Petition for Writ of Certiorari — Vizcaino v. Waite

Supreme Court brief2002

Ask Donna

What actually matters in this document.

Text

Supreme Court, U.S.

(1) FILED

O02 252 auc 1 32002

No.

OPRICE OF TRE CLERK

in The

Supreme Court of the Anited States

DONNA VIZCAINO and LESLEY STUART,

in their individual capacity,

Petitioners,

VS.

JON R. WAITE, et al.,

Respondents.

BENDICH, STOBAUGH & STRONG, P.C., Class Counsel,

Real-Party-In-Interest.

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

LAWRENCE W. SCHONBRUN

LAW OFFICES OF LAWRENCE W.

SCHONBRUN

Counsel of Record

86 Eucalyptus Road

Berkeley, CA 94705

Tel: (510) 547-8070

Counsel for Petitioners Donna

Vizcaino and Lesley Stuart

COCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2831 - 9

‘

QUESTIONS PRESENTED

1. Resolution of the disagreement among the circuits

as to whether this Court’s decision in City of Burlington v.

Dague (hereinafter Dague), 505 U.S. 557 (1992) — prohibit-

ing contingent risk enhancement in statutory fee-shifting

cases — also applies to court-awarded attorneys’ fees from

common funds.

a) Even if Dague does not extend to common

fund fee awards, did the Ninth Circuit Court of Appeals

violate federal fee jurisprudence in awarding a risk multi-

plier based on case-specific risks that arose during the

litigation, rather than evaluating contingent risk for the

type of case at the outset of the litigation — the methodol-

ogy adopted by this Court prior to Dague in Pennsylvania

v. Delaware Valley Citizens’ Council for Clean Air (Dela-

ware Valley II), 483 U.S. 711 (1987).

2. Resolution of a disagreement among the circuits

as to whether a federal court, in calculating reasonable

attorneys’ fees paid from a megafund class action settle-

ment under the percentage-of-the-recovery approach,

calculates a reasonable attorneys’ fee based upon:

a) An ex post facto analysis, focusing on what

the reasonable expectation of the plaintiffs’ class attorneys

would have been at the outset of the litigation without

reference to the declining percentage principle (as held by

the Ninth Circuit in the instant case).

b) An ex post facto analysis, focusing on “mod-

eration and a jealous regard to the rights of those who are

interested in the fund” as held by this Court in Trustees v.

QUESTIONS PRESENTED - Continued

Greenough, 105 U.S. 527, 536-37 (1881), and adopted by

the Second Circuit in Goldberger v. Integrated Resources,

Inc., 209 F.3d 43, 52-53 (2nd Cir. 2000).

c) An ex ante analysis, focusing on what a client

in the market would have negotiated to pay plaintiffs’

class attorneys at the outset of the litigation with reference

to the declining percentage principle (as held by the

Seventh Circuit in Jn re Continental Illinois Sec. Litig.

(hereinafter Continental Illinois), 962 F.2d 566 (7th Cir.

1992)).

iii

PARTIES TO THE PROCEEDINGS

Petitioners: Donna Vizcaino and Lesley Stuart,

individual plaintiff class member/objectors.

Respondents: Donna Vizcaino, Jon R. Waite, Mark

Stout, Geoffrey Culbert, Lesley Stuart, Thomas Morgan,

Elizabeth Spokoiny, Larry Spokoiny, and the class they

represent, nominally. (Donna Vizcaino and Lesley Stuart

were representative class plaintiffs who objected to the

amount of class counsel’s fee request in the district court

and before the Ninth Circuit.)

Real-Party-In-Interest: Bendich, Stobaugh & Strong,

P.C., class counsel.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED.....................ssccseecseecseeees i

PARTIES TO THE PROCEEDINGG.......................... iii

ee IEE tise bthniicoteepeniacisssivontuaneinatemins iv

ECE. BOP BA TEI ccinccscccssocsensvensenencsseserscesess vi

TA CO BAT EEE EI vcnecasnnscceccsesccesbsscncesesancess vii

NT HTN - setusdubdctinvinuinietinccisnentiandiceieentes 1

STATEMENT OF JURISDICTION ............... ee. 1

STATUTES AND RULES INVOLVED ...................... 2

IE TTI Sriitentbccohwabicesdaaiedeuiennsansaideniaenhientio 2

STATEMENT OF TEE CABB.....cccrcsssccosccccessesscceesoees 5

REASONS FOR GRANTING THE WRIT ................. 9

I. THERE IS A DISAGREEMENT AMONG THE

CIRCUIT COURTS OF APPEAL REGARDING

THE APPLICABILITY OF THIS COURT'S DE-

CISION IN CITY OF BURLINGTON v. DA-

GUE, 505 U.S. 557 (1992), TO ATTORNEYS’

FEE AWARDS FROM COMMON FUNDB........ 9

A. In Dague, this Court prohibited considera-

tion of contingency risk to enhance the

lodestar when calculating a court-awarded

reasonable attorneys’ fee under a fee-

RN II scciesvchameneencovaiinnubiinscetbansonduceses 9

SONS ASB IE SA ADI i ite REE Ee ct MS ald dota nadie GR Uh ale apes

TABLE OF CONTENTS - Continued

Page

B. If Dague’s prohibition does not extend tio

fees awarded from common fund recover-

ies, then risk multipliers should be based

upon the risk methodology established by

this Court in Delaware Valley II, 483 U.S.

711, rather than case-specific risks which

arise during the litigation, as held by the

Ninth Circuit in the instant case...

II. THERE IS A DISAGREEMENT AMONG THE

CIRCUIT COURTS OF APPEAL REGARD-

ING THE NATURE OF THE EX POST

FACTO OR EX ANTE ANALYSIS WHICH IS

TO BE USED FOR CALCULATING A PER-

CENTAGE-OF-THE-RECOVERY FEE

AWARD IN MEGAFUND CLASS ACTION

POT RR icictnctintdciniissedini tite ln

A. This Court is asked to create a uniform

rule that the calculation of reasonable at-

torneys’ fees paid from class action com-

mon funds focuses on _ the class

member/beneficiaries’ interest in their re-

covery, not on the lawyers’ need for profit

ON ciiinistiaci ee

B. Whether or not this Court chooses to jetti-

son the Trustees v. Greenough (105 U.S. at

536-37) doctrine of “moderation and a

jealous regard for the rights of those inter-

ested in the fund,” it should nonetheless

reject the Ninth Circuit’s refusal to adopt

the “declining percentage principle”..........

REPAID snnsivictrisiacetiocnn itech

TABLE OF CONTENTS - Continued

Page

INDEX TO APPENDICES

Vizcaino v. Microsoft Corp., 290 F.3d 1043 (9th Cir.

DODD ..ccocececenecvecccevccnccessesccsescesenssncecssesonssnns Appendix 1-24

Vizcaino v. Microsoft Corp., 142 F. Supp. 2d 1299

(W.D. Wash. 2001)............cccccceeeeseeeeeeeeeeees Appendix 25-37

ee ee ee

Dieta Deine

Vii

TABLE OF AUTHORITIES

Page

CASES

Amchem Prod., Inc. v. Windsor, 521 U.S. 591 (1997)........ 18

Bowen v. South Trust, 760 F. Supp. 889 (M.D. Ala.

STE s<acivnchiendied itil idinidatieiatieietieaelahanialadanidsaeaiataamaabadiatatiaaienaia 18

Brewer v. Southern Union Co., 607 F. Supp. 1511

Ses Tes SI TTatie iiiesleutitatveniadleecinsiesininainkaainieabicearcemicdnaineatadtnbindedeibien 17

Brytus v. Spang & Co., 203 F.3d 238 (3d Cir. 2000)....10, 18

City of Burlington v. Dague, 505 U.S. 557 (1992) .....passim

City of Detroit v. Grinnell Corp., 495 F.2d 488 (2d

SN Sa sn cacnicechcicheecilisbanilidibinaiiiesich dina iad aa 23

Evans v. City of Evanston, 941 F.2d 473 (7th Cir.

Sua Tadt edicts eebinncainhoaciccdeseneanliiieeeacalaeableinaanicaietiiilaiaabdb Rt sactebetiteais 16

Florin v. NationsBank of Georgia, 34 F.3d 560 (7th

GP. BID sa scevnscestesnensensneneeesansconebeeneebninenen 10, 11, 14, 15, 22

Gisbrecht v. Barnhart, 2002 WL 1049193, 122 S.Ct.

EE I sddihhcchuiticniciniienstecceainnaeiilaiiniilentduinlabiadeiantabiabaencedabies 28

Goldberger v. Integrated Resources, Inc., 209 F.3d

ee IT aI, aE cishuiencitcbeebinstadMisevaicincuaneiisbideticanended 24, 29, 30

Gottlieb v. Wiles, 150 F.R.D. 174 (D. Colo. 1993)............... 11

In re Bolar Pharmaceutical Co. Sec. Litig., 800 F.

PU SUI GUNRIICEING Bia UU ccnoacatvnsonsinsssrsinesscnnnsioniave snsnes 11

In re Cendant Corp. Litig., 264 F.3d 201 (3d Cir.

SUT scsineidia bisieenisesisheidiledibeabasedaniaieihabecbitieiseaiesslehnddaecdiontauasianesietensisien 3

In re Cendant, 109 F. Supp. 2d 285 (D.N.J. 2000).............. 7

In re Continental Illinois Sec. Litig., 962 F.2d 566

IY UII th stlinscodknndas tic hecetceeccneatantaaldeminds tinea 7, 28

se.

TABLE OF AUTHORITIES — Continued

In re Domestic Air Transp. Antitrust Litig., 148

EL Ie CER Sls SED snerenesinnonscosBbereieninnnsnndsecetacesnes 3

In re General Motors Corp. Pick-Up Truck Fuel

Tank Prod. Liab. Litig., 55 F.3d 768 (3d Cir.

In re Nineteen Appeals Arising Out of San Juan

Dupont Plaza Hotel Fire Litig., 982 F.2d 603 (1st

GRR Bae nsschivasrstnestncciacentenivciiansianibbnabinbentnintiniebiiiteiieanmennians 11

In re Prudential Ins. Co., 962 F. Supp. 572 (D.N.J.

re asisincetcrientiernsiiceehaseniaideieicaidesaniehaecdnsedeaadainadiuniahandinaniitassaiaiaitie 13

In re Prudential Ins. Co. America Sales Litig., 148

es a cecscceitiistesivsinsivaanesdngeesines 25, 28

In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th

SE Beer eis tahseisiihnapeaerictnichectnicbendsliaimniniciphaatisteaptinesiauiitiiiipaditannasaiiel 20

In re Synthroid Marketing Litig., 201 F. Supp. 2d

ee es Be SE ciclesticecidilentiacisinsiteniaiiaaiatindeininesiieninasiinadaciitasion 29

In re Synthroid Marketing Litig., 264 F.3d 712 (7th

SI eerie inicecsussvsseieninniicdbndisiablbsinissinntisininiaianinbaiensenie 24, 25, 29

In re Washington Public Power Supply Sys. Sec.

Litig. (WPPSS), 19 F.3d 1291 (9th Cir. 1994)........ passim

In re Wells Fargo Sec. Litig., 156 F.R.D. 223 (N.D.

SIE, FED acicentiicsntenccnesecnnnansienhinndiaiidinilmenaniipmniiensnatas 25

Johnson v. Georgia Highway Express, Inc., 488 F.2d

eo RRs Serene 4

Kayes v. Pacific Lumber Co., 51 F.3d 1449 (9th Cir.

aD nsutacounteesaiinetsieneanisiinnnimlinsscniaiidiaudidadibiptiaietniemimumaeenias 17

Lake v. First Nationwide Bank, 900 F. Supp. 726

es SG SE wscesenndesepanticeeendenlaidinntsiaareeniieneinaateten 10

TABLE OF AUTHORITIES - Continued

Page

McLendon v. Continental Group, Inc., 872 F. Supp.

IY I iiichiicbhacihi iia pee i: 19, 20

Nensel v. People’s Heritage Financial Group, 815 F.

PI CID, Te, BE sccsnsscecssctaccescsnsvcsactceesseecs.. 11, 12

Pennsylvania v. Delaware Valley Citizens’ Council

for Clean Air, 483 U.S. 711 (1987) ..................... 14, 21, 22

Reynolds v. Beneficial Nat’l Bank, 288 F 3d 277 (7th

Gy ST insssslaphionstad sussibiibiansetendcvenebediciidedincnscdssiesse: oo. 4

Szabo v. Bridgeport Machines, Inc., 249 F.3d 672

SOE ITI ciscincssntecesteicsdlsohacuesbiblaltdin. tata 20

Trief v. Dunn & Bradstreet Corp., 840 F. Supp. 277

es We cniialitinattmeniinnidiisasidie nS a

Trustees v. Greenough, 105 U.S. 527 ft PRE 3, 24

Vizcaino v. Microsoft Corp., 209 F.3d 1043 (9th Cir.

Pon Aennlarannintssnnuincniinrevemseieansitlittbesiuladiisiaieesuiicpics ct 1

Vizcaino v. Microsoft Corp., 142 F. Supp. 2d 1299

Pe Pielke 1

Vizcaino v. Microsoft Corp., 120 F.3d 1006 (9th Cir.

BOAT A Ficsteenssaccenctsinsctetaniiladbichetbpeulbaiatidheseedénitensiadiesces.... 6,8

Weinberger v. Great Northern Nekoosa Corp., 801 F.

Supp. 804 (D. Me. 1992)..0.....occcccccccsccescseseseseseses... 11,13

RULES

PONY TNT IE SIU spivcutiiastetisniccscesintoodapheitntuniedesicicasec secs: 2

NI UN co chicbdbiiibiissiicaicidddiicesbisiiesiat sas iia te 2

TABLE OF AUTHORITIES -— Continued

Page

STATUTES

re ie hid sa chheoddbenisbenbinonamabenninnens 1

Be eee Oe CE) CR esarsersencencsessinscasonsesasernnntnniats 2

OTHER AUTHORITIES

1 Conte, Attorney Fee Awards, § 1.06 (1993)..............0.00. 7

Budiensky, Stephen, How Lawyers Abuse the Law,

U.S. News & World Report, Jan. 30, 1995...........0000.0.. 4

Class Action System Survey, U.S. Chamber of Com-

merce, Institute for Legal Reform, poll conducted

on May 11-12, 2002, www.litigationfairness.org............... 5

Class Action Watch, Analysis: Class Action Litiga-

tion, A Federalist Society Survey (The Federalist

Society for Law & Public Policy Studies, Wash.,

LI ts is ins UE, de. 0 po cacicusdataasamnaldenatunnnicaeadicaiicdiones 4

Coffee, John C., Class Action Accountability:

Reconciling Exit, Voice, and Loyalty in Represen-

tative Litigation, 100 Colum. L. Rev. 370 (2000)........... 27

Hirsh, Alan and Diane Sheehey, Awarding Attor-

neys’ Fees and Managing Fee Litigation 49, 70-71

IIE IN, MIP csisttadicpnatnsstisceiosenesticnainsnniccnsasess 10

Lisa G. Lerman, Blue-Chip Bilking: Regulation of

Billing and Expense Fraud by Lawyers, 12 Geo.

J. Legal Ethics 205, 219 (No. 2, Winter 1999)............... 27

Newberg on Class Actions (3d ed.), Ch. 15, Rela-

tionship Between Class Representative or Counsel

and Absent Class Members ......0.:00cssccsccscssscecssssescesssccesee 17

TABLE OF AUTHORITIES - Continued

Page

Priest, George L., Economics of Class Actions, 9

Kan. J. L. & Pub. Pol’y 481, 482 (No. 3, Spring

ce OLIN, SOR ARIN BETES MCP TN REM 21

Public Perceptions of Lawyers; Consumer Research

Findings, ABA Sec. of Litigation (April 2002)................ 4

Third Circuit Task Force Report, Court Awarded

Attorneys’ Fees, 108 F.R.D. 237 (1985).......-..00.00-0.0...-..., 28

PETITION FOR WRIT OF CERTIORARI

Petitioners Donna Vizcaino and Lesley Stuart respect-

fully pray that a writ of certiorari issue to review the

judgment of the United States Court of Appeals for the

Ninth Circuit in this case.

