Petition — Leib v. Twentieth Century Corp.

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Supreme Court, U. $,

FILED

NOV *4 1976

(Revised)

2. RODAK, JR. CLER

IN THE

Supreme Court of the United States

No. 76-948

RUTH C. LEIR, FRANK B. LEIB, ANDREW

YENCHKO, MARY K. YENCHKO, CLETUS P.

LYMAN, ESQ., and RICHARD A. ASH, ESQ.,

Petitioners,

20TIL CENTURY CORPORATION, JAMES C. ROBERT-

SON, ROBERT NELSON, ROBERT DI STEFANO,

ALLEN (. SPANGLER, A. C. MURPHY, SHERNO

RESEARCH CENTER, INC., GOLDCHIP FUNDING

COMPANY, and COSMOPOLITAN INVESTORS

FUNDING COMPANY,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

CLETUS P. LYMAN,

Petitioner, Pro Se,

and Attorney for Other

Petitioners.

Of Counsel:

Lyman & Asm,

1612 Latimer Street,

Philadelphia, Pa. 19105,

(215) 782-7040.

[| ———

BATAVIA TIMES, APPELLATE COURT PRINTERS

EASTERN PENNSYLVANIA REPRESENTATIVE i

EDWARD W. SHANNON

THE PLATA, SUITE 10H, PHILADELPHIA, PA. 18108

PMONEs (218) 668.7708

—

—e— —- ——_ —

INDEX.

Opinions, Orders, and Judgments Below.............

ee Chic audn Chk bean skis Whe 0d b6s + OEE

Questions Presented ..........cccceess iwetnesieetieen

Constitutional Clause Involved...................06.

EE RE I eT en ae

Jurisdiction of the district court ..........

ccc auG ici eadened cha ene eeu

GS a CU ee pect teeedeuse we

Course of the Proceedings................

. Statement of Facts Material to Consideration

of the Questions Presented .............c.00000.

wr wn

Reasons Why the Petition Should Be Granted........

1. This case involves federal questions of ex-

traordinary importance, and the court of appeals

has sanctioned a departure by the district judge

from the accepted and usual course of judicial

proceedings so as to call for an exercise of this

Court’s power of supervision ................55.

2. The court of appeals has departed from the

accepted and usual course of judicial proceedings

so as to call for an exercise of this court’s power of

SID 65 dé de cbdncchecsncsnnctadsseuseesc:

3. The court of appeals decided questions of

federal law in conflict with applicable decisions of

EE otk Knndcncccccnacesndbacveseieabines

4. The court of appeals decided a question of

federal law in conflict with other courts of appeals

SEER ERP ay Sa aa OTLEY ALON i a me hee me Ge eR

Page

Appendices:

A—Order of the United States Circuit Court of

Appeals for the Third Circuit, Dated September 29,

SUE SAGhcAD Ribot k ddseeuUeheeaas deed laensds Al

B—Sur Petition for Rehearing ................ A3

C—Order of the United States Court of Appeals

for the Third Circuit Dated July 29, 1976 ....... AS

D—Order of the United States District Court

GG SE ee ae A7

E—Order of Impoundment................... A8

Pe GU WP GIN, 6 ov nesccckncctccescs AlO

G—Order of the United States Court of Appeals

for the Third Circuit, Dated 2 ae A45

H—Order of the United States District Court

FN ASR ER EE a nae A47

I—Articles Printed in the daily press.......... AS7

J—List of Charges made by District Judge against

Attorney Petitioners in Opinion of March 28, 1975 A63

K—Opinion and Order of the United States

District Court, Dated March 28, 1975........... A6é5

L—Order of the United States District Court,

Dated December 19, 1974................. .. »--Al45

M—Expenses Petition................... see oe

N—Petition of Piaintiffs’ Counsel For Award of

Counsel Fees

TABLE OF CASES.

Alyeska Pipeline Service Co. v. Wilderness Society,

I I a cai Fa, eas 2 ae 28,32

Cort v. Ash, 422 U.S. 66 (1975) ...........0cccc eee. 18

F.D. Rich Co. v. Industrial Lumber Co., 417 U.S. 116

hide ciduaiben tovekt Meets Se 28

— ca <0 SS

III.

Page

Figueroa Ruiz v. Delgado, 359 F.2d 718 (Ist Circuit,

Ph ocees ds suseneecestenenanewess ideeeiaewennas 33

Freeman v. Ryan, 408 F.2d 1204 (D.C. Circuit, 1968) 33

Goss v. Lopez, 419 U.S. 565 (1975) ...........05005. 32

Green v. Elbert, 137 U.S. 615 (1891)................ 32

In re Goldchip Funding Company, 61 F.R.D. 592

CEs cc ve dacns deed enesnceceveoeacensenes 19

In re Murchison, 349 U.S. 133 (1955).............-. 27,32

In re Nazareth Fairgrounds and Farmers’ Market, Inc.,

374 F.2d 595 (2nd Circuit, 1967)................-. 33

Knapp v. Kinsey, 232 F.2d 458 (6th Circuit, 1956)... 33

Ludwig v. Massachusetts, No. 75-377, decided June 30,

ee TEER Se | MTT Teeter 30

Mayberry v. Pennsylvania, 400 U.S. 455 (1971) ...... 32

Mills v. Electric Auto-Lite Co., 396 U.S. 375

Ss ¢ 0 Se edhceoebsuescusecessoueesstasebeses 9,28,32

N.L.R.B. v. Phelps, 136 F.2d 562 (Sth Circuit, 1945). 33

New York Indians v. United States, 170 U.S. 1 (1887) 32

Offutt v. United States, 348 U.S. 11 (1954) .......... 32

Quercia v. United States, 289 U.S. 466 (1933)........ 30

Ramey v. Cincinnati Eaquirer, Inc., 508 F.2d 1188 (6th

ene: Th |. A Goveucsvépebdesetuasevcenaseves 33

Reynolds v. Stockton, 140 U.S. 254 (1891)........... 32

Rogers v. Richmond, 365 U.S. 534 (1960) ......... —

Rosen v. Sugarman, 357 F.2d 794 (2nd Circuit, 1966) 33

Sprague v. Ticonic Bank, 307 U.S. 161 (1938)........ 6

Supreme Council of Royal Arcanum v. Green, 237 U.S.

Se EE oc 60-0 con uke 8604 OK GREEORS bE 6b 06055-0660 32

Trustees v. Greenough, 105 U.S. 527 (1881) ......... 28

Watts, Watts & Co. v. Union Austriaca Navigatione, 248

SRS, De ov os nb ccencecseanescsevenseesecesese 32

Whitaker v. McLean, 118 F.2d 596 (D.C. Circuit, 1941) 33

Williams v. Florida, 399 U.S. 78 (1970) ............. 30

IV.

TEXT.

Statsky, Introduction to Paralegalism

eee eoeveeeeeeseeees

IN THE

Supreme Court of the United States

RUTH C. LEIB, FRANK B. LEIB, ANDREW YENCHKO,

MARY K. YENCHKO, CLETUS P. LYMAN, ESQ., and

RICHARD A. ASH, ESQ.,

Petitioners,

20h CENTURY CORPORATION, JAMES C. ROBERTSON,

ROBERT NELSON, ROBERT DI STEFANO, ALLEN C.

SPANGLER, A.C. MURPHY, SHERNO RESEARCH

CENTER, INC., GOLDCHIP FUNDING COMPANY, and

COSMOPOLITAN INVESTORS FUNDING COMPANY,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Petitioners Ruth C. Leib, Frank B. Leib, Andrew Yenchko,

Mary K. Yenchko, Cletus P. Lyman, Esq., and Richard A.

Ash, Esq., pray that a Writ of Certiorari issue to review the

judgment of the Court of Appeals for the Third Circuit, ren-

dered in these proceedings on July 14, 1976.

Opinions, Orders, and Judgments Below

On December 5, 1974, Judge Muir of the United States

District Court for the Middle District of Pennsylvania orally

denied an oral motion that he recuse himself. On December

19, 1974, the district judge denied a written motion that he re-

cuse himself, with opinion. The opinion is not reported, but is

reproduced as Appendix L, hereto. On March 28, 1975, the

district court entered judgment, awarding attorney petitioners

$3,000 in fees and $6,256.72, as reimbursement of expenses,

and awarding plaintiff petitioners a total of $460.00 as re-

imbursement of expenses. The 79-page opinion is unreported

but is reproduced as Appendix K, hereto. On June 18, 1975,

the district judge entered an order denying attorney

petitioners’ motion that his opinion of March 28, 1975, not be

published at least pending appeal and ordering that it be

pubiished by West Publishing Company. The order is

reproduced as Appendix H, hereto. On July 11, 1975, the

United States Court of Appeals for the Third Circuit entered

an order, without opinion, staying publication of the district

judge’s opinion, pending final disposition of attorney

petitioners’ appeal from the district judge’s order of June 18,

1975. The order is reproduced as Appendix G, hereto. On

July 14, 1976, the Court of Appeals entered judgment,

modifying the judgment of the district court of March 28,

1975, by increasing the amount of the fee awarded to attorney

petitioners to $15,400, and affirming the judgment of March

28, 1974, in other respects. The judgment was accompanied by

an opinion, which is not reported but is reproduced as Ap-

pendix F, hereto. The opinion of the Court of Appeals direct-

ed that the opinion of the district court of March 28, 1975, be

restricted to counsel, the district court, and the Disciplinary

Board of the Supreme Court of Pennsylvania, pending further

order of the court, and that counsel preserve the con-

fidentiality of both the district court opinion and the Court of

Appeals opinion, pending further order of the Court of Ap-

peals. On July 14, 1976, the Court of Appeals entered an or-

der impounding its own opinion of that date until further or-

der of the Court. The order is reproduced as Appendix E,

hereto. On July 14, 1976, the district judge impounded his

opinion of March 28, 1975, pending further order of the

court. The order is reproduced as Appendix D, hereto. On

August 26, 1976, the Court of Appeals denied attorney

petitioners’ petition for rehearing. The order is reproduced as

Appendix B, hereto. On September 29, 1976, the Court of Ap-

peals denied attorney petitioners’ application for

modification of its opinion and mandate, without opinion.

The order is reproduced as Appendix A, hereto.

Jurisdiction

The Court of Appeals entered judgment modifying, in part,

and affirming, in part, the district court, on July 14, 1976.

The Court of Appeals, by order of July 29, 1976 [reproduced

as Appendix C, hereto], enlarged the time in which to file a

petition for rehearing through August 17, 1976. A timely

petition for rehearing was filed on August 17, 1976, and was

denied by order of August 26, 1976 [Appendix B, hereto].

The jurisdiction of this court is invoked under Title 28

U.S.C. § 1254(1), granting jurisdiction to this court to review

by writ of certiorari cases in the courts of appeal upon

petition of any party.

Questions Presented

1. Did the Court of Appeals err (1) in holding that at-

torneys petitioning for awards of counsel fees and expenses

under the “common benefit” principle were not entitled to a

disinterested judge and (2) in approving the judge’s as-

sumption of the role of “guardian” of shareholders of a cor-

porate party adverse to petitioners, even though the cor-

poration was represented by counsel, vigorously opposing

such awards?

2. Did the Court of Appeals err in deferring to the find-

ings of fact and assessments of credibility of the district

judge, pursuant to F.R.C.P. 52(a), and to his other subjective

determinations where:

(a) the judge showed bias and hostility toward attorney

petitioners?

(b) the judge defamed them by making erroneous

“findings” of fraud and unethical conduct, in disregard of

their fundamental rights to notice of charges in advance and

an opportunity to be heard thereon?

carelessness and lack of objectivity throughout his decision?

(d) the judge on the third of eight days of hearing

without any basis accused attorney petitioners’ bookkeeper of

giving false testimony concerning the preparation of certain

expense records and accused petitioners of “attempting to

perpetrate a fraud upon the court’?

(e) the judge based his finding that the testimony of at-

torney petitioners was not credible upon his erroneous “find-

ings” of fraud and unethical conduct?

(f) the judge carried out secretly in parallel with the fee

and expenses proceedings his own prosecution of charges of

fraudulent and unethical conduct, in which he acted as ac-

cuser, prosecutor and judge?

3. Did the Court of Appeals err in overlooking such pro-

cedural irregularities in the district court as failure to join

issues in advance of hearing on hundreds of accounting items,

the permission of the district judge to vindictive defendants

to oppose a fee award from a fund belonging to plaintiffs and

their corporation, and the conducting of the hearing like a

boundless discovery proceeding rather than a trial oi issues of

fact?

4. Did the Court of Appeals err in awarding attorney

petitioners only $15,400 for their efforts, where they spent at

least 1,274 hours in legal services, where they achieved a sub-

stantial set of rights for a corporation, in its capacity as a

security holder in another corporation, an increase in the

number of securities and $40,000 in damages, and where the

principle defense counsel were paid at least $70,000 for their

efforts and where counsel for individual defendants were

paid $25,000? In particular, did the Court of Appeals err:

(a) in holding that a monetary benefit was necessary to

give rise to a fee award?

(b) in holding that the participation of counsel for the

beneficiary corporation in settlement negotiations was a fac-

tor subtracting from attorney petitioners’ entitlement to be

paid, even though corporate counsel did nothing to prosecute

the litigation?

5. Did the Court of Appeals err in affirming an arbitrary

award of only 60% of attorney petitioners’ expenses?

6. Did the Court of Appeals err in not expunging from the

record a district judge’s opinion that was replete with de-

famatory statements, made without notice and opportunity to

be heard in advance on the truth of such statements, and that

contained confidential and irrelevant information about at-

torney petitioners?

7. Did the Court of Appeals err in communicating with

and seeking an advisory investigation by the Disciplinary

Board of the Supreme Court of Pennsylvania as a predicate to

its ultimate disposition of the case?

8. Did the Court of Appeals err in excluding evidence of

relevant facts supervening since judgment in the district

court, where the evidence contradicted the unfounded

speculation of the district court about future events?

9. Did the Court of Appeals err in not awarding costs on

appeal and in not stating whether interest should be paid from

the date of the district court judgment?

Constitutional Clause Involved

Constitution of the United States, Amendment V: “. . .;

nor [shall any person] be deprived of life, liberty, or

property, without due process of law; . . .”

Statement of the Case

1. Jurisdiction of the district court

Jurisdiction of the district court of the petitions for award

of counsel fees and expenses was based on the principle of

continuing jurisdiction to hear such petitions arising from

legal services in litigation, of which the court had jurisdic-

tion. This principle was stated by this court in Sprague v.

Ticonic Bank, 307 U.S. 161 (1938).

2. Background

Goldchip Funding Company and Cosmopolitan Investors

Funding Company are affiliated corporations. Goldchip owns

about one-third of the stock of Cosmopolitan, which in

turn owns various defunct subsidiaries. Goldchip and

Cosmopolitan were founded in late 1967 by defendants

Robert Nelson and Robert Di Stefano, two former dancing

instructors, turned insurance salesmen and stock promoters.

The corporate purpose was life insurance. Ruth C. Leib,

Frank B. Leib, Andrew Yenchko and Mary K. Yenchko

(‘plaintiff petitioners’) were shareholders of these

companies, along with about 5,000 other residents of Penn-

sylvania. The companies’ only successful activity was selling

stock, to the extent of about $6 million worth. Under the

guidance of their founders, the companies lost all but about

$1,500,000 between 1967 and june 30, 1972. At that time, the

directors of Cosmopolitan decided to terminate operations

and sell out. Led by Nelson, the directors decided to

amalgamate with 20th Century Corporation, another small,

recently formed insurance company, with an only slightly

brighter history and prospects. Nelson arranged for a cash

buy-out of his interests (for which he had paid in services),

but the investors in Cosmopolitan and Goidchip were to

receive only unmarketable 20th Century common stock. Due

to legal delays involved in a full-scale merger, the parties set

out upon a two-step plan of amalgamation. The first step

called for an immediate purchase of Cosmopolitan’s in-

surance operation. The directors of Cosmopolitan thought

that this step (“Step One’’) did not require shareholder ap-

proval. Step One was completed by the end of 1972. In Sep-

tember, 1973, the directors presented to the shareholders of

Cosmopolitan a plan to transfer all remaining assets of Cosmo-

politan to 20th Century in return for 20th Century common

stock (“Step Two”). These assets were of investment quality

and included marketable corporate bonds, common stock

and developed and undeveloped tracts of real estate, having

aggregate value of about $1 million. Step One involved a

payment to Cosmopolitan of 223,118 common shares, and

Step Two involved a payment to Cosmopolitan of 260,890

common shares. Having no market, 20th Century shares were

evaluated by 20th Century at $4.21, and this value was ac-

cepted by Cosmopolitan without independent appraisal. This

was more than double 20th Century’s book value, and its

operating history suggested that a discount, rather than a

premium, was in order. 20th Century sustained losses before

Capital gains in every year from 1969 through 1972 and, as it

subsequently developed, it lost $729,704 in 1973 (equal to

about one-seventh of its net worth). 20th Century’s principal

business is credit accident and health insurance, described by

an insurance expert as “highly volatile’’.

On September 27, 1973, plaintiff petitioners sued to prevent

Step Two from taking place, on grounds that proxy

solicitations sent to shareholders were misleading and that the

plan was a fraud on shareholders and a waste of corporate

assets. Step Two was alleged to be unfair to Cosmopolitan

and Goldchip shareholders and contrary to their best in-

terests. The cash buy-off of Nelson, but not of the other

shareholders, was cited. The district court denied ap-

plications for restraining injunctions. Step Two was con-

summated with the approval of Cosmopolitan directors, and

the case proceeded to trial for either recision or damages.

Plaintiff petitioners also sued Nelson, Di Stefano, a former

officer and another director of Cosmopolitan, on the grounds

of negligence and conversion, for the approximately

$4,500,000 lost between 1967 and 1972.

The case was factually complex, due to the maze of

irregular transactions in which Cosmopolitan engaged.

Nelson estimated that Cosmopolitan had at least 34 defunct

subsidiaries, and part ownership in a Caribbean island and

several off-shore mutual funds. With the exception of the in-

surance subsidiary, each of the investments was a total loss to

Cosmopolitan. Prosecution of the action was made difficult

by the initiation of an SEC investigation as a result of this

suit. Defendants sent most of their corporate records to the

Commission, delaying plaintiffs’ trial preparation. This was

significant because of the policy of the district judge, to

whom the case had been assigned, that all civil cases should

be tried within six months of filing, and preferably sooner.

