.
GENERAL MOTORS CORPORATION, DEFENDANT.
{February 11, 1987]
MEMORANDUM OPINION AND ORDER
In these consolidated class actions, the plaintiffs sued
General Motors Corporation (““GM’’) for damages stem-
ming from GM7’s installation of THM 200 transmissions
into automobiles which allegedly required a THM 350
transmission. The parties entered into a comprehensive
settlement agreement, which this court has approved in a
22a
separate order entered on this date.' The settlement or-
der did not determine the appropriate award of attor-
neys’ fees for class counsel. The court has received fee
petitions from nine law firms requesting attorneys’ fees
in connection with this action.* The class counsel seeks
an aggregate “lodestar” amount of $3.3 million, and a
1.75 muitiplier. The total fees and expenses requested
amount to approximately $5.9 million.
After consideration of all the facts and circumstances,
including reviewing the very extensive briefs and _peti-
tions and conducting a hearing on November 10, 1986,
the court finds that the amounts set forth below provide
the appropriate compensation for class counsels’ efforts
in this litigation.
The court has reduced both the hours and attorney fee
rates sought by all attorneys for the reasons set forth in
this opinion. However, in this court’s opinion, the court
has allowed reasonable hours and reasonable attorney
fee rates so that all counsel shall be properly compen-
sated for their legal efforts in the consolidated cases.
The court’s determination of the reasonable hours and
rates for each fee petitioner is set forth at the end of
this opinion.
1 The settlement dismisses the following actions: Skelton v. Gen-
eral Motors Corp., No. 79 C 1243 (“Skelton”); Newton v. General
Motors Corp., No. 80 C 2151 (“Newton”); Fritz v. General Motors
Corp., No. 85 C 4805 (“Fritz”); Morgan v. General Motors Corp.,
No. 81 Civ. 0280 (S.D.N.Y.) (“Morgan”); and Attard v. General
Motors Corp., No. 21558/79 (Supreme Court of the State of New
York) (‘“Attard’’).
2 The fee petitioners are Charles A. Boyle & Associates, Ltd.;
>
Corinblit & Seltzer; Abraham N. Goldman & Associates, Ltd.;
’
Goodkind, Weschler, Labaton & Rudoff; Francis E. Goodman, P.C.;
William J. Harte, Ltd.; Law Offices of Beverly C. Moore, Jr.;
Sachnoff, Weaver & Rubenstein, Ltd.; and Zwerling, Schacter and
Zwerling.
23a
Procedural History
This litigation originated in the In re’General Motors
Engine Interchange Litigation, MDL No. 308 (N.D. Ill.),
rev'd, 594 F.2d 1106 (7th Cir.), cert. denied, 444 U.S.
870, 100 S.Ct. 146 (1979), aff'd after remand, 620 F.2d
1190 (7th Cir. 1980) (the “Hngines” case). In Engines,
the plaintiffs alleged that GM violated the written war-
ranty provisions of the Magnusor-Moss Warranty Act,
15 U.S.C. §§ 2301-2312, by substituting different engines
and other automotive parts, including transmissions, into
certain lines of GM automobiles. Specifically, the En-
gines plaintiffs complained that GM had installed Chev-
rolet engines in 1977 Oldsmobiles, and THM 200 trans-
missions in- automobiles which were supposed to be
equipped with a THM 350 transmission. See Engines,
594 F.2d at 1114, 1132, n.44. On remand, Judge Mc-
Garr, who presided over the Engines litigation, separated
the transmissions claims, and ruled that the case would
proceed only on the engine interchange issues.
In response to Judge McGarv’s decision, plaintiffs filed
the Skelton action on March 29, 1979. An amended com-
plaint was filed two months later. Although the Skelton
complaint was patterned after the written warranty
claims in the Engines litigation, it also contained allega-
tions of deceptive warranties and breach of implied war-
ranties. The Newton claims were filed approximately one
year after Skelton, and alleged a different theory of lia-
bility stemming from GM’s substitution of the THM 200
transmission. These plaintiffs alleged that GM’s conduct
in replacing the THM 350 transmission with a THM 200
transmission violated the implied warranty provisions
contained in UCC § 2-314(2) (ce) because the substituted
transmissions were not “fit for their ordinary purpose.”
During approximately the same time frame, two other
groups of plaintiffs instituted similar litigation in New
York. The Attard action was filed in New York state
24a
court in 1979, and the Morgan action was filed in the
New York federal district court in 1981. These com-
plaints alleged that GM’s conduct constituted a breach of
its implied and express warranties in violation of the
UCC and the Magnuson-Moss Warranty Act.
In 1979, GM moved to dismiss the Skelton complaint,
which was then pending before Judge John Powers Crow-
ley. The case was transferred to Judge Moran, and the
parties rebriefed the pending motion to dismiss. On Oc-
tober 1, 1980, Judge Moran issued an opinion which up-
held plaintiffs’ written warranty claim, and dismissed
the implied warranty and defective warranty claims.
Skelton v. General Motors Corp., 500 F. Supp. 1181,
1190-95 (N.D. Ill. 1980). GM filed an interlocutory ap-
peal, which was accepted by the Seventh Circuit. While
Skelton was on appeal to the Seventh Circuit, the Skel-
ton plaintiffs amended their complaint to include the
Newton merchantability claims, and GM filed a motion
to dismiss all the remaining Skelton and Newton claims.
In September of 1981, the Seventh Circuit issued its
opinion in Skelton, reversing Judge Moran’s recognition
of a written warranty claim based on GM’s substitution
of the THM 200 transmissions for THM 350 transmis-
sions. Skelton v. General Motors Corp., 660 F.2d 311
(7th Cir. 1981). The Seventh Circuit denied plaintiffs’
request for a rehearing and rehearing en bane on Decem-
ber 11, 1981; and the Supreme Court subsequently de-
nied plaintiffs’ petition for certiorari. Skelton v. General
Motors Corp., 456 U.S. 974, 102 S.Ct. 2238 (1982).
The Skelton and Newton plaintiffs filed a consolidated
complaint under Magnuson-Moss shortly after the Sey-
enth Circuit issued its opinion. The cases were then
transferred to Judge Getzendanner, who accepted sup-
plemental briefs and heard oral argument on the motion
to dismiss. The cases were transferred to this court a
few months later. At the time of this transfer, the par-
25a
ties were still involved in the process of investigating and
briefing issues regarding their class certification motions.
This process included hiring experts, taking some depo-
sitions and responding to numerous inquiries regarding
the class action.* In addition, due to the continuous de-
velopment of the law in this area, the parties were often
required to supplemert their certification briefs to ad-
dress the most recent decisions regarding class certifica-
tion in cases of this subject and magnitude.
During this same time period, significant developments
were taking place in New York and Washington, D.C.
In New York, the Attard court denied GM’s motion to
dismiss, and was affirmed by the New York appellate
court. Counsel proceeded with class certification motions
and discovery in both Attard and Morgan; and then
agreed to informally stay these proceedings pending the
outcome of the Skelton Newton class certification mo-
tions before this court. In Washington, GM was involved
in an administrative action conducted by the Federal
Trade Commission (“FTC”). The parties engaged in ex-
tensive discovery during the course of the FTC investi-
gation, and subsequently entered into a consent decree
settling the administrative action in November of 1983.