OPINIONS BELOW

The United States Court of Appeals for the Ninth

Circuit’s opinion (per Schwarzer, J., joined by Reinhardt,

J. and Hawkins, J.), affirming the decision of the District

Court for the Western District of Washington, is published

as Vizcaino v. Microsoft Corp., 290 F.3d 1043 (9th Cir.

2002), and is reproduced at App. 1.

The United States District Court for the Western

District of Washington at Seattle’s Opinion and Order (per

Coughenour, J.), is published as Vizcaino v. Microsoft

Corp., 142 F. Supp. 2d 1299 (W.D. Wash. 2001), and is

reproduced at App. 25.

STATEMENT OF JURISDICTION

The United States Supreme Court has jurisdiction to

review this case on petition for writ of certiorari pursuant

to 28 U.S.C. § 1254(1). The United States Court of Appeals

for the Ninth Circuit entered its opinion on May 15, 2002

(App. 1), approving the decision of the United States

District Court at Seattle, Washington (App. 25), and

denying class members’ objections to the $27 million

attorneys’ fee award to class counsel, which forms the

basis of this Petition for Writ of Certiorari. This Petition

for Writ of Certiorari is filed within 90 days of the decision

of the United States Court of Appeals for the Ninth Cir-

cuit, and is therefore timely under Rule 13.3 of this Court.

STATUTES AND RULES INVOLVED

29 U.S.C. § 1132(g)(1) (ERISA), provides:

Attorney’ fees and costs; awards in actions in-

volving delinquent contributions

(1) In any action under this subchapter...

by a participant, beneficiary, or fiduciary,

the court in its discretion may allow a rea-

sonable attorney's fee and costs of action to

either party.

Federal Rule of Civil Procedure 23.

INTRODUCTION

This appeal seeks to resolve what can best be de-

scribed as a chaotic condition within the federal courts of

the United States with regard to the factors to be consid-

ered when trial courts award reasonable attorneys’ fees

from common fund recoveries in megafund class action

litigation. At stake in this dispute is literally hundreds of

millions, if not billions, of dollars in attorneys’ fees to be

paid to class action lawyers from megafund class action

settlements, which would otherwise be used to reimburse

class members for their losses.

The new millennium has brought with it an unac-

knowledged revolution in the fee jurisprudence being

employed in several circuits and numerous district courts

throughout the United States in the awarding of reason-

able attorneys’ fees in class actions. For over 100 years,

the guiding principle regarding the exercise of judicial

discretion in the awarding of reasonable attorneys’ fees

from common fund recoveries, announced by this Court in

Trustees v. Greenough, 105 US. at 536-37, has been

“moderation and a jealous regard to the rights of those

who are interested in the fund.”

The new millennium fee jurisprudence, however, has

shifted the judiciary’s focus from concern for the benefici-

aries of the fund to concern about the profits necessary to

satisfy the expectations of class action lawyers. (Note the

Ninth Circuit’s reference in the instant case: “[To deter-

mine a reasonable attorneys’ fee] it may be more appropri-

ate to examine lawyers’ reasonable expectations. .. .” (App.

11; emphasis added)).

The need for this Court to establish uniform guide-

lines in megafund class actions is perhaps best exemplified

by what promises to be a new era of megafund recoveries.

In a mere decade, megafund recoveries, which used to

refer to “extraordinarily large” settlements of up to $200

million,’ now refer not to the size of the recovery but to the

size of the fee itself! In a mere decade, percentage fee

awards of 6 to 10 percent in megafund settlements have

ballooned to 28 percent of a megafund recovery, as in the

instant case. In the recent In re Cendant Corp. Litig., 264

F.3d 201, 285 (3d Cir. 2001), the Third Circuit appropri-

ately described the district court’s award to class counsel

’ See In re Domestic Air Transp. Antitrust Litig., 148 F.R.D. 297,

351 (N.D. Ga. 1993):

In megafund cases where extraordinarily large class recov-

eries of $75-$200 million and more are recovered. . . . [Flees

in the range of 6-10% and even lower are common in this

large scale context. (Citation omitted).

of $262 million’ in attorneys’ fees, reflecting multipliers of

24 to 40 as “staggering” and “astonishing,” respectively.

A decision by this Court at this time in our nation’s

history is particularly important. Public confidence in the

legal profession is exceedingly low — at or near the bottom

in most surveys, not least because too many lawyers are

perceived as greedy and as acting in their own self-interest

at the expense of their clients.°

In addition, it has been observed that courts routinely

approve fee requests which substantially overcompensate

class action lawyers.‘ As a consequence, class action filings

have increased substantially in recent years.’ The institution

* For an understanding of just how far the judiciary has strayed,

note Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 719 (5th

Cir. 1974) (“[(Clourts ... do not have a mandate ... to make the

prevailing counsel rich ... [reasonable fee awards] should not be

implemented in a manner to make the private attorney general's

position so lucrative as to ridicule the public attorney general.”).

* In a recent survey of public confidence . . . the category of “legal

profession/lawyers” placed second lowest, with only 19% indicating that

they were “extremely” or “very confident in” the profession. Public

Perceptions of Lawyers; Consumer Research Findings, ABA Sec. of

Litigation, Apri] 2002, at 6. In that same survey, 57% indicated that

“lawyers are more concerned with their own self-promotion than their

client’s best interests.” Jd. at 7. “(TJhe greatest number of complaints

arise around lawyers’ fees. ... Consumers say that lawyers charge too

much....” Jd. at 14. A U.S. News & World Report poll found that “56

percent say lawyers use the system to ... enrich themselves.” Stephen

Budiensky, How Lawyers Abuse the Law, U.S. NEws & WORLD REPORT,

Jan. 30, 1995, at 50-51.

* Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 287 (7th Cir.

2002) (“{I}nflated attorneys’ fees are an endemic problem in class action

litigation. .. . ”).

* A survey done by the Federalist Society found that between 1988

and 1998, class action filings increased by 338% in federal courts and

more than 1000% in state courts. See CLASS ACTION WATCH, Analysis:

(Continued on following page)

most capable of unifying the standards used to calculate

remuneration awarded by our federal courts in class

action litigation is the United States Supreme Court.

Class action attorneys’ fee overcompensation is de-

stroying public respect for the legal system.® Indeed, one

could argue that class action litigation has created more

multimillionaires more quickly than any other economic

pursuit in American society. It is important that this Court

establish uniform guidelines, instructing lower courts with

regard to the factors to be considered in awarding multi-

million-dollar attorneys’ fees from class action megafund

recoveries.

STATEMENT OF THE CASE

This class action was filed against Microsoft Corpora-

tion on behalf of Microsoft employees referred to as “free-

lancers,” who were denied the benefits which regular

employees were provided under Microsoft's various em-

ployee benefit programs on the ground that they were

independent contractors. (App. 2-3). The complaint alleged

claims under Washington State law as well as federal

Class Action Litigation, A Federalist Society Survey (The Federalist

Society for Law & Public Policy Studies, Wash. D.C.), Vol. 1, No. 1

(1999), at 3.

* Class Action System Survey, U.S. Chamber of Commerce,

Institute for Legal Reform, poll conducted on May 11-12, 2002. See

www. litigationfairness.org, last consulted on June 27, 2002. In response

to the question, who benefits most from the current class action lawsuit

system, 45% answered the lawyers who represent the alleged victims,

28% the lawyers who represent the companies being sued, and only 5%

answered the people who are part of the class action lawsuits. Jd. at 4.

ERISA claims. Vizcaino v. Microsoft Corp., 120 F.3d 1006

(9th Cir. 1997).

The litigation was filed in 1992, after an IRS investi-

gation led to an agreement with Microsoft to reclassify so-

called permatemp employees as regular employees and

withhold appropriate taxes. After protracted court pro-

ceedings, settlement discussions began in 1999, and the

case was settled in 2001. A Notice of Settlement was sent,

advising the class that a common fund of $96,885,000 was

created for the class, from which class counsel sought _28

percent of the recovery ($27 million) for attorneys’ fees.

(App. 3-4).

In response to the Notice, petitioners filed an objection

to class counsel’s fee request. After the objection was filed,

class counsel claimed an increased settlement value of

$1.1 billion, based upon the reclassification of 3,000

Microsoft freelance employees’ into W-2 employees. (App.

26 n.1).

The district court overruled petitioners’ objections to

the excessiveness of the fee request for the following

reasons:

1. “(T]he case was extremely risky for class counsel

....” (App. 30); “[the class suffered] repeated losses . . . in

the district court which, had the decisions stood, would

have resulted in no or little’ recovery for the class.” (App.

31).

” Who, it should be noted, paid no attorneys’ fee for these reclassifi-

cation benefits.

* The district court failed to acknowledge that a reasonable

attorneys’ fee was ensured to class counsel under ERISA’s fee-shifting

statute, regardless of the size of the class’s recovery.

2. In light of the extreme risk of the case, the class

recovery was extraordinary. (App. 30-31).

3. The representative plaintiffs had entered into

retainer agreements with class counsel for 30 percent of

the recovery, and thusly 28 percent “was at or below the

market rate.” (App. 32-33).

4. A multiplier of between 3 and 4 was “wholly

justified.” (App. 37). The court relied on In re Cendant, 109

F. Supp. 2d 285, 292, 302 (D.N.J. 2000) (multiplier of 23 or

32) and 1 Conte, Attorney Fee Awards § 2.06 (1993), p. 39

(multiplier of 5-10). (App. 36).

The Ninth Circuit Court of Appeals’ panel affirmed

the district court’s award. The panel held that the district

court’s consideration of a risk multiplier as part of its

lodestar cross-check was proper under Jn re Washington

Public Power Supply Sys. Sec. Litig. (hereinafter WPPSS),

19 F.3d 1291 (9th Cir. 1994).

The bar against risk multipliers in statutory fee

cases does not apply to common fund cases.

WPPSS, 19 F.3d at 1299-1300.

(App. 13).

The panel disagreed however with the district court's

reliance on a portion of the Seventh Circuit’s decision in

Continental Illinois, 962 F.2d 568:

We note with respect to this factor [the retainer

agreements entered into between class counsel

and the named plaintiffs] that we do not adopt

the Seventh Circuit’s approach in percentage fee

award cases....

(App. 9; emphasis added). In rejecting the Seventh Circuit

approach, the panel held “it may be more appropriate to

examine lawyers’ reasonable expectations, which are

based on... the range of fee awards out of common funds

of comparable size.”* (App. 11).

5. The panel adopted the district court’s findings on

risk:

[The district] court found the case to have been

extremely risky for class counsel for the reasons

just stated. Twice plaintiffs lost in the district

court — once on the merits, once on the class defi-

nition — and twice counsel succeeded in reviving

their case on appeal.

(App. 8).

6. The panel ruled that the IRS settlement with

Microsoft before this litigation commenced was irrelevant

on the issue of risk.”’ (App. 8 n.3).

* Although the Ninth Circuit stated that courts should focus on the

reasonable expectations of class counsel, it focused its review of

common fund fee awards on the years 1996 through 2001 (App. 11 n.4),

although this litigation was filed in 1992.

But see Ninth Circuit en banc decision, Vizcaino v. Microsoft

_ Corp., 120 F.3d at 1009, 1013:

In 1989 and 1990 the IRS investigated, and using common

law ruled as a matter of law that the workers were employ-

ees rather than independent contractors.

It is important to recognize that there is no longer any ques-

tion that the workers were employees of Microsoft, and not

independent contractors. The IRS clearly determined that

they were. In theory, one could argue that what the IRS said

was fine for withholding and FICA purposes, but that is as

far as it goes. However, the IRS made its determination

based upon the list of factors which is generally used to de-

cide whether a person is an independent contractor or an

employee. . . . (Emphasis added).

7. The Ninth Circuit rejected the declining percent-

age principle:

The district court observed [in WPPSS] that “in

many cases awards fall outside the ‘typical’ range

and... the percentage of an award generally de-

creases as the amount of the fund increases.”

WPPSS, 19 F.3d at 1297. We did not adopt this

observation as a principle governing fee awards.

(App. 6; emphasis added).

REASONS FOR GRANTING THE WRIT

I. THERE IS A DISAGREEMENT AMONG THE

CIRCUIT COURTS OF APPEAL REGARDING

THE APPLICABILITY OF THIS COURT’S

DECISION IN CITY OF BURLINGTON uv. DA-

GUE, 505 U.S. 557 (1992), TO ATTORNEYS’

FEE AWARDS FROM COMMON FUNDS.

A. In Dague, this Court prohibited consid-

eration of contingency risk to enhance

the lodestar when calculating a _ court-

awarded reasonable attorneys’ fee under

a fee-shifting statute.

There presently exists a split in the circuits and

among various federal district courts as to whether the

Dague prohibition against enhancing the lodestar for

contingency risk for court-awarded reasonable attorneys’

fees under fee-shifting statutes also applies when courts

award reasonable attorneys’ fees from common fund

recoveries. Since 1992, when this Court decided Dague,

there has been much discussion, but no consensus,” in the

circuit courts of appeal and among various federal district

courts about whether this Court’s Dague prohibition

applies as well to reasonable attorneys’ fees awarded from

common fund recoveries.

The Supreme Court has not yet decided whether

its decision in Dague precluding the use of a mul-

tiplier in consideration of risk taken when calcu-

lating fees under the lodestar method applies in

common fund cases... .

Brytus v. Spang & Co., 203 F.3d 238, 243 (3rd Cir. 2000).

(Citations omitted).

In the instant case, the Ninth Circuit approved a fee

award of 28 percent of the class’s settlement fund, as

requested by class counsel, which transformed a $7 million

lodestar into a $27 million fee award. (App. 4). In doing so,

the court approved a contingent risk multiplier of 3.65,

relying on WPPSS, 19 F.3d at 1299-1301. (App. 13).

As regards the Dague dispute on the prohibition of

risk multipliers extending to common fund cases, compare

WPPSS, 19 F.3d at 1299 (“Dague’s rationale for barring

risk multipliers in statutory fee cases does not operate to

bar risk multipliers in common fund cases”), and Florin v.

NationsBank of Georgia (hereinafter Florin), 34 F.3d 560,

564 (7th Cir. 1994) (“we conclude that the holding in

Dague should not extend to this case .... Common fund

principles properly control a case which is initiated under

" For a general discussion of conflicting circuit and district court

interpretations of Dague, see Alan Hirsh and Diane Sheehey, Awarding

Attorneys’ Fees and Managing Fee Litigation 49, 70-71 (Fed. Judicial

Ctr. 1994); Lake v. First Nationwide Bank, 900 F. Supp. 726, 736 (E.D.

Pa. 1995).

a statute with a fee-shifting provision, but is settled with

the creation of a common fund”),” with In re General

Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab. Litig.

(hereinafter GM Pick-Up), 55 F.3d 768, 822 (3d Cir. 1995)

(“to the extent that the district court relied on the lodestar

method, it erred by applying a multiplier ... [t]he Su-

preme Court ... has rejected the use of multipliers to

enhance the lodestar’s hourly rate amount”) (applied to de

facto common fund); and Jn re Nineteen Appeals Arising

Out-of San Juan Dupont Plaza Hotel Fire Litig., 982 F.2d

603, 619 (1st Cir. 1992) (J. Lay, concurring) (“I can discern

no logical distinction between an equitable fund case and a

fee-shifting case that would cause these [Dague’s] reasons

to be worthwhile in [fee-shifting but not in] an equitable

fund case.”).

Various federal district courts have weighed in on the

issue. See, e.g., Nensel v. People’s Heritage Financial

Group, 815 F. Supp. 26, 30 (D. Me. 1993) (holding that

Dague’s proscription of the use of risk multipliers applies

to common fund cases); Weinberger v. Great Northern

Nekoosa Corp., 801 F. Supp. 804, 825 n.59 (D. Me. 1992)

(same); In re Bolar Pharmaceutical Co. Sec. Litig., 800

F. Supp. 1091, 1095 (E.D.N.Y. 1992) (“ban on fee enhance-

ment for contingency in statutory fee-shifting cases ex-

tends to equitable fund cases”). But see Gottlieb v. Wiles,

150 F.R.D. 174, 184 n.6 (D. Colo. 1993), for contrary

analysis.

