Weisburgh v. Fidelity Magellan ( 1999 )

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit













No. 98-1902





          IN RE:  FIDELITY/MICRON SECURITIES LITIGATION



[DIANE WEISBURGH, ETC., ET AL. v. FIDELITY MAGELLAN FUND, ET AL.].

                       ____________________



                 BERGER & MONTAGUE, P.C., ET AL.,



                           Appellants.







           APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



          [Hon. Richard G. Stearns, U.S. District Judge]







                              Before



                      Selya, Circuit Judge,



                 Bownes, Senior Circuit Judge,



                   and Lipez, Circuit Judge.







     Glen DeValerio, with whom Kathleen M. Donovan-Maher, Berman,

DeValerio & Pease LLP, Stuart H. Savett, Barbara A. Podell, Savett

Frutkin Podell & Ryan, P.C., Sherrie R. Savett, Gary E. Cantor,

Berger & Montague, P.C., Stephen T. Rodd, and Abbey, Gardy &

Squitieri, LLP were on brief, for appellants.









February 23, 1999









                                  SELYA, Circuit Judge.  In certain types of complex

litigation, the lawyers' monetary interests often comprise a tail

that wags the dog.  So it is here:  this dispute over the

reimbursement of certain payments fronted by the lawyers is what

remains of a consolidated class action (actually, an amalgam of

some 16 suits) asserting claims of securities fraud.  After the

district court approved a global $10,000,000 settlement, the

plaintiffs' attorneys filed a petition seeking 30% of the common

fund in fees and approximately $277,000 in out-of-pocket expenses.

The district court awarded the movants 17«% of the fund

($1,750,000) as counsel fees, but turned down their request for

expenses.  See In re Fidelity/Micron Sec. Litig., No. 95-12676-RGS,

1998 WL 313735 (D. Mass. June 5, 1998).

  In refusing reimbursement, the district court alluded to

the movants' failure to provide adequate documentation to support

the expense request, but it based its ruling principally on its own

Standing Order Regarding Costs.  The Standing Order, reprinted in

the appendix hereto, states in substance that, absent exceptional

circumstances, the court as a matter of practice will eschew

reimbursement of certain categories of expenses.  To the chagrin

of the lawyers who appear as appellants here, the categories

enumerated in the Standing Order (e.g., postage, facsimile

transmission costs, copying expenses, telephone charges, cost of

computer-assisted legal research) enveloped much of what they

sought to collect.  The one major exception related to the cost of

retaining an expert witness.  After the appellants moved for

reconsideration of the expense reimbursement request and produced

the expert's billing records, the district court promptly granted

them the $124,000 they had spent on that front.  The court remained

resolute, however, as to the balance of the expenditures.  This

appeal followed.  In it, the lawyers protest only the court's

refusal to allow broader expense reimbursement.

  We begin with bedrock:  in situations in which expenses

are potentially reimbursable, district courts enjoy wide latitude

in shaping the contours of such awards.  See In re Thirteen Appeals

  San Juan Dupont Plaza Hotel Fire Litig., 56 F.3d 295, 309 (1st

Cir. 1995).  Such awards are permissible in "common fund" cases

but the district court, called upon to make awards of fees and/or

expenses in such a case, functions as a quasi-fiduciary to

safeguard the corpus of the fund for the benefit of the plaintiff

class.  See, e.g., Cook v. Niedert, 142 F.3d 1004, 1011 (7th Cir.

1998).  Consequently, a reviewing court has the right, if not the

obligation, to view skeptically efforts by attorneys to charge

substantial expenses to that account.

  Even so, law firms are not eleemosynary institutions, and

lawyers whose efforts succeed in creating a common fund for the

benefit of a class are entitled not only to reasonable fees, but

also to recover from the fund, as a general matter, expenses,

reasonable in amount, that were necessary to bring the action to

a climax.  See Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1265

(D.C. Cir. 1993); In re Nineteen Appeals   San Juan Dupont Plaza

Hotel Fire Litig., 982 F.2d 603, 606 (1st Cir. 1992).

  This general rule does not give counsel carte blanche to

spend freely and expect that reimbursement automatically will

follow.  Administration of the rule is subject to the trial court's

informed discretion.  Reasonableness is the touchstone, and a

request that promises to yield an unreasonable result must be

trimmed back or rejected outright.  See In re Coordinated Pretrial

Proceedings in Petroleum Prods. Antitrust Litig., 109 F.3d 602, 607

(9th Cir. 1997) (explaining that "[r]easonableness is the goal,"

and that courts should avoid "mechanical or formulaic application"

of rigid rules).  Moreover, because each common fund case presents

its own unique set of circumstances, trial courts must assess each

request for fees and expenses on its own terms.  See Camden I

Condo. Ass'n, Inc. v. Dunkle, 946 F.2d 768, 774-75 (11th Cir.