The case was vigorously litigated, with about 30 motions

and applications. At one point, defendants filed in-

terrogatories addressed to all 5,000 class members and served

them on counsel with a request that they be answered under

oath within 30 days. (Objections to these interrogatories were

sustained.) By the beginning of trial, only 11 months after the

action commenced, there had been 235 docket entries. The

parties had to simultaneously prepare the case for trial, ex-

plore settlement possibilities, and, in the case of plaintiffs, in-

vestigate several defendants’ ability to pay judgments if won. ~

The case came to trial on August 29, 1974, and was settled,

subject to court approval, in the courtroom on September 5,

1974, after several trial days. The Court approved the settle-

ment on November 18, 1974.

3. The Petitions

On November 18, 1974, attorney petitioners filed a petition

for award of counsel fees in the amount of $75,000. Citing

Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970), attorney

petitioners asked that their fee be paid by Cosmopolitan.

Richard A. Ash, Esq., stated that he spent 599.8 identifiable

hours in prosecuting the action, and Cletus P. Lyman, Esq.,

stated that he spent 674.4 identifiable hours in prosecuting the

action. Each attorney attached a schedule showing the date of

each service rendered, the nature of the service, and the hours

spent on each date. Lyman stated that the fair hourly billing

rate for non-contingent services of lawyers in the area com-

parable to himself was no less than $50.00 per hour, and Ash

stated that the fair hourly billing rate for non-contingent serv-

ices for comparable attorneys in the area was no less than

$60.00 per hour. The fee petition is reproduced as Appendix

N, hereto. On December 3, 1974, petitioners filed a petition

for award of identifiable expenses of litigation incurred by

plaintiffs and their attorneys. Petitioners requested that

Cosmopolitan reimburse attorney petitioners in the amount of

$10,427.86 and reimburse plaintiffs in the amount of $460.00.

The petition alleged that attorneys had spent $2,939.51 for

notes of testimony, $2,378.16 for witness fees, $1,231.96 for

travel, $847.99 for long distance telephone calls, $781.05 for

paralegal services, $734.42 for printing, $602.52 for mailing,

$494.48 for copying (out of office), $178.93 for service of

process, $178.47 for dinners for staff (overtime), $138.00 for

clerks’ fees, $150.00 for copying (in office), $105.70 for

mailing services, $25.72 for messengers, $25.00 for clerical

services, $85.00 for addressed labels, and $33.00 for lunches

and dinners with clients. The petition alleged that

Cosmopolitan had already reimbursed $218.15 pursuant to an

agreement to share certain costs during litigation and that

$280.90 was repaid by witnesses who did not appear at trial.

The petition alleged that plaintiffs incurred traveling ex-

penses in traveling to hearings, shareholder meetings, and

conferences in the amount of $460.00. The expenses petition

contained a schedule which showed the date on which each

expenditure by attorney petitioners was made, the payee, the

nature of the expense and, in most cases, an explanation why

the expenses were made. The expenses petition is reproduced

as Appendix M, hereto.

4. Course of the Proceedings

On the fourth day of trial of the primary case, September 4,

1974, the parties informed the court that during the trial

recesses they had been able to arrive at a concept for settle-

ment and that it was the desire of all parties that a one-day

recess be granted to see if a settlement could be achieved. On

September 5, 1974, all parties announced a settlement, subject

to approval of the court after notice to Cosmopolitan

shareholders. On October 18, 1974, notice was sent to

shareholders advising them of the proposed settlement, of

their opportunity to object at a hearing on November 18,

1974, and of the intention of attorney petitioners to seek a fee

of $75,000 and expenses of about $10,000 in the event that the

settlement was approved. The settlement was approved

without objection on November 18, 1974. The Court reserved

jurisdiction to consider the matter of counsel fees and ex-

penses. Shareholders who attended the hearing were told that

they had a right to be heard on the question of counsel fees

and expenses, if they wished, and that they should notify the

clerk if they desired to be notified of the date of hearing.

In connection with the hearing on November 18, 1974, at-

torney petitioners filed and provided a copy of their fee

petition to the court and opposing counsel together with a

copy of an expense petition substantially identical to that

which was subsequently filed. No answers or objections were

ever filed in response to the fee and expense petitions nor was

any pre-hearing discovery ever sought from petitioning coun-

sel.

The hearing on the petitions for fees and expenses com-

menced on December 3, 1974. The hearing was attended not

only by petitioners and by counsel for defendant

Cosmopolitan, but also by counsel for defendants 20th Cen-

tury and Robert Nelson. The hearing continued throughout

December 3, 4, 5, 6, 7, 16, 17 and until midday on December

18. Despite attorney petitioners’ repeated requests that coun-

sel for defendants other than Cosmopolitan be excluded from

the proceedings, the district judge permitted them to par-

ticipate as if their clients had standing. The district judge also

ignored attorney petitioners’ repeated request that defense

counsel state objections, if any, to the petitions in advance of

testimony. The hearing was conducted like a discovery

proceeding, and defense counsel were permitted wide latitude

to cross-examine attorney petitioners on their petitions and

numerous irrelevant details of their legal practice and per-

sonal lives. The judge acted as if petitioning counsel should

have available in court all documents that could conceivably

bear upon the inquiry. The judge vigorously participated,

asking many questions, both during the examination by

defendants and the periods reserved for court questions. The

court sua sponte ordered production of information from at-

torney petitioners’ tax returns, disclosing their past incomes

and overhead. The judge stated that he was acting as a “guar-

dian” for shareholders and he said that his role was

“primarily for [shareholders’|] protection”. He assumed this

role even though Cosmopolitan, the party from whom fees

and expenses were sought, was represented by counsel, who

was familiar with the case and had demonstrated complete

adversity to petitioners throughout the litigation and, in par-

ticular, with respect to the fee and expenses petitions.

Petitioners were thus opposed by an array of: counsel

representing the party from whom they sought awards, two

attorneys for defendants whose motive was reprisal against

attorney petitioners, and the district judge.

During the hearing on the petitions on December 5, 1974,

the district judge, without any factual basis, expressed the

suspicion that (a) attorney petitioners’ bookkeeper had given

false testimony concerning the preparation of certain expense

records and (b) that petitioning counsel had attempted ‘‘to

perpetrate a fraud on this court”. On the same day, attorney

petitioners proved that these charges were baseless and then

moved that the district judge recuse himself because of bias

and prejudice against them. The judge denied this oral motion

as well as a subsequent written motion to the same effect.

On March 28, 1975, the district judge filed an 81-page

opinion based on his bench notes of trial rather than the trial

transcript. That opinion comprised 298 separate “findings of

fact”, 17 pages of discussion, and 20 “conclusions of law”.

The opinion also included a statement that a copy was being

furnished by the judge to the Disciplinary Board of the

Supreme Court of Pennsylvania.

The opinion found that the value of attorney petitioners’

services was $6,000. The judge then reduced attorney

petitioners’ fee to $3,000 because of charges of “fraud” and

“unethical conduct”, which he erroneously leveled at at-

torney petitioners in his “findings” and opinion. The judge’s

charges are set forth as Appendix J, hereto. The charges were

different from the charge made during the hearing, which had

been completely disproved. The charges had not been made

prior to the opinion by the court or any party. The judge also

disallowed 40% of attorney petitioners’ claimed expenses.

The judge did, however, award plaintiffs reimbursement of

the full $460.00 claimed by them. The release of the district

judge’s opinion was foreseeably followed by wide publicity in

the daily press, reporting the “findings” of the district judge

and his referral of the matter to the Disciplinary Board.

Several such articles are reproduced as Appendix I, hereto.

Attorney petitioners appealed to the Court of Appeals on

April 7, 1975. Plaintiff petitioners also filed timely appeals.

Attorney petitioners requested that the district judge withhold

his decision from publication by West Publishing Company at

least until the Court of Appeals had heard and decided their

appeal. The trial judge not only refused this request but

issued an order [ Appendix H, hereto] stating that the opinion

should be published and noting that he requested its

publication to alert other courts to his views concerning the

alleged misconduct of attorney petitioners.

Attorney petitioners appealed that order and moved the

Court of Appeals to stay publication of the opinion, pending

the Court of Appeals’ decision on their first appeal. On July

11, 1975, the Court of Appeals granted the motion to stay

publication. Attorney petitioners’ second appeal was con-

solidated with the earlier appeals.

The consolidated appeals were argued before a panel of the

United States Court of Appeals on November 21, 1975 (Van

Dusen, Rosenn and Adams, J.).

On July 14, 1976, the Court of Appeals filed its judgment,

accompanied by a 29-page opinion { Appendix F, hereto]. The

judgment increased the fee awarded to attorney petitioners

from $3,000 to $15,400 and affirmed the awards of March 28,

1975, in other respects. The Court of Appeals opinion direct-

ed that the opinion of the district court of March 28, 1975, be

restricted to the district court, counsel and the Disciplinary

Board. By separate order, the Court of Appeals impounded

its own opinion until further order [Appendix E, hereto].

Also on July 14, 1976, the district judge, apparently in

response to an unrecorded communication from the Court of

Appeals, issued an order impounding its opinion of March

28, 1975 until further order [Appendix D, hereto]. The Court

of Appeals found that the evidence did not support the

charges of fraud and unethical conduct made by the district

judge; the Court of Appeals also found that the charges were

made without notice in advance or an opportunity to be heard

thereon. The opinion noted that the Disciplinary Board

should be given an opportunity to act before it entered a fur-

ther order on the issue of what to do with the two opinions.

On August 17, 1976, attorney petitioners filed a petition for

rehearing by the Court of Appeals, which was denied on

August 26, 1976. On September 16, 1976, attorney petitioners

moved that the court modify its opinion of July 14, 1976, to

correct an erroneous statement of fact, contradicted by the

record, and that it modify its mandate to comply with Rule

37, Federal Rules of Appellate Procedure, requiring that in-

structions be given with respect to the award of interest on the

judgment, as modified. On September 29, 1976, the Court of

Appeals denied that motion without opinion.

On November 9, 1976, the Disciplinary Board of the

Supreme Court of Pennsylvania notified attorney petitioners

that, upon the receipt of Judge Muir’s opinion (treated as a

complaint against attorney petitioners), the chief counsel of

the board reviewed voluminous material submitted by the

judge and by attorney petitioners and also submitted the

materials to a reviewer designated by the board. As a result of

these reviews, a decision was made to close the file opened on

Judge Muir’s complaint without taking any action against at-

torney petitioners. Chief counsel advised that the matter was

ended with no discipline record for either attorney petitioner

and that the district judge and Judge Van Dusen, senior judge

of the panel who heard the case in the Court of Appeals, were

notified that the Disciplinary Board considered the matter to

be at an end.

On November 11, 1976, attorney petitioners moved the

Court of Appeals for a further order to permanently im-

pound, prohibit the publication, and mandate the con-

fidentiality of the district court’s opinion; to impound the

Court of Appeals opinion; to issue a memorandum opinion

stating: that the district judge’s charges were unsupported by

the record, that the district judge should not have published'

the fact of his referral of his unfounded charges to the

Disciplinary Board, that the chief counsel of the Disciplinary

Board and a second reviewer found those charges not sup-

ported by the evidence, that counsel closed his file without

any disciplinary record against attorney petitioners, and that

the Court of Appeals increased their fee from $3,000 to

$15,400. The Court of Appeals has not yet acted on this

motion.

5. Statement of Facts Material to Consideration of the

Questions Presented

All pretrial proceedings in the primary case and the trial it-

self were conducted by attorney petitioners, on a wholly con-

tingent basis, without assistance from other counsel or from

any governmental agency. Attorney petitioners took all dis-

covery, including 14 depositions, spent 111.5 hours reviewing

documents, made motions for injunctions, participated in 36

written motions, filed a 236-page pretrial memorandum, and

presented a case at trial for five days. Prior to trial, there had

been six days of hearings in open court in Williamsport and

Lewisburg, Pennsylvania, on injunctions and class action

status and, an additional day on which the pretrial conference

was held. Counsel for Cosmopolitan took no discovery, filed +

' The Court of Appeals noted Rule 17-23, Rules of the Pennsylvania

Supreme Court, which requires that all proceedings before the Disciplinary

Board be confidential.

no pleading, filed no pretrial memorandum, listed no witness

to be called or exhibit to be introduced, filed no tzial brief,

and failed to make timely production of its own records as re-

quested by attorney petitioners.

The settlement of the case, as achieved among the parties

on September 5, 1974, and as confirmed by the court pursuant

to Rules 23 and 23.1, Federal Rules of Civil Procedure, on

November 18, 1974, provided that defendant Nelson would

pay Cosmopolitan $25,000 and that defendant 20th Century

Corporation would (1) pay Cosmopolitan $15,000, (2)

deliver to Cosmopolitan 40,509 additional securities, called

“special preference units” and (3) deliver to Cosmopolitan

260,980 “special preference units” in exchange for return of

the same number of shares of common stock previously

delivered as payment for Cosmopolitan’s investment assets.

“Special preference units” are securities especially created for

the settlement, and have the following characteristics: (1) at

the option of the holder, they are convertible at any time into

common stock at 20tn Century, and (2) they may be redeemed

in cash at $4.21 each if any of certain specified developments

occur.

The parties stipulated that “all of the consideration being

paid to Cosmopolitan” is a benefit “resulting from a litigation

instituted by plaintiffs”.

20th Century paid its counsel at least $46,000 exclusive of

the last month’s trial preparation, the trial itself, and settle-

ment proceedings. Counsel for 20th Century spent at least

1,095.55 hours from the beginning of the case through settle-

ment, and a reasonable estimate of the amount paid them

through settlement is $70,000. Counsel for defendant Nelson

and other individuals accepted $25,000 for 700 hours’ work,

giving consideration to their clients’ financial straits. Defense

counsel worked on a non-contingent basis. Counsel for 20th

Century carried the laboring oar for defendants as a whole.

Attorney petitioner Lyman was graduated from Yale

University in 1967, studied business and applied economics at

the graduate school of the University of Pennsylvania, and

was graduated from the University of Pennsylvania law

school in May of 1971. He is a member of the bar of this court

(1975), the bar of the Supreme Court of Pennsylvania (1971),

the Courts of Appeals for the Second (1973) and Third (1972)

Circuits and the Eastern (1972) and Middle (1973) Districts of

Pennsylvania. He has worked on cases with attorney

petitioner Ash since 1971, specializing in shareholder and

class action suits, and has been an equal partner in the firm of

Lyman & Ash since its formation in November 1972,

specializing in these types of cases.

Attorney petitioner Ash received a Bachelor of Science

degree as well as a Bachelor of Arts degree from Lehigh

University in 1951 after completing a five-year course:

in 1954, he received a Masters’ degree in mathe-

matics from the University of Michigan, where he

also held a teaching fellowship; and in 1964 he was

graduated from the University of Pennsylvania law

school. He has been a member of thé bar since 1965 and

has specialized, with Mr. Lyman, in class action and share-

holder suits since 1971. He was a party in a shareholder case

in this court, Cort v. Ash, 422 U.S. 66 (1975). As of the time

their petitions were before the district court, attorney

petitioners had been involved in some 19 class or share-

holders actions, and they had been successful in achieving re-

lief for their clients in most of those cases that had been com-

pleted, as of the time their petitions were before the court.

Other district courts had awarded them substantial fees in

similar cases: $7,500 for 70 hours; $7,400 for 72 hours;

ee ea

$22,000 for 208 hours; and $78,000 for 600 hours. Attorney

petitioners’ services throughout the litigation were of ex-

cellent quality, which led the district judge to state, in a

published decision on the class action certification, dated

January 15, 1974, that they were “competent and experienced

in this type of litigation.” Jn re Goldchip Funding Company, 61

F.R.D. 592, 594 (M.D.Pa. 1974). The district judge wrote this

opinion after having opportunity to observe attorney

petitioners at a TRO hearing, a preliminary injunction hear-

ing, and a class action hearing and to scrutinize the sub-

stantial number of pleadings and briefs filed in connection

with those proceedings. The judge characterized such pretrial

hearings as “miniature trials.”

The district judge assumed the role of representative of the

interests of Cosmopolitan shareholders in the fee and expense

proceeding. He described himself as “guardian” of the share-

holders and stated that he was conducting the proceedings

“primarily for their benefit.” Prior to the beginning of the

hearing on fees and expenses, the district judge stated that the

amounts in question were “substantially higher than I

originally anticipated.”

The eight-day hearing consisted almost entirely of cross-

examination of Lyman & Ash by the several defense counsel

and the disirict judge. The first three days were devoted to

expenses and the balance to the fee.

The reasonableness of the 1,274 identifiable hours was in-

controvertible. Many hours identified were spent in the

courtroom, many were spent at depositions and conferences

attended by other counsel, and most were spent in the

preparation of documents filed in the case. As the judge

noted at the hearing, the court file was too large for his fe-

male clerk to bring into the courtroom. The hours claimed

were modest compared to the approximately 1,800 hours

spent by counsel for 20th Century and counsel for defendant

Nelson and other individuals. The hours spent were con-

firmed by time records maintained by attorney petitioners

during the latter five months of the fourteen month case. 842

of the 1,274 hours were so recorded. The hours spent were

also confirmed by the time records of counsel for 20th Cen-

tury.

The fact of the expenses was incontrovertible since they had

been paid by check. The propriety of about 95% of the ex-

penses was incontrovertible since the payments were to court

reporters, witnesses, printers, copy services, marshals, and

the clerk of court. Only about 5% of the expenses reasonably

required elaboration.

At some time during the course of the hearing, the district

judge began to secretly propound his charges of fraud and un-

ethical conduct against attorney petitioners. The only ac-

cusation made during the hearing was about the testimony of

attorney petitioners bookkeeper, which was completely dis-

proven the day it was made.

The jrdge carried out his own investigation into disputed

facts. He privately sought evidence from the local telephone

company in an unsuccessful attempt to discredit attorney

petitioners’ testimony as to the rates of taxes and surcharges

on telephone bills. He utilized his erroneous and selective in-

terpretation of information he derived from a book by Stat-

sky entitled /ntroduction to Paralegalism to discredit attorney

petitioners’ testimony [| A137-8]. This volume was never men-

tioned during the proceedings and surfaced for the first . me

in the judge’s opinion as a basis for his finding that they acted

improperly and were not worthy of belief [A128].