“ However, the Seventh Circuit, although allowing risk enhance-

ment, “suggested ... a sensible ceiling of double the lodestar.” Florin,

34 F.3d at 565.

Petitioners believe that the Ninth Circuit interpreta-

tion of Dague is incorrect. Numerous courts and authori-

ties have found that all of the concerns which this Court

expressed in Dague as reasons to prohibit consideration of

contingency risk in fee-shifting cases, apply as well to fee

calculations in common fund cases — and some apply to

common funds with even greater force!

Note:

Nensel v. Peoples Heritage Financial Group, 815

F. Supp. at 28:

Having once again carefully studied the reasons

put forth in the Dague opinion as to why a mul-

tiplier-based enhancement is not warranted, the

Court can see little, if any, basis to distinguish in

the application of the holding in Dague between

fee-shifting and common-fund cases.

Enhancement for contingency in common-fund

cases will also have the effect of compensating

(on the basis of averages) counsel for services in

cases where they have not prevailed and will en-

courage the bringing of weak and unfounded

class action suits.

Trief v. Dunn & Bradstreet Corp., 840 F. Supp. 277,

284-85 (S.D.N.Y. 1993):

The language of the [Dague] opinion, however,

strongly suggests that the court’s holding is ap-

plicable to common fund cases. ... Moreover, the

City of Burlington court’s reasoning is directly

applicable to class action suits brought pursuant

to Rule 23. Each consideration enunciated by the

City of Burlington court declining to permit en-

hancement of the lodestar is equally relevant to

the question of whether the lodestar should be

enhanced in this case.... [I]ts applicability is

not limited to the context of federal fee-shifting

statutes. (Citation omitted; emphasis added).

In re Prudential Ins. Co., 962 F. Supp. 572, 581 n.24

(D.N.J. 1997):

The Supreme Court, however, held [in Dague]

that risk enhancements were inappropriate in

fee-shifting cases. While the Court did not ad-

dress whether risk enhancements survive in

common fund cases, the Court’s reasoning for ex-

cluding risk enhancements in fee-shifting cases

applies equally to common fund cases. (Emphasis

added).

Weinberger v. Great Northern Nekoosa Corp., 801

F. Supp. at 825 n.59:

Nonetheless, the Dague court’s policy rationales

in denying a contingency-based multiplier seems

to be equally applicable here.

Dague proscribed use of contingent risk multipliers to

enhance the lodestar for the following reasons:

1. Enhancement for contingency risk “would likely

duplicate ... factors already subsumed in the lodestar.”

Dague, 505 US. at 562.

2. Enhancement for contingency risk “would encour-

age meritorious claims to be brought, but only at the social

cost of indiscriminately encouraging nonmeritorious

claims to be brought as well. We think that an unlikely

objective of the ‘reasonable fees’ provisions.” Dague, 505

U.S. at 563.

3. Enhancement for contingency risk to attempt “to

mimic the intricacies of the fee-paying market in every

respect [is neither necessary nor even possible].” Dague,

505 U.S. at 566-67.

4. Enhancement for contingency risk, under the

conditions set forth in Delaware Valley II, 483 U.S. 711,

cannot “be intelligibly applied.” Dague, 505 U.S. at 563.

5. Enhancement for contingency risk requires that a

defendant “would in effect pay for the attorney’s time (or

anticipated time) in cases where his client does not pre-

vail.” Dague, 505 U.S. at 565.

6. Enhancement for contingency risk “would make

the setting of fees more complex and arbitrary, hence more

unpredictable. ...” Dague, 505 U.S. at 566.

Each of these factors applies equally to judicial con-

cerns in class action common fund recoveries. The courts

which have held Ddgue does not apply to common fund fee

calculations focus on only one of the reasons discussed by

this Court in Dague, to wit: the impropriety of requiring a

defendant to pay a higher fee based on risk.

The concerns that drove the Court to reject con-

tingency enhancements in the statutory fee con-

text apply with much less force in common fund

cases. Unlike statutory fee-shifting cases where

the winner’s attorneys’ fees are paid by the losing

party, attorneys’ fees in common fund cases are

not paid by the losing defendant, but by members

of the plaintiff class.

WPPSS, 19 F.3d at 1300. Accord, Florin, 34 F.3d at 564

(“Unlike in fee-shifting cases, the fee award in a common

fund case is ultimately charged against the plaintiffs’ fund,

rather than directly against the defendant.”).

Though in fee-shifting cases the defendant pays the

reasonable fee, and, in common fund cases, the plaintiff

pays the reasonable fee, there is no logical distinction

between these types of public interest litigation which

would make the reason for Dague’s prohibition of risk

enhancement inapplicable in common fund cases.

Neither WPPSS nor Florin consider that in Dague the

concern which this Court was addressing was the incentiv-

_ izing of attorneys to file marginally meritorious lawsuits.

Furthermore, allowing two radically different fee

outcomes, based upon whether class counsel seek attor-

neys’ fees under a fee-shifting statute as opposed to from a

common fund, has numerous additional deleterious effects.

(a) It frustrates the intent of Congress in

establishing fee-shifting statutes.

In establishing fee-shifting statutes, Congress sought

to encourage lawyers to undertake specific types of litiga-

tion which it deemed to be socially beneficial. However, to

pay lawyers more (indeed, nearly quadrupling their fees

for identical work), when reasonable attorneys’ fees are

paid from a common fund recovery as opposed to fees paid

by a defendant under a fee-shifting provision, serves as a

disincentive to lawyers to bring cases when large damage

recoveries are unavailable.

This focus on damages would contradict Con-

gress’s purpose in providing for fee-shifting in

these cases, which was “to encourage successful

civil rights litigation, not to create a special in-

centive to prove damages and shortchange efforts

to seek effective injunctive and declaratory re-

lief.” Indeed, since fees paid out of a common

fund are only available in multi-plaintiff actions,

the widespread use of common-fund recoveries as

a source of fees for lawyers in Title VII or civil

rights cases would not only skew the incentives

of plaintiffs’ lawyers toward damages rather than

equitable remedies, but also toward class actions

rather than suits by individuals.

Evans v. City of Evanston, 941 F.2d 473, 479 (7th Cir.

1991). (Citation omitted).

It was specifically for the purpose of encouraging

lawyers to bring cases under circumstances where large

damage recoveries were not available that fee shifting was

established. It simply makes no sense for courts to pay

lawyers significantly lower attorneys’ fees for prosecuting

cases which Congress sought to encourage and deemed to

be of particular social benefit, and to pay higher attorneys’

fees to lawyers who bring cases which Congress did not

feel of sufficient public interest to warrant the insurance

of a reasonable attorneys’ fee.

Because these cases are not presumed to serve

the public interest (as evidenced by the lack of a

fee statute), there is no social policy reason that

demands an adequate fee.

GM Pick-Up, 55 F.3d at 821.

Congressional intent can only be achieved if this

Court adopts « uniform fee methodology without reference

to whether or not litigation creates a common fund on

’ behalf of prevailing plaintiffs. In point of fact, both the

class action mechanism and fee-shifting provisions were

instituted by Congress to encourage public interest litiga-

tion. If a court is asked to determine a reasonable fee,

there is no justification of having a radically different fee-

_enriching experience for lawyers where both types of

litigation were created by Congress to serve the public

good. To paraphrase Gertrude Stein, a reasonable fee is a

reasonable fee is a reasonable fee.

[W]e are of the view that where thé court is

called upon to set a fair and reasonable fee the

same general method should be used regardless

of the type of case involved.

Brewer v. Southern Union Co., 607 F. Supp. 1511, 1521 (D.

Colo. 1984).

(b) To fail to extend the Dague prohibi-

tion against risk multipliers to com-

mon fund recoveries creates a financial

conflict of interest for class action

lawyers.

It compromises the lawyers’ fiduciary responsibility to

maximize the class’s recovery and incentivizes counsel to

place their own financial interests ahead of the interests of

the class.

Class counsel have a fiduciary responsibility to class

members in class actions — “attorneys ... seeking to

represent the class assume fiduciary responsibilities to the

class.... ” NEWBERG on CLASS ACTIONS (8d ed.), Ch. 15,

§ 1503, Relationship Between Class Representative or

Counsel and Absent Class Members.

The responsibility of class counsel to absent class

members whose control over their attorneys is

limited does not permit even the appearance of

divided loyalties of counsel.

Kayes v. Pacific Lumber Co., 51 F.3d 1449, 1465 (9th Cir.

1995).

The conflict of interest issue in litigation commenced

under fee-shifting statutes and settled with the creation of

a common fund is clear:

In the usual common fund case, the question of

whether the fund was created through a judg-

ment or a settlement is irrelevant to the method by

which the amount of compensation is determined.

In a case such as this one, however, had plaintiffs

prevailed at trial, it is entirely possible that de-

fendants, rather than the common fund, would

have been liable for attorney’s fees under ERISA,

29 U.S.C.A. § 1132(g)(1). For the court to award

plaintiffs’ counsel a percentage of the settlement

when he might only have been entitled to an

hourly — and therefore possibly lower — fee had

he obtained a favorable judgment, would raise

the specter of a significant conflict of interest be-

tween counsel and the absent class members in

the negotiation of such a settlement.

Bowen v. South Trust, 760 F. Supp. 889, 896 (M.D. Ala.

_ 1991). (Footnote omitted).

The court, in Brytus v. Spang & Co., noted the poten-

tial problem of the disparity of different methods of calcu-

lating reasonable attorneys’ fees under the aforementioned

circumstance.

Of course, there remains the possibility that in

some cases counsel for a class of plaintiffs may

receive a higher fee award upon settlement than

they would have received had the case proceeded

to judgment.

Brytus v. Spang & Co., 203 F.3d at 247.

This Court, in Amchem Prod., Inc. v. Windsor, 521

U.S. 591, 621 (1997), recognized the problem where class

counsel were “confined to settlement negotiations [and]

could not use the threat of litigation to press for a better

settlement.” In such circumstances, class counsel were

compromised in their ability to represent the class's

interest. As observed by class counsel in Brytus, attorneys

are compromised as long as Dague does not extend to

common fund recoveries because counsel risk a lower

court-awarded attorneys’ fee by pressing the class’s claim

to trial.

Class counsel should never be placed in the position of

being able to engineer higher compensation for themselves

by settling cases on terms which optimize their own

recovery when all their thoughts should be directed

towards maximizing the class’s recovery. Allowing lawyers’

self-interest to intrude into the lawyers’ obligation to

maximize the class’s recovery will only further weaken

public confidence in the legal profession.

On this point, see McLendon v. Continental Group,

Inc., 872 F. Supp. 142 (D.N.J. 1994), where Special Master

Yale Law School Professor George L. Priest found Dague’s

prohibition against risk multipliers applicable to common

fund recoveries, based on class counsel’s conflict of inter-

est.

The Master concludes that the Dague restriction

must apply to any common fund case that

started as a fee-shifting case. He reasons that

since Dague clearly prohibits any risk enhance-

ment of lodestar amounts in statutory fee cases,

then allowing such enhancement in such cases

that settle for a lump sum would improperly en-

courage plaintiff attorneys to settle for lump

sums in hopes of obtaining a risk enhancement

that would not otherwise be available. Thus, the

Master predicts that the Supreme Court would

prohibit risk enhancement of the lodestar

amount even if the award came from a common

fund derived from a fee-shifting case .... In es-

sence, the Master contends that if different rules

apply to attorneys’ fees once a fee-shifting case

settles, then a conflict of interest inevitably

would arise between plaintiffs and their attor-

neys as to the course of the litigation.

McLendon, 872 F.Supp. at 154. (Footnote and citation

omitted) (highlighting the controversy over these issues,

Judge Sarokin overruled the Special Master’s finding).

ous litigation is far greater in the

class action context than in tradi-

tional litigation.

Class actions, by their very nature, have a signifi-

cantly greater potential to result in settlements irrespec-

tive of the merits of the case than any other form of

litigation.

First, the class certification turns a $200,000 dis-

pute... into a $200 million dispute. Such a claim

puts a bet-your-company decision to Bridgeport’s

managers and may induce a_ substantial

settlement, even if the customers’ position is

weak.

Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 675

(7th Cir. 2001). (Emphasis added).

As noted by Judge Posner in Jn re Rhone-Poulenc

Rorer, Inc., 51 F.3d 1293, 1299 (7th Cir. 1995), class actions

produce what have been described as “blackmail” settle-

ments, i.e., settlements which rational business judgment

requires defendants settle, “even if they have no legal

liability.”

Judge Friendly, who was not given to hyperbole,

called settlements induced by a small probability

of an immense judgment in a class action

“blackmail settlements.”

Id. at 1298.

One of the unintended consequences of the class

action mechanism places a much heavier burden on

defendants to settle questionable litigation.

But, where damages are a substantial issue, the

combination of the expansion of liability, the un-

certainty of the process, and the way our class

action procedures are devised, almost always

leads to automatic settlement or guaranteed set-

tlement once a class action is certified.

George L. Priest, Economics of Class Actions, 9 KAN. J. L.

& Pus. PoL’y 481, 482 (No. 3, Spring 2000).

B. If Dague’s prohibition does not extend to

fees awarded from common fund recover-

ies, then risk multipliers should be based

upon the risk methodology established by

this Court in Delaware Valley II, rather

than case-specific risks which arise dur-

ing the litigation, as held by the Ninth

Circuit in the instant case.

Prior to this Court’s decision in Dague, contingent risk

multipliers were calculated under the methodology set out

by Justice O’Connor in Delaware Valley II. That decision

specifically holds that contingency risk should not be

based “on [an] assessment of legal risk and risks unique to

the case.” (Delaware Valley II, 483 U.S. at 731). The Ninth

Circuit, in the instant case, determined the level of contin-

gency risk based upon case-specific risks which arose

during the litigation.

Twice plaintiff lost in the district court — once on

the merits, once on the class definition — and

twice counsel succeeded in reviving their case on

appeal.

(App. 8; footnote omitted). It approved the district court’s

awarding of a 3.65 risk multiplier based upon factors such

as “Microsoft fought this case vigorously for years” (App.

30), and “there were no controlling precedents concerning

[plaintiff’s] claims” (App. 30).

However, these two factors were directly disapproved

of as considerations for enhancing the lodestar in Dela-

ware Valley II, in which this Court noted that the “poten-

tial for protracted litigation,” and the “stubbornness of the

defendants,” and the “novelty and difficulty of issues” were

not relevant factors. Delaware Valley II, 483 U.S. at 731,

734.

As this Court stated in Dague, “to award a contin-

gency enhancement under a fee-shifting statute would, in

effect, pay for attorneys’ time (or anticipated time) in cases

where their client does not prevail.” (Dague, 505 U.S. at

565). This policy rationale is directly contradicted by the

Ninth Circuit’s approval of contingent risk multipliers in

WPPSS.

In common fund cases “attorneys whose compen-

sation depends on their winning the case must

make up in compensation in the cases they win

for the lack of compensation in the cases they

lose.” [WPPSS] at 1300-01.

(App. 13).

The Ninth Circuit holding is also contrary to the risk

analysis methodology adopted by the Seventh Circuit. The

Florin court noted “a court must assess the riskiness of the

litigation by measuring the probability of the success of

this type of case at the outset of the litigation.” Florin, 34

F.3d at 565 (emphasis added). The Florin court adopted a

maximum risk multiplier of two. Jd.

The risk multiplier of 3.65, approved by the Ninth

Circuit, means that the litigation had a roughly one in

four chance of success.

“(T]he attorney bears a contingent risk of non-

payment that is the inverse of the case’s pros-

pects of success: if his client has an 80% chance

of winning, the attorneys contingent risk is

20%.”

Dague, 505 U.S. at 561 and discussion at 563.

This calculation is consistent with the Ninth Circuit’s

characterization of this litigation as “extremely risky.” The

awarding of an extreme risk multiplier is totally inconsis-

tent with the judiciary’s responsibility to ensure that our

courts do not invite high-risk litigation with the lure of

higher fees, as the uncertainty of prevailing on the merits

increases.

II. THERE IS A DISAGREEMENT AMONG THE

CIRCUIT COURTS OF APPEAL REGARDING

THE NATURE OF THE EX POST FACTO OR

EX ANTE ANALYSIS WHICH IS TO BE USED

FOR CALCULATING A PERCENTAGE-OF-

THE-RECOVERY FEE AWARD IN MEGAFUND

CLASS ACTION SETTLEMENTS.