This settlement, which was opposed by the Skelton /New-
ton plaintiffs, provided for the establishment of a Media-
tion and Arbitration program to resolve consumer com-
plaints stemming from the operation of GM automobiles.‘
3 The Magnuson-Moss Warranty Act, which provided federal
jurisdiction, contains a one-hundred plaintiff rule for class actions
instituted pursuant to its provisions. 15 U.S.C. § 2310(d)(3)(C).
This unique requirement necessitated considerable expenditures of
time both before and after this court’s order certifying the “fail-
ures” class.
4This Mediation and Arbitration Board, which operates in con-
junction with the Better Business Bureau, has awarded over $30
million to aggrieved consumers since its inception in 1983.
26a
In 1984, the Ske/ton/Newton plaintiffs suggested that
the court proceed with an initial certification of a “fail-
ures” class. This court issued an interim order on De-
cember 20, 1984, which revealed the court’s intent to
certify a “failures” class under Count I of the complaint.
The court declined to certify any other classes at that
time. The court also held that state privity law was ap-
plicable to the Magnuson-Moss cause of action. Skelton v.
General Motors Corp., No. 79 C 1243, Slip op. at 3 (N.D.
Ill. Dee. 20, 1984). In addition, it denied GM’s motion
to dismiss plaintiffs’ label and latent defect claims
(Counts III and IV of the consolidated complaint). Jd.
The parties began discussing the possibility of settle-
ment following the issuance of this interim order. These
discussions extended throughout 1985, and included con-
ferences both in and out of court. After extensive nego-
tiations, the parties reached a general agreement in De-
cember of 1985. They expended considerable time nego-
tiating and drafting the final provisions of this agree-
ment, which were presented to the court on June 16,
1986. The Agreement encompasses the following class of
plaintiffs:
All original owners (other than solely for purposes
of resale) of a General Motors 1976-1980 model year
vehicle equipped with a THM 200 transmission pur-
chased in the United States, its possessions and ter-
ritories, or the District of Columbia, who incurred
any transmission repair expense within the first
50,000 miles of use of that vehicle.
In this settlement, GM agreed to establish a $17 mil-
lion fund which will provide reimbursement for trans-
mission service and repair costs incurred by plaintiffs in
the “failures” class." The parties agreed that the fund
5 The settlement agreement also provides for an additional $2.5
million to be deposited by GM in the event that the plaintiffs’
claims deplete the $17 million already deposited.
27a
would be the only source of any attorneys’ fees sought by
plaintiffs’ counsel, and that plaintiffs’ counsel would not
seek a fee award calculated on a percentage-of-recovery
basis. In accordance with this agreement, plaintiffs’ coun-
sel have submitted timesheets and expense reports which
reflect the hours of work devoted to this litigation.
Motion For Attorneys’ Fees
Initially, the court must determine the source of its
authority to award attorneys’ fees in this action. The
class counsel argues that fees should be awarded under
the “common fund” doctrine, which permits an award of
attorneys’ fees where a litigant or his attorney recovers
a common fund for the benefit of persons other than him-
self or his client. See generally Boeing v. Van Gemert,
444 U.S. 472, 100 S.Ct. 745 (1980): Mills v. Electric
Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616 (1970). In
contrast, GM argues that these fee petitions should be
_Scrutinized under the attorneys’ fee provision set forth
in the Magnuson-Moss Warranty Act * and the Supreme
Court and Seventh Circuit caselaw pertaining to statutory
fee awards. See generally Pennsylvania v. Delaware Val-
ley Citizens’ Council, 106 S.Ct. 3088 (1986): Blum v.
Stenson, 465 U.S. 886, 104 S.Ct. 1541 (1984): Hensley
v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933 (1983) ; Ohio-
Sealy Mattress Manufacturing Co. v. Sealy, Inc., 776
F.2d 646 (7th Cir. 1985).
® This section provides:
If a consumer finally prevails in any action brought under
paragraph (1) of this subsection, he may be allowed by the
court to recover as part of the judgment a sum equal to the
aggregate amount of cost and expenses (including attorneys’
fees based on actual time expended) determined by the court
to have been reasonably incurred by the plaintiff for or in con-
nection with the commencement and prosecution of such action,
unless the court in its discretion shall determine that such an
award of attorneys’ fees would be inappropriate.
15 U.S.C. 2310(d) (2).
28a
In the court’s view, the plaintiffs have exaggerated the
difference between calculating fees pursuant to the com-
mon fund doctrine as opposed to a statutory fee provi-
sion. An award of fees under the common fund doctrine
is an equitable practice which “rests on the perception
that persons who obtain the benefit of a lawsuit without
contributing to its cost are unjustly enriched at the suc-
cessful litigant’s expense.” Boeing, 444 U.S. at 478, 100
S.Ct. at 749. The doctrine enables the court to offset this
inequity “by assessing fees against the entire fund, thus
spreading fees proportionately among those benefitted
from the suit.” Jd. In addition to this unjust enrich-
ment rationale, the common fund doctrine also contains
an “incentive” rationale: by permitting an award of
fees in these cases, the doctrine operates to encourage at-
torneys to engage in litigation which benefits certain
groups of people who could not otherwise obtain repre-
sentation for their interests., Jn re Folding Carton Anti-
trust Litigation, 84 F.R.D. 245, 255, 262 (N.D. Ill. 1979) ;
Arenson v. Board of Trade, 372 F. Supp. 1349, 1356
(N.D. Ill. 1974); Oppenlander v. Standard Oil Co., 64
F.R.D. 597, 614 (D. Colo. 1974). See Leubsdorf, The
Contingency Factor in Attorney Fee Awards, 90 Yale
L.J. 473, 476 (1981).* Although statutory fee awards
are not based on an unjust enrichment principle, they
contain the same “incentive” rationale as the common
fund doctrine. Pennsylvania v. Delaware Valley Citizens
Council, 106 S.Ct. at 2098 (1986) (“the aim of [fee-
shifting] statutes [is] to enable private parties to obtain
lecal help in seeking redress for injuries resulting from
the actual or threatened violation of specific federal
laws.”’). See Leubsdorf, supra, at 477.
7 See generally Dawson, Lawyers and Involuntary Clients in
Public Interest Litigation, 88 Harv.L.Rev. 849 (1975); Dawson,
Attorneys and Involuntary Clients: Attorney Fees From Funds,
87 Harv.L.Rev. 1597 (1974).
29a
Given this commonality of purpose, this court finds
that the standards for determining reasonable attorneys’
fees in common fund eases and statutory fee cases should
not be significantly different.* In the court’s view, the
use of statutory fee guidelines to determine a proper fee
award is especially relevant where the litigation is com-
menced and prosecuted under a federal statute which
specifically provides for an award of attorneys’ fees.
When parties settle a case involving statutory fees, the
amount ultimately awarded should not be dependent upon
whether the fees are assessed directly against the de-
fendant, or against a fund created by the defendant. See
Leubsdorf, supra, at 489. Thus, although there may be
theoretical distinctions between the common fund doc-
trine and statutory fees, these distinctions are not so
great that they justify the use of completely different
standards when calculating an award of attorneys’ fees
in a particular case.”
8 See Federal Judicial Center, Attorneys’ Fees in Class Actions
4-11 (1980) (discussing the considerations for awarding attorneys’
fees without mentioning a distinction between fund cases and
statutory fee cases).