On March 28, 1975, the judge issued his 81-page opinion,

which was filed publicly in Williamsport on the same day that

‘it was mailed to attorney petitioners in Philadelphia [ Ap-

pendix K]. The opinion contained accusations of fraud and

unethical conduct in the form of “findings”. These “findings”

were the first time attorney petitioners received notice of the

accusations against them. The charges are listed as Appendix

J, hereto. Among the charges were that certain entries on time

records were “fraudulent”, that expenses listed under “din-

ners for staff (overtime)” were intentionally camouflaged

personal living expenses and that the services of an employee

were deliberately mischaracterized as “paralegal”. Another

charge was that attorney petitioners had an arrangement with

their clients that the attorneys, not the clients, would be liable

for expenses of litigation, in violation of the Code of Profes-

sional Responsibility, Disciplinary Rule 5-103(B).

The opinion contained 112 erroneous findings of fact. The

erroneous findings included that counsel for Cosmopolitan

was responsible for settlement both with 20th Century and

Nelson. This was contradicted not only by testimony of at-

torney petitioners but also by testimony of Nelson’s counsel

and the record of the case. The error was compounded by

another misfinding wherein the district judge found that the

lawyers, who actually represented Nelson, were counsel for

Cosmopolitan [A119]. Another key error was that the set-

tlement with 20th Century invelved only 40,509 “special

preference units” rather than 301,489 units.

The opinion reproduced income and overhead figures from

counsels’ tax returns [A70-1], obtained by a sua sponte order

of the court, over attorney petitioners’ objection. The district

judge also found that attorney petitioners were not rated in

Martindale-Hubbell and that attorney petitioners never tried

a case to a jury. This finding was made even though this case

did not involve a jury trial. The cardinal sentence in the

opinion is:

“Considering all the facts and circumstances in evidence,

including but not limited to the false entries in Lyman’s

time records, improper characterization of the college

student bookkeeper and filing clerk as a paralegal and

deceitful camouflaging of personal living expenses under

‘dinners for staff (overtime)’, I am obliged to conclude

that the testimony of Lyman & Ash is not worthy of

belief and I reject it.” Appendix K, hereto at A 128.

Proceeding from this rejection of testimony, the district

judge stated that he could not make “any finding of the

amount of time actually expended” by attorney petitioners in

the case [A128-9]. He nevertheless found, on the basis that

they never tried a jury case, that the fair rate of compensation

for their time was $20 per hour for office work and $30 per

hour for court work [A127]. He then determined that a

proper fee would be $6,000 but for the alleged fraud and un-

ethical conduct, but that the fee should be reduced in half to

$3,000 on account of these factors [A134].

On the question of value of the “special preference units”,

the district judge decided that their protective value was of

little significance because of what he found to be the adequate

financial preformance of 20th Century. He ignored the un-

broken string of annual losses of 20th Century, including a

loss of $729,704 in 1973, the last year for which results were

available. He went so far as to speculate, without any

evidence on the point, that the net worth of 20th Century had

probably increased during the last six months of 1974.

The opinion stated that the clerk of court was directed to

forward a copy of the opinion to the disciplinary board of the

Supreme Court of Pennsylvania for whatever action that body

deemed appropriate [A144].

Immediately after the release of the opinion, news articles

appeared in the daily press summarizing the “findings” made

by the district judge and giving emphasis to his referral of the

matter to the disciplinary board. One such article pointed out

that the disciplinary board had the power to suspend or dis-

bar attorneys. Several such articles are Appendix | hereto.

On June 12, 1975, attorney petitioners wrote to the district

judge and asked that the opinion not be published at least un-

til the court of appeals decided the case [ A49-56]. The request

pointed out that the charges were false and that, in any event,

they were made as “findings” without notice in advance to at-

torney petitioners or opportunity to be heard on the truth

thereof. The district judge entered an order on June 18, 1975,

denying the request, ordering that the opinion be published,

and making it clear that his purpose in publishing was to de-

stroy attorney petitioners’ standing with other courts. Ap-

pendix H [A47-8}.

Attorney petitioners appealed that order to the court of ap-

peals and moved for a stay of publication of the district

court’s opinion. The court of appeals granted a stay of

publication on July 11, 1975 [Appendix G.]}.

On Suly 14, 1976, the court of appeals issued its 29-page

opinion and judgment in the consolidated appeals. The court

of appeals set aside the findings of fraudulent and unethical

conduct [A34-5] and held that the opinion should not have

been publicly filed with such charges in it [A38]. It also held

that public referral of the opinion to the disciplinary board

was improper and inconsistent with the Rules of the Penn-

sylvania Supreme Court, mandating confidentiality of com-

plaints to that board [A38]. The court of appeals not only

found that the evidence did not justify the “findings” but that

they were made in violation of the basic requirements uf due

SSS

process of law [ A34-5, A38-9]. The court of appeals held that

it was improper for the district judge to sua sponte require

production of attorney petitioners tax returns [A23]. The

court of appeals found that the district judge’s finding that

Appellants’ did not produce the $25,000 settlement with in-

dividual defendants was clearly erroneous [A31]. The court

of appeals fixed the fee due to attorney petitioners at $15,400

[A34], or over five times the fee awarded by the district

judge. The court of appeals concluded that $40 an hour was a

reasonable rate for attorney petitioners’ time [A29].

Nevertheless, the court of appeals determined that, under

Rule 52(a), Federal Rules of Civil Procedure, it was bound to

accept as true any finding of fact by the district judge unless it

(1) is completely devoid of minimum evidentiary support

displaying some hue of credibility or (2) bears no rational

relationship to the supporting evidentiary data” [A19J.

The court of appeals therefore refused to set aside the finding

that attorney petitioners’ testimony was to be rejected and

that the quality of their work was “substandard”.

The court of appeals selected the lesser of the number of

hours spent by the defense law firms, namely the 700 hours

spent by Nelson’s counsel, as the basis for computing a fee

[A28]. Thecourtof appeals multiplied 700 hours by $40 per

hour and arrived at a starting point of $28,000. The court of

appeals then multiplied by 10% to take into account the “con-

tingency factor’’, and arrived at $30,800. The court of appeals

then reduced that figure by 50% because of the alleged sub-

standard quality of the work and inability to translate the

special preference units into monetary terms. The resulting

fee awarded was $15,400.

The court of appeals declined to review the arbitrary

40% reduction in claimed expenses, but made the observation

* es Sane a

that the district court was entitled to reduce the total of

awardable expenses to take account of (1) unreimbursable

items and (2) poor records [A35]. The court of appeals then

cited the copying of legal research and dinners as two cate-

gories which might include unreimbursable items and in office

copying, travel and telephone charges as categories of ex-

penses affected by poor record keeping [A36]. The total

amount claimed under these categories was about $1,300 or

13% of expenses claimed.

The court of appeals ignored that among the reasons for the

40% reduction in awarded expenses were the district judge’s

charges of fraudulent and unethical conduct, which the court

of appeals rejected elsewhere in its opinion.

The court of appeals saw nothing wrong with the distric’

judge acting also as “representative” of the class of Cos-

mopolitan shareholders, and expressly endorsed a “more ac-

tive role” for a judge in the context of a fee hearing [A23].

The court of appeals reasoned that the potential for abuse by

attorneys is great as they often have unbridled discretion in

such proceedings. The court of appeals ignored that, in the

case, the fee award was not sought from a fund or a class but

from a corporation managed by directors and represented by

counsel, opposed to the award.

The court of appeals refused to consider evidence sub-

mitted to it for the first time of the financial performance of

2%h Century for the year 1974. This evidence was not pre-

sented to the district court because it did not become

available until one month after the district court’s opinion. It

contradicted the speculative finding of the district court that

20th Century increased its net worth during the latter part of

1974. The evidence, an annual report of 20th Century, dis-

closed that its net worth was reduced by $876,521 during the

period cited by the district judge.

eS OOOO

The Court of Appeals ordered that the March 28, 1975,

opinion of the district court be restricted to counsel, the dis-

trict court and the disciplinary board [A12], that the con-

fidentiality of the district court opinion and the court of ap-

peals opinion be preserved by counsel, and that the opinion

of the court of appeals be impounded until further order of

court [A39]. The court of appeals concluded that further ac-

tion with respect to the two opinions should await action of

the disciplinary board if it acted within a reasonable period

of time [A38-9].

After rehearing was denied on August 26, 1976, attorney

petitioners moved that the court of appeals correct a factual

error in its opinion, which reflected unfavorably on attorney

petitioners. The court of appeals erroneously said that at-

torney petitioners spent 20 hours and produced 7 pages of

motion papers [A22], whereas the record clearly showed that

they produced 37 pages of motion papers. Attorney

petitioners also asked that the Court of Appeals comply with

Rule 37, Federal Rules of Appellate Procedure, and state

whether interest should be paid on the judgment of the dis-

trict court, as modified, from the date of the district court’s

judgment. On September 29, 1976, the court of appeals denied

this motion [ Appendix A).

On November 9, 1976, counsel for the disciplinary board

notified petitioners that:

. . ., Judge Muir’s complaint, your statement and the

voluminous material which both the judge and your

counsel submitted to this office were forwarded to Chief

Disciplinary Counsel for his review and recom-

mendation. Following Chief Counsel’s review the entire

file was submitted to a reviewer designated by The Disci-

plinary Board. As a result of these reviews the decision

was made to close the files opened on Judge Muir’s com-

le tn all lll

mn ote nt et ne

plaint without taking any action against you. Thus the

matter is ended with no discipline record for either of

you. . . . Judge Van Dusen and Judge Muir have been

advised by Chief Counsel of this decision and this office

considers the matter to be at an end.”

On November 11, 1976, attorney petitioners moved the

court of appeals to permanently impound the district court

opinion and mandate its confidentiality, to permanently im-

pound its own opinion, and to issue a memorandum stating

that the charges made by the district judge were unsupported

by the evidence, had been found unsupported both by the

court of appeals and the Disciplinary Board, were made

without due process of law and should not have been publish-

ed; and further stating that the referral to the Disciplinary

Board should not have been made public and that the court of

appeals modified the fee award from $3,000 to $15,409. This

motion has not yet been acted upon.

REASONS WHY THE PETITION SHOULD

BE GRANTED

1. This case involves federal questions of extra-

ordinary importance, and the court of appeals has sanc-

tioned a departure by the district judge from the accepted

and usual course of judicial proceedings so as to call for

an exercise of this Court’s power of supervision.

The approval by the court of appeals of the assumption by

the district judge of the role of “representative” of the

Cosmopolitan shareholders is in conflict with the principle

that judges must be impartial. This court has always upheld

this principle. Jn re Murchison, 349 U.S. 133, 136 (1955). An

exception to the rule, for attorneys who are compensated by

court awards, is particularly inappropriate. Congress is ex-

panding the circumstances in which court-awarded fees are

available in order to further important policies. It is unlikely

that attorneys will respond to Congressional incentives and

carry out litigation, to be financed by court awards, if their

fee petitions are to be reviewed by a party-judge, acting as an

investigator, both on and off the bench. The accepted and

usual procedure where a court finds a party unrepresented is

to appoint a guardian. Cf. Rule 17(c), Federal Rules of

Procedure.

Although this Court has often addressed itself to the

availability of fee awards [Alyeska Pipeline Service Co. v.

Wilderness Society, 421 U.S. 240 (1975); Mills v. Electric Auto-

Lite Co., 396 U.S. 395 (1970); Trustees v. Greenough, 105 U.S.

527 (1581)], it has not addressed itself in modern times to

either the standards or procecures for determining the

amount of such awards. In light of the comparatively recent

development of class action litigation since the 1966 amend-

ment to Rule 23, Federal Rules of Civil Procedure, and the

recent congressional enactments and pending legislation

authorizing fee awards, guidance from this Court is now due.

These questions are likely to be a frequent concern to the

lower courts.

This Court has identified the delicacy of the problem of

Court awarded fees. As stated in F.D. Rich Co. v. Industrial

Lumber Co., 417 U.S. 116, 129 (1974) (Marshall, J. ):

“| .., there is the possibility of a threat being posed to in-

dependent advocacy by having the earnings of the at-

torney flow from the pen of a judge before whom he

argues.”

The district judge not only controlled the flow of earnings of

attorney petitioners, but also wielded power to greatly injure

their reputations and future earning power. If the court of ap-

peals’ deference to the district judge is not reversed by this

Court, attorneys seeking fee awards will have to strive as

much to curry favor and, more importantly, to avoid disfavor

of the district judge as to advocate their clients’ interest.

Having a divided constituency will put attorneys, who an-

ticipate fee awards, at a disadvantage compared to attorneys

who are paid by their clients.

The award of the court of appeals is so low as to discourage

attorneys from undertaking litigation financed by court

awards. The ten percent “contingency factor” does not com-

pensate for deferral of payment awarded more than three

years after the case began and 20 months after the last services

were rendered. It is unrealistic to expect an attorney to un-

dertake litigation on a 10% contingent fee basis, no matter

how well founded the case may seem. Any experienced prac-

titioner knows that evidence often fails to develop as ex-

pected, the law may change, clients may withdraw, defen-

dants may become judgment-proof, and courts may decide

the case wrongly. Clients, witnesses, or the lawyers them-

selves may become disabled or die during the pendancy of the

case, with destructive effects on the case.

The 50% reduction from the value of attorney petitioners’

time because the benefit was partly non-monetary means that

they worked for little more than overhead, even though they

won a valuable settlement, approved by the court as

adequate. This does not take into account the time and ex-

penses necessary to petition for the fee and expenses, which in

this case involved an eight-day hearing, an appeal and now

this petition.

Granting discretionary authority to district judges to

discount a schedule of litigation expenses by 40 percent,

without ruling on the items individually, confers second class

standing on attorneys. All other litigants are entitled to

itemized determinations of their special damages, and it is

unlikely that attorneys will wish to bring litigation if reim-

bursement of their out-of-pocket expenses is subject to ar-

bitrary percentage discounts, depending on the judge’s reaction

to their record maintenance practices or his belief that some

items may be unreimbursable.

A mechanical application of Rule 52(a), under the cir-

cumstances of this case, by the court of appeals, tips the

balance of power too far toward district courts, at the risk of

tyrannical behavior by judges and the terrorizing of litigants

and their attorneys. This Court has recognized the possibility

of a “complaint, biased or eccentric’’ judge in the context of

discussing the right to a jury trial. Ludwig v. Massachusetts,

No. 75-377, decided June 30th, 1976, 44 U.S.L.W. 5173;

Williams v. Florida, 399 U.S. 78, 100 (1970). In an equity case

such as this, where a jury trial is unavailable, it is essential

that the right of appeal be meaningful. The court of appeals

has conferred inviolability on findings of credibility and

quality since any record will yield at least a scrap of support

for a finding either way.

This case raises the question of abuse of judicial immunity

in opinion writing. This Court should take the opportunity to

outline the responsibilities that accompany the immunity. The

case also raises the limits of judicial activism in conduct of a

bench trial, a question not previously decided by this Court.

Compare, Quercia v. United States, 289 U.S. 466 (1933),

establishing limits on judicial activism for jury trials. Both

the district judge and the court of appeals erroneously

assumed that greater activism was appropriate for a bench

trial, disregarding the even greater need for objectivity when

iii tet ee

a judge has responsibility for deciding the facts as well as the

law.

2. The court of appeals has departed from the ac-

cepted and usual course of judicial proceedings so as to

call for an exercise of this court’s power of supervision.

The communication between the court of appeals and the

Disciplinary Board of the Supreme Court of Pennsylvania as a

predicate to deciding petitioners’ request that the court of ap-

peals expunge the district court opinion and prevent its

publication is contrary to the rule that appellate courts decide

cases on the record made by the parties in the lower court.

The court of appeals had ample basis to conclude, and did

conclude, that the charges made by the district judge were un-

supported by the record, made without due process of law,

and harmed attorney petitioners’ livelihood. The court of ap-

peals should have expunged the opinion and prevented its

publication without waiting for an advisory investigation by

another body. ,

The court of appeals disregarded the clear language of

Rule 37, Rules of Appellate Procedure, which required it to

decide whether interest should be allowed on the judgment,

as modified. It did so after attorney petitioners expressly

requested that it carry out this part of its appellate function.

3. The court of appeals decided questions of federal

law in conflict with applicable decisions of this Court.

The deference accorded the district judge under Rule 52(a),

Federal Rules of Civil Procedure, and other principles of

deference, in the circumstances of this case, was in conflict

with decisions of this Court. It is impermissible to combine

the roles of accuser, prosecutor and judge. Jn re Murchison,

supra. A man may not act as judge of a case in which he has

assumed an interest. /bid. Credence should not be given to

facts found where the fincer is looking for the wrong thing.

Rogers v. Richmond, 365 U.S. 534, 547 (1960). A judgment

which goes beyond the scope of the pleadings is void.

Reynolds v. Stockton, 140 U.S. 254 (1891). A judge may not be

a combatant in a proceeding [Mayberry v. Pennsylvania, 400

U.S. 455, 465 (1971)] or become personally embroiled. Offutt

v. United States, 348 U.S. 11, 17 (1954).

The action of the court of appeals in impounding rather

than expunging the district judge’s opinion is in conflict with

Goss v. Lopez, 419 U.S. 565 (1975); Supreme Council of Royal

Arcanum v. Green, 237 U.S. 531, 546 (1915); and Green v.

Elbert, 137 U.S. 615 (1891).

The court of appeals’ holding that a benefit must be able to

be reduced to a monetary equivalence in order to justify a fee

award is in conflict with this Court’s decision in Mills v. Elec-

tric Auto-Lite, 396 U.S. 375, 395 (1970). See also Alyeska

Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 259

(1975).

The court of appeals’ exclusion of evidence facts super-

vening after judgment, which contradicted the unfounded

speculation of the district judge, was inconsistent with this

Court’s holdings in Watts, Watts & Co. v. Union Austriaca

Navigatione, 248 U.S. 9, 21 (1929) and New York Indians v.

United States, 170 U.S. 1, 32 (1887).

4. The court of appeals decided a question of federal

law in conflict with other courts of appeals.

Other courts of appeals have held that preservation of a

fund, whether or not accompanied by a measurable monetary

gain, is a benefit justifying a fee award. Ramey v. Cincinnati

Enquirer, Inc., 508 F.2d 1188, 1194-5 (6th Circuit 1974),

Freeman v. Ryan, 408 F. 2d 1204, 1206 at N.4 (D.C. Circuit,

1968).