A. This Court is asked to create a uniform

rule that the calculation of reasonable at-

torneys’ fees paid from class action com-

mon funds focuses on the _ class

member/beneficiaries’ interest in their

recovery, not on the lawyers’ need for

profit incentives.

As noted by the Second Circuit in City of Detroit v.

Grinnell Corp., 495 F.2d 448, 469 (2d Cir. 1974), this

Court, over 100 years ago, directed district courts in the

awarding of reasonable attorneys’ fees from common

funds, as follows:

[CJourts must always heed the admonition of the

Supreme Court in Trustees v. Greenough, supra,

when it advised that fee awards under the equi-

table fund doctrine were proper only ‘if made

with moderation and a jealous regard to the

rights of those who are interested in the fund.’

105 U.S. at 536.

This policy, which has guided American courts since

the inception of the common fund doctrine, has been

rejected by the Ninth Circuit in its adoption of a modified

Seventh Circuit market approach. As the Seventh Circuit

acknowledged, in adopting the market approach:

The second circuit has criticized this court’s mar-

ket-mimicking approach on the ground that one

“cannot know precisely what fees common fund

plaintiffs in an efficient market for legal services

would agree to.” Goldberger v. Integrated Re-

sources, Inc., 209 F.3d 43, 53 (2d Cir. 2000). “In-

stead,” that court “adhere[s] to [the] practice that

a fee award should be assessed based on scrutiny

of the unique circumstances of each case, and ‘a

jealous regard to the rights of those who are in-

terested in the fund.’”

In re Synthroid Marketing Litig., 264 F.3d 712, 719 (7th

Cir. 2001).

However, a “market approach” is inconsistent with

this Court’s decision in Trustees v. Greenough, 105 U.S.

527, because it focuses consideration of a reasonable fee

based upon a hypothetical market negotiation between a

class action lawyer and his or her clients.

On remand, the district court must estimate the

terms of the contract that private plaintiffs

would have negotiated with their lawyers, had

bargaining occurred at the outset of the case

(that is, when the risk of law still existed).

In re Synthroid Marketing Litig., 264 F.3d at 718.

Moreover, the methodology employed by the Seventh

Circuit contradicts the holding of the Third Circuit Court

with regard to the relevancy of private fee agreements in

the awarding of reasonable attorneys’ fees in megafund

class actions.

While such private fee arrangements might be

appropriate in smaller class actions or litigation

involving individual plaintiffs, we do not believe

they provide much guidance in cases involving

the aggregation of over 8 million plaintiffs and a

potential recovery exceeding $1 billion.

In re Prudential Ins. Co. America Sales Litig., 148 F.3d

283, 340 (3d Cir. 1998).

An important reason why hypothetical fee agreements

negotiated between plaintiffs and class action lawyers

should not be relied upon in the class action context is the

manner in which class action lawsuits are instituted by

class action lawyers.

Because class members usually don’t go shopping

for the lawyers, or indeed do anything else in the

case other than agree to lend their names to the

litigation, a court must be mindful to safeguard

the public interest.

In re Wells Fargo Sec. Litig., 156 F.R.D. 223 (N.D. Cal.

1994).

The Ninth Circuit, as demonstrated in the instant

case, has accepted the market approach concept, although

it has rejected the Seventh Circuit reliance on fee agree-

ments negotiated between plaintiffs and their counsel:

We note with respect to this factor [the retainer

agreements entered into between class counsel

and the named plaintiffs] that we do not adopt

the Seventh Circuit’s approach in percentage fee

award cases.

(App. 9, 11 (footnote omitted)), and has substituted in its

place the determination of court-awarded fees based upon

the reasonable expectations of the lawyer handling the

case.

[I]t may be more appropriate to examine the

lawyers’ reasonable expectations, which are

based on ... the range of fee awards out of com-

mon funds of comparable size.”

(App. 11).

Moreover, there are at least two problems with the

Ninth Circuit approach. In the first place, in seeking to

determine the lawyers’ reasonable expectations, the court

produced a survey of fee awards from common funds from

the period 1996 through 2001. (App. 11 n.4 and Appendix).

However, the instant lawsuit was filed in 1992. It is

difficult to understand how lawyers commencing litigation

in 1992 could legitimately have had a reasonable expecta-

tion about their fee, based upon awards which did not

exist until between four and seven years after they under-

took the representation.

The second problem with the Ninth Circuit approach

is that it fails to recognize the realities of the modern

practice of law in the new millennium.

During the 1980s and 90s, the legal profession

has become more of a business and less of a pro-

fession.... Financial success has become the

dominant value for many lawyers. Many lawyers

and firms have subordinated .. . fiduciary obliga-

tions to clients ... to income maximization. Pre-

occupation with profit is most intense in some of

the most respected law firms in the United States.

27 -

Lisa G. Lerman, Blue-Chip Bilking: Regulation of Billing

and Expense Fraud by Lawyers, 12 GEO. J. LEGAL ETHICS

205, 219 (No. 2, Winter 1999). (Emphasis added).

Professor John Coffee agrees:

[W]here plaintiffs’ attorney was once seen as a

public ... [spirited] private attorney general, in-

creasingly the more standard depiction is as a

profit-seeking entrepreneur capable of opportunis-

tic actions....

John C. Coffee, Class Action Accountability: Reconciling

Exit, Voice, and Loyalty in Representative Litigation, 100

CoLuM. L. REV. 370, 371 (2000). (Emphasis added).

The Ninth Circuit fee methodology, which suggests

that class counsel’s fee be based upon the “reasonable” fee

expectations of class counsel, is unrealistic in the context

of contemporary litigation practice.

B. Whether or not this Court chooses to jet-

tison the Trustees v. Greenough (105 U.S.

at 536-37) doctrine of “moderation and a

jealous regard for the rights of those in-

terested in the fund,” it should nonethe-

less reject the Ninth Circuit’s refusal to

adopt the “declining percentage princi-

ple.”

The district court observed [in WPPSS, supra]

that “in many cases awards fall outside the ‘typi-

cal’ range and ... the percentage of an award

generally decreases as the amount of the fund in-

creases.” WPPSS, 19 F.3d at 1297. We did not

adopt this observation as a principle governing

fee awards.

(App. 6; emphasis added).

The declining percentage principle was first enunci-

ated in the Report of the Third Circuit Task Force, Court

Awarded Attorneys’ Fees, 108 F.R.D. 237 (1985):

In most cases it [the fee arrived at] will involve a

sliding scale dependent upon the ultimate recov-

ery, the expectation being that .. . the percentage

will decrease as the size of the fund increases.”

Id. at 256. (Emphasis added).

Petitioners believe that the Ninth Circuit’s refusal to

adopt the declining percentage principle is inconsistent

with this Court’s recent opinion in Gisbrecht v. Barnhart,

2002 WL 1049193, 122 S.Ct. 1817 (2002), wherein the

Court recognized that: “If the benefits are large in com-

parison to the amount of time counsel spent on the case, a

downward adjustment is similarly in order.” (/d., Opinion

5/28/02, at 4).

What is more, the Ninth Circuit’s refusal to adopt the

declining percentage principle conflicts with the Seventh

Circuit's fee methodology which, although adopting a

purported market approach, retains the declining percent-

age principle:

We know that in personal-injury suits the usual

range for contingent fees is between 33 and 50

percent, but we also know that in large commer-

cial litigation with prospects of multimillion dol-

lar recoveries the percentage frequently is

tapered —- IT MIGHT BE 33 PERCENT OF THE

FIRST MILLION, 25 PERCENT OF THE NEXT

MILLION, AND SO ON DOWN.

In re Continental Illinois Sec. Litig., 962 F.2d at 572

(Posner, J.). (Emphasis added); see App. 32.

The Ninth Circuit approach also conflicts with the

Third Circuit approach to megafund recoveries.

In considering the size of the expected recovery

__. the district court observed that “percentage

awards generally decrease as the amount of the

recovery increases. ...” We agree. With recover-

ies exceeding $100 million ... fee percentages

range from 4.1 to 17.92 percent.

In re Prudential Ins. Co. America Sales Litig., 148 F.3d at

339. !

The split in approaches to awarding reasonable

attorneys’ fees in megafund cases has been accompanied

by what amounts to different sets of factual data regard-

ing fee awards in megafund cases. As noted by U.S. Dis-

trict Court Judge Elaine E. Bucklo in In re Synthroid

Marketing Litigation:

I noted that there are few so-called “megafund”

cases with settlements of over $100 million, but

that in such cases, courts have been reluctant to

award class counsel attorneys’ fees in the range

of 22% or 29%, see [MANUEL ror COMPLEX LITIGA-

TION 3d, § 24.121] at 684-85.

Evidence ... in the form of a research memoran-

dum by Professor John Coffee of Columbia Law

School, indicates that more recently, courts have

been more willing to allow attorneys’ fees in the

29% range in “megafund” cases.

In re Synthroid Marketing Litig., 201 F. Supp. 2d 861, 864,

865 n.1 (N.D. Ill. 2002).

Judge Bucklo’s argument that Professor Coffee's

research “suggests that courts routinely overcompensate

attorneys in class actions of all sorts” (id. at 872 n.6) is

consistent with the observations of the Second Circuit

Court of Appeals in Goldberger v. Integrated Resources,

Inc.:

([Cloncern for [moderation] is amplified by our

nagging suspicion that attorneys in these cases

are routinely overcompensated for such things as

contingency risk.

Goldberger v. Integrated Resources, Inc., 209 F.3d at 57.

CONCLUSION

Petitioners believe that the many conflicting fee

methodologies which have been adopted by various federal

circuit and district courts have created what amounts to

fee jurisprudence chaos. Because of the “staggering” sums

of money now being sought by class action lawyers, uni-

form standards of fee jurisprudence are necessary. This

case provides an opportunity for the Supreme Court to

correct the confused state of federal fee jurisprudence in

megafund class actions.

Respectfully submitted,

LAWRENCE W. SCHONBRUN

LAW OFFICES OF

LAWRENCE W. SCHONBRUN

86 Eucalyptus Road

Berkeley, CA 94705

(510) 547-8070

Attorney for Petitioners

App. 1

Donna VIZCAINO; Lesley Stuart,

Plaintiffs-Appellants,

Donna Vizcaino; Jon R. Waite, Mark Stout; Geoffrey

Culbert; Lesley Stuart; Thomas Morgan; Eliza-

beth Spokoiny; Larry Spokoiny, Plaintiffs-

Appellees,

Vv.

MICROSOFT CORPORATION, and its health and

benefits plans: Health Benefit Plan, Life Insur-

ance Plan, Short-Term and Long-Term Disability

Plans, and Savings (401K) Plan, Defendant.

Donna Vizcaino; Lesley Stuart,

Plaintiffs-Appellants,

and

Donna Vizcaino; Jon R. Waite; Mark Stout; Geoffrey

Culbert; Thomas Morgan; Elizabeth Spokoiny;

Larry Spokoiny; Lesley Stuart, Plaintiffs-

Appellees,

Vv.

Microsoft Corporation, and its health and benefits

plans: Health Benefit Plan, Life Insurance Plan,

Short-Term and Long-Term Disability Plans, and

Savings (401K) Plan, Defendant.

Nos. 01-35494, 01-35644.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Feb. 20, 2002.

Filed May 15, 2002

Charles K. Wiggins, Bainbridge Island, Washington,

and Stephen K. Strong, David F. Stobaugh, Stephen K.

App. 2

Festor and Brian J. Waid, Bendich, Stobaugh & Strong,

P.C., Seattle, WA, for the plaintiffs-appellees.

Lawrence W. Schonbrun, Law Offices of Lawrence W.

Schonbrun, Berkeley, CA, for the plaintiffs-objectors-

appellants.

Carol S. Arnold, Seattle, WA, for the defendant-

appellee.

Before REINHARDT and HAWKINS, Circuit Judges,

and SCHWARZER, Senior District Judge.

OPINION

SCHWARZER, Senior District Judge.

Once more we must address an issue arising out of the

protracted litigation between Microsoft Corporation and

its freelance workers, this time to decide whether the

district court abused its discretion in the amount of

attorneys’ fees it awarded to class counsel.

FACTUAL AND PROCEDURAL BACKGROUND

Beginning in 1987, Microsoft supplemented its work-

force with workers known as “freelancers,” who agreed in

writing that they would not be eligible for Microsoft

employee benefits, including the Employee Stock Purchase

Plan (“ESPP”) and the Savings Plus Plan (“SPP”). In 1992,

* The Honorable William W Schwarzer, Senior United States

District Judge for the Northern District of California, sitting by

designation.

App. 3

eight former freelancers brought this action challenging

Microsoft’s refusal to provide them with benefits under

these plans. The district court certified a class and dis-

missed the action. After a panel of this court reversed the

dismissal of both the ESPP and SPP claims,’ the full court

voted to rehear the case en banc. The en banc court also

reversed the district court’s dismissal of the ESPP claim,

but held that plaintiffs had not exhausted their adminis-

trative remedies for the SPP claim, and remanded that

claim to the plan administrator for adjudication in the

first instance. Vizcaino v. Microsoft Corp., 120 F.3d 1006

(9th Cir.1997). On remand, the district court substantially

narrowed the class. Vizcaino v. Microsoft Corp., 21 Em-

ployee Benefits Cas. 2821(BNA), 1998 WL 122084

(W.D.Wash.1998). This court then granted mandamus,

held the class to include persons who had worked for

Microsoft after 1990, and identified factors to be applied in

determining individual eligibility. Vizcaino v. United

States Dist. Ct. for the W. Dist. of Wash., 173 F.3d 7 13 (9th

Cir.1999). Settlement negotiations followed, and after two

years the parties submitted a proposed settlement of all

claims to the district court. The agreement required

Microsoft to deposit $96,885,000 into a settlement fund, to

be distributed to the class members after payment of

incentive awards, costs, and fees. Microsoft also changed

its staffing and worker classification practices, resulting in

the hiring of over 3000 class members as W-2 employees

entitled to participate in employee benefit plans and

programs.

1 Vizcaino v. Microsoft Corporation, 97 F.3d 1187 (9th Cir.1996).

App. 4

After receiving written submissions and hearing

argument, the district court approved the settlement on

extensive findings of fact and conclusions of law. It then

received class counsel’s application for an award of attor-

neys’ fees of $27,127,800 (28% of the cash settlement

fund). Two members of the class objected. After consider-

ing the submissions of counsel and the objectors, and

hearing argument on the fee award, the court entered an

order approving class counsel’s fee request. Vizcaino uv.

Microsoft Corp., 142 F.Supp.2d 1299 (W.D.Wa.2001).

Before us now is the objectors’ appeal from that order. We

review for abuse of discretion. Class Plaintiffs v. Jaffe &

Schlesinger, PA., 19 F.3d 1306, 1308 (9th Cir.1994).

DISCUSSION

Objectors challenge the district court’s order on three

grounds: First, and principally, that in awarding a fee of

28% of the settlement fund, it ignored the so-called in-

crease-decrease rule; second, that in applying a lodestar

cross-check, it used an improper methodology; and third,

that in denying objectors’ fee request without explanation, it

abused its discretion. We address each contention in turn.

I. THE DISTRICT COURT’S PERCENTAGE

CALCULATION

The district court found that the settlement fund was

the product of the successful claim for benefits under

Microsoft's ESPP.’ Because Washington law governed the

* The SPP claim, which arose under the Employees Retirement

Income Security Act (“ERISA”), 29 U.S.C. § 1132(a), was referred to the

(Continued on following page)

App. 5

claim, it also governs the award of fees. Mangold v. Calif.

Pub. Utils. Comm’n, 67 F.3d 1470, 1478 (9th Cir.1995).

Under Washington law, the percentage-of-recovery ap-

proach is used in calculating fees in common fund cases.

Bowles v. Dep’t of Ret. Sys., 121 Wash.2d 52, 72, 847 P.2d

440 (1993) (holding that in a common fund case, “the size

of the recovery constitutes a suitable measure of the

attorneys’ performance”). The district court followed the

Washington practice of looking to federal law for guidance

in this area, and we will do the same. See id. Under Ninth

Circuit law, the district court has discretion in common

fund cases to choose either the percentage-of-the-fund or

the lodestar method. In re Wash. Pub. Power Supply Sys.