®If anything, the distinction between common fund fee awards
and statutory fee awards may justify heightened judicial scrutiny
because the fee will be paid out of a fund in which the defendant
has only a contingent interest, and the plaintiffs’ attorneys’ interests
conflict with the interests of the fund’s beneficiaries. A recent dis-
cussion ef the distinctions between common fund and statutory fee
awards has suggested that the nature of a common fund award
may actually necessitate greater judicial scrutiny of the fee peti-
tions. Third Circuit Task Force, Court Awarded Attorney Fees, 15
(October 8, 1985). See also Citu of Detroit v. Grinnell, 495 F.2d
448, 469 (2d Cir. 1974), where the court noted:
Courts must always heed the admonition of the Supreme Court
in Trustees v. Greenough [105 U.S. 527, 536 (1881)] when it
advised that fee awards under the equitable fund doctrine were
proper ‘if made with moderation and a jealous regard to the
rights of those interested in the fund.’
The Third Circuit Task Force recommends a specific procedure in
common fund and statutory fee cases; however, this procedure—
30a
Furthermore, regardless of any theoretical distinctions
between common fund and statutory fee cases, the courts
in this circuit employ the same general standards to cal-
culate attorneys’ fees in both types of cases. In Waters
v. Wisconsin Steel Works of International Harvester Co.,
502 F.2d 1309 (7th Cir. 1974), cert. denied, 425 USS.
997, 96 S.Ct. 2214 (1976), a Title VII case, the court
adopted the guidelines for attorneys’ fees set forth in
Rule 2-106 of the Code of Professional Responsibility:
1) The time and labor required, the novelty and
difficulty of the questions involved and the skill
requisite to perform the legal services properly;
2) The likelihood, if apparent to the client, that the
acceptance of the particular employment will
preclude other employment by the lawyer;
3) Fees customarily charged in the locality for sim-
ilar legal services;
4) The amount involved and the results obtained;
5) Time limit imposed by the client or the circum-
stances;
6) The nature and length of the professional rela-
tionship with the client;
7) The experience, reputation and ability of the
lawyer or lawyers performing the services; and
8) Whether the fee is fixed or contingent.’
which involves a percentage fee arrangement—is impossible in this
case because the plaintiffs have agreed not to seek fees based on
such a calculation.
10 These factors were routinely used in common fund cases long
before the advent of statutory fee provisions. Sve In re Folding
Carton Antitrust Litigation, 84 F.R.D. 245, 255-56 (N.D. Ill. 1979)
(tracing articulation of these standards to In re Osofsky, 50 F.2d
925, 927 (S.D. N.Y. 1931)). More recently, the Seventh Circuit
has indicated that use of the twelve factors set forth in Johnson v.
Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir.
3la
The courts in this circuit have reiterated these factors
in both common fund and statutory fee cases. See, a.,
Spray-Rite Service Corp. v. Monsanto Co., 684 F.2d 1226,
1249 (7th Cir. 1982) (antitrust); Loctite Corp. v. Fel-
Pro, Inc., 667 F.2d 577, 585 (7th Cir. 1981) (patent) ;
Mills v. Eltva, 663 F.2d 760, 762 (7th Cir. 1981) (com-
mon fund); Muscare v. Quinn, 614 F.2d 577, 579 (7th
Cir. 1980) (42 U.S.C. $ 1988); Gross »v. Schweiker, 503
F.Supp. 260, 262 (N.D. Ind. 1983) (EAJA-28 U.S.C.
$2412); Kennedy v. Nicastro, 546 F.Supp. 267, 270
(N.D. Ill. 1982) (shareholders’ derivative action) ; Zilker
v. Klein, 540 F.Supp. 1196, 1199 n.8 (N.D. Ill. 1982)
(shareholders’ derivative action) ; United States v. Vague,
521 F.Supp. 147, 152 (N.D. Ill. 1981) (criminal); Will
v. United States, 90 F.R.D. 336, 338 (N.D. Ill. 1981)
(common fund); In re Folding Carton Antitrust Litiga-
tion, 84 F.R.D. 245, 255-56 (N.D. Ill. 1979) (common
fund); Arenson v. Board of Trade, 372 F.Supp. 1349,
1351 (N.D. Ill. 1974) (common fund). See also In re
Warner Communications Securities Litigation, 6:8 F.
Supp. 735, 746-47 (S.D.N.Y. 1985); Phemister v.
Harcourt-Brace Jovanovich, Inc., 1984-2 Trade Cases
{ 66,234 at 66,995 (N.D. Ill. 1984); In re Cenco Ine.
Securities Litigation, 519 F.Supp. 322, 325-26 (N.D. Il.
1981); fn ve Clark Oil Antitrust Litigation, 422 F.Supp.
503, 511 (E.D. Wis. 1977); Liebman v. Peterson Coal &
Oil Co., 63 F.R.D. 684 (N.D. Ill. 1974) (discussing sim-
ilar factors in determining fee awards from common
fund). Not all factors apply in a given case,’ and no
one factor is controlling.’
1974), is appropriate. Lynch v. City of Milwaukee, 747 F.2d 423,
427 (7th Cir. 1984). These factors are similar to the factors cited
in the Code of Professional Responsibility. Johnson, 448 F.2d at
719; Lynch, 747 F.2d at 427.
11 In the court’s opinion, the second, fifth and sixth factors have
little, if any, relevance to the request for fees in this case.
12.In addition, since several of these factors may overlap, the
determination of one factor may also resolve issues pertaining to
32a
As the first factor indicates, the starting point in the
court’s analysis involves a determination of the number
of hours reasonably expended on the litigation. This
figure is then multiplied by the fees customarily charged
in the locality for the services rendered to produce the
“lodestar” figure. Waters, 502 F.2d at 1322. See also
Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933,
1939 (1983); In ve Cenco Inc. Securities Litigation, 519
F.Supp. 322, 325-26 (N.D. Ill. 1981). After calculating
the lodestar, the court may add an upward adjustment, or
multiplier, to ensure that the fee award provides appro-
priate compensation to the plaintiffs’ counsel for the work
performed and the results achieved. GM has filed specific
objections to the nine sets of timesheets submitted by
plaintiffs’ counsel. The court will discuss these objections
in its review of the individual petitions, infra. Before
launching into a discussion of the individual petitions,
however, the court will address several recurring objec-
tions to the majority of the petitions.
1. Time Spent on Alleged “Lost” and “Abandoned”
Claims
GM argues that the hours claimed by plaintiffs’ attor-
neys should be reduced to account for the unsuccessful
appeal to the Seventh Circuit in Skelton and the claims
allegedly abandoned in the course of the settlement nego-
tiations. In Hensley v. Eckerhart, 461 U.S. 424, 435, 103
S.Ct. 1933, 1940 (1983), the Supreme Court held:
work on an unsuccessful claim cannot be deemed to
have been ‘expended in pursuit of the ultimate result
achieved.’ Davis v. County of Los Angeles, 8 E.P.D.
(° 9444], 5049 [C.D. Cal. 1974]. The congressional
intent to limit awards to prevailing parties requires
another factor. For instance, the calculation of an hourly rate
usually reflects the fees charged in a locality (factor three), and the
experience, reputation and ability of the attorneys performing the
services (factor seven).
33a
that these unrelated claims be treated as if they had
been raised in separate lawsuits, and therefore no
fee may be-awarded for services on the unsuccessful
claim.
Following this language in Hensley, GM asserts that
plaintiffs’ attorneys Boyle, Harte, Goodman and Gold-
man are not entitled to any fees or expenditures in con-
nection with the Skelton claims dismissed by the Seventh
Circuit in Skelton v. General Motors Corp., 660 F.2d 311
(7th Cir. 1982), cert. denied, 456 U.S. 974, 102 S.Ct.