1991).  After all, the authority to order reimbursement from a

common fund has its origins in equity and, when a court exercises

this equitable power, individualization is the name of the game.

See Sprague v. Ticonic Nat'l Bank, 307 U.S. 161, 167 (1939).

  Here, the district court's Standing Order raises a core

concern:  it does not leave sufficient room for individualized

consideration of expense requests.  It may very well be that, at

the end of the day, a district court will decide in most cases that

the lawyers cannot justify particular kinds of expense requests.

But, for the most part, that decision must be made after

consideration of each particular request; it is not to be asserted

beforehand upon the authority of an inflexible, informally

promulgated rule.

     Due to this lack of individualized consideration, we

vacate the district court's order denying expense reimbursement and

remand so that the court may reconsider the request.  We hasten to

add that we do not equate reconsideration with compulsory

reimbursement.  For one thing, in percentage-of-the-fund cases,

district courts may, if they so elect, set the percentage at a

level which not only accounts for fees, but also suffices to cover

reimbursable expenses in whole or in part.  Insofar as we can tell,

the district court did not take this route, but we leave open the

possibility that the court did so implicitly, or that it will do

so on remand.  We caution, however, that such an approach requires

the court to set forth specific reasons for selecting the

percentage and to explain its analysis with particularity.  See,

e.g., Camden I, 946 F.2d at 775.

     For another thing, lawyers are not necessarily entitled

to the quantum of reimbursement to which they aspire.  To the

contrary, they must establish the reasonableness of their requests.

In the course of that exercise, the trial court may insist on

examining particulars, such as receipts and logs, so that it can

determine whether the claimed expenses were reasonable, necessary,

and incurred for the benefit of the class.  Unverified expenses may

be rejected out of hand.  See Weinberger v. Great N. Nekoosa Corp.,

925 F.2d 518, 527 (1st Cir. 1991).

     The lower court also may restrict reimbursement to those

lawyers or law firms who pulled the laboring oar in prosecuting the

case.  Equity ordinarily contemplates that those responsible for

bringing home the bacon will receive repayment of expenditures made

in that endeavor.  This is simply another way of determining

whether certain expenditures were reasonable and necessary to the

creation and maintenance of the common fund.

     There is one last matter.  In their appellate brief, and

again at oral argument, the appellants informed us that they seek

counsel fees and expenses referable to work done in this court.

On appeal, awards of counsel fees and expenses for litigating the

magnitude of attorney reimbursement in common fund cases are few

and far between.  Although we ruled long ago that trial courts had

some discretion in this regard, see Sprague v. Ticonic Nat'l Bank,

110 F.2d 174, 177 (1st Cir. 1940), recent case law suggests that,

even if a measure of discretion exists, such awards should rarely,

if ever, be bestowed, see In re Washington Pub. Power Supply Sys.

Sec. Litig., 19 F.3d 1291, 1299 (9th Cir. 1994); United States v.

110-118 Riverside Tenants Corp., 5 F.3d 645, 646-47 (2d Cir. 1993)

(per curiam); Lindy Bros. Builders, Inc. v. American Radiators &

Standard Sanitary Corp., 540 F.2d 102, 111 (3d Cir. 1976) (en

banc).  The concern animating the general rule is evident:  once

a common fund is established, class members and class counsel wind

up playing a zero sum game, in which every dollar awarded to

counsel represents one dollar less that is available for

distribution to class members.  See Weinberger, 925 F.2d at 524.

     In this instance, we conclude that the lawyers are not

entitled to fees and expenses incurred while prosecuting the

appeal.  The decisive datum is that they did not render the subject

services or incur the subject expenses in an effort to create or

maintain the common fund.  Moreover, no class member opposed their

application, and the appellants have given us no good reason why,

in the circumstances of this case, we should overlook the general

rule that disfavors reimbursement from the common fund for

appellate litigation over fees and expenses.  Because the

appellants' interests in this proceeding run counter to that of

their clients, we reject the request for the payment of fees and/or

expenses in connection with this appeal.

     We need go no further.  For the reasons elucidated above,

we direct the district court to mull the appellants' request for

expenses anew.



Vacated and remanded.                             APPENDIX



                  STANDING ORDER REGARDING COSTS

     As a matter of practice, the court does not award, unless

special circumstances are shown, the following categories of costs:

     (1) postage, express mail costs, courier fees, and the

     cost of electronic facsimiles;

     (2) ordinary copying charges;

     (3) travel expenses;

     (4) the costs of deposition transcripts not used at

     trial;

     (5) fees for clerical and word processing services;

     (6) telephone charges;

     (7) office supplies;

     (8) exemplification costs for chalks and exhibits not

     used at trial;

     (9) automated document preparation costs;

     (10) charges for computer research services, and

     (11) jury consultant fees.