Sec. Litig, 19 F.8d 1291, 1295-96 (9th Cir.1994)

(“WPPSS”). Objectors do not challenge the district court’s

choice of the percentage method, only its application.

The district court based its percentage award on

Bowles, which states that “[iJn common fund cases, the

‘benchmark’ award is 25 percent of the recovery obtained,”

with 20-30% as the usual range. Bowles, 121 Wash.2d at

72-73, 847 P.2d 440. Ninth Circuit cases echo this ap-

proach. Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d

268, 272 (9th Cir.1989). Objectors contend that the award

is nevertheless excessive, arguing that the court erred in

failing to take into account that this is a megafund case to

which it should have applied what objectors call the

increase-decrease rule. They rely principally on WPPSS, in

SPP administrator and subsequently to the plan’s administrative

committee, which denied the appeal. The issue was ready for judicial

review by the district court but had not been decided when the settle-

ment of all claims was reached.

App. 6

which the district court chose the lodestar rather than the

percentage method in awarding fees from a $687 million

settlement fund. The district court observed that “in many

cases awards fall outside the ‘typical’ range and ... the

percentage of an award generally decreases as the amount

of the fund increases.” WPPSS, 19 F.3d at 1297. We did not

adopt this observation as a principle governing fee awards.

Rather, we merely noted that in cases of that magnitude,

fund size is one relevant circumstance to which courts

must refer, stating:

We agree with the district court that there is no

necessary correlation between any particular

percentage and a reasonable fee. With a fund

this large, picking a percentage without refer-

ence to all the circumstances of the case, includ-

ing the size of the fund, would be like picking a

number out of the air... . Because a court must

consider the fund’s size in light of the circum-

stances of the particular case, we agree with the

district court that the 25 percent “benchmark” is

of little assistance in a case such as this.

Id. We concluded that the district court had acted within

its discretion in considering the size of the fund in adopt-

ing the lodestar method.

The 25% benchmark rate, although a starting point

for analysis, may be inappropriate in some cases. Selection

of the benchmark or any other rate must be supported by

findings that take into account all of the circumstances of

the case. As we said in WPPSS, in passing on post- settle-

ment fee applications, “courts cannot rationally apply any

particular percentage — whether 13.6 percent, 25 percent

or any other number — in the abstract, without reference

to all the circumstances of the case.” Id. at 1298; see also

App. 7

Camden I Condominium Ass’n, Inc. v. Dunkle, 946 F.2d

768, 775 (11th Cir.1991) (noting with approval that district

courts are increasingly “‘supporting their percentage

awards with particular findings showing factors consid-

ered.’” (quoting HERBERT NEWBERG, ATTORNEY FEE

AWARDS § 2.07 (1st ed.1986))). Objectors’ argument that

the district court erred in not fixing a lower percentage,

such as one between 6% and 10%, flies in the face of this

reasoning. The question is not whether the district court

should have applied some other percentage, but whether

in arriving at its percentage it considered all the circum-

stances of the case and reached a reasonable percentage.

We now turn to the court’s examination of those circum-

stances.

First, the court found that counsel “achieved excep-

tional results for the class.” Vizcaino, 142 F.Supp.2d at

1303. The court found that counsel pursued this case in

the absence of supporting precedents, in the face of

agreements signed by the class members forsaking bene-

fits — a fact that led four judges of this court to dissent

from the panel and en banc opinions — and against Micro-

soft’s vigorous opposition throughout the litigation. Excep-

tional results are a relevant circumstance. See Torrisi v.

Tucson Elec. Power Co., 8 F.3d 1370, 1377 (9th Cir.1993)

(considering counsel’s “expert handling of the case”); Six

(6) Mexican Workers v. Ariz. Citrus Growers, 904 F.2d

1301, 1311 (9th Cir.1990) (noting plaintiffs’ “substantial

success”); In re Prudential Ins. Co. Sales Practices Litig.,

148 F.3d 283, 339 (3d Cir.1998) (observing that “results

achieved were ‘nothing short of remarkable’” (quoting Jn

re Prudential Ins. Co. Sales Practices Litig., 962 F.Supp.

572, 585-86 (D.N.J.1997))).

App. 8

Second, the court found the case to have been ex-

tremely risky for class counsel for the reasons just stated.

Twice plaintiffs lost in the district court — once on the

merits, once on the class definition — and twice counsel

succeeded in reviving their case on appeal.’ Risk is a

relevant circumstance. See In re Pac. Enter. Sec. Litig., 47

F.3d 373, 379 (9th Cir.1995) (holding fees justified “be-

cause of the complexity of the issues and the risks”);

Bebchick v. Wash. Metro. Area Transit Comm’n, 805 F.2d

396, 408 (D.C.Cir.1986) (considering counsel’s repeated

successes in overturning adverse determinations) (calcu-

lating lodestar); cf WPPSS, 19 F.3d at 1302 (finding

district court’s failure to apply multiplier to lodestar

calculation was abuse of discretion where case was

“fraught with risk and recovery was far from certain”).

Third, the court found that counsel’s performance

generated benefits beyond the cash settlement fund.

During the litigation, Microsoft agreed to hire roughly

3000 class members as regular employees and to change

its personnel classification practices, a benefit counsel

valued at $101.48 million during the 1999-2001 period

alone. Vizcaino, 142 F.Supp.2d at 1301 n. 1. The court

observed that the litigation also benefitted employers and

workers nationwide by clarifying the law of temporary

* Objectors’ argument that the district court should have consid-

ered the IRS investigation, which resulted in subjecting the workers to

income tax withholding, is beside the point. Because Microsoft had

conceded that the workers were common law employees, the pivotal

issue, to which the IRS investigation was irrelevant, was whether the

signed agreements stipulating that they were “responsible to pay all ...

(their) own benefits” precluded recovery. Vizcaino, 120 F.3d at 1009; see

also Vizcaino, 97 F.3d at 1197-99.

App. 9

worker classification. Moreover, it noted that as a result of

this litigation, many workers who otherwise would have

been classified as contingent workers received the benefits

associated with full time employment. Incidental or non-

monetary benefits conferred by the litigation are a rele-

vant circumstance. See In re Pac. Enter., 47 F.3d at 379

(considering “nonmonetary benefits in the derivative

settlement”); cf Bebchick, 805 F.2d at 408 (allowing an

upward adjustment to the lodestar “to reflect the benefits

to the public flowing from [the] litigation”); Mills v. Elec.

Auto-Lite Co., 396 U.S. 375, 395, 90 S.Ct. 616, 24 L.Ed.2d

593 (1970) (stating that a corporation may receive a

substantial benefit from a derivative suit justifying a fee

award regardless of whether the benefit is pecuniary).

Fourth, the court found the 28% rate to be at or below

the market rate. It cited the retainer agreements between

counsel and the named plaintiffs promising to pay class

counsel 30% of any recovery. The agreements alone,

although somewhat probative of a reasonable rate, are not

particularly helpful. For instance, the retainer agreements

did not involve the class and, because they were made

precertification, are not binding on the class. However, the

district court did credit class counsel’s evidence showing

that the retainer agreements reflected the standard

contingency fee for similar cases. This finding does not

constitute an abuse of the court’s discretion.

We note with respect to this factor that we do not

adopt the Seventh Circuit's approach in percentage fee

award cases, as set forth in In re Continental Illinois

Securities Litigation, 962 F.2d 566, 568 (7th Cir.1992).

There, that court stated that in awarding fees in common

fund cases, courts should determine a reasonable fee by

App. 10

attempting to replicate the market rate. While an exclu-

sively market-based approach may have superficial

appeal, in the context of class action litigation in which

attorneys’ fees are determined post hoc by the court

(without regard to any private arrangement), it may in

many cases be illusory. Unlike in cases where lawyers

compete for lead counsel status and may even bid in a

court-supervised auction, in employment class actions like

this one, no ascertainable “market” exists. See, e.g., ALAN

HIRSCH AND DIANE SHEEHEY, AWARDING ATTORNEY'S FEES

AND MANAGING FEE LITIGATION 99-101 (1994) (describing

practice sometimes used in the Northern District of

California); In re Auction Houses Antitrust Litig., 2001

Trade Cas. (CCH) 7 73,170, 2001 WL 170792 (S.D.N.Y.

Feb.22, 2001). The “market” is simply counsel’s expecta-

tion of court-awarded fees. The Seventh Circuit’s effort to

construct a market for such cases by determining what

counsel “would have received had they handled a similar

suit on a contingent fee basis, with a similar outcome, for a

paying client” seems to us an unhelpful measure in many

cases, and certainly an inappropriate measure to apply to

all cases. In re Cont'l Iil., 962 F.2d at 572. Unlike commer-

cial litigation where the fee is determined by application of

_ the negotiated contingency percentage to the amount of

the recovery, in class action litigation the fee is determined

on the basis of what a court finds to be reasonable. An

attempt to “estimate the terms of the contract that private

plaintiffs would have negotiated with their lawyers [] had

bargaining occurred at the outset of the case” strikes us as

entirely illusory and speculative. In re Synthroid Mktg.

Litig., 264 F.3d 712, 718 (7th Cir.2001). Where evidence

exists, such as here, about the percentage fee to which

some plaintiffs agreed ex ante, that evidence may be

probative of the fee award’s reasonableness. But, to the

App. 11

extent that a market analogy is on point, in most cases it

may be more appropriate to examine lawyers’ reasonable

expectations, which are based on the circumstances of the

case and the range of fee awards out of common funds of

comparable size.‘

Fifth, the court found that counsel’s representation of

the class — on a contingency basis — extended over eleven

years, entailed hundreds of thousands of dollars of ex-

pense, and required counsel to forgo significant other

work, resulting in a decline in the firm’s annual income.

These burdens are relevant circumstances. Six (6) Mexican

Workers, 904 F.2d at 1311 (noting that litigation lasted

more than thirteen years); Torrisi, 8 F.3d at 1377 (consid-

ering counsel’s bearing the financial burden of the case);

Bebchick, 805 F.2d at 407 (same).

We conclude that the district court considered the

relevant circumstances and did not abuse its discretion in

finding a 28% fee award to be reasonable under the

percentage method.

* The award was within the range of fees awarded in settlements of

comparable size. The Appendix to this opinion surveys fee awards from

34 common fund settlements of $50-200 million from 1996-2001, with

fees awarded under the percentage method. Awards here range from 3-

40%, with most (27 of 34, or 79%) awards around 10-30% and a bare

majority (19 of 34, or 56%) clustered in the 20-30% range. See also ALBA

CONTE, ATTORNEY FEE AWARDS §§ 2.09, 2.33 and 2.34 (2d ed.1993and

Nov. 2001 Supp.) (surveying common fund settlements of $25-200

million and finding a range of 1-30%, with most awards around 5-20%).

App. 12

II. THE DISTRICT COURT’S LODESTAR CROSS-

CHECK

The district court applied the lodestar method as a

cross-check of the percentage method. Calculation of the

lodestar, which measures the lawyers’ investment of time

in the litigation, provides a check on the reasonableness of

the percentage award. Where such investment is minimal,

as in the case of an early settlement, the lodestar calcula-

tion may convince a court that a lower percentage is

reasonable. Similarly, the lodestar calculation can be

helpful in suggesting a higher percentage when litigation

has been protracted. Thus, while the primary basis of the

fee award remains the percentage method, the lodestar

may provide a useful perspective on the reasonableness of

a given percentage award.”

The court found that counsel’s fees for work done on

this case, if charged at current hourly rates, would amount

to $7,386,876. It found nothing in the record to suggest

that any of the hours claimed should be disallowed.

Objectors quibble about some of the hours and charges,

but we find no abuse of discretion. See WPPSS, 19 F.3d at

* We do not mean to imply that class counsel should necessarily

receive a lesser fee for settling a case quickly; in many instances, it may

be a relevant circumstance that counsel achieved a timely result for

class: members in need of immediate relief. The lodestar method is

merely a cross-check on the reasonableness of a percentage figure, and —

it is widely recognized that the lodestar method creates incentives for

counsel to expend more hours than may be necessary on litigating a

case so as to recover a reasonable fee, since the lodestar method does

not reward early settlement. Camden I Condominium Ass’n, 946 F.2d at

773-74 (citing Court Awarded Attorney Fees, Report of the Third Circuit

Task Force, 108 F.R.D. 237, 242 (1985)).

App. 13

1298-99. Calculating fees at prevailing rates to compen-

sate for delay in receipt of payment was within the district

court’s discretion. See Gates v. Deukmejian, 987 F.2d 1392,

1406 (9th Cir.1992).

Objectors’ principal quarrel is with the district court’s

lode star cross-check, which resulted in a multiplier of

3.65. The court found this number reasonable by consider-

ing the factors in Kerr v. Screen Extras Guild, Inc., 526

F.2d 67, 69-70 (9th Cir.1975), including “the complexity of

this case, the risks involved and the length of the litiga-

tion.” Vizcaino, 142 FSupp.2d at 1306. The bar against

risk multipliers in statutory fee cases does not apply to

common fund cases. WPPSS, 19 F.3d at 1299-1300. In-

deed, “courts have routinely enhanced the lodestar to

reflect the risk of non-payment in common fund cases.” Id.

at 1300. This mirrors the established practice in the

private legal market of rewarding attorneys for taking the

risk of nonpayment by paying them a premium over their

normal hourly rates for winning contingency cases. Jd. at

1299. In common fund cases, “attorneys whose compensa-

tion depends on their winning the case[ ] must make up in

compensation in the cases they win for the lack of compen-

sation in the cases they lose.” Jd. at 1300-01 (internal

citation and quotation omitted). Class counsel here have

represented that they would not have taken this case

other than on a contingency basis. They perform little

work on an hourly basis, and the rates they submitted

were what they took to be market rates, in other words,

rates that did not already reflect an expectation of excel-

lent results.

Thus, a multiplier was appropriate in this case. The

district court’s percentage of the fund analysis discussed

above addressed the substantial risk class counsel faced,

App. 14

compounded by the litigation’s duration and complexity.

The court considered these circumstances in arriving at a

multiplier which was within the range of multipliers applied

in common fund cases.° We find no abuse of discretion.’

Ill. THE DENIAL OF OBJECTORS’ REQUEST

FOR ATTORNEYS’ FEES

Objectors contend that the district court abused its

discretion in rejecting their request for attorneys’ fees,

arguing that they caused the district court to require class

counsel to submit time records and that they brought

about minor procedural changes in the settlement agree-

ment. Because objectors did not increase the fund or

otherwise substantially benefit the class members, they

were not entitled to fees. Bowles, 121 Wash.2d at 70- 71,

847 P.2d 440 (stating that under Washington law, fees may

be awarded only if authorized by “contract, statute or

recognized ground in equity” (internal citation and quota-

tion omitted)). The equitable common fund/common

benefit doctrine “authorizes attorney fees only when the

litigants preserve or create a common fund for the benefit

of others as well as themselves.” Id.; Class Plaintiffs v.

Jaffe & Schlesinger, PA. 19: F.3d 1306, 1308 (9th

* See Appendix (finding a range of 0.6-19.6, with most (20 of 24, or

83%) from 1.0-4.0 and a bare majority (13 of 24, or 54%) in the 1.5-3.0

range); Prudential, 148 F.3d at 341 (“[MJultiples ranging from one to

four are frequently awarded in common fund cases when the lodestar

method is applied.” (quoting 3 NEWBERG § 14.03 at 14-5)).

’ Objectors’ argument that the district court should have appointed

an expert is meritless. While the court has discretion to appoint an

expert under Federal Rule of Evidence 706, objectors have not shown

how its decision not to do so was an abuse of discretion.

ih I a ta a tick ga Poa ae TR OOS RO OTe

“4

App. 15

Cir.1994). In the absence of a showing that objectors

substantially enhanced the benefits to the class under the

settlement, as a matter of law they were not entitled to

fees, and the district court did not abuse its discretion.”

CONCLUSION

“Because in common fund cases the relationship

between plaintiffs and their attorneys turns adversarial at

the fee-setting stage, courts have stressed that when

awarding attorneys’ fees from a common fund, the district

court must assume the role of fiduciary for the class

plaintiffs.” WPPSS, 19 F.3d at 1302. Accordingly, fee

applications must be closely scrutinized. Rubber-stamp

approval, even in the absence of objections, is improper.