2238 (1983), and urges this court to disallow any fees
for the time spent briefing the motions to dismiss before
Judge Moran, the appeal to the Seventh Circuit, and the
subsequent petition for certiorari.
Plaintiffs’ counsel assert that the Hensley standards are
inapplicable to fee awards under the common fund doc-
trine, which permits reimbursement for all fees expended
in the creation of a common fund. This position exag-
gerates the distinctions between statutory and common
fund fee awards. As stated earlier, the courts in this
circuit apply the same criteria when determining awards
for statutory fees and fees from a common fund. The
common fund doctrine, like the statutory fee provisions,
also instructs the court to analyze the fee petition to de-
termine whether the plaintiffs “prevailed” on certain
claims, and -whether the time expended contributed to the
ultimate favorable resolution of the case. See e.g., Swan-
son v. American Consumer Industries, 517 F.2d 555, 563
(7th Cir. 1975) (the fact that a plaintiff did not prevail
on certain issues is entitled to weight in the determina-
tion of an appropriate fee award). Kennedy v. Nicastro,
546 F.Supp. 267 (N.D. Ill. 1982); Zilker v. Klein, 540
F.Supp. 1196, 1198-99 (N.D. Til. 1982); In re Penn Cen-
tral Securities Litigation, 416 F.Supp. 907, 917 (E.D. Pa.
1976), rev’d on other grounds, 560 F.2d 1138 (38d Cir.
1977). Accordingly, the court finds that the Hensley
guidelines for assessing fees in statutory fee cases are
34a
equally relevant to a determination of fees under the
common fund doctrine."*
Regardless of the analysis employed, however, the court
finds that exclusion of all the time expended on the Skel-
ton claims would be improper. The Seventh Circuit re-
cently discussed Hensley’s limitation of fees to those
reasonably expended on “prevailing” claims in Zabkowicz
v. West Bend Co., 789 F.2d 540 (7th Cir. 1986). In
Zabkowiez, the plaintiff filed a sexual harassment suit
under Title VII which also contained pendent tort claims
stemming from the alleged discriminatory conduct. The
district court found that the defendants had violated Title
VII, but it denied plaintiffs’ request for attorneys’ fees in
its entirety because the hours were excessive and failed
to distinguish between the time spent on the Title VII
claim and the time spent on the state law claims. On
appeal, the Seventh Circuit reversed, holding that the dis-
trict court should consider the lawsuit as a whole, and
take into account the interrelated nature of the various
claims in the case when determining an appropriate fee
award for a prevailing plaintiff. Zabkowicz, 789 F.2d at
551. The court instructed:
Where several claims arise out of a common factual
core or are based on related legal theories, separating
‘out the legal services rendered with respect to these
overlapping claims would be an exercise in futility.’
In accordance with Hensley, we believe that prevail-
ing plaintiffs may be entitled to compensation for
time expended on such related claims.
Id. (citation omitted).
13 The guidelines for assessing statutory fees originated in the
standards commonly used to assess the reasonableness of a petition
secking fees from a common fund. See supra note 9. See also In
re Fine Paper Antitrust Litigation, 751 F.2d 562, 583 n.19 (3d
Cir. 1984); Prandini v. National Tea, 557 F.2d 1015 (3d Cir. 1977) ;
City of Detroit v. Grinnell Corp., 495 F.2d 448, 470-71 (2d Cir.
1974); In re Folding Carton Antitrust Litigation, 84 F.R.D. 245,
255-56 (N.D. Ill. 1979). /
35a
The Zabkowicz court explained that the next inquiry
involves whether the plaintiff’s unsuccessful claims are
sufficiently related to the successful claims to justify an
award of attorneys’ fees. It held:
Hensley provides no precise method for determining
whether claims are related or unrelated. Nonetheless,
a ‘useful tool for making this determination is to
focus on whether the claims seek relief for essentially
the same course of conduct.’ ... From this perspec-
tive, ‘an unsuccessful claim will be unrelated to a
successful claim when the relief sought on the unsuc-
cessful claim is intended to remedy a course of con-
duct entirely distinct and separate from the course of
conduct that gave rise to the injury on which the
relief granted is premised.’
Id. (citations omitted). In order to determine whether
the claims were sufficiently related, the court examined
each claim separately. It found that, “although these
claims are based on distinct legal theories, they unde-
niably involve a common core of facts. The tort claims
sought to remedy the same course of conduct that gave
rise to the Title VII claims.” Jd. Accordingly, the Sev-
enth Circuit remanded the question of attorneys’ fees to
the district court, finding that the plaintiff may be en-
titled to the entire amount of her fee claim, depending
upon the “significance of the overall relief obtained...
in relation to the hours reasonably expended on the litiga-
tion.’” Jd. (citing Hensley, 461 U.S. at 435, 103 S.Ct. at
1940).
Following Zabkowicz, the court finds that wholesale
exclusion of the time expended on the Seventh Circuit
appeal and petition for certiorari is not warranted in this
case. See Lenard v. Argento, No. 85-1786, slip op. at 4
(7th Cir. January 6, 1987) (rejecting defendant’s “me-
chanical claim-chopping approach” to attorneys’ fees).
These claims alleged the same improper conduct and
36a
sought the same remedy ultimately provided in the settle-
ment agreement. In Jllinois Welfare Rights Organization
v. Miller, 723 F.2d 564, 576 (7th Cir. 1983), the court
held:
If, ... the plaintiff has asserted unsuccessful claims
related to the successful claims by a ‘common core
of facts’ or that are based on ‘related legal! theories,’
. time spent on these related but unsuccessful
claims should not automatically be excluded in arriv-
ing at a reasonable attorney’s fees award. Instead,
the court [should} focus en the overall results ob-
tained to determine whether it should compensate the
plaintiff for the hours spent on the related but unsuc-
cessful claims. Generally, if the results obtained are
excellent, the ‘| plaintiff’s] attorney should recover a
fully compensatory fee,’ which will ‘[nJormally ...
encompass all hours reasonably expended on the liti-
gation... .’ If the plaintiff has achieved only partial
success, however, compensating the plaintiff for all
hours expended on the litigation may be excessive. In
such a situation, the court may adjust the award
either by identifying specific hours that should be
eliminated or by simply reducing the overall award
to reflect the plaintiff’s limited success.
citing Hensley, 461 U.S. at 435, 103 S.Ct. at 1940. Thus, |
although a reduction may be appropriate to reflect the —
reasonableness of this time in light of the relief ultimately
obtained,’ the court rejects GM’s argument that all of
this time must be excluded from consideration when de-
termining the proper fee award. See also Lenard v.
Argento, No. 85-1786, slip op. at 4 (7th Cir. January 6,
1987) (where a lawyer “presents a congeries of theories
each factually and legally plausible, he is not penalized
because some, or even all but one, are rejected, provided
that the one or ones that succeed give him all that he
14 The court has made some adjustments to reflect the relationship
between these hours and the settlement agreement.
37a
reasonably could have asked for.”) ; Ramos v. Lamm, 7138
F.2d 546, 556 (10th Cir. 1983) (reduction for lost claims
may not be necessary if plaintiffs’ claims involve a com-
mon core of facts or are based on related legal theories) ;
Monroe v. United Air Lines, Inc., 565 F.Supp. 274, 285-
86 (N.D. Ill. 1983) (allowing fees for an unsuccessful
preliminary injunction where the plaintiffs ultimately
prevailed in the litigation).