The sanctioning of the role of inquisitor on the part of the

district judge is in conflict with the decision of the First Cir-

cuit in Figueroa Ruiz v. Delgado, 359 F.2d 718, 720 (ist Cir-

cuit, 1966).

The tolerance of partiality and acceptance of the district

judge’s findings under these circumstances conflicts with the

decisions of the courts of appeals in Rosen v. Sugarman, 357

F.2d 794, 799 (2nd Circuit, on petition for mandamus, 1966),

continued sub nom in re Nazareth Fairgrounds and Farmers’

Market, Inc., 374 F.2d 595 (2nd Circuit, on appeal, 1967),

Knapp v. Kinsey, 232 F.2d 458, 465 (6th Circuit, 1956) (“‘par-

tiality renders resulting judgment “invalid”’), and N.L.R.B. v.

Phelps, 136 F.2d 562, 567 (Sth Circuit, 1945) (partiality “taints

and vitiates all of the proceedings’). The tolerance of the

court of appeals of the hostility of the district judge toward

attorney petitioners conflicts with the holding of Whitaker v.

McLean, 118 F.2d 596 (D.C. Circuit, 1941) (“hostility”

evidenced by remark on record renders judgment void.)

For the reasons set forth above, this Petition for Certiorari

should be granted to review the judgment of the court of ap-

peals.

Conclusions

Respectfully submitted,

CLETUS P. LYMAN,

1612 Latimer Street,

Philadelphia, Pa. 19103,

Petitioner Pro Se and

Attorney for Other Petitioners.

APPENDIX A

Order of the United States Circuit Court

of Appeals for the Third Circuit, Dated

September 29, 1976

UNITED STATES COURT OF APPEALS

For the Third Circuit

Nos. 75-1596, 75-1597, 75-1598

& 75-1674

In the matter of

GOLDCHIP FUNDING COMPANY and COSMOPOLITAN

INVESTORS FUNDING COMPANY,

RUTH C LEIB, et al.

20TH CENTURY CORPORATION, et al.,

Defendants,

and

GOLDCHIP FUNDING COMPANY, COSMOPOLITAN

INVESTORS FUNDING COMPANY,

Nominal Defendants,

Cletus P. Lyman, Esq. and Richard A.

Ash, Esq., counsel for plaintiffs,

Appellants in No. 75-1596,

Ruth C. Leib,

Appellant in No. 75-1597,

Frank B. Leib, Andrew Yenchko and

Mary K. Yenchko,

Appellants in No. 75-1598,

Cletus P. Lyman, Esq. and Richard

A. Ash, Esq.,

Appellants in No. 75-1674.

(D. C. Civil No. 73-551)

Appendix A—Order of the United States Circuit

Court of Appeals for the Third Circuit,

Dated September 29, 1976.

Present: VAN DUSEN, ADAMS and ROSENN,

Circuit Judges.

ORDER

After consideration of the APPLICATION FOR

MODIFICATION OF OPINION AND MANDATE, the

RESPONSE to such application, the MOTION FOR IM-

POUNDMENT, and the record, it is

ORDERED that the APPLICATION FOR

MODIFICATION OF OPINION AND MANDATE! and the

appellants’ MOTION FOR IMPOUNDMENT OF APPLI-

CATION FOR MODIFICATION OF OPINION AND MAN-

DATE are denied.

BY THE COURT:-

FRANCES L. VAN DUSEN,

Circuit Judge.

Dated: September 29, 1976

' In addition to the reasons given in the Response and the record references

at page A21 of this court’s opinion, it is noted that (A) the affidavit of July

29, 1974, with exhibits, reproduced at A244-A267 was not solely in support

of a continuance motion but also specifically stated to be “to advise the

Court of recent out-of-court proceedings so that the Court will know the

status of the case as of the date of the final Pre-Trial Conference, today,

July 29, 1974, . . . [and] to excuse the failure of plaintiffs to provide all

of the papers required by the terms of the Court’s Practice Order of Oc-

tober 4, 1973, particularly Para. 5.5 thereof” (A244), and (B) the subject of

this application was raised in the Petition for Rehearing at page 5, note 2,

and has been denied by the in banc court’s order of August 26, 1976.

APPENDIX B

Sur Petition for Rehearing

UNITED STATES COURT OF APPEALS

For the Third Circuit

Nos. 75-1596/7/8 & 75-1674

In the matter of

GOLDCHIP FUNDING COMPANY and COSMOPOLITAN

INVESTORS FUNDING COMPANY,

RUTH C. LEIB, et al.,

20TH CENTURY CORPORATION, et al.,

Cletus P. Lyman, Esq. and Richard

A. Ash, Esq., counsel for plaintiffs,

Appellants in No. 75-1596,

Ruth C. Leib,

Appellant in No. 75-1597,

Frank B. Leib, Andrew Yenchko and Mary

K. Yenchko,

Appellants in Nos. 75-1598,

Cletus P. Lyman, Esq. and Richard

A. Ash, Esq.,

Appellants in No. 75-1674.

Present: SEITZ, Chief Judge, and VAN DUSEN,

ALDISERT, ADAMS, GIBBONS, ROSENN, HUNTER,

WEIS and GARTH, Circuit Judges.

The petition for rehearing filed by Cletus P. Lyman, Esq.

and Richard A. Ash, Esq., Appellants in Nos. 75-1596 and 75-

GQ ee

Appendix B—Sur Petition for Rehearing.

1674, in the above entitled case having been submitted to the

judges who participated in the decision of this court and to all

the other available circuit judges of the circuit in regular

active service, and no judge who concurred in the decision

having asked for rehearing, and a majority of the circuit

judges of the circuit in regular active service not having voted

for rehearing by the court in banc, the petition for rehearing

is denied.

By the Court,

FRANCES L. VAN DUSEN,

Judge.

Dated: August 26, 1976

APPENDIX C

Order of the United States Court of Appeals

for the Third Circuit, Dated

July 29, 1976

UNITED STATES COURT OF APPEALS

For the Third Circuit

July 26, 1976

Nos. 75-1596/7/8 & 75-1674

In the matter of

GOLDCHIP FUNDING COMPANY, et al.,

RUTH C. LEIB, et al.

vs.

20TH CENTURY CORPORATION, et “l.,

Cletus P. Lyman,.Esq., and Richard

A. Ash, Esq., etc.,

Appellants in No. 75-1596 & 76-1674,

Ruth C. Leib,

Appellant in No. 75-1597,

Frank B. Leib, Andrew Yenchko and

Mary K. Yenchko,

Appellants in No. 75-1598.

Present: VAN DUSEN, ADAMS and ROSENN,

Circuit Judges.

A6é

Appendix C—Order of the United States Court

of Appeals for the Third Circuit,

Dated July 29, 1976.

1. Motion by appellants, Cletus P. Lyman, Esq. and

Richard A. Ash, Esq., for enlargement of time within

which to file a petition for rehearing from its present due

date of July 28, 1976, to and including August 17, 1976.

2. Motion by appellants, Cletus P. Lyman, Esq. and

Richard A. Ash, Esq., for impoundment of forthcoming

petition for rehearing,

in the above-entitled cases. The opinion was filed and the

judgment entered on July 14, 1976.

Respectfully,

T. F. QUINN/ags,

Clerk.

enc.

ags

The foregoing Motions are granted.

By the Court,

ARLENE M. ADAMS,

Judge.

Dated: July 29, 1976

APPENDIX D

Order of the United States District Court

Dated July 14, 1976

UNITED STATES DISTRICT COURT

For the Middle District of Pennsylvania

In the matter of

GOLDCHIP FUNDING COMPANY AND

COSMOPOLITAN FUNDING COMPANY,

RUTH C. LEIB, et al.,

Plaintiffs,

VS.

20TH CENTURY CORPORATION, et al.,

Defendants.

Civil No. 73-551

Complaint Filed 9/27/73

(Judge Muir)

July 14, 1976

The Clerk shall impound the Opinion of this Court dated

March 28, 1975, from this day forth until further order of this

Court.

MUIR,

Muir, U.S. District Judge.

APPENDIX E

Order of Impoundment

UNITED STATES COURT OF APPEALS

For the Third Circuit

Nos. 75-1596, 75-1597, 75-1598

& 75-1674

In the Matter of

GOLDCHIP FUNDING COMPANY and

COSMOPOLITAN INVESTORS FUNDING COMPANY,

RUTH C. LEIB and FRANK B. LEIB, on their own behalf

and on behalf of the classes of independent sharehold-

ers of GOLDCHIP FUNDING COMPANY and

COSMOPOLITAN INVESTORS FUNDING COMPANY

and derivatively on behalf of GOLDCHIP FUNDING

COMPANY and COSMOPOLITAN INVESTORS FUND-

ING COMPANY, and its subsidiaries,

Vv.

20TH CENTURY CORPORATION, JAMES C. ROBERT-

SON, ROBERT NELSON, ROBERT DI STEFANO,

ALLEN C. SPANGLER, A. C. MURPHY, SHERNO

RESEARCH CENTER, INC.,

Defendants,

and

GOLDCHIP FUNDING COMPANY, COSMOPOLITAN

INVESTORS FUNDING COMPANY,

Nominal Defendants.

Cletus P. Lyman, Esq. and Richard A.

Ash, Esq., counsel for plaintiffs,

Appellants in No. 75-1596,

Ruth C. Leib,

Appellant in No. 75-1597,

Appendix E—Order of Impoundment.

Frank B. Leib, Andrew Yenchko and

Mary K. Yenchko,

Appellants in No. 75-1598,

Cletus P. Lyman, Esq. and Richard

A. Ash, Esq.,

Appellants in No. 75-1674.

(D. C. Civil No. 73-551)

Present: Van Dusen, Adams and Rosenn,

Circuit Judges.

As explained in the opinion being filed today in the above

appeals, it is

ORDERED that the opinion and judgment being filed

today in the above-captioned appeals shall only be made

available to the district court, counsel of record, and the

Pennsylvania Disciplinary Board until further order of this

court.

It is FURTHER ORDERED that such distributees and the

parties shal! preserve the confidentiality of the opinion and

judgment being entered today until further order of this

court.

BY THE COURT:-

VAN DUSEN,

Circuit Judge.

Dated: July 14, 1976

AlO

APPENDIX F

Opinion of the Court

UNITED STATES COURT OF APPEALS

For The Third Circuit

Nos. 75-1596, 75-1597, 75-1598 & 75-1674

In the matter of GOLDCHIP FUNDING COMPANY and

COSMOPOLITAN INVESTORS FUNDING COMPANY,

RUTH C. LEIB and FRANK B. LEIB, on their own behalf

and on behalf of the classes of independent shareholders of

GOLDCHIP FUNDING COMPANY and COS-

MOPOLITAN INVESTORS FUNDING COMPANY and

derivatively on behalf of GOLDCHIP FUNDING COM-

PANY, and its subsidiaries,

Vv.

20TH CENTURY CORPORATION, JAMES C. ROBERT-

SON, ROBERT NELSON, ROBERT DI STEFANO,

ALLEN C. SPANGLER, A. C. MURPHY, SHERNO

RESEARCH CENTER, INC.,

Defendants,

and

GOLDCHIP FUNDING COMPANY, COSMOPOLITAN IN-

VESTORS FUNDING COMPANY,

Nominal Defendants.

Cletus P. Lyman, Esq. and Richard A.

Ash, Esq., counsel for plaintiffs,

Appellants in No. 75-1596

Ruth C. Leib,

Appellant in No. 75-1597

———<—

ae te eee

All

Appendix F—Opinion of the Court.

Frank B. Leib, Andrew Yenchko and

ivsary K. Yenchko,

Appellants in No. 75-1598

Cletus P. Lyman, Esq. and

Richard A. Ash, Esq.,

Appellants in No. 75-1674

(D. C. Civil No. 73-551)

Appeals From The United States District Gourt

For The Middle District of Pennsylvania

Argued November 20, 1975, and Supplemental

Documents Submitted by Counsel in January & April 1976

Before VAN DUSEN, ADAMS and ROSENN,

Circuit Judges

Cletus P. Lyman, Esq., Lyman & Ash, Philadelphia, Pa.,

Attorneys for Appellants in Nos. 75-1596/7/8 & 75-1674

James M. Marsh, Esq. & Edward C. German, Esq.,

Philadelphia, Pa., Attorneys for Appellants in Nos. 75-1596

and 75-1674

Howard D. Scher, Esq. & Ragan A. Henry, Esq., Goodis,

Greenfield, Henry, Shaiman & Levin, Philadelphia, Pa., At-

torneys for Appellee Cosmopolitan Investors Funding Com-

pany

H. Lee Roussel, Esq., W. Jeffry Jamouneau, Esq. & Rod J.

Pera, Esq., NcNees, Wallace & Nurick, Harrisburg, Pa., At-

Al2

Appendix F—Opinion of the Court.

torneys for Appellees 20th Century Corporation and James C.

Robertson

Barry F. Greenberg, Esq., Cohen, Shapiro, Polisher, Shiek-

man & Cohen, Philadelphia, Pa., Attorneys for Appellee

Robert Nelson

(Filed Jul 14, 1976)

VAN DUSEN, Circuit Judge.

This appeal seeks reversal of a district court order entered

March 28, 1975, awarding two attorneys $3,000. in counsel

fees and $6,256.72 in expenses for their efforts in a class and

derivative securities litigation that ended in settlement of all

claims. Appellants, Cletus P. Lyman, Esq. and Riciard A.

Ash, Esq.,' who originally sought in excess of $85,000. in fees

and expenses, challenge the principal findings of fact on

which the award is based and for various reasons seek ex-

pungement of all or part of the district court’s 81-page

opinion and order.” For the reasons set forth below, we af-

firm the order of the district court with certain modifications.

' The named plaintiffs in the consolidated class actions are appellants in

Nos. 75-1597 and 75-1598. Messrs. Lyman and Ash are appellants in Nos.

75-1596 and 75-1674. Messrs. Lyman and Ash are referred to hereinafter as

appellants.

? By a previous order, we had stayed publication of the opinion pending

determination of this appeal. We vacate the stay in view of our comments in

this opinion, but direct that the opinion be restricted to the district court,

counsel, and the Disciplinary Board, as explained below at page A38.

Al3

Appendix F—Opinion of the Court.

I. The Facts

On September 27, 1973, Frank B. Leib, a shareholder in

Cosmopolitan Investors Funding Company (Cosmopolitan)

commenced a “class and derivative” action seeking to enjoin

shareholder approval of Cosmopolitan’s exchange of the

stock of its life insurance subsidiary for 260,980 shares of

20th Century Corporation stock. After denial of Leib’s

motion for preliminary relief and consummation of the trans-

action, the suit was consolidated with an earlier “class and

derivative” action instituted by Ruth C. Leib, a shareholder

of Goldchip Funding Company (Goldchip). Goldchip is an

inactive corporation whose sole asset is approximately one-

third of Cosmopolitan’s outstanding stock. Lyman and Ash,

equal partners in the law firm of that name, were counsel in

both cases.

Following completion of the ‘challenged exchange,” plain-

tiffs filed amended complaints seeking recision of the trans-

action and damages. They asserted various direct and

derivative claims against 20th Century, its chief operating of-

ficer, and certain former officers and directors of both

Cosmopolitan and Goldchip.* Although the record reflects

some procedural confusion as to the direct or derivative

nature of the various claims, it is clear that in January of

1974, following a demand for action upon the board of direc-

tors by Lyman and Ash, F. R. Civ. P. 23.1, Cosmopolitan

hired its own counsel and began to assert its own rights

against 20th Century and its chief operating officer. Later, on

March 29, 1974, two classes composed, respectively, of the

shareholders of Cosmopolitan and Goldchip were certified

* Jurisdiction was based, inter alia, on section 27 of the Securities Exchange

Act of 1934, as amended, 15 U. S. C. § 78aa.

Al4

Appendix F—Opinion of the Court.

under Rule 23 of the Federal Rules of Civil Procedure (162-

64a).

In one of the first documents filed by Cosmopolitan’s at-

torneys, the corporation explicitly reserved “its right to ob-

ject to . . . the amount and source of attorneys’ fees, if any,

which may be awarded to plaintiffs’ counsel. . . .”* And on

February 17, 1974, the district court strongly cautioned

Lyman and Ash that any application for fees or reim-

bursement would have to be supported by full and detailed

documentation. The court stated:

“All right. Now, . . . I don’t know whether I have said

this before—if I have, | am going to say it again—-if this

Court is ever going to be asked to award any counsel

fees, I will only do it if there be submitted a full

documentation, and by that I mean the dates on which

the services are rendered, what services were rendered on

each date, how much time was spent on each date, what

attorney rendered the service, and what his regular

hourly rate is.

‘And I recognize that there are other factors such as the

amounts involved and the degree of success. But |

decided when I came on this bench, I would never award

counsel fees unless I had such backup material. And I

feel very strongly about it. And the best way to get coun-

sel to understand it is that it is going to have to be done. I

just want to throw that out as a cautionary admonition.’

* Memorandum of Law of Cosmopolitan Funding Co., Document 121, filed

February 25, 1974 (M. D. Pa. Civil No. 73-551).

* See transcript of hearing on February 17, 1974, Document No. 347 (M. D.

Pa. Civil No. 73-551), at page 7. This warning was reiterated on one other

occasion whan appellants’ documentation was found inadequate. See letter

of August 7, 1974, from Judge Muir to Mr. Lyman, reproduced at 1702a.

Al5

Appendix F—Opinion of the Court.

The litigation proceeded generally along two fronts with

varying degrees of participation by appellants. With respect

to certain of the individual defendants, Lyman and Ash

worked primarily alone. And by June 1974, they were able to

arrange a tentative settlement of $25,000. (87la, 1542-43a,

1602-05a). Appellants’ role with respect to 20th Century, on

the other hand, was less significant. Negotiations during the

early spring of 1974 were conducted in large part by counse!

for Cosmopolitan (870a, 2906-09a). These negotiations led to

an offer by 20th Century to settle the various claims asserted

against it and its chief operating officer by giving

Cosmopolitan $15,000. cash and an additional 40,509 shares

of 20th Century common stock. Cosmopolitan accepted the

offer and on August 28, 1974, one day before trial,

Cosmopolitan and 20th Century filed a settlement document

reflecting the agreed upon terms.® During this period, Lyman

and Ash showed no inclination to accept anything ap-

proximating the proposed settlement.

