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USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
Nos. 92-2219
92-2274
BTZ, INC.,
Plaintiff, Appellant,
v.
GREAT NORTHERN NEKOOSA CORP., ET AL.,
Defendants, Appellees.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge] ___________________
____________________
Torruella, Selya and Cyr,
Circuit Judges. ______________
____________________
David L. Lee, with whom Law Offices of Frederic F. Brace, Jr. was ____________ _____________________________________
on brief for appellant.
Peter J. Brann, Assistant Attorney General, with whom Michael E. _______________ __________
Carpenter, Attorney General, and Thomas D. Warren, Director, _________ ___________________
Litigation Unit, were on brief for State of Maine, Amicus.
Tami L. Brown for appellee Great Northern Nekoosa Corp. _____________
____________________
February 16, 1995
____________________
CYR, Circuit Judge. BTZ, Inc., a former shareholder in CYR, Circuit Judge. _____________
Great Northern Nekoosa Corporation ("Great Northern"), appeals a
district court order disallowing its application for an award of
attorney fees against Great Northern. The fee application was
predicated on the theory that the lawsuit BTZ brought against
Great Northern in the United States District Court for the
District of Maine caused Great Northern to capitulate to a
hostile takeover by Georgia Pacific Corporation ("GPC") which
resulted in substantial benefit to other Great Northern share-
holders. We affirm.
I I
BACKGROUND1 BACKGROUND __________
In October 1989, GPC made an unsolicited tender to
acquire Great Northern. The Board of Directors of Great Northern
("Board") balked. GPC commenced suit in Maine federal district
court, seeking a judicial declaration that the Board's anti-
takeover defenses violated state and federal law, as well as the
Board's fiduciary duty to Great Northern shareholders. Several
Great Northern shareholders [hereinafter: "plaintiffs"], includ-
ing appellant BTZ, brought derivative "class action" suits
____________________
1We set forth only the facts essential to our holding.
Greater factual detail is provided in other reported decisions.
See Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518 (1st ___ __________ ___________________________
Cir. 1991); Weinberger v. Great Northern Nekoosa Corp., 801 F. __________ ____________________________
Supp. 804 (D. Me. 1992); Georgia-Pacific Corp. v. Great Northern _____________________ ______________
Nekoosa Corp., 731 F. Supp. 38 (D. Me. 1990); Georgia-Pacific ____________ _______________
Corp. v. Great Northern Nekoosa Corp., 727 F. Supp. 31 (D. Me. ____ ____________________________
1989).
2
against the Board in Maine federal district court. The class
action suits were consolidated and the State of Maine intervened
to defend its anti-takeover statute from constitutional chal-
lenge.
The Board concurrently opened a second line of defense
by instituting an antitrust action against GPC in Connecticut
federal district court. Plaintiffs' counsel took no part in the __ ____
Connecticut action. On February 12, 1990, GPC announced its
divestiture of all paper company holdings, thereby effectively
mooting the Board's antitrust action. One week later, the Board ___ ____ _____
capitulated and accepted GPC's tender offer. See Weinberger v. ___ __________
Great Northern Nekoosa Corp., 925 F.2d 518, 521 (1991). ___________________________
Concerned that the plaintiffs in the Maine anti-take-
over suits might impede the GPC-Great Northern settlement and
merger, GPC entered into a "clear sailing" agreement with plain-
tiffs: plaintiffs would dismiss their federal actions in Maine
and "take no steps to attach any part of the funds to be paid to
[Great Northern] shareholders pursuant to the upcoming tender
offer"; GPC-Great Northern, in turn, would "pay the plaintiffs'
attorneys' fees and expenses [up to $2 million,] as shall be
awarded by the United States District Court for the District of
Maine." Id. at 518 n.1, 521. ___
The federal district court in Maine ultimately denied
plaintiffs' fee applications, however, ruling that their attor-
neys' services were not a significant precipitating "cause" of
the GPC-Great Northern merger. Rather, their legal services
3
merely mimicked GPC's legal efforts in the Maine lawsuits, and
played no role whatever in the truly decisive takeover skirmish __ ____
the Connecticut antitrust litigation. Weinberger v. Great __________ _____
Northern Nekoosa Corp., 801 F.Supp. 804, 811 (D. Me. 1992). BTZ ______________________
appeals.2
II II
DISCUSSION DISCUSSION __________
A. The American Rule A. The American Rule _________________
Under the American Rule, absent a specific statutory
authorization or contractual agreement to the contrary, litigants
are responsible for their own attorney fees. See In re San Juan ___ _______________
Dupont Plaza Hotel Fire Litig., 982 F.2d 603, 606 (1st Cir. _________________________________
1992). One notable exception to the American Rule obtains in so-
____________________
2The State of Maine, as amicus curiae, suggests that we may
lack appellate jurisdiction because the "clear sailing" agreement
obligates GPC-Great Northern, not BTZ, to pay fees to BTZ's ___________________
attorneys. Thus, it says, BTZ the only appellant named in the ____
notice of appeal lacks either standing to appeal from a denial
of the fee application, see United States v. AVX, 962 F.2d 108, ___ _____________ ___
112-13 (1st Cir. 1993), or a demonstrable stake in the outcome of
the appeal.