GM also seeks a reduction in hours to reflect the fact
that plaintiffs relinquished some claims during the course
of the settlement agreement. The foregoing discussion ap-
plies with equal or greater force to these so-called ‘aban-
doned” claims. Basically, to oversimplify, all of these
claims involve different theories to redress the same
wrong—GM’s. placement of THM 200 transmissions into
automobiles requiring THM 350 transmissions. In Zab-
kowicz, the Seventh Circuit recognized that, when a plain-
tiff voluntarily dismisses a claim as part of a settlement
vindicating his rights, a fee award based on all the plain-
tiffs’ claims may be appropriate. Zabkowicz, 789 F.2d at
552. In the present case, the court never ruled on the
remainder of the plaintiffs’ petitions for class certifica-
tion, and it denied GM’s motions to dismiss. Plaintiffs’
counsel should not be penalized just because they relin-
quished some claims in order to reach a comprehensive
settlement agreement with GM. Sce Illinois Welfare
Rights Organization v. Miller, 723 F.2d 564, 567 (7th
Cir. 1983). Accordingly, the court rejects GM’s assertion
that the fee award should be decreased to reflect the plain-
tiffs’ dismissal of related claims in the course of the set-
tlement negotiations.
As a corollary to the arguments regarding the “lost”
and “abandoned” claims, GM argues that the fee award
should be reduced significantly to reflect the disparity be-
tween the relief sought and the recovery obtained in the
settlement agreement. Although the plaintiffs did not ob-
tain relief on behalf of all the classes originally desig-
38a
nated in the complaints, this does not diminish the very
significant recovery obtained by class counsel in their
pursuit of this litigation. As with any claim involving
an area of uncharted law, plaintiffs were required to
develop alternate theories for GM’s liability. This in-
volved formulating innovative arguments to convince the
court of the viability of pursuing these claims as a class
action, and presenting the court with sufficient authority
to defeat GM’s vigorous and able efforts to dismiss the
litigation. Counsel’s very substantial efforts in this re-
gard have not gone unrewarded. Through their efforts,
millions of consumers across the country will be able to
obtain reimbursement for costs incurred in attempts to
repair their THM 200 transmissions.
GM seeks to diminish the nature of plaintiffs’ under-
taking and the level of their success. The record in this
case and the size cf the settlement fund illustrate the
substantia! benefits that plaintiffs’ counsel have conferred
on the class. They achieved class certification in a na-
tionwide Magnuson-Moss warranty action, and success-
fully defeated GM’s repeated efforts to decertify the class
and dismiss the case. Although they cannot claim direct
credit for the settlement of the FTC action, it is a fair
inference that the pendency of these cases had some ef-
fect on the willingness of GM to enter the consent decree
with the FTC. This agreement provided relief to puta-
tive members of the class through the creatigpe of a
Mediation and Arbitration panel.
Finaily, the terms of the June 16, 1986 settlement
agreement between GM and the plaintiffs clearly demon-
strate the significant benefits that the class counsel
achieved for many members of the class. In Jilinois Wel-
fare Rights Organization v. Miller, 723 F.2d 564, 567
(7th Cir. 1983), the court recognized that
Although some settlement agreements may be struc-
tured so that they dispose of the original claims in
a way that allows the court to decide whether a
39a
particular claim has been ultimately successful or
unsuccessful, this will not always be the case. In-
deed, many settlements will be informally structured
with an eye toward the achievement of overall ob-
jectives, rather than the disposition of discrete
claims. With these more general settlements, the
analysis in Hensley regarding successful and unsuc-
cessful claims may be unworkable, although the cen-
tral teaching of Hensley will still apply. That teach-
ing is that in every case the court must explicitly
consider whether the fee is a reasonable one in light
of the level of the plaintiff’s success.
This case clearly presents a situation where the settle-
ment was “structured with an eye toward the achieve-
ment of overall objectives.”” Following the Seventh Cir-
euit’s instruction in J/linois Welfare Rights, this court
will focus on the reasonableness of the fees, and wiil not
reduce the award merely because the recovery obtained
is less than that requested at the outset of the litigation.
2. Time Spent on Class Certification Motions
GM objects to the time expended on the motions for
class certification, which, by GM’s calculation, surpasses
3200 billable hours. According to GM, this figure is com-
prised of excessive “read and review time” and ‘“con-
ference” time between the various sets of plaintiffs’
counsel. Although this 3200 figure appears excessive
when considered in the abstract, the court finds that the
procedural history of this case and the complex nature
of this suit justifies the great majority of the hours
claimed on the class certification motions ‘the court has
made some reduction in hours for excessive review and
conference time and other time of little benefit to the
result achieved). By operation of the local rules of court,
five district court judges presided over this litigation be-
40a
tween 1978 and 1982." The necessary process of fami-
liarization which accompanied each transfer to a new
judge required some duplication of effort beyond the
control of the class counsel. Each transfer necessitated
some new briefing and updating of the class certification
motions. The class counsel should not be penalized for
the so-called “duplicative” hours spent familiarizing
transfer judges with the background of a case and its
pending motions. The complicated nature of this lawsuit,
the extraordinary size of the class, and the uncertainty
and continuing evolution of the law in this area also
demanded a significant expenditure of time. Most of the
time spent briefing and updating these motions was nec-
essary and well-invested, and ultimately persuaded the
court to certify at least one class of plaintiffs and to
deny GM’s motion to dismiss. Accordingly, the court
finds that an overall general reduction in fees for ex-
cessive briefing is not warranted in this case.'®
3. Staffing at Court Appearances
GM also accuses plaintiffs’ counsel of overstaffing at
court appearances by providing several lawyers at some
hearings where one or two lawyers would suffice. GM
refers to several hearings to illustrate this objection. In
general, the courts are reluctant to allow compensation
for an abundance of attorneys appearing on a routine
matter. See, e.g., In re Fine Paper Antitrust Litigation,
751 F.2d 562, 579 (3d Cir. 1984); In ve “Agent Orange”
Product Liability Litigation, 611 F. Supp. 1296, 1307
15 The docket reflects the following chronology: Judge McGarr
(1977-1979) (part of Engines); Judge Crowley (1979-1980); Judge
Moran (1980-1982); Judge Getzendanner (May 1982-September
1982); Judge Nordberg (September 1982 to present).
16 The court has discussed individual instances of excessive billing
in its section addressing the individual petitions. Even if some
excesses did occur, they were not so rampant as to justify GM’s
request for an across-the-board reduction in fees.
4la
(E.D. N.Y. 1985); In ve Continental Illinois Securities
Litigation, 572 F. Supp. 931, 933 (N.D. Ill. 1983);
United States v. Allen, 578 F. Supp. 468, 483 (W.D. Wis.
1983). Where an attorney appears at a hearing as a
“spectator” rather than a participant, he should not be
compensated for his time in court because his presence
does not materially advance the progress of the litigation.
See In re Fine Paper, 751 F.2d at 579. If the cireum-
stances of the hearing require the presence of more than
one attorney, however, then the court should allow at-
torneys’ fees to all necessary participants in the hearing.
Although this court has presided over these cases only
since May, 1982, it disagrees with GM’s characterization
of plaintiffs’ alleged “overstaffing” at court appearances.
These cases were not consolidated until late 1981. Prior
to the consolidation, the counsel for Skelton and Newton
had to appear separately because they had separate
clients and were advancing different theories of recovery.