On the fifth day of trial, however, a settlement acceptable

to Lyman and Ash was finally reached. The terms of the set-

tlement closely resembled those Lyman and Ash had con-

tinuously rejected, except that the final agreement introduced

the concept of “special preference units.”’ As before,

Cosmopolitan was to receive $15,000. cash plus an additional

40,509 shares of 20th Century stock. Rather than common

* The settlement agreement was accompanied by a memorandum of law

claiming that the class lacked standing to challenge the settlement because

the settled claims were derivative, rather than direct, in nature (547-52a).

We express no opinion or: this question.

’ See note 24 below for a complete description of special preference units.

Al6

Appendix F—Opinion of the Court.

voting stock, however, the shares, denominated “special

preference units,” were non-voting securities with certain

conditional conversion privileges. In addition, Cosmopolitan

was to exchange the 260,980 shares, or a 15% block, of 20th

Century common stock it had received in the “challenged

transaction” for an identical number of “special preference

units.” A further provision in the settlement required

Cosmopolitan, in effect, to relinquish its voting rights in the

10% block of 20th Century common stock it had owned prior

to this litigation.

On November 18, 1974, after the court had approved the

settlement, Lyman and Ash presented petitions for award of

counsel fees and reimbursement of expenses. The court

examined the petitions (1551-63a), and set the matter for trial

on December 3, 1974.

Prior to trial, Lyman and Ash filed amended petitions

seeking $75,000. in counsel fees and $10,427.86 in expenses.

In their petition for fees and accompanying affidavit, Lyman

and Ash claimed to have spent, respectively, 674.4 and 599.8,

or a total of 1274.2, “identifiable” hours prosecuting the con-

solidated actions. After increasing the number of “iden-

tifiable” hours by 25% to reflect what they considered the ac-

tual amount of time they had devoted to the case, appellants,

using hourly billing rates of $50.00 and $60.00, selected the

$75,000. sum “in their discretion” based on a number of fac-

tors (2642-542).

Following nearly four days of hearings on the petition for

fees and three days of hearings on the petition for expenses,

the district court entered an order awarding $3,000. in at-

torneys’ fees and $6,256.72 in expenses, or 60% of the

Al7

Appendix F—Opinion of the Court.

$10,427.86 of expenses claimed. In support of this award, the

trial judge on March 28, 1975, filed an 81-page opinion and

order, comprised of 298 findings of fact, 20 conclusions of

law, and a 17-page discussion. In that opinion, the court

stated that it had found appellants’ time records and books of

account unreliable and their live testimony in support of their

petitions unacceptable. Although it was unable to determine

the precise number of hours actually expended on the suit,

the district court considered the other factors set out in our

opinion in Lindy Bros. Builders, Inc. v. American Radiator &

Standard Sanitary Corp., 487 F. 2d 161 (3d Cir. 1973) (Lindy 1),

and concluded that appellants’ efforts were worth $6,000.

Finally, based on his view that appellants’ conduct was of

questionable propriety (see pages A34-A36 below), the district

judge reduced the $6,000. to $3,000. In addition, he instructed

the Clerk to forward a copy of his opinion and order to the

Disciplinary Board of the Supreme Court of Pennsylvania

(863a).

Lyman and Ash and the named plaintiffs in the con-

solidated actions immediately appealed the district court’s or-

der. After requesting the trial judge to withhold publication

of his opinion pending determination of the initial appeals,

Lyman and Ash filed an “appeal” from the district court’s

June 18, 1975, order which formally denied such request and

which reaffirmed that court’s intention to publish its opinion

(909a). This “appeal” was accompanied by a motion for a

preliminary stay of publication (2973-9la). We granted that

motion pending decision on the merits of the consolidated ap-

peals (2992a). See note 2 above.

Als

Appendix F—Opinion of the Court.

Il. The Contentions

Appellants raise three broad challenges to the district

court’s award of fees and expenses and its decisions to publish

its opinion. First, they challenge the court’s finding that their

petitions and testimony were insufficient to meet their burden

of proof under Lindy I. They also argue in this context that

the district court was biased and predisposed to find against

them. Second, they contend that the ultimate award of fees

and expenses was unreasonably low and an abuse of

discretion. Finally, they assert that publication of the district

court’s opinion under the circumstances of this case would

constitute a denial of due process of law.

Ill. The District Court Findings

In Lindy | we established guidelines for use in computing

reasonable attorneys’ fees which require the district court

initially to determine “how many hours were spent in what

manner by which attorneys.” Lindy, supra, 487 F. 2d at 167.

The burden of producing records and/or testimony on which

a court may base such a determination rests squarely on the

attorneys seeking compensation for their services. See Jn re

Meade Land and Development Co., 527 F. 2d 280 (3d Cir.

1975). Our initial task then is to decide whether the district

court’s finding that appellants’ petitions and testimony were

insufficient to carry that burden is clearly erroneous.

A. The Petitions and Supporting Testimony

Appellate review of findings of fact is governed by F. R.

Civ. P. 52(a), which provides in part:

Al9

Appendix F—Opinion of the Court.

“Findings of fact shall not be set aside unless clearly

erroneous and due regard shall be ¢.vcn to the op-

portunity of the trial court to judge the credibility of the

witnesses.”

As the language of the rule itself suggests, the clearly

erroneous standard applies with particular force where, as

here, iue district court’s pertinent findings rest almost en-

tirely on its observation of witnesses.* In such cases a finding

must be affirmed unless it “(1) is completely devoid of

minimum evidentiary support displaying some hue of

credibility or (2) bears no rational relationship to the sup-

porting evidentiary data.” Krasnov v. Dinan, 465 F. 2d 1298,

1302 (3d Cir. 1972); see Bluebird Food Products Co. v.

Baltimore & Ohio R. Co., 474 F. 2d 102, 107 (3d Cir. 1973), 9

Wright & Miller, Fed. Prac. & Proc., Civil §2585 at 733-34

(1971). After a thorough review of the entire record, we can-

not say the district court’s critical findings as to the petitions

and Lyman and Ash’s supporting testimony are clearly

erroneous. We must, therefore, agree that the petitions them-

selves cannot serve as the basis for an award in this case.

Appellants seek counsel fees for a time period beginning

September 15, 1973, and ending November 14, 1974. As we

have already noted, they were advised by the district court

early in this litigation that they would be required to sub-

stantiate each requested item in any petition for counsel fees

*In the words of the district judge, the court “. . . applied the time-

honored tests for determining (appellants’] credibility as witnesses, in-

cluding their attitudes, demeanor, and behavior while on the stand, their

interests in the outcome of the proceedings, their inclination to speak truth-

fully or not, the probability or improbability of their statements and all

other facts and circumstances in evidence.” (845Sa)

A20

Appendix F—Opinion of the Court.

or expenses by indicating the service rendered, the date ren-

dered, the time spent and the hourly rate for the attorney in-

volved. Despite this clear warning, and despite our October

31, 1973, decision in Lindy I, neither Lyman nor Ash made

any effort to keep a record of the time he spent on this

litigation prior to June 23, 1974 (2244a, 2778a).

All of the hours alleged to have been spent and al! of the

expenses incurred between September 15, 1973, and June 1974

are estimates reconstructed from memory as refreshed by a

review of documents, the court docket, correspondence and

other materials in the office of Lyman and Ash (2255-57a,

2778a). These hours account for more than one-third of the

total “identifiable” hours billed in this case.

Wh‘'e we do not hold that, under all circumstances, con-

temporaneous time records are required, reconstructions of

the type involved here inspire little confidence as to their ac-

curacy and invite the closest scrutiny. Where an attorneys’

records do not prove to be reasonably accurate, they may

properly be discounted as failing to satisfy the “strict stand-

ard” enunciated in our cases. See Jn re Meade Land Develop-

ment Co., 527 F. 2d 280, 284 (3d Cir. 1975).* We stress, as we

did in that case,

“that it is the attorney’s obligation to keep and submit to

the court time records supporting an application for com-

pensation. And, absent unusual circumstances, it is the court’s

independent obligation to give credit only where there are

* We recognize that this “strict standard” has only been announced in the

bank ruptcy context where the district court has special independent

obligations. However, we believe the district court's role in the Lindy con-

text is sufficiently analogous that similar standards should apply. See page

A24 infra.

A2l

Appendix F—Opinion of the Court.

such supporting documents, even in cases where no interested

parties raise objections to the claim.”

The close scrutiny mandated by the lack of pre-June 23

time records was also warranted with respect to the “con-

temporaneous” time records maintained after June 23, 1974.

Mr. Lyman and Mr. Ash both testified that their post-June

entries were sometimes made at the end of several days or a

week for the preceding period (2810-1la, 2244a). All of Mr.

Lyman’s records were “approximate’’ because he usually

rounded off to the nearest hour or half-hour (2245Sa).'° Some

of Mr. Ash’s records for this period were missing (2778-79a).

And, for one day, Mr. Ash produced two “contemporaneous”

records; one showed two hours devoted to this case while the

other showed eight hours, or four times that » mount (805a).

The dissatisfaction understandably engendered by the

quality of the time records and the high number of billable

hours on particular days was confirmed when the court

examined the particulars of the petitions in detail.'' By way of

illustration only, we note the following examples. Mr.

Lyman’s petition showed two hours for “correspondence” on

August 5, 1974. The product of these two hours is two one-

224 line items in Mr. Lyman’s petition show time spent in even hours or

half-hours. Substantially the same observation can be made of Mr. Ash's

petition.

'' Of course, “[i]t is not necessary to know the exact number of minutes

spent nor the precise activity to which each hour was devoted.” Lindy,

supra, 487 F. 2d at 167. However, where time records are compiled in the

manner shown in this record, inability to justify specific entries is highly

relevant on whether the records as a whole are a sufficiently reliable source

for the computation of reasonable fees under Lindy.

A22

Appendix F—Opinion of the Court.

sentence letters, one two-sentence and one six-sentence letter

(979-8la, 1069a). None of these letters required extensive

preparation.

Similarly, the petition indicates that well over 20 hours was

spent preparing a simple two-page motion for a continuance

and a brief five-page supporting memorandum (2549-5la,

238-43a). The district court understandably expressed sur-

prise at the amount of time allegedly invested in this short,

uncomplicated motion (2549a). That appellants sought fees in

excess of $1,000. for this motion provides support for the

district court’s findings.

Finally, we think there is a rational basis in the record for

discounting much of appellants’ live testimony. While it is

difficult to evaluate the cold record in this regard, we have

concluded the transcvipts contain a number of answers the

district court could fairly characterize as “evasive” or in-

consistent. '?

B. Alleged Bias as Affecting Rulings on

Petitions Claiming Fees and Expenses

Closely related to appellants’ contention that the district

court erroneously disregarded their petitions is the argument

that the district court was “predisposed” against appellants.

This contention was first raised on the morning of the third

day of hearings. During the testimony of appellants’ part-time

bookkeeper, the court stated, “I think it is only fair to tell

'? See, e.g., 1695-96, 1844-45, 2240, 2314, 2348, 2356-57, 2382-84, 2392-94,

2395-96, 2397, 2414-20, 2601, 2602-05, 2697, 2707, 2744-45, 2790, 2793-95,

2817-22, 2831-32a. Compare 1648a with 1884-86a.

A23

Appendix F—Opinion of the Court.

you, Mr. Lyman and you Mr. Ash, that I am very troubled as

to whether or not there has been an attempt to perpetrate a

fraud on this court by you gentlemen” (2022a). This statement

and the court’s initial reaction to appellants’ books prompted

Lyman and Ash to move that the court recuse itself because of

“bias against plaintiff's counsel.” Appellants also sought

“permission to voir dire Your Honor with respect to Your

Honor’s comments about the attempted perpetrated fraud

. .” (2048a). Both motions were denied, and a subsequent

written motion under 28 U. S. C. § 144 was denied by a written

order and opinion dated December 19, 1974 (672-77a).

We have carefully reviewed the entire record bearing this

contention of bias in mind and, on the basis of that review, we

reject such contention.

In Lindy hearings the role of the district judge is unusual

for the court is frequently the sole representative of a class

whose interests are at that stage divergent from those of their

former attorneys. Especially in class actions, attorneys as a

practical matter often have nearly unbridled discretion as to

the fees and expenses incurred during the course of the

litigation. The need for some form of safeguard against

possible abuse of the equitable fund doctrine is therefore

great. Although the class may have its own representative at

the hearing, the district court has the prerogative to play a

more active role than it might in a jury or other context. Cf.

In re Meade Land and Development Co., 527 F. 2d 280 (3d Cir.

1975). In carrying out its obligation, the district court has a

broad discretion, which includes the power to examine wit-

nesses and to require production of supporting documents. '*

'? The only instance where we think the district court’s participation ap-

proached the bounds of impropriety was when it sua sponte required

production of appellants’ partnership tax returns (2470- 72a).

A24

Appendix F—Opinion of the Court.

In our view, the record reflects the efforts of the district

court t8 carry out, seriously and conscientiously, the in-

dependent duty imposed upon it by our decision in LindyI. As

the district court stated in its order denying the motion for

recusal (674a):

“It is to be noted, of course, that no jury is involved in

this case and that the proceeding is equitable in nature.

Attorneys coming into court for an award of attorneys

feesfromafund. . . are ina fiduciary capacity and the

judge has the obligation to examine the application in the

same manner as a judge approving an expense of any

other fiduciary.

“The instances of bias cited by the attorneys in this case,

taken as true and as made in good faith, show no more

than the [district] judge fulfilling his responsibility.”

We have already noted that the district court’s concern with

its duty to determine fees and expenses started early in this

case and well before it became aware of the manner in which

Lyman and Ash maintained their records or compiled their

petitions seeking attorneys’ fees.

Appellants rehearse a litany of charges on some of the

district court’s 298 findings. Most of their challenges are

without merit.'* Although we must agree that there are in-

stances not discussed elsewhere in this opinion where minor

errors were made, we cannot in this case infer bias from the

mere fact that the district court, working without the benefit

'‘* E g., the fact that Mr. Ash had conducted hundreds of non-jury trials is

not inconsistent with the finding “that neither Lyman nor Ash had ever

tried a case to a jury and neither had ever tried [an injunction] case beyond

the preliminary injunction stage” (849a). See also 2575-76a, 2397-98a,

2623a.

A25

Appendix F—Opinion of the Court.

of a transcript,'> made mistakes in its opinion. Similarly, we

think the district court’s initial expression of surprise at the

amount of the requested awards (1563a) and the court’s

previously quoted remark that it was “troubled” about a

possible attempt to defraud the court (2022a) were largely

motivated by a desire to be fair (675a, 2022a) and, in any

event, established no bias. '®

As the Supreme Court stated in United States v. Grinnell

Corp., 384 U. S. 563, 583 (1966): |

“The alleged bias and prejudice to be disqualifying must

stem~from an extra-judicial source and result in an

opinion on the merits on some basis other than what the

judge learned from his participation in the case. Berger v.

United States, 255 U. §. 22, 31.”

None of the instances of alleged bias indicate any extra-

judicial influence or animus.

'S We reject as frivolous the argument that the trial judge committed rever-

sible error in making his findings on the basis of notes taken during the

hearing. Appellants’ brief at 31, 32, 36. We also note that appellants an-

swered in the negative when asked if they desired to submit proposed find-

ings (2944a).

'* Appellants cite two instances to us as evidence that the district court had

made up its mind before hearing the evidence. One involves the trial

judge’s questions about the integrity of accounts kept in penci! (2020-22a).

The other involved his initial concept that appellants had erroneously com-

puted the amount of tax-on their telephone charges (1811-12a, 1905-06a,

2085a, 2094a, 2500-Ola, 2925Sa). In both instances the court dropped the

matter entirely when its initial doubts proved wrong. We note in this con-

text that the cases cited at page 62 of appellants’ brief relating to the

propriety of predicating decisions on facts outside of the record or “private

evidence” are inapposite since no part of the decision in this case was based

on such evidence.

A26

Appendix F—Opinion of the Court.

IV. The Amount of the Awards

A. Attorneys’ Fees

In Lindy we established an analytical framework for the

computation and award of attorneys’ fees. As we explained in

Merola y. Atlantic Richfield Co., 515 F. 2d 165, 168 (3d Cir.

1975) (Merola II):

“Lindy approached the award of attorneys’ fees by

requiring that initially an objective basis for evaluating

attorneys’ services be established by multiplying the

hours spent on a case by a reasonable hourly rate of com-

pensation for each attorney involved. With this objective

figure as a backdrop, Lindy injected flexibility into the

fee-setting process by requiring that the value of the serv-

ices be finally determined by consideration of at least

two additional factors: (1) the contingent nature of the

case, reflecting the likelihood that hours were invested

and expenses incurred without assurance of com-

pensation and (2) the quality of the work performed as

evidenced by the work observed, the complexity of the

issues and the recovery obtained.”

Since the trial judge in this case failed to make any findings

on the number of hours expended by Lyman and Ash in this

litigation, we would normally remand for such a deter-

mination. However, it is apparent that the trial judge has

already made a diligent effort and has compiled as complete

a record as is possible under the unique circumstances of this

case. As noted below at page A28, the record contains

evidence, which is not disputed by any party, that 700 hours

were spent by counsel for the individual defendants for com-

A27

Appendix F—Opinion of the Court.

parable work. Only because this is a most unusual case, '

with a virtually complete lack of reliable direct supporting

documentation and involving relatively inexperienced at-

torneys, with no full-time secretaries or other record-keeping

personnel, who testified at length before a conscientious

district judge, we will not follow our normal policy of re-

quiring the district court to make the determination of hours

expended in the first instance. While judicial economy in the

attorneys’ fee context normally requires a remand, we believe

that in this extraordinary case it would be wasteful of

the resources of both the parties and the courts to follow that

course. A remand here would only cause a further drain on

Cosmopolitan’s depleted treasury when this litigation has al-

ready generated claims for attorneys’ fees that may exceed it.

Under these circumstances, we have decided to adopt appel-

lants’ suggestion that we determine a reasonable fee at this

juncture. Appellants’ brief at 66-67. See Powell v. Penn-

sylvania Railroad Co., 267 F. 2d 241 (3d Cir. 1959); cf. Merola

v. Atlantic Richfield Co., supra, 515 F. 2d at 173.