We are satisfied that in this case, the district court sub-

jected the application to the requisite scrutiny and did not

abuse its discretion in determining a reasonable fee in

light of the relevant circumstances of the case.

AFFIRMED.

* Because the court could treat objectors’ application for fees as a

motion raising a dispositive issue of law, Federal Rule of Civil Proce-

dure 54(d\(2XC) did not apply and no findings of fact were required

under Federal Rule of Civil Procedure 52(a).

App. 16

Appendix

Table of Percentage-Based Attorneys’ Fee Awards in

Common Fund Cases of $50-200 million (1996-2001)*

Case Fund Fee(%) Fee($) Multiplier

In re Rite Aid Corp. $193m 25.0% $48m 4.5-8.5

Sec. Litig., 146

F.Supp.2d 706

(E.D.Pa.2001)° |

In re Lease Oil $190m 25.0% $47m 1.4

Antitrust Litig.,

186 F.R.D. 403

(S.D.Tex.1999)

In re Merry-Go- $185m 40.0% $71m 19.6

Round Enterprise,

Inc., 244 B.R. 327

(Bankr.D.Md.2000)°

In re Copley Farm., $150m 13.0% $20m 2.0

Inc., 1 F.Supp.2d

1407 (D.Wyo.1998)

* This survey includes all class actions involving common funds of

$50-200 million from which fees were calculated using the percentage

method, found in the Westlaw ALLCASES database and Class Action

Reports’ attorneys’ fees section from Jan. 1, 1996 through Dec. 31, 2001.

All dollar amounts are rounded to the nearest million; all percentages

are rounded to one-tenth of a percent. Multipliers are listed where

courts conducted a lodestar cross-check.

* The court cited the multiplier range from counsel’s estimates

without extensive discussion. Id. at 736 n. 44.

* The court calculated the multiplier based on counsel’s logs of

12,087 hours and an assumed hourly rate of $300, concluding “that it is

inappropriate to use a lode-star analysis post-recovery to determine a

reasonable fee.” Id. at 335.

ERAN i Be BOT FEN IAL a oo TN wr sh era

PON SE PLEA ee

baa LLL ELE ALE DD LEN OPO ELITE LS A DELLE TORINO AIA EIEIO NITE LEN OE NEO BN ISD 0 9 8 TE

App. 17

Walco Investments, $141m

Inc. v. Thenen, 975

F.Supp. 1468

(S.D.Fla.1997)*

15.0%

$21m

1.8

In Re Informix Corp. $137m

Sec. Litig., No.

97-1289 (N.D.Cal.

Nov. 23, 1999)

(Breyer, J.); cited

at 21 Class Action

Reports 261 (2000)

30.0%

$40m

In Re Combustion, $127m

Inc. , 968 F.Supp.

1116 (W.D.La.1997)

36.0%

$46m

3.0

Kurzweil v. Philip- $124m

Morris Co., 1999

WL 1076105

(S.D.N.Y.1999)

(Mukasey, J.)

30.0%

$37m

In Re Sumitomo $117m

Copper Litig., 74

F.Supp.2d 393

(S.D.N.Y.1999)°

27.5%

$32m

2.5

* The court noted that this fund included the cash value of waived

claims (estimated at $15 million) and tax refunds (estimated at $1.5

million), and indicated that the actual value of the fund might be

higher. Id. at 1470 n. 3.

* Although recovery for the class was $135 million, preexisting

agreement limited the compensable amount to $117 million. Based on

the $135 million figure, the award percentage was 23.8%. Id. at 394.

App. 18

Local 56, United $115m 2.8% $3m 2.4

Food & Comm

Workers Union v.

Campbell Soup

Co., 954 F.Supp.

1000 (D.N.J.1997)

In Re Ikon Office $112m 29.0% $32m 2.5

Sol’ns, Inc., Sec.

Litig., 194 F.R.D.

166 (E.D.Pa.2000)*

In Re Sunbeam Sec. $110m 25.0% $28m ~

Litig., Fed. Sec. L.

Rep. P 91,656,

2001 WL 1636315

(S.D.Fla. Nov.29,

2001)

Bussie v. Allamerica $108m 7.1% $8m 3.3

Fin’l Corp., No.

Civ. A. 97-40204,

1999 WL 342042

(D.Mass. May 19,

1999)’

* The court based its calculations on what it described as the “net

settlement fund,” or roughly $108 million (roughly $112 million minus

roughly $1 million in costs). We use the gross settlement fund amount,

to maintain consistency with other cases listed. (Although it described

the net fund as $108,915,874.43, the costs as $3,825,497.86, and 30% of

the net fund as $32,404,744.33, the fees of roughly $32.4 million were

actually 30% of $108,015,814.43. Id. at 193. Elsewhere, the court

describes the gross fund as $111 million, with earned interest of

$841,000 in five months. Id. at 172.)

’ The court estimated the fund value at $108 million but noted that

“the actual value of the settlement may fall significantly short of the

estimated value.” Id. at *2. It therefore awarded the first $4 million in

attorneys fees immediately and withheld the remainder pending

further order. Id. at *3.

App. 19

Haynes v. Shoney’s, $105m 23.2% $24m -

No. 89-

30093-RV, 1993

WL 19915

(N.D.Fla. Jan.25,

1993)°

Ingram v. The Coca- $104m 20.0% $21m 2.5-4.0

Cola Co., 200

F.R.D. 685

(N.D.Ga.2001)°

Bowling v. Pfizer, $103m 10.0% $10m 2.1

Inc., 922 F.Supp.

1261 (S.D.Ohio

1996)"°

Fanning v. Acromed $100m 12.0% $12m 0.6

Corp., No. 1014,

C.A. 97-381, 2000

WL 1622741

(E.D.Pa. Oct. 23,

2000)”

* In addition to the common fund of $105 million, other relief was

valued at $30 million.

* The fund amount excludes $10 million in a “Promotional

Achievement Fund” and $43.5 million in “future pay equity adjust-

| ments.” Id. at 688.

| ” The settlement allowed the fund of roughly $103 million to

| increase by up to roughly $63 million in the following ten years, and

counsel were allowed to petition for 10% of the increase amount each

year, up to an additional $6 million approximately. Id. at 780.

" The defendant’s assets were worth only $58 million. Id. at *5.

App. 20

Baird v. Thompson $100m 22.0% $22m -

Consumer Elecs.,

No. 00-761 (Ill. Cir.

Court. Madison Co.

June 15, 2001)

(Matoesian, J.);

cited at 22 Class

Action Reports 800

(2001)

Rosted v. First USA $87m 11.8% $10m 3.0

Bank, No. 97-1482

(W.D. Wash. June

15, 2001) (Lasnik),

J.); cited at 22

Class Action

Reports 799-800

(2001)"

In Re Sorbates Di- $82m 25.0% $20m -

rect Purchaser Anti-

trust Litig., No.

98-4886 (N.D.Cal.

Nov. 20, 2000)

(Legge, J.); cited at

22 Class Action

Reports 90 (2001)

" The court noted that a multiplier of at least 3.0 would be

appropriate, but that would have resulted in an award greater than

that requested by counsel.

App. 21

In Re Aetna, Inc. $83m

Sec. Litig., Fed.

Sec. L. Rep. P

91,322, 2001 WL

20928 (E.D.Pa.

Jan.4, 2001)"

29.5%

$24m

3.6

In Re Paracelsus $80m

Corp. Sec. Litig.,

No. 96-3464 (S.D.

Tex Jul 22, 99)

(Werlein, J.); cited

at 21 Class Action

Reports 262 (2000)

23.0%

$18m

In Re Commercial $77m

Explosives Anti-

trust Litig., MDL

No. 1093 (D.Utah

Dec. 29, 1998)

(Sam, J.); cited at

20 Class Action

Reports 532 (1997)

30.0%

$23m

2.5

Van Vranken v. $76m

ARCO, 901 F.Supp.

294 (N.D.Cal.1995)

25.0%

$19m

3.6

Ramah Navajo $76m

Chapter v. Babbitt,

50 F.Supp.2d 1091

(D.N.M.1999)

11.0%

$ 8m

"The court described the fee as 30% of the net fund of roughly $81

million, after subtracting roughly $2 million in costs. We use the gross

settlement fund amount, to maintain consistency with other cases

listed.

App. 22

Branch v. FD.1.C., $75m 86% $6m 2.1

No. Civ. A. 91-CV-

3270, 1998 WL

151249 (D.Mass.

__March 24, 1998)"

In Re IDB Com- $75m 16.5% $12m 6.2

munication Group,

Inc., Sec. Litig.,

No. 94-3618

(C.D.Cal. Jan. 17,

1997) (Hupp, J.);

cited at 19 Class

Action Reports

472-73 (1996)"

In Re 1996 Meda- $73m 25.0% $18m -

phis Corp. Sec.

Litig., No. 96-2088

(N.D.Ga. Mar. 27,

1998) (Thrash, J.);

cited at 20 Class

Action Reports 295

_(1997)"

In Re MiniScribe $67m 45% $3m 1.7

Corp., 257 B.R. 56

(Bankr.D.Colo.2000)

“ The court described the $75 million figure as “the likely amount”

of the fund. Id. at *2

“ The court noted that the lodestar of approximately $2 million

“would have to be deflated an estimated 10% to 20% for some excessive

rates and duplicative hours,” resulting in a multiplier of 6.9-7.7.

“ Fund consisted of a mix of cash, stock, and warrants, so fees

were granted in same proportion.

App. 23

In Re Nat'l Health $64m 30.0% $19m 2.3

Laboratories Sec.

Litig., Nos. 92-

1949 & 93-1694

(S.D.Cal. Aug. 15,

1995) (Brooks,

M.J.); cited at 19

Class Action

Reports 64-65

(1996)”

In Re Teletronics $62m 26.6% $17m 1.0

Pacing Systems,

Inc., 137 F.Supp.2d

__1029 (S.D.Oh.2001)

In Re Medical Care $60m 27.5% $17m -

America, Inc. Sec.

Litig., No. 92-1996

(N.D.Tex. Apr. 26,

1996) (Robinson,

J.); cited at 19

Class Action

__ Reports 66 (1996)

In Re Melridge, Inc., $54m 37.1% $20m 1.4

Sec. Litig., No. 87- —

1426 (D. Or. March

19, 1992, Nov. 1,

1993, and April 15,

1996) (Frye, J.);

cited at 19 Class

Action Reports 65-

66 (1996)

” The 2.3 multiplier is inflated because the lodestar is based on

historical (not prevailing) hourly rates and therefore fails to compen-

sate attorneys for the time value of money.

App. 24

In Re Carbon Di- $53m 18.0% $10m 1.2

oxide Antitrust

Litig., 1996-2

Trade Cases P

71,522, 1996 WL

523534 (M.D.Fla.

July 15, 1996)"

* The court described the award as 18.5% of the net fund (after

subtracting roughly $1.6 million in costs). Id. at *2.

App. 25

Donna VIZCAINO, et al., Plaintiffs,

Vv.

MICROSOFT CORPORATION, et al., Defendants.

Rebecca Hughes, et al., Plaintiffs,

Vv.

Microsoft Corporation, et al., Defendants.

Nos. C93-178C, C98-1616C

United States District Court,

W.D. Washington,

at Seattle.

April 16, 2001.

David F. Stobaugh, Stephen K. Strong, Brian J. Wald,

Stephen K. Festor, Bendich, Stobaugh & Strong, Seattle,

WA, for Donna Vizcaino, Jon R. Waite, Mark Stout, Geof-

frey Culbert, Lesley Stuart, Thomas Morgan, Elizabeth

Spokoiny, Larry Spokoiny, plaintiffs.

Fredric C. Tausend, Carol S. Arnold, Preston Gates &

Ellis, Seattle, WA, Theodore O. Rogers, Jr, Sullivan &

Cromwell, New York City, Richard H. Sauer, Sullivan &

Cromwell, Washington, DC, James D. Oswald, William H.

Song, Michael Paul Monaco, Song Oswald & Mondress

PLLC, Seattle, WA, for Microsoft Corp, and its health and

benefits plans: Health Benefit Plan, Life Insurance Plan,

Short-term and Long-term Disability Plans, and Savings

(401K) Plan, defendant.

Lawrence W. Schonbrun, Berkeley, CA, Dale Melvin

Foreman, Wenatchee, WA, David B. Bukey, Seattle, WA,

for Objector Class Members.

App. 26

ORDER

COUGHENOUR, Chief Judge.

I. INTRODUCTION

Following notice and hearing in accordance with

Fed.R.Civ.P. 23, this class action has been settled for a

compromise payment of $96.885 million. Counsel for the

plaintiffs and class members have applied for an award of

attorneys fees, including reimbursement of litigation

expenses, to be paid from the common fund. As the settle-

ment agreement now stands, Class Counsel has requested

a percentage-based fee of $27,127,800 (including, not

adding — several hundred thousand dollars in expenses),

which is 28% out of an approximately $97 million cash

Settlement Fund, or less than 20% of the common fund.’

II. STANDARD TO BE APPLIED

There is no doubt that Counsel have performed

capably. Out of a class of potentially 30,000 members, only

* Class Counsel notes that relief for the class not only included the

$96.885 million cash settlement fund, but also the conversion of 3,000

class members into “regular” W-2 status Microsoft employees in fiscal

year 1999 alone, which entitles them to participate in Microsoft’s

employee benefit programs. Assuming the same number of class

members would receive these benefits for two years, 1999-2001, the

value of these benefits is approximately $33,826 per class member or

$101.48 million for 3,000 members of the class. Class Counsel notes

that the total common fund in this case is thus $198.365 million

($96.885 million in cash + $101.48 million for the value of benefits).

Accordingly, the attorneys fees specified in the Settlement Agreement

for class counsel, $27.1278 million, constitute only 14% of the total

common fund (or 28% of the cash in the Settlement Fund).

App. 27

one group of a handful of objectors has objected to the fee

request. The Court must nevertheless be careful to protect

the interests of the settlement fund beneficiaries by

ensuring that the fee award is reasonable under the

circumstances. As stated in In re WPPSS Litigation, 19

F.3d 1291, 1302 (9th Cir.1994):

Because in common fund cases the relationship

between plaintiffs and their attorneys turns ad-

versarial at the fee-setting stage, courts have

stressed that when awarding attorneys’ fees from

a common fund, the district court must assume

the role of fiduciary for the class plaintiffs.

The Ninth Circuit has held that generally, in deter-

mining attorneys fees in a common fund case, the court

has discretion to use either the lodestar method or the

percentage method. Jd. District Courts often use the

lodestar method as a cross-check on the percentage

method in order to ensure a fair and reasonable result. See

In re Immunex Securities Litigation, 864 F.Supp. 142, 144

(W.D. Wa. 1994). However, courts have held that when

state substantive law applies, attorneys’ fees are to be

awarded in accordance with state law. Johnson v. Incline

Village General Improvement Dist., 5 F.Supp.2d 1113, 1114

(D.Nev. 1998). Mangold v. California Public Utilities, 67

F.3d 1470, 1478-9 (9th Cir. 1995), held that this principle

applies to supplemental state claims as well as to diversity

claims. Under Washington law, the percentage method,

without a lodestar cross-check, should be used in common

fund cases. Bowles v. Department of Retirement Systems,

121 Wash.2d 52, 70-74, 847 P.2d 440 (1993).

The Ninth Circuit has summarized these approaches,

as follows:

App. 28

Under the lodestar/multiplier method, the dis-

trict court first calculates the “lodestar” by mul-

tiplying the reasonable hours expended by a

reasonable hourly rate. Pennsylvania v. Dela-

ware Valley Citizens’ Council for Clean Air, 478

U.S. 546, 565, 106 S.Ct. 3088, 3098, 92 L.Ed.2d

439 (1986). The court may then enhance the

lodestar with a “multiplier,” if necessary, to ar-

rive at a reasonable fee. Blum v. Stenson, 465

U.S. 886, 888, 104 S.Ct. 1541, 1543, 79 L.Ed.2d

891 (1984). Under the percentage method, the

court simply awards the attorneys a percentage

of the fund sufficient to provide plaintiffs’ attor-

neys with a reasonable fee. Paul, Johnson,

Alston, & Hunt v. Graulty, 886 F.2d 268, 272 (9th

Cir.1989).