Each transfer of the case necessitates an appearance by
group counsel before the new transferee judge to fami-
liarize the judge with the attorneys and the issues in
the case. The number of attorneys which have appeared
before this court between 1982 and 1986 has never
seemed excessive to this court. For the most part, the
attorneys who have appeared in the last four years ac-
tively participated in the hearings and contributed to the
advancement of the litigation. (The defendant has rou-
tinely been represented by two lawyers at court appear-
ances.) This court has not observed excessive attendance
by counsel which would justify a decrease in the hours
allowed. Accordingly, the court finds that the requested
reduction for overstaffed court appearances is not war-
ranted in this case.
4. Travel Time
GM also objects to class counsel billing full rates for
time spent travelling to other cities in pursuit of this
litigation. With the exception of the Zwerling and Good-
kind petitions, the fee petitions do not clearly delineate
the hours that they seek to charge the fund for time
spent on a plane or some other means of transportation.
When questioned about the amount of in-flight time
charged, plaintiffs’ counsel admitted that they charged
for time spent in transit, but only if that time was
actually spent working on the case. However, they did
indicate that they were usually working on the case while
in transit. It is this court’s experience that cramped
working conditions, limited access to materials, frequent
interruptions, and inevitable distractions render travel
time much less productive than other time spent on a
case. Accordingly, the court has reduced the hours
claimed for travel to and from a given destination by
50%. See Orshan v. Macchiarola, 629 F. Supp. 1014,
1020 n.3 (E.D. N.Y. 1985); In ve “Agent Orange” Prod-
uct Liability Litigation, 611 F. Supp. 1296, 1849 (E.D.
N.Y. 1985}; Society jor Goodwill te Retarded Children
v. Cuomo, 594 F. Supp. 994, 998 (E.D. N.Y. 1983)."
5. Attorney ee Rate
When attorneys undertake to represent a class, their
fees are usually contingent on the success of the class
action, and they may not be paid for their efforts until
several years after the action is commenced. This results
17 Some courts in this circuit have indicated that full compensa-
tion for travel may be appropriate. See Henry v. Webermeier, 738
F.2d 188, 194 (7th Cir. 1984); Chrapliwy v. Uniroyal, Ine., 509
F. Supp. 442, 454-55 (N.D. Ind. 1981), aff'd in relevant part, 670
F.2d 760 (7th Cir. 1982), cert. denied, 461 U.S. 956, 103 S.Ct.
9428 (1983). The court acknowledges that a complete reduction in
travel time is too harsh; however, it finds that travel time should
be reduced to reflect the fact that, because of travel demands and
inevitable distractions, these hours are not as beneficial or pro-
ductive as time spent at the office or in court. Society for Good-
will to Retarded Children v. Cuomo, 574 F. Supp. 994, 998 (TE.D.
N.Y. 1983); Ryan v. Raytheon Data Systems Co., 601 F. Supp. 243,
256 (D. Mass. 1985). These reductions are set out in more detail
in the discussion of the individual petitions.
aey
40a
in the loss of both the use and some of the value of
money, thus prompting counsel to seek an adjustment
for interest and inflation. In order to account for the
effects of this delay in payment, the courts in this cir-
cuit generally allow an attorney to submit his entire fee
request caiculated in accordance with his current rate,
which provides a rough approximation for the effects of
delay. See, e.g., Chrapliwy v. Uniroyal, Inc., 670 F.2d
760, 764 (7th Cir. 1982), cert. dented, 461 U.S. 956,
108 S.Ct. 2428 (1983); Gautreaua v. Pierce, 690 F.2d
601, 612 (7th Cir. 1982), cert. denied, 461 U.S. 961,
103 S.Ct. 2438 (1983); Coleman v. Fierson, 607 F. Supp.
1578, 1581 (N.D. Ill. 1985); Phemister v. Harcourt
Brace Jovanovich, Inc., 1984-2 Trade Cases { 66,234 at
7 66,996 (N.D. Ill. 1984).'* See also Ramos v. Lamm,
713 F.2d 546, 555 (10th Cir. 1983); In re “Agent
1S In Ohio-Sealy Mattress Manufacturing Co. v. Sealy, Inc., 776
F.2d 646, 663 (7th Cir. 1985), the Seventh Circuit acknowledged
that a district court could compensate for the delay in payment by
using current rates, but it was not required to do so. See also
Chrapliwy v. Uniroyal, Inc., 670 F.2d 760, 764 n.16 (7th Cir. 1982),
cert, denied, 461 U.S. 956, 1038 S.Ct. 2328 (1983). The Ohio-Scaly
litigation spanned over fifteen years, and the trial court declined
to employ current rates because it determined that current rates
would produce a windfall to the plaintiff’s attorneys. The Seventh
Circuit affirmed the refusal to use current rates, noting that
“lwlhen a case lingers on for a long time, ... using current hourly
rates may produce a windfall for the plaintiff since changes in
hourly rates reflect not only inflation but also an attorney’s in-
creased experience and. skill.” Jd. at 663. GM _ relies on this lan-
guage to argue that the use of current rates will result in a wind-
fall to class counsel in the prescnt case. This court disagrees. This
litigation spanned a period of seven years, which witnessed peri-
ods of very high inflation. Calculating all fees at or near current
rates adequately offsets the loss generated by the delay in payment
in this ease. See Chrapliwy v. Uniroyal, Inc., 509 F. Supp. 442,
457-58 (N.D. Ind. 1981), aff'd in relevant part, 670 F.2d 764 (7th
Cir. 1982), cert. denied, 461 U.S. 956, 103 S.Ct. 2428 (1983) (affirm-
ing calculation of fees at current rates for litigation spanning eight
year period).
eee
44a
Orange” Product Liability Litigation, 611 F. Supp. 1296,
1310 (E.D. N.Y. 1985).
In the present case, seven of the nine petitioners have
requested fees at their current rates. The Sachnoff,
Weaver firm and the firm of Charles A. Boyle seek fees
at their historic rates, plus interest calculated at the
prime rate for a given time period. Calculation of fees
pursuant to this method produces significantly higher
fees than those obtained by using the firms’ current
rates.” Following the procedure generally accepted in
this Circuit, the court finds that in this case the calcula-
tion of reasonable fees on a current basis properly com-
pensates all petitioning attorneys for the delay in pay-
ment in this case.
In calculating on a current basis the reasonable fee
rate to be allowed each attorney in this case, the court
took into account all relevant factors, including the bene-
fit to the class, the skill and the difficulty of the legal
work completed, time reasonably required and duplica-
tion of efforts, current fee rates charged by the lawyer for
similar services, current fee rates customarily charged
19 Calculating fees at historical rates plus a prime rate enhance-
ment, Boyle’s petition totals $742,667.86. If calculated at current
rates, his total requested fees are less than half that figure. Sim-
ilarly, calculating Sachnoff’s hours at a historical rate with a prime
rate enhancer produces fees much greater than the figure obtained
by calculating fees in accordance with the firm’s current rates.
In a supplemental submission, Boyle encourages this court to
follow the decision of Judge Roszkowski in Airline Stewards and
Stewardesses Assn., et al. v. Trans World Airlines, Inc., et al., 70
C 2071 (74 C 2063) (N.D. Ill. September 17, 1986). The court’s
review of this case reveals that this decision does not support the
prime rate interest enhancer requesfed by Boyle and Sachnoff. In
Airline Stewards, Judge Roszkowski actually rejected an interest
rate enhancement determined according to the prime rate. He
found that the attorneys were entitled to an interest enhancement
of 715 percent, the interest rate on a long-term treasury rate
purchased at the start of the litigation. /d. at 4.