6a In addition to the fact that the absence of (a) records, (b) reliable

testimony from appellants, and (c) other direct evidence of hours spent by

appellants on this case, makes it wasteful for all concerned to remand this

case to the district court for a finding of such hours, our view that the Penn-

sylvania Disciplinary Board is the appropriate agency to determine, in the

first instance, the application of the Code of Professional Responsibility to

this record (see pages A36-A40) has contributed to our conclusion that we

should take the highly unusual course of not remanding the case to the

district court. See Lindy Bros. Builders, Inc., et al. v. American Radiator &

Standard Sanitary Corp., et al. (Lindy Il), ...... Pe MP seccss (July 2, 1976,

3d Cir. Nos. 74-2189 & 74-2255) (en banc). We note that parts IV A - C of

Lindy I1 do not apply to this fee application adjudicated in the district court

on March 28, 1975, more than a year prior to Lindy //. The Pennsylvania

Disciplinary Board has indicated that it .ill not act on the reference of the

district court case and opinion to it until the above appeals have been de-

termined.

A28

Appendix F-—Opinion of the Court.

The threshold determination we must make is the amount

of time Lyman and Ash spent prosecuting these suits. The

record indicates that counsel for the individual defendants in

this litigation spent approximately 700 hours (1605-10a).

Counsel for 20th Century spent somewhat more (835-37a).

Because of their failure of proof'’ and the fact, discussed

below, that appellants’ refusal to settle the claims against 20th

Century at an earlier time accounts for a large portion of the

time spent by counsel for 20th Century, we think the 700-hour

figure represents an acceptable starting point for the Lindy

computation.

Next we must set the value of Lyman and Ash’s time on an

hourly basis. In Lindy, supra, 487 F. 2d at 167, we said:

“The value of an attorney’s time generally is reflected in

his normal billing rate. A logical beginning in valuing an

attorney’s services is to fix a reasonable hourly rate for

his time—taking account of the attorney's legal

reputation and status (partner, associate).”

The difficulty in this case stems from the fact that Lyman and

Ash’s practice was confined almost exclusively to cases han-

dled gn a contingent fee basis. Only in a few scattered in-

stances did Lyman and Ash bill on an hourly basis at the

$50.00 and $60.00 rates they claimed (2624-25a, 282la, see

2420-21a, 2423). Thus we must fix a “reasonable hourly rate”

taking account of appellants’ legal reputation and experience.

Prior to these suits, Lyman and Ash had had little previous

experience as lead counsel in the type of litigation involved in

'? Cf. Merola v. Atlantic Richfield Co., 493 F. 2d 292, 296 & n. 14 (3d Cir.

1974) (Merola 1).

A29

Appendix F—Opinion of the Court.

this case (820-30a, 2397-98a, 2575-76a, 2623a). Although Mr.

Ash’s experience was more extensive, Mr. Lyman had been a

practicing member of the bar for less than two years prior to

this litigation. The pretrial papers he prepared in this case

were the first he had ever done (2575-76a). Taking into ac-

count the prevailing rate of compensation in the legal com-

munity'* and the facts at the time of this litigation,'* we have

determined, after careful consideration, that the figure of

$40.00 per hour represents an appropriate, weighted, average

rate of compensation for these attorneys in this type of

litigation at the time. Multiplying the 700-hour estimate

discussed above by $40.00 per hour, we arrive at a threshold

attorneys’ fee of $28,000.

Our next inquiry concerns the question of whether this

$28,000. figure should be adjusted to reflect the contingent

nature of this case. Although the litigation was conducted on

a wholly contingent basis, the prospects for success on the

proxy claim became substantial soon after the litigation com-

menced and before any significant amount of legal time had

been spent (847-48a). Moreover, an experienced and respect-

ed member of the Philadelphia bar, who acted as counsel for

the individual defendants, testified that his client had settled

principally because the cost of defending against the suit

would have been greater than the $25,000. paid in the settle-

ment (1542-43a, 1601-05a). Under these circumstances, the

'* The district court set the rates at $20.00 per hour for non-trial time and

$30.00 per hour for trial time.

'* At the time of the litigation, the firm of Lyman and Ash was new, had

limited library facilities and limited secretarial or clerical assistance. The

overhead component of their fee was, therefore, smaller during the period

than that of lawyers in existing firms.

A30

Appendix F—Opinion of the Court.

policies militating in favor of a substantial increase to reflect

the contingent nature of the suit apply with diminshed force.

And given the small amount of the actual monetary recovery,

we think the objective figure of $28,000. should be increased

by no more than 10% for a total of $30,800.”

We now turn to the question which the district court found

to be of paramount importance: whether the fee should be re-

duced to reflect “the quality of the work performed as

evidenced by the work observed, the complexity of the issues

and the recovery obtained.” Merola v. Atlantic Richfield,

supra, 515 F. 2d at 168. We cannot say the district court

abused its discretion in determining that a reduction in fee is

warranted in this case.

First, there is sufficient evidence in the record to support

the district court’s finding that the quality of appellants’ ac-

tual work was substandard. Prior to trial, the district judge so

characterized their work, and the record reflects the court’s

concern at other stages in the litigation.*' Second, we must

agree with the district court’s conclusion that “nothing should

be added in this case for the novelty or complexity of the

issue”’ (849a). Although the case was procedurally complex,

we do not believe those complexities increased the difficulty

of obtaining the settlements achieved in this litigation.

More significantly, we think a reduction in the objectively

determined fee is appropriate in light of the result achieved

through appellants’ efforts.

%© The district court used an increase factor of 20% but was considering a

fee that was lower than the fee we are considering here (85la).

*! Order of November 26, 1973, Document No. 48 (M. D. Pa., Civil No. 73-

551), letter of August 7, 1974, from Judge Muir to Mr. Lyman (882a).

A3l

Appendix F—Opinion of the Court.

The principal monetary benefit produced by appellants was

the $25,000. settlement against the individual defendants. *!*

As we have previously noted, that settlement was achieved in

principle by June. By appellants’ own records, they had ex-

pended approximately 425 hours on this litigation by that

time. Thus, using the hourly rate of $40.00, plus a con-

tingency factor of 10%, the maximum possibie fee for

producing this $25,000. settlement would be $18,700.,

assuming all the hours were spent on this aspect of the

litigation.

The only other benefit produced by this litigation came

from the settlement with 20th Century. That settlement con-

sisted of $15,000., 40,509 special preference units and the

conversion of 260,980 shares of Cosmopolitan’s 20th Century

common stock into an identical number of special preference

units.?? The fact is, however, that Lyman and Ash cannot be

credited with the full value of their time for producing this

benefit.

First, it is undisputed that the entire settlement without the

special preference feature was (1) attainable at least by the

end of 1973 (833a), and (2) would have been achieved but for

21a We have concluded that the district court finding that Lyman and Ash

did not produce this $25,900. sum is clearly erroneous. See 871a, 1542-43a,

1602-05a, and page Al5 above. The difference between the fee we have set

and the $6,000. fee set by the district court reflects this conclusion.

22 Appellants correctly point out that in its description of the settlement the

district court failed to mention the conversion of the 260,980 shares of

common stock into special preference units (831a). We add the observation

that the district court also failed to mention the loss of voting rights. We

doubt the district court was unaware of either of these facts. In any event,

the court found special preference units to have limited value.

A32

Appendix F—Opinion of the Court.

the opposition of Lyman and Ash (834a).%* By that time

Lyman and Ash claim to have expended only 212.4 hours, 23: or

one-sixth of the time for which they now seek attorneys’ fees.

Using the $40.00 per hour rate, plus a 10% contingency fac-

tor, they would thus be entitled to a maximum fee of

$9,355.60. Furthermore, counsel for Cosmopolitan played the

significant, if not exclusive, role in arriving at the initial

terms of the settlement ($15,000. cash plus 40,509 additional

shares) (833a, 870a, 2906-09a).

Second, the bulk of appellants’ time was expended in

changing the 40,509 shares into 40,509 preference units and

arranging the conversion of Cosmopolitan’s 260,980 shares of

*3 Opposing counsel testified:

“[ While the other parties to this transaction were willing as far back

as November and December of 1973, and certainly in early 1974, to sit

down and negotiate a settlement, and a settlement that was within the

range that we ended up with, there was no inclination on the part of

Mr. Lyman or Mr. Ash to accept figures anywhere near what we ended

up with until the case was weli into I think about the fourth or fifth day

of trial.” (2909a)

Immediately following this testimony, Mr. Lyman refused an opportunity

explicitly extended by the court to cross-examine. See also reply brief at 9.

Mr. Lyman testified that a settlement identical, except for the preference

units, to the settlement finally approved “could have been had at any time

after the suit was filed” (231 1a).

While this testimony does not reveal a precise date after which the

ultimate settlement, except for the preference units, could have been at-

tained, it does indicate that the settlement, without the preference units,

was attainable by the end of 1973.

23a It should be noted that these 212.4 hours have already been included in

the 425 hours covered by the computation of time spent as of June 1974 on

the settlement with the individual defendants described at the top of page

A31 above. This $9,355.60 computation assumes that these 212.4 hours were

spent solely on the claims against 20th Century.

A33

Appendix F—Opinion of the Court.

20th Century stock into special preference units. While it is

clear that the preference feature** has “some value” (1593a),

we are unable on this record to translate that value into

monetary terms and we must, therefore, agree with the

district court that appellants have failed to sustain their bur-

den of proof. Without belaboring the point, it is enough to

state that other than their present worth in terms of peace of

mind, the value of the preference units is linked directly to

the future of 20th Century and the likelihood that certain ad-

verse conditions will occur. But the only expert to testify con-

cerning the value of the preference feature offered no predic-

tion concerning 20th Century’s prospects. The expert's

** Special preference units of 20th Century are non-voting shares con-

vertible under certain conditions to securities and created especially for the

settlement. They have the following characteristics:

(1) In the event, prior to September 15, 1979, of (a) a decline in

20th Century's net worth below $2 million, (b) a formal adjudication of

the bankruptcy of 20th Century or Consumers Life (a subsidiary), or

will automatically convert into general debt obligations at $4.21 per

unit.

(2) In the event the above conditions do not occur before Sep-

tember 15, 1979, and a principal subsidiary of 20th Century possesses a

certificate of authority to operate as a life insurance company on Sep-

tember 15, 1979, the units will convert to common stock. See Set-

tlement Agreement, § I1-D(3) (573a).

(3) If a principal subsidiary of 20th Century does not possess a cer-

tificate of authority to operate as a life insurance subsidiary on Sep-

tember 15, 1979, the units will not convert until (a) recertification

triggers conversion into common stock, or (b) bankruptcy, receiver-

ship, a decline in net worth below $2 million, or the occurrence of

January 1, 1985, without recertification triggers conversion into debt.

In addition, the units are (a) convertible into common stock at the op-

tion of the holder (Cosmopolitan) and (b) convertible into debt at $4.21 per

unit at the option of 20th Century.

A34

Appendix F—Opinion of the Court.

testimony was based on the premise that these conditions

would occur.”

Moreover, whatever value the preference feature has must

be weighed against the fact that preference units, unlike the

common stock for which they were substituted, have no

dividend rights. More significantly, as a part of the change in

the settlement Lyman and Ash accomplished, Cosmopolitan

effectively relinquished all voting rights in 20th Century

although Cosmopolitan held a 25% equity interest in the com-

pany.

In sum, the total benefit produced by Lyman and Ash con-

“sists of (1) $25,000. from the settlement with the individual

defendants, (2) a small portion of the $15,000. cash and

40,509 additional shares received from 20th Century, and (3)

the conversion of common stock into special preference units,

a benefit to which no precise value was ascribed on this

record. Taking the size of these benefits into account, we con-

clude that the objectively determined fee of $28,000., after

being increased by 10% to $30,800. to reflect the contingent

nature of the suit, will be reduced by 50% to $15,400.

We decline to reduce the fee as a penalty for any attempt to

“defraud” the court. In our view, the evidence falls short of

establishing by “clear, precise and indubitable evidence”

23 The expert stated: “[i]n the aggregate if the adverse conditions do occur”

(emphasis supplied), the value of the special preference feature will be the

difference between “the basic book value” at the time and $4. 21 (1594-95a).

As noted above, the present value of the preference feature depends on the

likelihood those conditions will occur. The record contains no evidence on

either such likelihood or the monetary value of the preference units which

might be compared to the market value of the common stock. Sales of the

common stock apparently do occasionally take place when buyers and

sellers can be matched.

eno. _

A35

Appendix F—Opinion of the Court.

willfulness or intent to deceive on the part of appellants. See

Ratay v. Lincoln National Life Ins. Co., 378 F. 2d 209, 212 (3d

Cir. 1967). Nor can we say that the present record” justifies

the district court’s conclusion that there has been a “clear

violation” by appellants of Disciplinary Rule 5-103(B), since

Lyman and Ash were not given an opportunity to present

evidence in opposition with knowledge that they were being

charged with an infraction of that Rule. It is possible that ap-

pellants could have shown that their clients remained

“ultimately liable for” the expenses of litigation.

B. Expenses

After reviewing the entire record, the district court decided

to award 60%, or $6,256.72, of the $10,427.86 amount

requested by Lyman and Ash. We cannot say that this award

was contrary to law or that the findings on which it is based

are clearly erroneous.”’ In our view, the district court was en-

titled to reduce the total of awardable expenses to take ac-

count of (1) unreimbursable items and (2) poor records.

While it is impossible on this record to determine the

precise amount of such expenses, it is apparent that some of

** See transcript of hearing on February 17, 1974 (M. D. Pa. Civil No. 73-

551), Document No. 347 a: 73-77 (testimony of R. Leib), transcript of

hearing on February 28, 1974 (M. D. Pa. Civil No. 73-551), Document No.

345 at 31-34 (testimony of A. Yenchko), 1282-83a, 1292-93a; 1303a.

*” We note that during the trial appellants expressed a willingness to accept

75% of the expenses claimed (2162a, see also 2173a). The district court was

entitled to conclude that, under the unique circumstances of this case, some

portion of the pre-trial and trial expenses, such as witness fees and notes of

testimony, cannot be termed reasonable and necessary. Cf. In re Middle

West Utilities Co., 17 F. Supp. 359, 375 (S.D.N.Y. 1936).

A36

Appendix F—Opinion of the Court.

the items in the petition are unreimbursable, since they would

normally be subsumed in the hourly billing rate. Among these

are: a portion of the legal research copying expenses

necessitated by the fact that Lyman and Ash had no library,

expenses for “clerical” and other in-office overhead charges.

Under the circumstances of this case, the district court did

not abuse its discretion in denying reimbursement at least for

some portion of the expenses attributable to “Dinners for

staff (o.t.).”

Similarly, we believe appellants must bear the risk of un-

certainty arising from the poor quality of their records, Ap-

pellants, for example, claim to have made 3,000 copies of

documents on their firm’s copier and seek reimbursement at

S¢ per page. But the 3,000 copy figure and 5¢ per page charge

represent little more than a guess “hurriedly” arrived at

(1719a). Telephone and travel charges present analogous dif-

ficulties. Credit cards were used to pay some travel expenses,

and while expenses clearly were incurred, allocation to this

litigation was often based on appellants’ memory (916-17a,

1632-34a, 1799a). Appellants maintained no records of out-

of- pocket expenses (789a). The same problems attend analysis

of the firm’s telephone records. Telephone charge allocations

for the first 11 months of this case were first made in July and

August of 1974 and thereafter on a monthly basis only (1903-

94a, 1910a).

V. The District Court's Opinion

In its final order on March 28, 1975 (863-64a) and in a sup-

plementary order entered June 18, 1975 (868-69a), the district

court directed the Clerk to forward a copy of its opinion in

A37

Appendix F—Opinion of the Court.

this case to the Disciplinary Board of the Supreme Court of

Pennsylvania and to the West Publishing Company. As we

have previously noted, that opinion contains language which

may injure appellants’ professional reputations. Appellants

have asked this court to order the withdrawal of the opinion

and to direct that the opinion and order, or parts thereof, be

expunged from the district court's files.”

In the absence of extraordinary circumstances, every court

has the authority and the necessarily broad discretion to write

and to file its own opinions and orders relating to questions

properly presented to it.

Moreover, courts have the duty to assist the appropriate

state disciplinary bodies in carrying out their responsibility of

investigating activities which may be contrary to the canons of

ethics and a source of injury to the public. We note, however,

that the Supreme Court has “advised caution ‘[w]here a per-

son’s good name, reputation, honor or integrity is at stake

because of what the government is doingtohim. . .’ ” Doe

v. McMillan, 412 U. S. 306, 324 (1973), qucting Wisconsin v.

Constantineau, 400 U. S. 433, 437 (1970).”* In our view, such

caution is warranted in cases such as this. In Lowenschuss v.

West Publishing Co., 402 F. Supp. 1212 (E. D. Pa. 1975), ap-

peal docketed at No. 75-2431, 3d Cir., Nov. 18, 1975, a

district judge in a footnote to a published opinion referred a

factual question which bore on the propriety of an attorney's

** We have concluded that the June 18 order is an appealable, final order,

and we will therefore deny Cosmopolitan’s September 25, 1975, motion to

dismiss.

* We assume, without deciding, that an attorney has a liberty or property

interest in his professional reputation. Cf. Paul v. Davis, .... U.S. .... (44

U. S. L. W. 4337, March 23, 1976).

A38

Appendix F—Opinion of the Court.

involvement in a case to “the appropriate body of the Penn-

sylvania Bar.”’ Lowenschuss v. Kane, 367 F. Supp. 911, 913 n.

1(S. D. N. Y. 1973). The adverse implication of this action on

the attorney’s reputation proved to be unfortunate because

the Disciplinary Board subsequently absolved the attorney of

any unethical conduct.

In light of the Supreme Court’s admonition quoted above

and Lowenschuss, although it is proper to refer materials

bearing on possibly unprofessional conduct requiring

disciplinary action to the recognized state disciplinary body,*

we think it is preferable that the district court avoid un-

necessary public comment upon alleged misconduct, at least

until discipline, if any, has been finally imposed.