Id. at 1294, n. 2. The Ninth Circuit has recognized

however, that neither method should be applied in a

formulaic or mechanical fashion. Id.

There is some dispute in this case as to whether state

law or federal law applies to the determination of the

reasonableness of attorneys fees. However, as discussed

below, this Court finds that the requested fees are reason-

able under both methodologies. Whether a court applies

the lodestar or the percentage method, the main require-

ment is that fee awards in common fund cases be reason-

able under the circumstances. Florida v. Dunne, 915 F.2d

542, 545 (9th Cir.1990).

Ill, APPLYING STATE LAW - PERCENTAGE

METHOD

According to Class Counsel, the settlement fund

created for the class is derived from their successful claim

for employee benefits under Microsoft’s Employee Stock

App. 29

Purchase Plan (ESPP). The ESPP claim was based on, and

decided under, Washington State contract law. Accordingly,

the law of Washington governs the determination of

whether class counsel’s attorney fee request is reasonable.

See Mangold v. California Utilities, 67 F.3d 1470, 1478

(9th Cir. 1995). The Washington Supreme Court has held

that the percentage-of-recovery approach is used in deter-

mining attorneys fees in a common fund class action.

Bowles v. Department of Retirement Systems, 121 Wash.2d

52, 70-74, 847 P2d 440 (1993) (class action concerning

calculation of public employees’ retirement benefits). The

Washington Supreme Court rejected the lodestar method

for determining attorneys fees in a common fund action.

The Supreme Court stated that “[iJn common fund cases,

the size of the recovery constitutes a suitable measure of

the attorneys’ performance.” Id. at 72, 847 P.2d 440.

“(U]nder the percentage of recovery approach, the attor-

neys are to be compensated according to the size of the

judgment recovered, not the actual hours expended.” 121

Bowles, Wash.2d at 75. The Court defined the “bench-

mark” percentage of recovery fee as 25% of the recovery

obtained, including future benefits, with 20 to 30% as the

usual range of common fund fees. Id., at 72-73, 847 P.2d

440.

After a careful review of the record and surrounding

circumstances, the Court determines that the undisputed

facts in the record show class counsel’s percentage of

recovery fee request is reasonable. The Court considered

several factors in making this determination. First, Class

Counsel achieved exceptional results for the class. In a

common fund case, “the size of the recovery constitutes a

suitable measure of the attorneys’ performance.” Bowles, 121

Wash.2d at 72, 847 P2d 440. The Settlement Agreement

App. 30

here creates a $96.885 million Settlement Fund to com-

pensate class members for past Employee Stock Purchase

Plan (ESPP) gains which they were denied. The common

fund constitutes extraordinary relief in this case, because,

as Class Counsel note, there were no controlling prece-

dents when Class Counsel agreed to pursue the case, Class

Counsel had to overcome the potentially dispositive fact

that the class members had signed agreements stating

they had no rights to benefits, and Microsoft fought this

case vigorously for years.

Second, the Court recognizes that the case was ex-

tremely risky for class counsel to pursue because of nega-

tive facts, no controlling law and the vigorous defense of

the case. Courts have recognized that a high risk factor is

one reason for increasing class counsel’s attorney fee

award above the “benchmark” 25% fee. In re Pacific

Enterprises Securities Litigation, 47 F.3d 373, 379 (9th Cir.

1995) (83% of the common fun [sic] as attorneys fees was

justified because of the complexity of the issues and the

risks); Williams v. Boeing Co., No. C98-761 (W.D. Wash.

1999) (28% of the common fund as attorneys fees was

reasonable in employment discrimination class action

because, among other reasons, of “the risks to the plain-

tiffs’ counsel’s firm”). On the other hand, a fee lower than

the “benchmark” 25% may be appropriate, if a civil action

simply “piggy-backs” on another case.

Here there are multiple reasons why the case was

extremely risky for counsel to pursue. For example, there

were no controlling precedents concerning their claims,

only analogies involving various areas of law. In addition,

Class Counsel’s risk was even greater, and their work

made more difficult, because Microsoft is one of the na-

tion’s largest and most formidable companies and it, and

8 EEE

App. 31

several law firms, defended the case vigorously for several

years.

Furthermore, Class Counsel had to overcome the

significant obstacle presented by the fact that the class

members had signed agreements with Microsoft under

which they supposedly gave up their right to employee

benefits. Many lawyers arguably would not have agreed to

represent the plaintiffs because of the agreements they

had signed. Indeed, the district court dismissed the plain-

tiffs’ ESPP claim because of this fact. Doc. 223, Order

[6/20/94], p. 4 (“the contract between Microsoft and the

plaintiffs specifically stated that no benefits were provided

by Microsoft”). The dissenting opinions in Vizcaino I and

Vizcaino II were also largely based on this fact. Vizcaino a

97 F.3d at 1201 (Trott, J. dissenting) (“these plaintiffs had

express contracts for ‘no benefits’”); Vizcaino II, 120 F.3d

at 1019 (O’Scannlain J., et al., dissenting) (“[mJoreover, the

[plaintiffs] each signed contractual documents which

expressly states that they would not receive any benefits”).

The high risk Class Counsel faced is also shown by the

repeated losses the class suffered in the district court

which, had the decisions stood, would have resulted in no

or little recovery for the class. Even in 1998, after repre-

senting the plaintiffs for nine years and winning twice in

the Ninth Circuit, class counsel still faced the prospect of

obtaining extremely little relief for the class when the

Court redefined the class to only include employees who

started to work at Microsoft after 1990. This would have

potentially reduced the class to only 100-200 members.

Class Counsel however successfully petitioned the Ninth

Circuit for an extraordinary writ of mandamus that

restored the class definition so that workers misclassified

as non-employees at Microsoft after March, 1990 were

App. 32

again included. Vizcaino III, 173 F.3d 713 (9th Cir. 1999).

Class counsel then successfully responded to Microsoft's

petition for rehearing en banc and its petition for writ of

certiorari in the Supreme Court. 184 F.3d 1070 (9th

Cir.1999), cert. denied, 528 U.S. 1105, 120 S.Ct. 844, 145

L.Ed.2d 713 (2000).

Third, the Court recognizes that Class Counsel’s

efforts resulted in significant nationwide public benefit.

The case is the subject of articles in the Harvard Law

Review, American Journal of Trial Advocacy, Berkeley

Technology Law Journal, National Law Journal, The

Washington Post, Business Week, New York Times, Wall

Street Journal, Los Angeles Times, Lawyers Weekly USA,

and the American Bar Association Journal. As a result of

this case and the large amount of publicity surrounding it,

many employers have been advised to carefully ensure

their workers are properly classified so that they will not

get into the same trouble as Microsoft. Workers who would

have otherwise been mis-classified as contingent workers

are being properly classified as employees and receiving

the benefits that are inherent in that classification.

Fourth, class counsel argues that the requested fee of

approximately 28%, is equal to or lower than the market

rate and thus reasonable. Judge Posner of the Seventh

Circuit stated that in awarding attorneys fees to class

counsel, courts should attempt to replicate the market

rate. In re Continental Illinois Sec. Litig., 962 F.2d 566,

568 (7th Cir. 1992). (“in awarding fees courts should

determine what the lawyer would have received if he were

selling his services in the market rather than being paid

by court order.”). Thus if the market rate is a contingent

fee percentage of recovery, “class counsel are entitled to

the fee they would have received had they handled a

App. 33

similar suit on a contingent fee basis, with a similar

outcome.” Jd. at 572. Class Counsel argue that due to a

variety of factors, including the nature of the Defendant,

the novel and complex issues presented, the risk and the

expense of litigating a class action, no rational private

lawyer in the nation would have taken this case for less

than one-third of any recovery. The Court agrees. Fur-

thermore, the named plaintiffs in this case agreed to pay

class counsel 30% of any recovery in their retainer agree-

ments, which is higher than class counsel’s request for

attorney fees here. Therefore, the requested fees in this

case are at or below the market rate. The Court also

recognizes that an award of attorneys fees at the market

rate is necessary to provide attorneys the incentive to take

employee class actions, and without such an incentive,

employees would be faced with substantial difficulties

finding counsel willing to undertake meritorious, but high-

risk, litigation.

Fifth, the Court notes that Class Counsel represented

the plaintiffs for a significantly long time on a contingent

fee basis. Class Counsel signed contingent fee retainer

agreements here with the named plaintiffs more than 11

years ago. The retainer agreements provided that the

named plaintiffs retained Class Counsel to bring a class

action against Microsoft for employee benefits, and in

consideration of class counsel undertaking the representa-

tion, the named plaintiffs agreed to pay class counsel 30%

of any recovery. The representation of a class for more

than a decade on a contingent-fee basis is, of course, an

extremely long time to represent a client without getting

paid and without knowing when, and if you will ever get

paid. Class Counsel also incurred hundreds of thousands

of dollars in expenses in connection with the Vizcaino case,

App. 34

had to forgo significant other work to pursue the case, and

the firm’s annual income greatly declined as a conse-

quence.

Therefore, based on these 5 factors, the Court finds

that the fee request is both reasonable and warranted

using a percentage method.

IV. APPLYING FEDERAL LAW - LODESTAR

CROSS-CHECK

Under Ninth Circuit case law, in making the decision

of reasonableness of attorneys fees, the court in a common

fund case has discretion to use either the lodestar method

or the percentage method. Jn re WPPSS, 19 F.3d at 1295-

96. District Courts often use the lodestar method as a

cross-check on the percentage method in order to ensure a

fair and reasonable result. See In re Immunex Securities

Litigation, 864 F.Supp. 142, 144 (W.D. Wa. 1994). Accord-

ingly, in this case the lodestar method will be used as a

cross-check on the percentage method, as often must be

done to assure a fair and reasonable result. See In re

WPPSS, 19 F.3d at 1296-98.

Similar to state law, under federal case law, the

“benchmark” percentage of recovery fee is 25% of the

recovery obtained, including future benefits, with 20 to

30% as the usual range of common fund fees. Paul John-

son, Alston & Hunt v. Graulty, 886 F.2d 268, 272 (9th Cir.

1989) (“fees awards range form [sic] 20 percent to 30

percent of the fund created|[;] . . . the ‘bench mark’ percent-

age for the fee award should be 25 percent”); In re Activi-

sion Securities Litigation, 723 F.Supp. 1373, 1377 (N.D.

Ca. 1989) (“this court finds that in most recent cases the

benchmark is closer to 30%”).

eee EEEE————————

On NS ne ee

App. 35

The lodestar cross-check fee would be as follows:

Type of Number MHourly Rate Fees Earned

Employee of Hours

Partners 13,417 hrs $350/hr $5,031,375

Non-

Partners 4,370 hrs $250-$300/hr $1,237,950

Non-Lawyer

Staff

6,104hrs $100/hr $ 610,400

Legislative

Advocacy $_ 507,151

Subtotal $7,386,870

Therefore, the declarations and other materials filed

by plaintiff’s counsel show that their fees for work done on

this case, if charged at current hourly rates, would come to

$7,386,876. Nothing in the record suggests that any of the

hours claimed should be disallowed. The lodestar is thus

$7,386,876.

As noted above, Class Counsel faced many obstacles

and took a major risk in handling this litigation on a

contingency basis. To restrict Class Counsel to the hourly

rates they customarily charge for non-contingent work —

where payment is assured — would deprive them of any

financial incentive to accept contingent-fee cases which

may produce nothing. Courts have therefore held that

counsel are entitled to a multiplier for risk. See In re

WPPSS, 19 F.3d at 1301-02.

With a multiplier of four, the fee would be

$29,547,504, excluding several hundred thousand dollars

App. 36

in expenses to be added on top. If the multiplier were only

three, the fee would be $22,160,628 excluding expenses.

Class Counsel argues that in light if [sic] the extraor-

dinary risk, difficulty, complexity, and exceptional results

of the case, a multiplier of at least six and up to twenty or

higher would be appropriate. In re Cendant, 109 F.Supp.2d

285, 292, 302 (D.N.J.2000) (multiplier of 23 or 32); 1

Conte, Attorney Fee Awards § 2.06 (1993), p. 39 (multiplier

of 5-10); 3 Newberg on Class Actions § 14.03, p. 14-5 and n.

21 (1992) (citing multipliers of five and ten in “large

common fund” cases). In determining an appropriate

market rate, a district court may make reference to the

factors developed by the Fifth Circuit in Johnson v. Geor-

gia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir.

1974) and approved by this Court in Kerr v. Screen Extras

Guild, Inc., 526 F.2d 67, 69-70 (9th Cir. 1975), cert. denied,

425 U.S. 951, 96 S.Ct. 1726, 48 L.Ed.2d 195 (1976). Those

factors include:

(1) the time and labor required, (2) the novelty

and difficulty of the questions involved, (3) the

skill requisite to perform the legal service prop-

erly, (4) the preclusion of other employment by

the attorney due to acceptance of the case, (5) the

customary fee, (6) whether the fee is fixed or con-

tingent, (7) time limitations imposed by the cli-

ent or the circumstances, (8) the amount involved

and the results obtained, (9) the experience,

reputation, and ability of the attorneys, (10) the

“undesirability” of the case, (11) the nature and

App. 37

length of the professional relationship with the

client, and (12) awards in similar cases.”

Kerr, 526 F.2d at 70.

Looking at these factors and in light of the complexity

of this case, the risks involved and the length of the

litigation, a multiplier of at least 3 or 4 is wholly justified.

Therefore, the lodestar approach would result in a fee of

between $29,547,504 and $22,160,628. Comparing this to

the percentage method fee of $27,127,800, the requested

attorneys fees appear reasonable in this case.

Vv. CONCLUSION

For the reasons stated, it is hereby ORDERED that

Class Counsel is awarded $27,127,800 in attorneys fees

and costs. The Court finds oral argument and —

of an expert unnecessary.

* The applicability of the sixth and tenth factors may be in doubt.

See City of Burlington v. Dague, 505 U.S. 557, 112 S.Ct. 2638, 120

L.Ed.2d 449 (1992). However, the Court here would reach the same

result in this case with or without consideration of these two factors.

OPPOSITION

BRIEF

| Seseeme Comt, US.

(oe FILED

No. 02-252

OCT 10 2002

Jn The OFFICE OF THE CLERK |

Supreme Court of the Anited States

DONNA VIZCAINO and LESLEY STUART,

in their individual capacity,

Petitioners,

Vs.

JON R. WAITE, et al.,

Respondents.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

TO PETITION FOR CERTIORARI

STEPHEN K. STRONG

Counsel of Record

DAVID F. STOBAUGH

BENDICH, STOBAUGH &

STRONG, P.C.

Attorneys for Respondents

900 Fourth Avenue,

Suite 3800

Seattle, WA 98164

(206) 622-3536

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

‘7

EE ee

QUESTIONS PRESENTED

The court of appeals and ail parties agree that this

case, including the common fund attorney fee award, is

governed by Washington state law, not by federal law,

because the underlying claim was brought under Washing-

ton state common law. Vizcaino v. Microsoft, Pet., pp. A4-

A5 (290 F.3d at 1047); p. A27 (142 F.Supp.2d at 1302); 97

F.3d at 1196; 120 F.3d at 1014. Petitioners, however,

completely ignore Washington law, and do not cite or

discuss even a single Washington case. Instead, Petition-

ers submit what is essentially a political essay advocating

a “uniform” federal rule governing all fee awards, in

disregard of Erie Railroad v. Tompkins, 304 U.S. 64 (1938)

(federal courts apply state law when a claim arises under

state law). Petition, pp. 5, 16, 23.

Petitioners disregard American federalism, complain-

ing about the “chaos” of decisions under differing state and

federal statutes and the varying common fund principles

in different jurisdictions. Pet., pp. 5, 14-16, 23, 30. No such

argument was raised below. On the contrary, in the court

of appeals Petitioners argued (App. Br. 24, 34-35) for a

different interpretation of the leading Washington State

Supreme Court decision on common fund fees, Bowles v.

Dept. of Retirement Systems, 121 Wn.2d 52, 842 P.2d 440

(1993), and they made various procedural arguments on

the “lodestar cross-check,” App. Br. 19-22, 24-25, 31-39.