45a
in the locality for similar legal services, the amount in-
volved and results obtained, the experience, reputation,
and legal ability of each lawyer, the difficulties in dealing
with such a large class of claimants, and the contingency
of the fee. The court is mindful of the chilling effect on
future consumer class actions. that might result from
failure to adequately compensate counsel for their efforts
in this litigation.
The Individual Petitioners
Charles A. Boyle & Associates Ltd.
Boyle requests compensation for 1764.80 hours at
$200/hr. GM has four basic objections to Boyle’s peti-
tion for fees. First, it argues that the time spent on
the losing Skelton appeal should be eliminated in its en-
tirety. As this court explained above, however, plaintiffs
may still seek compensation for the time spent on the
Skelton claims because they are related to the claims on
which plaintiffs ultimately prevailed. However, the court
finds that, since the pursuit of these claims did not fully
contribute to the creation of the settlement fund, these
hours should be reduced by 33%. The court’s review of
Boyle’s petition reveals that he expended approximately
475 hours pursuing the Skelton claims in the district
court, the appeal and the petition for certiorari. The
court will permit compensation for 67% of those hours,
or 318.25.”
Second, GM accuses Boyle of excessive “read and re-
view” time. Although every class action staffed by sev-
eral groups of plaintiffs’ lawyers generates some neces-
sary “read and review” time, it is this court’s role to
ensure that the attorneys do not engage in excessive
20 The court has disallowed the costs of printing the briefs on
~ appeal.
46a
reviews of each others’ work. See In re Fine Paper Anti-
trust Litigation, 751 F.2d 562 (3d Cir. 1984); Lackey
v. Bowling, 476 F. Supp. 1111, 1118 (N.D. Ill. 1979) ;
Manual for Complex Litigation, § 24.22 at 189. The
court has reviewed all of Boyle’s entries, and finds that,
given his role in this litigation, his review time is, for
the most part, sufficiently well-documented and within
reason.
GM’s third objection is closely related to the second
one. GM accuses Boyle of engaging in too much “confer-
ence” time with the other plaintiffs’ attorneys. Boyle’s
fee petition contains references to a number of confer-
ences, phone calls and meetings with the other members
of class counsel. The court finds that Boyle’s conference
time. like his “review” time, is not greatly excessive in
light of the history and demands posed by this litigation
(i.e., consolidation of two separate actions, transfer to
several judges, and the protracted settlement negotia-
tions). However, the court finds that the timesheets do
reflect some duplication of effort and extensive reviewing
and conferring with limited benefit to the class. There-
fore, the court has reduced the requested hours by 10%
to reflect this.
Finally, GM asserts that Boyle charged premium rates
for tasks which could be performed by paralegals. For
the most part, these tasks included review of the case file
and communication with class members. Generally, a
senior attorney is not entitled to premium rates for ser-
vices which could be performed by a paralegal or less ex-
perienced attorney. See Chrapliwy v. Uniroyal, Inc., 670
F.2d 760, 767 n. 16 (7th Cir. 1982), cert. denied, 461
U.S. 956, 103 S.Ct. 2428 (1983); Daggett v. Kimmelman,
617 F.Supp. 1269, 1282 (D. N.J. 1985). After reviewing
Boyle’s petition, the court finds that some of the hours
claimed for senior attorney time should have been dele-
gated to paralegals. The court has reduced Boyle’s time
accordingly. See Daggett, 617 F.Supp. at 1282 (“It was
the fee“applicant’s prerogative to staff every task involved
_—
47a
in this case with partners, but that does not automatically
entitle the law firm to recover ‘partner rates’ for every-
thing’’).
The court notes that Boyle also seeks to charge fees for
the time spent talking to the press.*! In the court’s view,
this time should be compensated at 33% of the hourly
rate because it involves minimum benefit to the class and
does not involve a task which justifies full compensation
for senior attorney time. Cf. Society for Goodwill to Re-
tarded Children v. Cuomo, 574 F.Supp. 994, 998-99
(E.D.N.Y. 1983) (disallowing all time spent with media).
GM also objects to Boyle’s list of expenses, which GM
characterizes as overhead charges subsumed in Boyle’s
hourly rate. See Ramos v. Lamm, 713 F.2d 546, 557, 559
(10th Cir. 1983); Roe v. City of Chicago, 586 F.Supp.
513, 516 (N.D. Ill. 1984). If a case involves unusual ex-
penditures over and above the expenses necessary for the
operation of a law firm, then these expenses are properly
chargeable to the fund. Ramos, 713 F.2d at 559; In re
“Agent Orange” Product Liability Litigation, 611 F.Supp.
1296, 1322 (E.D. N.Y. 1985). The criticized charges in
Boyle’s petition include automated answering machine
services, storage space and office supplies. Given the mag-
nitude of the litigation and the necessity of establishing
adequate facilities and support systems to respond to class
inquiries and store class information, these expenses can-
not be characterized as mere overhead expenses which
should be included in Boyle’s hourly rate.*
Corinblit & Seltzer
The two principals of this firm seek compensation for a
total of 100 hours that the firm expended on this litiga-
tion. Jack Corinblit logged 41 hours at a claimed rate of
21 By the court’s calculation, this amounts to approximately 6
hours, 2 of which will be allowed.
22 However, the court has disallowed a public relations expense of
$693.75.
48a
$250/hr., and Mare Seltzer logged 59 hours at a claimed
rate of $225/hr. These attorneys never appeared before
the court on the case. From the timesheets, it appears
that their primary involvement in this case was their
participation in a deposition in December of 1980.**
GM argues that the requested fees should be reduced
because nearly all of their time was spent “conferring
and reviewing” the work of other attorneys. After ana-
lyzing these timesheets, the court concludes that their
conference and review time is excessive, and has been re-
duced accordingly. Corinblit’s timesheets reveal that over
23 of his 41 requested hours were spent in conferences
with other class counsel. Over 16.5 hours of this con-
ference time included Marc Seltzer, his partner. Seltzer
logged 34 hours of conference time, and 13.25 hours of
these conferences included Corinblit. The firm has not
provided the court with any justification for its double-
staffing at these conferences. In In re “Agent Orange”
Product Liability Litigation, 611 F.Supp. 1296, 1325 (D.
N.J. 1985), the court disallowed all time spent in confer-
ences between partners and associates of the same firm.
Although a wholesale elimination of conference time be-
tween members of the Corinblit firm is not warranted
under the facts of this case, the court finds that a reduc-
tion in these hours is appropriate. In order to offset what
might otherwise constitute double-billing, the court has
reduced Corinblit’s request by 8.25 hours and Seltzer’s
request by 6.5 hours. In addition, because the court finds
that there has been little benefit resulting from excessive
reviewing and conferring with other counsel, the court
has reduced the requested hours by 20%.
Abraham N. Goldinan & Associates, Ltd.
GM objects to Goldman’s request for compensation in
connection with the losing Skelton appeal. In accordance
with the procedure employed in the Boyle petition, this
23 The court has calculated Corinblit’s fees at a rate of S200/hr.
and Seltzer’s fees at a rate of $175/hr.