This procedure would insure that charges of misconduct

can be determined and appropriate sanctions, if any, chosen

and imposed by those best equipped to deal with the Code of

Professional Responsibility. It avoids, as well, any conflict

with the spirit of Rule 17-23 of the Pennsylvania Rules of

Court, which provides:

“All proceedings involving allegations of misconduct by

or disability of an attorney shall be kept confidential un-

til and unless the Supreme Court enters its order for the

imposition of public discipline.”

More significantly, it assures that the attorneys are accorded

a due process heariig before an impartial tribunal that is

*” We do not, of course, question the power of the district courts “to

discipline members of its bar independently of and separately from . .

disciplinary procedures of (a) the state courts and (b) this court.” /n re

Abrams, 52\ F. 2d 1094, 1101 (3d Cir. 1975) (en banc), cert. denied, 44 U. S.

L. W. 3358 (Dec. 15, 1975).

A39

Appendix F—Opinion of the Court.

preceded by written notice in the form of “a petition setiing

forth with specificity the charges of misconduct.” Rule 17-8.

Such procedural safeguards were not present in the district

court and their absence increases the danger of mistake and

the difficulties that attend publication of the district ccurt’s

opinion at this juncture. See pp. A34-A36 above, cf. Goss v.

Lopez, 419 U. S. 565 (1975).

In light of the foregoing we will direct that this opinion will

only be distributed to the district court, counsel, and the

Disciplinary Board until further order of this court.*' Coun-

sel are directed to preserve the confidentiality of this opinion

and the district court opinion until this court enters such fur-

ther order in the matter.

For the foregoing reasons, the figure “$15,400.00” will be

substituted for “$3,000.00” in paragraph | of the March 28,

»! Unless the Pennsylvaaia Disciplinary Board fails to act with reasonable

speed or some unforeseen event occurs, the court would normally await its

decision.

A40

Appendix F—Opinion of the Court.

1975, district court order and, as so modified, the district

court order will be affirmed.

TO THE CLERK: Please file the foregoing opinion.

Circuit Judge.

*% As modified, the district court order will provide:

“1. Cosmopolitan Investors’ Funding Company shall pay to

Lyman and Ash within 30 days as reasonable counsel fees $15,400.00.

“2. Cosmopolitan Investors’ Funding Company shall pay to Lyman

and Ash within 30 days as reimbursement for expenses incurred

$6, 256. 72.

“3. Cosmopolitan Investors’ Funding Company shall pay to Ruth

C. Leib $400.00, shall pay to Frank Leib $20.00, and shall pay to An-

drew Yenchko and Mary Yenchko $45.00 as reimbursement for their

expenses in this case, all within 30 days.

“4. The Clerk shall transmit a copy of the Court’s opinion filed

today, and a copy of this order forthwith to the Disciplinary Board of

the Supreme Court of Pennsylvania for such action, if any, as that

Board deems appropriate.

“5. As soon as a transcript of the hearings on counsel fees and ex-

penses is prepared, the Clerk shall transmit a copy thereof to the

Disciplinary Board of the Supreme Court of Pennsylvania.”

* As noted at note 28 above, Cosmopolitan’s motion to dismiss the appeal

will be denied.

A4l

Appendix F—Opinion of the Court.

Judgment

UNITED STATES COURT OF APPEALS

For the Third Circuit

Nos. 75-1596, 75-1597, 75-1598

and 75-1674

In the matter of

GOLDCHIP FUNDING COMPANY and

COSMOPOLITAN INVESTORS FUNDING COMPANY,

RUTH C. LEIB and FRANK B. LEIB, on their own behalf

and on behalf of the classes of independent shareholders of

GOLDCHIP FUNDING COMPANY and

COSMOPOLITAN INVESTORS FUNDING COMPANY

and derivatively on behalf of GOLDCHIP FUNDING

COMPANY and COSMOPOLITAN INVESTORS

FUNDING COMPANY, and its subsidiaries,

vs.

20TH CENTURY CORPORATION; JAMES C. ROBERT-

SON; ROBERT NELSON; ROBERT DI STEFANO,

ALLEN C. SPANGLER; A. C. MURPHY, SHERNO

RESEARCH CENTER, INC.,

Defendants,

and

GOLDCHIP FUNDING COMPANY,

COSMOPOLITAN INVESTORS FUNDING COMPANY,

Nominal Defendants,

Cletus P. Lyman, Esq. and Richard

A. Ash, Esq., counsel for pleintiffs,

Appellants in No. 75-1596,

Ruth C. Leib,

Appellant in No. 75-1597,

A42

Appendix F—Opinion of the Court.

Frank B. Leib, Andrew Yenchko

and Mary K. Yenchko,

Appellants in No. 75-1598,

Cletus P. Lyman, Esq. and Richard

A. Ash, Esq.,

Appellants in No. 75-1674.

(D. C. Civil Action No. 73-551)

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT

For the Middle District of Pennsylvania

Present! VAN DUSEN, ADAMS AND ROSENN,

Circuit Judges.

This cause came on to be heard on the record from the

United States District Court for the Middle District of Penn-

sylvania and was argued by counsel.

On consideration whereof, it is now here ordered and ad-

judged by this Court that the judgment of the said District

Court, entered March 28, 1975, be, and the same is hereby

modified to substitute the figure “$15,400.00” for “$3,000.00”

in paragraph one of the district court order, and the said or-

der of the district court is in all other respects affirmed.

ATTEST:

THOMAS (lllegible), Clerk.

July 14, 1976

A43

Appendix F—Opinion of the Court.

UNITED STATES COURT OF APPEALS

For the Third Circuit

Nos. 75-1596, 75-1597, 75-1598

and 75-1674

In the matter

GOLDCHIP FUNDING COMPANY and COSMOPOLITAN

INVESTORS FUNDING COMPANY

RUTH C. LEIB and FRANK B. LEIB, on their own behalf

and on behalf of the classes of independent shareholders of

GOLDCHIP FUNDING COMPANY and COSMO-

POLITAN INVESTORS FUNDING COMPANY and

derivatively on behalf of GOLDCHIP FUNDING COM-

PANY and COSMOPOLITAN INVESTORS FUNDING

COMPANY, and its subsidiaries

vs.

20TH CENTURY CORPORATION, JAMES C. ROBERT-

SON, ROBERT NELSON, ROBERT DI STEFANO,

ALLEN C. SPANGLER, A.C. MURPHY, SHERNO RE-

SEARCH CENTER, INC.,

Defendants,

and

GOLDCHIP FUNDING COMPANY,

COSMOPOLITAN INVESTORS FUNDING COMPANY,

Nominal Defendants.

Cletus P. Lyman, Esq. and Richard A. Ash, Esq., counsel

for plaintiffs, Appellants in No. 75-/596.

Ad4

Appendix F—Opinion of the Court.

Ruth C. Leib, Appellant in No. 75-/ 597.

Frank B. Leib, Andrew Yenchko and Mary K. Yenchko

Appellants in No. 75-1598.

Cletus P. Lyman, Esq. and Richard A. Ash, Esq., Ap-

pellants in No. 75-1674.

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT

For the Middle District of Pennsylvania

Present! VAN DUSEN, ADAMS AND ROSENN,

Circuit Judges.

ORDER

The motion of Cosmopolitan Investors Funding Company

for dismissal of the above-captioned appeal be, and the same

is hereby denied.

ATTEST:

THOMAS (ILLEGIBLE)

Clerk.

Dated: July 14, 1976.

A45

APPENDIX G

Order of the United States Court of Appeals

for the Third Circuit, Dated July 11, 1975

UNITED STATES COURT OF APPEAL

For the Third Circuit

No. 75-1674

June 26, 1975

In the matter

GOLDCHIP FUNDING COMPANY and COSMOPOLITAN

INVESTORS FUNDING COMPANY

RUTH C. LEIB and FRANK B. LEIB, on their own behalf

and on behalf of the classes of independent shareholders of

GOLDCHIP FUNDING COMPANY and COS-

MOPOLITAN INVESTORS FUNDING COMPANY and

derivatively on behalf of GOLDCHIP FUNDING COM-

PANY and COSMOPOLITAN INVESTORS FUNDING

COMPANY, and its subsidiaries

vs.

20th CENTURY CORPORATION, JAMES C. ROBERTSON,

ROBERT NELSON, ROBERT DI STEFANO, ALLEN C.

SPANGLER, A.C. MURPHY, SHERNO RESEARCH

CENTER, INC.,

Defts. in D.C.

and

GOLDCHIP FUNDING COMPANY, COSMOPOLITAN

INVESTORS FUNDING COMPANY,

Nominal Defts. in D.C.

Cletus P. Lyman, Esq., and Richard A. Ash, Esq., Ap-

pellants (D. C. Civil No. 73-551)

A46

Appendix G—Order of the United States Court of

Appeals for the Third Circuit, Dated

July 11, 1975.

Present!) VAN DUSEN, ROSENN and WEIS,

Circuit Judges.

1. Appellants’ motion to stay District Court order

dated June 18, 1975, of the United States District Court

for the Middle District of Pennsylvania pending appeal,

with document entitled “Copies of Parts of Record Essen-

tial, etc.”

in the abeve-entitled case.

Respectfully,

M. QUINN FM

Clerk.

enc.

The foregoing Motion to stay is granted pending the final

determination of the above appeal and of any judgment enter-

ed by this court as a result of such appeal.

By the Court,

VAN DUSEN,

Judge.

Dated: July 11, 1975.

A47

APPENDIX H

Order of the United States District Court

Dated, June 18, 1975

UNITED STATES DISTRICT COURT

For the Middle District of Pennsylvania

In the Matter

GOLDCHIP FUNDING COMPANY AND COSMOPOLITAN

INVESTORS FUNDING COMPANY,

RUTH C. LEIB, et al.,

Plaintiffs,

vs.

20TH CENTURY CORPORATION, et al.,

Defendants.

Civil No. 73-551

(Complaint Filed 9/27/73)

(Judge Muir)

ORDER

June 18, 1975

THE BACKGROUND OF THIS ORDER IS AS

FOLLOWS:

On May 31, 1975 Cletus P. Lyman on behalf of himself and

Richard A. Ash applied to West Publishing Company to with-

hold publication of the opinion of this Court dated March 28,

A48

Appendix H—Order of the United States

District Court, Dated June 18, 1975.

1975. Mr. Lyman never applied to this Court to withhold

publication of the Opinion. On June 5, 1975, James P. Corson

of West Publishing Company replied to Mr. Lyman.

On June 12, 1975, James M. Mersh of LaBrum and Doak,

counsel for Lyman and Ash, wrote West Publishing Company

and also the undersigned judge. Copies of the correspondence

are attached hereto. In the letter to the Court, Mr. Marsh re-

quested that we withhold publication of the Opinion or in the

alternative withhold decision on publication until the Court

of Appeals has acted. He closed his letter of the same date to

West Publishing Company with this sentence: “We must state

to you, however, that if Judge Muir denies our request, we

will hold your company fully accountable if you publish the

opinion.” In my view, these challenges to this court must be

met head-on. Furthermore, the conduct of Lyman and Ash in

this Court was such that I consider it my duty to alert other

courts so that a reoccurrence may be prevented. The request

that we withhold publication of the Opinion will be denied.

NOW, THEREFORE, IT IS ORDERED THAT:

West Publishing Company be and the same is authorized to

publish the Opinion of this Court in the above case dated

March 28, 1975.

MUIR,

United States District Judge.

A49

Appendix H—Order of the United States

District Court, Dated June 18, 1°75.

Law Offices

LaBRUM and DOAK

1500 Seven Penn Center Plaza

Philadelphia, Pa. 19103

Telephone

215-561-4400

June 12, 1975

Re: Leib v. 20th Century Corporation, et al.

Civil Action No. 73-551

Honorable Malco}/m Muir

United States District Court

Williamsport, Pa. 17701

Dear Judge Muir:

This firm has been retained to represent Messrs. Lyman

and Ash in the appeal which they have filed from Your

Honor’s decision on their petition for allowance of fees and

costs in the subject case.

The purpose of this letter is to respectfully request that

Your Honor not cause West Publishing Company to publish

your opinion or, in the alternative, that you withhold decision

on publication until the Court of Appeals has acted. We

believe Your Honor will agree that in all fairness to these

lawyers, an opinion of the nature here involved should not be

published at least until and unless that opinion has been af-

firmed by the Court of Appeals.

ASO

Appendix H—Order of the United States

District Court, Dated June 18, 1975.

I enclose herewith copies of an exchange of correspondence

between Mr. Lyman and West Publishing Company, wherein

West states that it defers completely to the determination of

Your Honor with respect to publishing of the Opinion. By

subsequent telephone call, West has advised that the opinion

is still in the proof stages.

Respectfully yours,

LaBRUM AND DOAK,

By James M. Marsh,

James M. Marsh.

cc: James P. Corson,

West Publishing Company,

All Counsel

Encl.

ASI

Appendix H—Order of the United States

District Court, Dated June 18, 1975.

Law Offices

LaBRUM and DOAK

1500 Seven Penn Center Plaza

Philadelphia, Pa. 19103

Telephone

215-561-4400

June 12, 1975

Re: In the matter of Goldchip Funding Co., etc: Ruth C. Lieb

et al. v. 20th Century Corp. et al M.D. Pa. Civil Action

No. 73-551

Mr. James P. Corson

West Publishing Company

St. Paul, Minnesota 55102

Dear Mr. Corson:

This will confirm our telephone conversation on Monday

afternoon during which | advised you that we represent

Messrs. Lyman and Ash and also requested that you defer

decision as to whether or not to publish Judge Muir’s opinion

until the appeal has been decided.

We understood you to say that the galley proofs will not be

returned to Judge Muir for comment and correction for at

least two weeks and that the opinion would not normally be

publishes until he returned the corrected proofs to you.

For the reasons stated in Mr. Lyman’s letter to you dated

May 31, 1975, and in my telephone conversation with you, we

AS2

Appendix H—Order of the United States

District Court, Dated June 18, 1975.

must insist that you comply with our request. The nature of

this opinion is such that its publication and circulation

throughout the United States by your company would be most

damaging to our clients. We have requested Judge Muir to

agree that the opinion not be published at least until after the

appeal is decided. We must state to you, however, that if

Judge Muir denies our request, we will hold your company

fully accountable if you publish the opinion.

Very truly yours,

La5RUM AND DOAK,

TD Wenweusaneduee wien ve sees

Jaones M. Marsh.

cc: Honorable Malcolm Muir

All Counsel

AS3

Appendix H—Order of the United States

District Court, Dated June 18, 1975.

WEST PUBLISHING COMPANY

St. Paul, Minnesota 55102

Tel. 612/228-2500

June 5, 1975

Mr. Cletus P. Lyman

Attorney At Law

Lyman & Ash

1612 Latimer Street

Philadelphia, Pennsylvania 19103

Re: In the matter of Goldchip Funding Co., etc: Ruth C.

Leib et al. v. 20th Century Corp. et al. M.D.Pa. Civil

Action No. 73-551

Dear Mr. Lyman:

Your letter of May 31, 1975 addressed to Mr. Arnold O. Gin-

now, the Editor-in-Chief, has been referred to my attention.

Under our standing arrangements with the Federal Judiciary

we have agreed to defer completely to the determination of

the United States District Judges as to which of their opinions

should be published in Federal Supplement and Federal

Rules Decisions.

Judge Muir has determined that the above opinion should be

published and has forwarded it us accordingly. Thus, in

accordance with our agreement with the Federal Judiciary,

the opinion will be published in an early advance sheet.

With respect to your references to your appeal, I wish to

assure you that the opinion of Judge Muir wiii be cross

AS4

Appendix H—Order of the United States

District Court, Dated June 18, 1975.

referenced to any decision of the Third Circuit forwarded to

us for publication.

Very truly yours,

WEST PUBLISHING COMPANY.

James P. Corson,

Assistant Editorial Counsel.

JPC/sf

May 31, 1975

Mr. Arnold O. Ginnow

Editor in Chief

National Reporter System

West Publishing Company

50 Kellog Boulevard

Saint Paul, Minn. 55102

Re: In the matter of Goldchip Funding Co., etc: Ruth C. Leib

et al. v. 20th Century Corp. et al. M.D. Pa. Civil Action

No. 73-551

Dear Mr. Ginnow:

I write on behalf of myself and my partner, Richard A. Ash,

Esq.

On March 28, 1975, the court entered an 81-page opinion and

order in the above case, which dealt primarily with the

amount our firm is entitled to be paid for representing a class

of plaintiffs in a civil action. I believe that the court has sent

ASS

Appendix H—Order of the United States

District Court, Dated June 18, 1975.

this opinion and order to your firm for possible publication

in one of the series of the National Reporter System (pre-

sumably the Federal Supplement or Federal Rules Decisions).

We request that the opinion not be published for the follow-

ing reasons:

(1) The opinion contains derogatory statements about us,

which are untrue and unsupported by the record:

(2) The opinion contains many statements about us in-

volving private matters, which, even if they were true, should

not be published. Many such statements are irrelevant to the

issues before the court.

(3) The opinion and order are to be reviewed by the

United States Court of Appeals for the Third Circuit by

reason of our appeal from the order:

(4) The opinion, consisting almost exclusively of factual

statements about us, is of little jurisprudential value.

(5S) The opinion and order arose out of proceedings

wherein we moved that the Court recuse itself for personal

bias and prejudice against us, pursuant to 28 USC 144. The

validity of our motion is one of the issues being appealed.

(6) Information in the opinion detailing income from the

practice of law, our clients in other cases, and our fee

relationship with other counsel was supplied to the Court by

ourselves over our objections.

(7) The court deemed testimony by a partner in one of the

law firms opposing us as to the hourly rate billed for at-

torneys in that firm to be of such a sensitive nature that he

AS6

Appendix H—Order of the United States

District Court, Dated June 18, 1975.

stated he was willing to seal the portion of the record relating

to it.

(8) The Court's findings of unethical conduct on our part

were made without prior notice to us of the substance of these

charges or providing us an opportunity to respond. Compare

Burhett v. Chandler, 50S F.2d 217 (10th Cir. 1974), Goss v.

Lopez, U.S. Supreme Court No. 73-898, 43 U.S.L.W. 4181

(decided January 22, 1975).

(9) In its order the court makes a referral to the Dis-

ciplinary Board of the Pennsylvania Supreme Court. The

rules of the Pennsylvania Supreme Court provide that pro-

ceedings regarding alleged unethical conduct be kept con-

fidential by persons involved until such proceedings are com-

pleted and the Supreme Court decides to make them public.