They never argued that federal law could or should over-

ride Washington law.

Thus, the questions here are the following:

1) The Ninth Circuit ruled on the fee award by

applying the standards in Washington state law for

common fund fees because the underlying contract claim is

QUESTION PRESENTED — Continued

governed by Washington law. Pet., pp. A4-A5 (290 F.3d at

1047). Petitioners ignore Washington law and contend that

there should be a “uniform” federal rule for all common

fund fee awards, Pet., pp. 5, 23, in disregard of Erie

Railroad v. Tompkins, 304 U.S. 64 (1938). Did the court of

appeals abuse its discretion by applying Washington state

standards to determine a common fund fee arising from an

underlying claim governed by Washington law when

Petitioners never argued below that a rule of federal law

should be created to override state law?

2) Washington law provides that common fund fee |

awards are intended to encourage employee benefit claims

to be brought in class actions because the employees could

not otherwise obtain relief. Bowles v. Dept. of Retirement

Systems, supra, 842 P.2d at 450-52. The record shows that

the plaintiff class here could not have brought and won

this risky, difficult and lengthy (10-year) class action

without the prospect that their class counsel would be

compensated for the risks. Pet., pp. A9, A30-A34. Although

Petitioners never argued below that risk must be ignored,

the Petition now contends that risk should never be

considered (Pet., pp. 9-21). Did the court of appeals abuse

its discretion by following the Washington state law

standard and approving a fee award that includes consid-

eration of risk, particularly where Petitioners below

disputed only the proper application of the standard?

rn oon

Because Petitioners’ arguments were not raised below

and they all relate only to the district court’s exercise of

discretion under the standards of Washington state law,

this case does not actually raise the “questions presented”

in the Petition. It should be denied.

”

ili

TABLE OF CONTENTS

Page

UR yy RB 4, sy One i

pr SOR as Bee sy.) . Fe inane ili

Tae FE TI MIG oo cccnccsccecccccccnscocscessenscecoes iv

SPRPEESE BUR AVEPE EOE TIEET GAD cece ssesssccsvscnesenesvesseneneveres 1

STATEMENT OF THE CASE ...................cessseeeeeeeeees 1

REASONS FOR DENYING THE WRIT.................... 4

I. PETITIONERS’ CENTRAL ARGUMENT -

THAT THE COURT SHOULD OVERRIDE

STATE LAW AND ADOPT A “UNIFORM” NA-

TIONWIDE RULE FOR ALL STATE AND

FEDERAL FEE AWARDS, BOTH STATU-

TORY AND COMMON FUND - WAS NOT

RAISED BELOW AND THEREFORE IS NOT

PROPERLY PRESENTED HERE ................:006: 4

II. BECAUSE THE ONLY QUESTIONS RELATE

TO ALLEGED ABUSES OF DISCRETION BY

THE DISTRICT COURT IN ITS APPLICA-

TION OF THE COMMON FUND FEE STAN-

DARD IN WASHINGTON STATE LAW,

CERTIORARI SHOULD BE DENIED.............. 6

Ill. THE COURTS BELOW DID NOT ABUSE

EE MMEEREN EATEN wisceccsnsacceveysomeversacvevcsssoees 7

ci cciinsaerdiniginiidrsisssnesvetsseacenssopennseuess 8

TABLE OF AUTHORITIES

Page

CASES

Bowles v. Dept. of Retirement Systems, 121 Wn.2d

BE, Be Fe Ge CR piscine chidsescetnasetnnieciintnnd 2,3

Erie Railroad v. Tompkins, 304 U.S. 64 (1938)............... 3,4

Gisbrecht v. Blanchard, 122 S.Ct. 1817 (2002) .................. 4

Heller v. Doe by Doe, 509 U.S. 312 (1998) ....... ee eeeeeeees 4

Hensley v. Eckerhart, 451 U.S. 424 (1983) ..............cccceeeeees 7

Illinois v. Gates, 462 U.S. 213 (19838) ..........cccccccceeseeeeeeneees 5

Melendres v. Los Angeles, 119 Cal.Rptr. 713

CC Si sisedeissitidiiics. Usicsice ca doncoublaceachdacaitadickssovious 2

Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d

SS CIE Se Be acs a cochaievcacccdetecencohn wh scapSewaseseercsinseee 2

Venegas v. Mitchell, 495 U.S. 82 (1990) ............ceccceceeeeeeeeee 2

Vizcaino v. Microsoft, 97 F.3d 1187 (9th Cir. 1996),

modified, 120 F.3d 1006 (9th Cir. 1997) (en banc),

cert. denied, 522 U.S. 1098 (1998), enforced by

mandamus, Vizcaino v. U.S. Dist. Ct.,:173 F.3d

713 (9th Cir. 1999), amended and rehearing de-

nied, 184 F.3d 1070 (9th Cir. 1999), cert. denied,

528 U.S. 1105 (2000), fee award after settlement,

142 FSupp.2d 1299 (W.D. Wash. 2001), affirmed,

290 F.3d 1043 (9th Cir. 2002)................ccccccessessesees passim

RULES

ee ep RERUN ATT TOPE SIDS KOI MORE PRRENET Fy OTE 6,7

—————————

STATUTE NOT INVOLVED

Petitioners quote (Pet., p. 2) the attorney fee section of

a federal statute, ERISA, apparently only to mislead,

trying to give the false impression that this case arises

under federal law. The fee here was not sought or awarded

under this ERISA section, or under any other federal law,

because both the underlying claim here and the common

fund fee award arise from the common law of Washington

state. Pet., pp. A4-A5 (290 F.3d at 1047).

STATEMENT OF THE CASE

This case was filed in a Washington state court in

1992. Defendant Microsoft removed the case to federal

district court because it included both claims under the

common law of Washington and claims within ERISA. The

ERISA claims were eventually all dismissed or otherwise

removed from the case, along with most of the claims

governed by Washington law. The only claim upon which

plaintiffs prevailed was a claim that they were wrongfully

excluded from Microsoft's Employee Stock Purchase Plan,

which is a contract claim governed by the common law of

Washington. 120 F.3d at 1014.

Eventually, eight years after the case was filed, the

parties agreed to settle plaintiffs’ Employee Stock Pur-

chase Plan claim for about $97 million (plus many workers

were converted to benefitted employees, giving substantial

additional value to the class, Pet., p. A8). Because this

claim is governed by Washington law, the common fund fee

award from settlement of the claim is also governed by

Washington law. Pet., pp. A4-A5 (290 F.3d at 1047). The

Washington Supreme Court follows a percentage-based

approach to common fund fee awards in class actions for

employee benefits. Bowles v. Dept. of Retirement Systems,

121 Wn.2d 52, 70-74, 842 P.2d 440, 450-52 (1993). The

courts below thus followed Bowles in determining the

appropriate percentage fee. The district court also con-

ducted a “lodestar cross-check” to see whether the fee was

reasonable in light of the time and effort required of class

counsel in this case. The district court entered detailed

findings for the fee award, both as to the percentage and

the lodestar cross-check. Pet., pp. A29-A37.

Appellants (Petitioners here) are Lesley Stuart and

Donna Vizcaino. Both Stuart and Vizcaino were originally

named plaintiffs, not unnamed class members, and both

signed retainer agreements in which they agreed to pay a

30% fee from their recovery. Pet., p. A33. They never

disputed the validity or reasonableness of their retainer

agreement.’ The objection and this appeal resulted from

an unsuccessful effort by Donna Vizcaino to obtain a secret

' Accordingly, it was argued below, but not decided by the court of

appeals, that Vizcaino and Stuart’s uncontroverted written agreements

to pay 30% made them lack standing to complain about a lower 28% fev

applied to the class. Although the courts decide common fund fees for

absent class members and statutory fee awards against defendants,

percentage fee retainer agreements are binding on plaintiffs who signed

them. Venegas v. Mitchell, 495 U.S. 82, 89-90 (1990). This principle

applies in class action cases where some named plaintiffs have retainer

agreements (which are binding) and others in the class pay a court-

determined common fund fee. Paul, Johnson, Alston & Hunt v. Graulty,

886 F.2d 268, 270-72 (9th Cir. 1989); Melendres v. Los Angeles, 119

Cal.Rptr. 713, 723 (Cal.App. 1975). This is an independent ground for

affirmance here because both Petitioners signed written agreements

which they do not dispute. They personally thus have no standing to

challenge the common fund fee for absent class members (none of whom

dispute the common fund fee).

side deal to obtain several hundred thousand dollars from

plaintiffs’ counsel. CR 715. Vizcaino threatened to oppose

the fee request unless she was paid off. When that threat

was rejected, she organized this objection and appeal. No

independent class members opposed the fee request.

Indeed, more than 2,700 class members expressed their

support for the entire settlement. CR 779, p. 14.

On appeal, Petitioners argued about the meaning of

the Washington Supreme Court’s holding in Bowles,

basically contending that certain facts in Bowles consti-

tuted that court’s holding. App. Br., pp. 21, 24, 34-35.

Petitioners did not dispute the applicability of Washington

law. With respect to the “lodestar cross-check,” Petitioners

maintained there were better methods by which it proce-

durally could have been conducted. App. Br., pp. 3-4, 11,

14, 19-22, 24-25, 31-39 (disputing hourly rates, some

compensable hours, and some paralegal time and suggest-

ing further review of time records, appointment of an

expert, and further oral argument). Petitioners made no

argument that a “uniform” federal rule on fee awards

should be adopted to override Washington law, in deroga-

tion of Erie Railroad.

The Ninth Circuit affirmed. It independently exam-

ined the percentage fee award and determined it was

reasonable. Pet., pp. A4-All (290 F.3d at 1047-50). It also

reviewed the district court’s lodestar cross-check and

found there was no abuse of discretion, substantively or

procedurally. Pet., pp. A12-A14 (290 F.3d at 1050-51).

REASONS FOR DENYING THE WRIT

I. PETITIONERS’ CENTRAL ARGUMENT - THAT

THE COURT SHOULD OVERRIDE STATE LAW

AND ADOPT A “UNIFORM” NATIONWIDE

RULE FOR ALL STATE AND FEDERAL FEE

AWARDS, BOTH STATUTORY AND COMMON

FUND - WAS NOT RAISED BELOW AND

THEREFORE IS NOT PROPERLY PRESENTED

HERE.

Petitioners purport to present questions here that

were not raised below, particularly their central argument

that Erie Railroad v. Tompkins should be disregarded in

the interest of avoiding fee decision “chaos” by establishing

a “uniform” nationwide rule, even though the fee award is

governed by Washington law. Pet., pp. 9, 16, 23, 30. More-

over, Petitioners’ specific proposal for a “uniform” nation-

wide rule — that “risk” or contingency should be

disregarded (Pet., pp. 9-10) — was also not raised in the

court of appeals.’

Petitioners’ arguments are not properly presented

here because it is “imprudent and unfair to inject a new

standard at this stage in the litigation.” Heller v. Doe by

Doe, 509 U.S. 312, 319 (1993). The Court does not review a

question that was neither pressed nor passed on below.

* Moreover, in a Social Security Act case, the Court recently

rejected the same argument made here — thet the lodestar method used

in statutory fee-shifting cases, i.e., where the fees are paid by the losing

defendant, should also be followed when the plaintiffs are paying their

own lawyers. Claimants may owe contingent percentage fees even

where the lodestar method would result in a lower fee. Gisbrecht v.

Blanchard, 122 S.Ct. 1817, 1825-27 (2002).

Illinois v. Gates, 462 U.S. 213, 221 (1983) (questions not

raised below are likely to have inadequate record).

Here, Petitioners argued below that “Washington

state law supported objectors’ position.” App. Br., 21, 24.

Petitioners cited and discussed Washington cases, id., 34-

385 and n. 16, contending “that there is no significant

difference” between Washington state law and “Ninth

Circuit fee jurisprudence.” Id. Now the Petitioners contend

the Ninth Circuit was wrong, Pet., pp. 21-28, while ignor-

ing Washington law entirely.

Petitioners also quibbled over the district court’s

procedures, saying it should have appointed an expert

(App. Br., 37-38), and it should have allowed further oral

argument (id., 38-39). They basically quarreled with those

procedures and the district court’s “weighing” of the facts

in determining the fee award (id., 26).

. None of these arguments in the court of appeals are in

the Petition; indeed, some are even contradicted in the

Petition.* Because the Petition consists of arguments that

were not made in the court of appeals, it should be denied.

* In the court of appeals, for example, Petitioners argued that risk

is an appropriate factor to increase the fee, App. Br. 29-31, 37-39, while

they argued for a lower weight to that risk, eg., id., p. 43. Here,

Petitioners deny risk is a factor at all and they maintain that risk

should be totally disregarded. Pet., pp. 9-21.

Il. BECAUSE THE ONLY QUESTIONS RELATE

TO ALLEGED ABUSES OF DISCRETION BY

THE DISTRICT COURT IN ITS APPLICATION

OF THE COMMON FUND FEE STANDARD IN

WASHINGTON STATE LAW, CERTIORARI

SHOULD BE DENIED.

This Court reviews cases “only for compelling rea-

sons,” when they involve “an important question of federal

law.” Sup. Ct. Rule 10. This case, however, involves only

the district court’s exercise of discretion based on the

specific facts of a case, in a matter governed by Washing-

ton state law.

Petitioners’ argument below was that “[tJhe district

court abused its discretion in calculating class counsel's

attorneys’ fee award.” App. Br. 26 (Argument I, main

heading). Petitioners argued that the district court’s

analysis was not “careful” enough and it failed to properly

“weigh” both factors for and against the fee request. App.

Br. 26. Petitioners argued that “all circumstances of the

case” must be considered. App. Br. 30 (emphasis in orig.).

Within this very general framework, Petitioners argued

about various factual details regarding the pertinent

factors in this case. App. Br. 30-31, 35-37, 39-40, 43.

Petitioners recognized below that the fee award is

governed by Washington law. App. Br., 21, 24, 34-35.

Petitioners made no argument in the court of appeals that

risk should be disregarded entirely, as they now do in the

Petition (pp. 9-10). They argued instead only that the risk

should be evaluated differently (App. Br. pp. 29-31, 37-39).

Petitioners even admitted in the district court that a

multiplier of 2-4 for risk would be reasonable, CR 770, p.

51, and the district court’s decision fell within that sug-

gested range. Pet., p. A37.

Petitioners also argued numerous procedural quibbles

concerning details of the “lodestar cross-check,” i.e., the

district court’s review of the relationship between the time

required for this case and the amount of the requested fee.

The purpose of the “cross-check” is to see whether there is

some great disproportionality between the hours worked

by class counsel and a percentage-based fee. The district

court and court of appeals carefully reviewed the lodestar

cross-check and found no such disproportionality here.

Pet., pp. Al12-A14, A34-A37.

Fee issues are within the district court’s discretion.

Hensley v. Eckerhart, 451 U.S. 424, 487-38 (1983). As

discretionary fact-based matters, they are very far from

federal law issues of “national importance.” Sup. Ct. Rule

10. The petition should be denied.

Ill. THE COURTS BELOW DID NOT ABUSE THEIR

’ DISCRETION.

The district court and court of appeals did not abuse

their discretion. They applied the correct standard for

common fund fee awards under Washington law. The

district court entered detailed findings (Pet., pp. A28-A37),

and the court of appeals carefully reviewed those findings

(Pet., pp. A4-A15). The district court conducted a lodestar

cross-check of the percentage fee. Pet., pp. A34-A39. The

court of appeals not only reviewed the district court’s

lodestar cross-check, Pet., pp. Al2-A14, but it also con-

ducted an independent review of the percentage fee, Pet.,

pp. A4-All, Al6-A24. The issues raised by Petitioners in

the district court and the court of appeals were basically

factual in nature, but Petitioners submitted no evidence to

prove their arguments. Accordingly, there was no abuse of

discretion.

bal

CONCLUSION

The petition for certiorari should be denied.

DATED: October 10, 2002.

Respectfully submitted,

STEPHEN K. STRONG

Counsel of Record

DAVID F. STOBAUGH

BENDICH, STOBAUGH &

STRONG, P.C.

Attorneys for Respondents

900 Fourth Avenue,

Suite 3800

Seattle, WA 98164

(206) 622-3536

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.