——"
49a
court has determined Goldman is entitled to fees for 66%
of the time expended on the Skelton appeal, and his time
spent travelling to Washington, D.C. has been reduced
50% .?4
GM also aserts that Goldman’s hourly rates are exces-
sive in light of his experience. Mr. Goldman started prac-
ticing shortly before these cases were commenced. The
court has taken his experience into account when setting
the appropriate hourly rate.”
Finally, GM objects to Goldman’s request for premium
compensation for so-called “clerical tasks.” The statutory
prerequisites of Magnuson-Moss class actions necessitated
many communications with class members. Goldman’s re-
sponsibilities in this litigation involved substantial com-
munication and interaction with individual members of
the plaintiff class. His staff included several paralegals
who were given significant responsibilities in organizing
and maintaining the records of the plaintiff class mem-
bers. His ability to delegate is reflected in the fact that
he claims approximately 2,000 attorney hours and over
5,500 paralegal/data entry hours. See Phemister v.
Harcourt-Brace Jovanovich, Inc., 1984-2 Trade Cases
© 66,234 at 66,996 (N.D. Ill. 1984). However, the nature
of Mr. Goldman’s involvement in this case was primarily
administrative. The court has reduced his time by 10%
to reflect the fact that the tasks he undertook toward the
end of the litigation were primarily administrative in na-
ture, as well as to adjust for the extensive time spent on
conferences, reading and reviewing, with limited benefit
to the substantive legal issues in the case.
Goodkind, Weschler, Labaton & Rudoff
The Goodkind, Weschler firm filed the Morgan and
Attard actions in New York, which were transferred to
*4The court has reduced his requested hours by four hours to
reflect time spent traveling.
25 The court has calculated Mr. Goldman’s fees at a rate of
$150/hr.
50a
this court in conjunction with the settlement. These ac-
tions were informally stayed in 1983 pending this court’s
ruling on the class certification motions. Before this stay,
these attorneys successfully defeated GM’s motion to dis-
miss, and commenced discovery in these actions. The firm
seeks a total of $378,207.07 in fees for over 1600 hours of
work.*° GM’s major objection to this firm’s fee petition is
that it is too vague to permit any meaningful review.
The firm’s timesheets are on a computer printout, and
are admittedly brief. The firm has supplemented its peti-
tion in its reply brief, however, and the entries are not
so cursory that they preclude this court from determining
their accuracy. See Berberena v. Coler, 753 F.2d 629, 634
(7th Cir. 1985) (entries are sufficient if they identify the
substance of the work performed). The firm delegated a
great deal of the responsibility for the prosecution of the
actions to lower-level associates and paralegals. However,
there was an extensive amount of time spent on confer-
ences, reading and review with some duplication. There-
fore, the court has reduced the requested legal hours by
10% and paralegal time by 5%.
In accordance with the court’s guidelines for travel
time set forth above, the court has reduced the time
claimed for work while travelling to and from Chicago
by 50%.?"
“6 The court has calculated the firm’s fees at the following hourly
rates:
Attorney Rate/Hr.
S. Weschler $220
E. Labaton $220
W. Kass $200
R. Schacter $160
L. Sucharow $150
J. Plasse $120
M. Isaacs $ 70
E. Perry $ 70
In determining these hourly rates, the court considered the fact
that most of these hours were expended between 1980 and 1983.
“7 The court has disallowed ten hours of travel time.
5la
Francis E. Goodman, P.C. -
Goodman’s fee petition seeks compensation for 451.70
hours of time at a rate of $150/hr. GM asserts that this
petition should be substantially reduced or denied in its
entirety because Goodman contributed very little in the
case, and he spent most of his time reviewing the work
of other attorneys. Goodman’s petition is replete with en-
tries seeking compensation for his review time. Although
this court was not able to dbserve Mr. Goodman’s role in
the early stages of the litigation, he has not been a pri-
mary player since these cases were transferred to this
court in 1982. Given his limited role since that time, the
court finds that he is not entitled to compensation for all
of his time spent in conferring and reviewing the work
of the other attorneys more heavily involved in the litiga-
tion. The court disagrees with GM’s argument that all
this review time must be disallowed, however. The court
has determined that a 25% reduction in the hours claimed
is appropriate to reflect the limited benefit from Good-
man’s hours expended in this litigation. See In re Fine
Paper Antitrust Litigation, 751 F.2d 562, 579 (3d Cir.
1984); In re “Agent Orange” Product Liability Litiga-
tion, 611 F.Supp. 1296, 1325 (D. N.J. 1985); United
States v. Allen, 578 F.Supp. 468, 483 (W.D. Wisc. 1983).
GM also requests a reduction in Goodman’s hours to
reflect time spent on the losing Skelton claims. Consistent
with the procedure adopted for these claims in the Boyle
and Goldman petitions, the court has determined that .
Goodman’s time spent on these claims should be reduced
by 33%.
William J. Harte, Ltd.
Harte requests attorneys’ fees and costs totalling
$438,456.94. GM argues that his request should be dimin-
ished to reflect the time spent on the losing Skelton ap-
peal. The court finds that, for the reasons set forth on
pages 10-13, supra, a complete elimination of this time is
unwarranted.** Although the court will alow compensa-
*8 The court has reduced costs associated with the Skelton appeal
and petition for certiorari.
52a
tion for time spent on these claims, the attorney and para-
legal time will be reduced 33% to reflect its contribution
to the ultimate settlement of this action.
GM also accuses Harte of poor record-keeping and
vague entries. Although several entries are somewhat
cursory, this court is sufficiently familiar with Harte’s
important role in the litigation to permit these entries
without a request for clarification. Berberena v. Coler,
753 F.2d 629, 634-(7th Cir. 1985). However, because of
the extensive amount of time spent on conferences, read-
ing, and review with limited benefit to substantive legal
presentation, the court has reduced the requested hours
of Mr. Harte by 10% and for similar reasons the para-
legal time by 5%.
Law Offices of Beverly C. Moore, Jr.
Moore’s petition requests compensation for nearly 4,000
hours of attorney time and over 1,400 hours of paralegal
time. GM raises several objections to Moore’s request for
fees and expenses. First, GM disputes Moore’s requested
hourly rate of $175/hour, and argues that Moore has
insufficient experience to justify such a high fee. Taking
into account all the relevant factors previously referred
to, the court finds that Moore is entitled to compensation
at a rate of $140/hr. Although Moore provided research
for the class certification briefs, and demonstrated some
expertise in addressing problems posed by this class ac-
tion, his rate should reflect, among other things, the fact
that he does not have a great deal of litigation experi-
ence.
Second, GM challenges Moore’s request for fees in con-
nection with the Fritz action. Moore filed this action in
the federal district court for the District of Columbia in
1984, shortly before this court issued its interim ruling.
After the interim ruling, Moore secured an order trans-
ferring the case to this court. The court agrees with
GM that the filing of this case did nothing to advance
53a
the progress of this litigation or achieve the ultimate
settlement of the case. In Jn re “Agent Orange” Product
Liability Litigation, 611 F. Supp. 1296, 1307 (E.D. N.Y.
1985), the court noted:
One instance of duplicative work arising from the
nature of a class action, . . . concerns the filing of
individual lawsuits by class members. Attorneys
who file individual suits on the same claims involved
in the class action do not substantially aid the prose-
cution of the class action. These collateral cases ulti-
mately are dismissed as duplicative. An award of
fees for such ‘me too’ litigation would encourage
fruitless and unnecessary work.
Moore’s filing of the Fritz action in Washington, D.C.
is a perfect example of “me too” filing of duplicative
litigation criticized in Agent Orange. It is significant
that none
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