We would be happy to have further communications about

this matter if you deem them likely helpful. We offer to make

our copy of the record available to you for inspection and

copying. We also offer to send you, without cost, copies of

the appendix and our appellate brief, to be f led in the Third

Circuit (expected to be available July 21, 1975).

Very truly yours,

CLETUS P. LYMAN.

CPL/j

AIR MAIL

AS7

APPENDIX I

Articles Printed in the daily press

IN OUR OPINION

THE QUALITY OF JUSTICE

A recurring theme in this space has been the unjust way this

nation’s justice system operates. Presided over by a select,

highly-paid, largely self-regulating cadre of lawyers and

judges, most usually ignored by the general public untii an

outrageous case spills over into the newspapers, distorted and

manipulated by politicians of all stripes, the criminal justice

system drags its paper-filled bureaucracy froin idiocy to

idiocy, inhumanity to inhumanity, a tradition-soaked monu-

ment to the imperfectability of man’s institutions.

Herewith three recent cases:

After pleading no defense to 84 counts of Medicare fraud,

Dr. Pablo K. Chan of Huntingdon Valley was sentenced to a

mere 60 days in prison with the stipulation that he pay a

$10,000 fine and complete three years of probationary

medical service working with drug addicts. That was last Sep-

tember. A court later ordered that Chan serve his time by put-

ting in 10 hours a day four days each week at Kensington

Hospital. The other day a hospital administrator testified that

Chan wasn't working those hours, that the hospital was paying

him $20,000 a year and that the good doctor is also receiving

more than $21,000 a year from treating Medicare patients at

the hospital! Chan may serve a brief spell in

Dr. Jerome Friedman, an oral surgeon from the Northeast,

was piaced on three years’ probation the other day. He also

was fined $15,000. And ordered to repay Blue Shield $20,000

AS8

Appenaix 1!—Articles Printed in the daily press.

during his probationary period. The doctor's crime?

Defrauding Blue Shield of $10,000 in payments for medical

services he never performed. Add up the amount stolen and

the amount of the fines and you come up with a neat $5,900

profit for the doctor. If he robbed a bank of $40,000 chances

are he’d be shot down in the street. At the very least, he would

spend some time in a cell.

Two Philadelphia lawyers, Cletus P. Lyman and Richard A.

Ash, were accused by a Federal judge of attempted fraud in

their request for $85,000 in legal fees. Judge Malcolm Muir

called the attempt to charge such a fee “deplorable” (a

favorite judicial description) and he reduced the fee the client

had to pay the attorneys to $9,256. In an 83-page opinion the

judge said the attorneys “attempted to perpetrate a fraud on

this court.” The judge also ordered that a copy of the charges

be sent to the Disciplinary Board of the State Supreme Court.

The board could recommend disbarment.

How many men and women are every day routinely con-

signed to those deadening warehouses we call prisons for of-

fenses involving far lesser amounts of money? Folk singer

Woody Guthrie said it perfectly years ago: “Some men rob

you with a six-gun, some with a fountain pen.”

To test our criminal justice system’s fairness ask yourself

these questions: How many poor people are in jails? How

many rich ones? Are the poor people in jail a bigger menace

to the rest of us than the rich criminals who are not in jail?

WE WERE WRONG

In yesterday's 4-star edition, an editorial said that Control-

ler William Klenk “indicated flat out to a People Paper repor-

AS9

Appendix 1—Articles Printed in the daily press.

ter that he was interested in smearing the mayor.” Klenk did

not say this but said he wanted to defeat Mayor Rizzo. The

error was not the reporter's but the editorial writer's.

Philadelphia Daily News

April 3, 1975

Page 19

JUDGE ACCUSES 2 LAWYERS

OF FEE FRAUD

Special to The Inquirer

SCRANTON—A federal judge's opinion, filed here Mon-

day, accused two Philadelphia lawyers of attempting to

defraud the court by inflating claims for counsel fees and ex-

penses.

U. S. District Judge Malcoln Muir directed that a copy of

his charges—which do not constitute a criminal indict-

ment—be sent to the Disciplinary Board of the Supreme

Court of Pennsylvania. The board has the powe. to recom-

mend disbarment of the attorneys.

The lawyers, Richard A. Ash and Cletus P. Lyman, part-

ners in a law firm of 1612 Latimer St., Philadeiphia, said they

would appeal the finding to the U. S. Court of Appeals for the

3d Circuit, Philadelphia.

In his opinion, Judge Muir said that “the books of account

and time records of Lyman and Ash are untrustworthy and

the testimony of Messrs. Lyman and Ash is not credible.”

A60

Appendix 1—Articles Printed in the daily press.

The judge’s remarks were contained in an 80-page opinion

that approved settlement of a class action suit to set aside the

sale of Cosmopolitan Life Co. to 20th Century Fox because of

defects in a proxy statement in connection with the sale.

Lyman and Ash represented the Goldchip Funding Co., Cos-

mopolitan Investors Funding Co., Ruth T. Leib and Frank B.

Leib, who brought the suit.

Lyman, speaking for himself and his partner, replied that

“the time expanded in the case was conservatively stated to

the court and all expenses petitioned for were incurred neces-

sarily in prosecuting the case.”

In a class action suit, it is normal procedure for the judge to

determine how much of the settlement won by the plaintiff

should be awarded to the attorneys for their work.

Judge Muir said Lyman and Ash applied to the court for

$75,000 in counsel fees and $10,427 in reimbursements for ex-

penses.

“But for the fraud attempted to be perpetrated on this

court,” Muir said, “Lyman and Ash would be entitled to

reasonable attorney fees of $6,000. Because of such fraud, the

amount of reasonable attorneys’ fees to which Lyman and Ash

are entitled is $3,000. Lyman and Ash are entitled to reim-

bursement of expenses of $6,256.72.”

The judge said that after approving the settlement he held

three days of hearings on the expenses and almost five more

days on the application for counsel fees.

“Time entered on the time records of Lyman and Ash was

intentionally inflated by Lyman,” the judge said.

The Philadelphia Inquirer

April 1, 1975 Page B-|

2. oe OR ee

;

A6él

Appendix 1—Articles Printed in the daily press.

U.S. JUDGE CUTS FEE OF 2 FROM PHILA.

Williamsport, Pa.—(AP)—A federal judge has accused two

Philadelphia lawyers of attempted fraud in their request for

$85,000 in legal fees.

U.S. District Court Judge Malcolm Muir charged that the

fee set by attorneys Cletus P. Lyman and Richard A. Ash was

“deplorable” and he reduced it to $9,256.

Lyman and Ash were attorneys for Go!dchip Funding Co. in

a federal civil suit earlier this year between Cosmopolitan In-

vestors and Twentieth Century Corp.

The suit resulted in an award of $40,000 and 40,589 shares

of Twentieth Century stock to Cosmopolitan. Stockholders of

Goldchip, which owns shares in Cosmopolitan, asked Muir to

review the attorneys’ fee request.

In an 83-page opinion filed yesterday, Muir said Lyman

and Ash “attempted to perpetrate a fraud on this court.” He

said documents filed by the lawyers were “among the worse I

had ever seen.”

Additionally, Muir directed that a copy of the charges be

sent to the Disciplinary Board of the Supreme Court of Penn-

sylvania, which has the power to recommend disbarments of

lawyers.

The Philadelphia Evening Bulletin

April 1, 1975 Page A-5

A62

Appendix I1—Articles Printed in the daily press.

BID FOR $85,000 LEGAL FEE

BLASTED BY COURT

WILLIAMSPORT, PA. (AP)—A federal judge on Monday

accused two Philadelphia attorneys of attempted fraud in

their request for $85,000 in legal fees.

U.S. Dist. Court Judge Malcolm Muir said the fee set by at-

torneys Cletus P. Lyman and Richard A. Ash was “deplor-

able” and reduced it to $9,256.

Lyman is a native and former resident of Hazelton.

Lyman and Ash were attorneys for Goldchip Funding Co.

in a federal civil suit earlier this year between Cosmopolitan

Investors and Twentieth Century Corp. All three firms are

based in the Camp Hill area.

The suit resulted in an award of $40,000 and 40,589 shares

of Twentieth Century stock to Cosmopolitan. Stockholders of

Goldchip, which owns shares in Cosmopolitan, asked Muir to

review the attorney's fee request. r

In an 83-page opinion, Muir said Lyman and Ash “attempt-

ed to perpetrate a fraud on this court.” He said documents

filed by the lawyers were “among the worse I had ever seen.”

Hazieton Standard-Speaker

Tuesday, April 1, 1975

Page 28, Early Edition

A63

APPENDIX J

List of Charges made by District Judge against At-

torney Petitioners in Opinion of March 28, 1975

Page (Appendix K)

Al33 “These petitioning attorneys are not only guilty of

violations of the Code of Professional Responsibility with

respect to their clients by their excessive claims (D.R. 2-

106), but also have attempted to perpetrate a fraud-on this

Court by the filing of these false petitions.”

Al34 “The Court reduces the fee to $3,000 to reflect a

penalty for their fraudulent conduct.”

Al36 “Claiming reimbursement under the five deceptive en-

tries on the Schedule as as ‘Dinners for staff (o.t.)’ is a

flagrant attempt to perpetrate a fraud on this Court and

along with the fraudulent time entries involved a clear

violation of Disciplinary Rule 1-102(a) of the Code of

Professional Responsibility.”

A139, 140 “There was a clear violation by Lyman and Ash

of Disciplinary Rule 5-103(b) of the Code of Professional

Responsibility which provides: “ . @ lawyer shall not

advance or guarantee financial assistance to his client ex-

cept that a lawyer may advance . . . the expenses of

litigation . . . provided the client remains ultimately

liable for such expenses. . .”

Al4l “Lyman and Ash attempted to perpetrate a fraud on

this Court in their claims for counsel fees and expenses.”

Al4l “Time entered on the time records of Lyman and Ash

was intentionally inflated by Lyman.”

Ab4

Appendix J—List of Charges made by District

Judge against Attorney Petitioners in

Opinion of March 28, 1975.

a Bo

Charges Made by District Judge

Al4l “Lyman and Ash fraudulently claimed reimbursement |

in their petition for expenses for personal living expenses |

and intentionally camouflaged such items by designating j

them ‘Dinners for Staff (o.t.)’ in the petition for reimburse-

ment.”

Al4l “Lyman and Ash violated their fiduciary duty to their {

clients in this case by attempting to secure a fee far in excess

of that to which they were reasonably entitled, well

knowing that the fee claimed was excessive.”

Al4l “Lyman and Ash viohated their fiduciary duty to their

clients by attempting to secure reimbursement for expenses

for which they were not entitled to reimbursement, well

knowing that they were not entitled to such reimburse-

ment.”

A65

APPENDIX K

Opinion and Order of the United States District Court,

Dated March 28, 1975

UNITED STATES DISTRICT COURT

For The Middle District of Pennsylvania

IN THE MATTER OF GOLDCHIP FUNDING COMPANY

AND COSMOPOLITAN iNVESTORS FUNDING COM-

PANY,

RUTHC. LEIB AND FRANK B. LEIB, etal.,

Plaintiffs,

vs.

20TH CENTURY CORPORATION, et al.,

Defendants.

CIVIL NO. 73-551

(Complaint Filed 9/27/73)

(Judge Muir)

APPEARANCES:

For Plaintiffs

Cletus P. Lyman, Esq., Richard A. Ash, Esq., Lyman and

Ash, 1612 Latimer St., Philadelphia, Pa. 19103.

For Defendants

Rod J. Pera, Esq., W. Jeffrey Jamouneau, Esq., H. Lee

Roussel, Esq., McNees, Wallace and Nurick, P. O. Box 1166,

Harrisburg, Pa. 17108.

A66

Appendix K—Opinion and Order of the United States

District Court, Dated March 28, 1975.

Perry S. Bechtle, Esq., Barry F. Greenberg, Esq., Cohen,

Shapiro, Polisher, Shiekman, and Cohen, 12 South 12th St.,

Philadelphia, Pa. 19100.

Howard D. Scher, Esq., Goodis, Greenfield, Henry, Shai-

man and Levin, 1315 Walnut St., Philadelphia, Pa. 19100.

UNITED STATES DISTRICT COURT

For The Middle District of Pennsylvania

IN THE MATTER OF GOLDCHIP FUNDING COMPANY

AND COSMOPOLITAN INVESTORS FUNDING COM-

PANY

RUTHC. LEIB AND FRANK B. LEIB, et al.,

Plaintiffs,

- VS.

20TH CENTURY CORPORATION, et al.,

Defendants.

CIVIL NO. 73-551

(Complaint Filed 9/27/73)

(Judge Muir)

OPINION e

MUIR, District Judge.

ee eee

4. Conclusions of Law

A67

Appendix K—Opinion and Order of the United States

District Court, Dated March 28, 1975.

TABLE OF CONTENTS

Introduction

Findings of Fact

Biographical Data, Lyman

Biographical Data, Ash

The Firm of Lyman and Ash

The Applications for Fees

The Application For Expenses

Books of Account

Dinners for Staff (overtime)

Photocopying

Paralegal Services

Telephone Charges

Travel

Printing

Time Records

Correspondence

Expenses, Parties

Cosmopolitan Investors, Assets

and Liabilities

Experience—Other Cases

The Settlement

Compensation of Other Counsel

Depositions

Miscellaneous

Credibility

Discussion

@2@-42-4-42 42-4 4 4 4 =

A68

Appendix K—Opinion and Order of the United States

District Court, Dated March 28, 1975.

1. Introduction.

Before the Court is an application by the firm of Lyman

and Ash for counsel fees of $75,000 plus expenses of

$10,427.86, as well as small claims by four of the named

Plaintiffs for travel expenses.

This stockholders’ derivative suit was started September 27,

1973. It was converted into a class action on March 29, 1974.

The case went to trial August 29, 1974 and on the S*& trial day

counsel reported that a settlement had been agreed upon, sub-

ject to approval of the Court. After appropriate notice and a

full hearing on November 18, 1974, the Court approved the

settlemeat.

The Court set the attorneys’ application for fees and ex-

penses due for hearing. After three days of hearings on the ex-

penses and after four and °/s additional days of hearings on

the application for counsel fees, the Court makes the

following findings of fact.

2. Findings of Fact.

Biographical Data, Lyman.

1. Cletus P. Lyman is a membet of the firm of Lyman and

Ash, 1612 Latimer Street, Philadelphia, Pennsylvania, at-

torneys for Plaintiffs.

2. Lyman was graduated from law school in May of 1971.

3. Lyman was admitted to the bar of the Supreme Court

of Pennsylvania on November 18, 1971.

A69

Appendix K—Opinion and Order of the United States

District Court, Dated March 28, 1975.

4. Lyman was admitted to the bar of the United States

District Court for the Eastern District of Pennsylvania in the

spring of 1972.

5. Lyman was admitted to the bar of the Court of Appeals

for the Third Circuit on August 1, 1972.

6. Lyman resides in the same building in which the law of-

fices of Lyman and Ash are located, although his address is

1610 Latimer Street, slightly different from that of the law of-

fice.

7. Lyman is a member of the Luzerne County Bar

Association only.

8. Lyman has no rating in Martindale-Hubbell. He has

not been a member of the bar long enough to be eligible for a

rating.

Biographical! Data, Ash.

9. Richard A. Ash is the other member of the firm of

Lyman and Ash.

10. Ash was admitted to the bar of the Pennsylvania

Supreme Court early in 1965.

11. Ash was admitted to the bar of the Court of Appeals

for the Third Circuit on August 1, 1972.

12. Ash resides at 18th and Parkway, Philadelphia, Penn-

sylvania, about ten blocks from the office of Lyman and Ash.

13. Ash is 48 years old.

A70

Appendix K—Opinion and Order of the United States

District Court, Dated March 28, 1975.

14. Upon inquiry by the Court, Ash testified that he did

not know his rating in Martindale-Hubbell. He then quickly

changed his answer and admitted that he had during the noon

hour looked at the court’s copy of Martindale- Hubbell which

had been brought into the courtroom during the morning

session and which had been ailowed to remain on the bar.

15. Ash has no rating in Martindale-Hubbell.

16. The highest rating which Ash could achieve in Mar-

tindale- Hubbell by reason of the fact that he had been admit-

ted at the time of the hearing two months short of ten years is

a ‘“b” rating.

17. Ash's income from the practice of law for the years

1970 through 1973 is as follows:

Year Gross Net

1970 $1800.00 ‘s $448.00

1971 4647.00 ° 2856.00

1972 33,645.00 16722.00

1973 5500.00 » Be

18. In 1969 Ash was employed by an association which

was not a law firm and he preferred not to disclose to the

court the amount of his salary for that year.

The Firm of Lyman and Ash.

19. The firm of Lyman and Ash was formed in November,

1972.

20. The firm of Lyman and Ash consists of two partners,

Cletus P. Lyman and Richard A. Ash. The firm has had no

—— ~ ee

A7l

Appendix K—Opinion and Order of the United States

District Court, Dated March 28, 1975.

salaried lawyer employees, no salaried sec. iaries, but has

had in series three part-time employees paid on 2n hourly

basis, at least two of whom were students.

21. Lyman and Ash are equal partners.

22. The firm of Lyman has no written part ‘ship

agreement. 22

23. Lyman and Ash filed partnership returns for the two-

month period in 1972 and for the year 1973.

24. In 1973 the gross income of the firm of Lyman and

Ash was approximately $11,000.00.

25. When Lyman and Ash have work for them. two

secretaries from other law offices, Margie Turner and Rene

Walton, typed for Lyman and Ash afier 5:00 P.M. and on

weekends between 9:00 A.M. and 5:00 P.M.

26. Ash testified that the office overhead for 1973 was

made up as follows:

Rent $3075.00

Office expense 447.00

Duplicating Expense 866. 00

Telephone 2282.00

Bank Charges 87.00

Travel 361.00

Entertainment 30.00

Mailing 59.00

Maintenance 1$7.00

Miscellaneous Services Expense 110.00

Typing 2094.00

Miscellaneous 141.00

Total $9709.00

A72

Appendix K—Opinion and Order of the United States

District Court, Dated March 28, 1975.

27. The firm of Lyman and Ash reported to the I.R.S. no

distributable income for the individual partners for the year

1973.

28. The library of Lyman and Ash consists of the

following:

Rule 23 volume from U.S.C.A. relat

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