Although dismissal on jurisdictional grounds might be
warranted, the matter is not without difficulty and there is no
circuit precedent directly in point. BTZ signed no enforceable
fee agreement with its attorneys, but the "clear sailing" agree-
ment, qua contract, might arguably afford BTZ a status analogous ___
to a "prevailing party" in a statutory fee-shifting case. Cf. ___
Pontarelli v. Stone, 978 F.2d 773, 775 (1st Cir. 1992) (since __________ _____
statute specifically authorizes fees to "prevailing party,"
prevailing party's attorney has no independent standing to appeal ________
from grant or denial of fee award); Benitez v. Collazo-Collazo, _______ _______________
888 F.2d 930, 933 (1st Cir. 1989) (same). We therefore bypass
the jurisdictional issue and turn to the merits. See FDIC v. Bay ___ ____ ___
Street Dev. Corp., 32 F.3d 636, 639 n.4 (1st Cir. 1994). _________________
4
called "common benefit" cases, where a plaintiff's suit is
prematurely mooted but nonetheless results in a "substantial
[pecuniary or nonpecuniary] benefit" to a larger class [hereinaf-
ter: "beneficiaries"]. In these common benefit cases, a court
may invoke its equitable jurisdiction to assess attorney fees
against beneficiaries of the legal services; and, where the
beneficiaries are corporate shareholders, their assessment may be
imposed upon the corporate defendant. See, e.g., Reiser v. Del ___ ____ ______ ___
Monte Properties Co., 605 F.2d 1135, 1137-38 (9th Cir. 1979) _____________________
(citing cases).
BTZ insists that its legal services fit squarely within
the "common benefit" exception to the American Rule, since the
GPC takeover enhanced the pecuniary interests of all Great
Northern shareholders. The threshold question, of course, is
whether the BTZ lawsuit in Maine federal district court actually
caused the Board to capitulate to the GPC takeover, thereby ______
contributing substantially to the per-share price increase in
Great Northern shares. The district court rejected BTZ's claim
on two fronts.
B. Causation B. Causation _________
First, the court found insufficient evidence that BTZ's
legal services caused the Board to capitulate to the GPC take-
over. As we have noted, "causation questions are grist for the
factfinder's mill . . . ," Dedham Water Co. v. Cumberland Farms _______________ ________________
Dairy, Inc., 972 F.2d 453, 457 (1st Cir. 1992) (citing Peckham v. __________ _______
Continental Cas. Ins. Co., 895 F.2d 830, 837 (1st Cir. 1990)), _________________________
5
which we review under the "clear error" standard, see ICC v. ___ ___
Holmes Transp., Inc., 983 F.2d 1122, 1129 (1st Cir. 1993) (noting ____________________
that "clear error" leaves reviewing court with the "definite and
firm conviction that a mistake has been committed"). Cf. Lipsett __ _______
v. Blanco, 975 F.2d 934, 937, 941 (1st Cir. 1992) (according ______
deference to trial court's "front row seat" determination as to
whether legal services contributed to favorable outcome in
underlying litigation) (citation omitted).
The district court finding that the efforts of BTZ's
counsel were neither a substantial nor a material factor in GPC's
"decision to increase its bid or in Great Northern's decision to
auction itself," Weinberger, 801 F. Supp. at 809, is amply __________
supported by the record. The withdrawal of the Connecticut
antitrust action and the defeat of Great Northern's anti-takeover
mechanisms in the Maine litigation were the decisive factors
contributing to the GPC takeover. See id. at 811 & n.11. BTZ's ___ ___
counsel took no part in the pivotal Connecticut litigation. Id. __ _______ ___
at 809. And to the limited extent that BTZ's counsel participat-
ed in the Maine litigation, they did little more than track GPC's
filings and audit depositions conducted by GPC. Id. at 808-811. __
The district court's robust skepticism of the benefits
contributed by BTZ's counsel is especially appropriate given the
increasing concerns that redundant or peripheral legal services
may parasitize the litigation efforts of lead counsel, yet
command a substantial fee. Insofar as lead counsel reasonably
perceive a consequent dilution of the limited resources available
6
for legal services, allowances for phantom legal services frus-
trate the adversary process and undermine the congressional
policy favoring private enforcement of the securities laws.3
C. Burden of Proof C. Burden of Proof _______________
The district court also rejected BTZ's fallback attempt
to realign the burden of proof on the issue of causation. We
review its legal ruling de novo. Liberty Mut. Ins. Co. v. __ ____ ______________________
Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir. 1992). ________________________
Under Delaware law, a fee award will be denied in a
common benefit case only if the party opposing it proves that the _____ ________
applicant's legal services did not contribute to the favorable ___
outcome in the underlying takeover litigation. Compare Allied _______ ______
Artists Pictures Corp. v. Baron, 413 A.2d 876 (Del. 1980); ______________________ _____
Rosenthal v. Burry Biscuit Co., 209 A.2d 459 (Del. Chan. 1949)4 _________ _________________
with Hensley v. Eckerhart, 461 U.S. 424, 437 (1983) ("[T]he fee ____ _______ _________
____________________
3See generally John C. Coffee, Jr., Rescuing the Private ___ _________ ____________________
Attorney General: Why the Model of the Lawyer as Bounty Hunter is _________________________________________________________________
Not Working, 42 Md. L. Rev. 215, 249 (1983); John C. Coffee, Jr., ___________
Understanding the Plaintiff's Attorney: The Implications of _________________________________________________________________
Economic Theory for Private Enforcement of Law Through Class and _________________________________________________________________
Derivative Actions, 86 Colum. L. Rev. 669 (1986); Jonathan R. ___________________
Macey & Geoffrey P. Miller, The Plaintiffs' Attorney's Role in ___________________________________
Class Action and Derivative Litigation: Economic Analysis and _________________________________________________________________
Recommendations for Reform, 58 U. Chi. L. Rev. 1, 68 (1991). __________________________
4The Delaware Chancery Court explained that "it is reason-
able to impose on the defendants the burden of showing that the
[benefit] was not in any way occasioned by the existence of the
lawsuit," and that, even were the defendant corporation to prove
that the fee applicant's suit in no way contributed to the
benefit conferred, "the [fee applicant's] attorney would still be
entitled to a fee if it is shown that the cause of action was
meritorious." Rosenthal, 209 A.2d at 461. The Delaware Supreme _________
Court later adopted the Rosenthal reasoning. See Allied Artists _________ ___ ______________
Pictures Corp., 413 A.2d 876. ______________
7
applicant bears the burden of establishing entitlement to a [fee]
award."); Nadeau v. Helgemoe, 581 F.2d 275, 281 (1st Cir. 1978) ______ ________
(fee applicant has burden to prove suit served as "catalyst");
Koppel v. Wien, 743 F.2d 129, 135 (2d Cir. 1984) (same); 1 Mary ______ ____
F. Derfner & Arthur D. Wolf, Court Awarded Attorney Fees _____________________________
9.02[4][c], at 9-24.6 (1991).
The district court correctly interpreted our decision
in Weinberger, 925 F.2d at 522 n.6, to indicate that the BTZ fee __________
application does not fit squarely within the common benefit
exception to the American Rule, see Weinberger, 801 F.Supp. at ___ __________
807, since "[BTZ] abjured a claim for fees under the common
benefit doctrine[,]" Weinberger, 925 F.2d at 524, both by negoti- __________ ____
ating the "clear sailing" agreement, which neutralized Great
Northern's capacity to challenge a fee award, and by relying on ___
the "clear sailing" agreement as the basis for its alleged fee
entitlement. In contrast, neither Rosenthal nor Allied Artists _________ ______________
involved a "clear sailing" agreement. Their realignment of the
burden of proof was premised on the relative capacities of fee __________
applicants and fee opponents to establish the "causation" ele-
ment.
Aside from BTZ, three entities had cognizable interests
in the BTZ class action: Great Northern, GPC, and the State of
Maine. None was better positioned than BTZ to establish what
caused Great Northern to succumb to the GPC takeover bid. First,
following its merger with GPC, Great Northern no longer existed
as an independent legal entity. Second, immobilized as a fee
8
opponent by the terms of the "clear sailing agreement," GPC could
not attempt to rebut a presumption of substantial benefit without
breaching its agreement. Nor, finally, has there been any
showing that the State of Maine, intervenor below and amicus on
appeal even assuming it were able and inclined to oppose the
BTZ fee application on policy grounds was better situated than
BTZ to establish causation. There simply is nothing in the
record to suggest that the State of Maine, aligned by happen-
stance with Great Northern below, was privy to its inner workings
or litigation strategy during the decisive stages of the takeover
battle. Thus, the State of Maine likewise was not the "well-
informed" fee opponent whose presence would warrant the burden
shifting urged by BTZ.
Contractual fee shifting in class action suits impinges
on traditional judicial protocols for scrutinizing attorney-fee
allowances, by increasing the potential for conflicts of inter-
est. See id. at 524-25. Consequently, a rebuttable presumption ___ ___
should not be endorsed in the context of a "clear sailing"
agreement unless the court is well satisfied that "the advantages
of the adversary process" are not blunted by undermining the
parties' incentives to proffer relevant evidence on causation.
Id. The district court prudently ruled out any rebuttable ___
presumption in the instant case.
As the district court findings and conclusions are
fully supported, its disallowance of the fee application must be
affirmed.
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The district court order is affirmed. Costs to appel- _______________________________________________________
lees. ____
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Document Info
Docket Number： 92-2219
Filed Date： 2/16/1995
Precedential Status： Precedential
Modified Date： 9/21/2015