Gunter v. Ridgewood Energy Corp. , 223 F.3d 190 ( 2000 )

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
7-27-2000
Gunter v. Ridgewood Energy
Precedential or Non-Precedential:
Docket 00-5053
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Filed July 27, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 00-5053
PATRICIA GUNTER; HUBERT MAEHR; ANNA BARTOSH,
and all persons similarly situated, Appellants
v.
RIDGEWOOD ENERGY CORPORATION;
ROBERT E. SWANSON; GARY L. HALL;
HALL-HOUSTON OIL COMPANY
On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civ. No. 95-cv-00438)
District Judge: Honorable William H. Walls
Submitted Under Third Circuit L.A.R. 34.1(a)
May 23, 2000
Before: BECKER, Chief Judge, ROTH and ROSENN,
Circuit Judges.
(Filed July 27, 2000)
G. MARTIN MEYERS, ESQUIRE
Law Office of G. Martin Meyers, P.C.
35 West Main Street, Suite 106
Denville, NJ 07834
JOSEPH STERNBERG, ESQUIRE
Goodkind, Labaton, Rudoff, &
Sucharow, LLP
100 Park Avenue
New York, NY 10017
Counsel for Appellants
DOUGLAS S. EAKELEY, ESQUIRE
LOWENSTEIN SANDLER, ESQUIRE
65 Livingston Avenue
Roseland, NJ 07068
Counsel for Appellees
Ridgewood Energy and
Robert E. Swanson
WILLIAM T. REILLY, ESQUIRE
McCarter & English
100 Mulberry Street
Four Gateway Center
Newark, NJ 07101-0652
Counsel for Appellees
Gary L. Hall and Hall-Houston
Oil Co.
OPINION OF THE COURT
BECKER, Chief Judge.
This is an appeal from an order of the District Court
ruling on an attorneys' fee application following the
settlement of a complicated class action that resulted in a
$9.5 million settlement for the benefit of the named
plaintiffs and unnamed class members. In accordance with
their agreement with their clients (the class
representatives), and the terms of the class action notice to
which no class member objected, plaintiffs' attorneys
("Counsel") applied for attorneys' fees, amounting to one-
third of the settlement amount, and approximately
$300,000 in costs. The District Court approved the
settlement and Counsel's request for reimbursement of
costs, but allowed fees of only 18% of the settlement fund,
or $1.71 million--far less than the $3.16 million to which
the plaintiffs and class members had agreed (or at least,
not objected to).
Counsel's papers forcefully portray this case as extremely
difficult, their labors as extensive, and the results achieved
for the class as quite favorable. Despite this portrayal,
2
supported by voluminous documentation and the absence
of objection, the District Court explained its decision to
virtually halve the requested fee award in a conclusory one-
sentence statement: "The nature of this litigation, its
resolution at this stage without the necessity of trial, the
nature of the settlement, and its value, convince the court
that it would place a reasonable burden on the class to
award attorneys' fees of 18% of the Settlement Fund, or
$1,700,000." Gunter v. Ridgewood Energy Corp. , Civ. No.
95-438 (WHW), at 3 (D. N.J. Nov. 16, 1999).
The Court slightly expanded upon that statement in an
order denying a motion for reconsideration, stating that it
had examined the record carefully before making its award
and that it did not "credit the unexplained and undetailed
expenditure of 2500 hours by counsel . . . ." Gunter v.
Ridgewood Energy Corp., Civ. No. 95-438 (WHW), at 2 (D.
N.J. Dec. 29, 1999) (citing the 2500 hours allegedly
expended by one of the attorneys as a "mere[ ] . . .
hindsight prop"). While refusing to credit these hours, the
Court declined Counsel's invitation to review billing records
that Counsel had offered to provide the Court in their initial
fee application. Moreover, the Court did not explain why it
refused to credit 2500 hours of the approximately 8500
hours Counsel had worked on the case, even though
Counsel proffered documentation for that work.
On appeal, Counsel submit that the District Court failed
adequately to explain its reasons for declining to grant their
requested fee award, and that it did not apply the relevant
criteria for determining such an award. Our jurisprudence
in this area requires a " ``thorough judicial review of fee
applications . . . in all class action settlements.' " In re
Prudential Ins. Co. of Am. Sales Practice Litig., 148 F.3d
283, 333 (3d Cir. 1998) (quoting In re General Motors Corp.
Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768,
819 (3d Cir. 1995)). Without a reasoned and documented
explication of the rationale for approving or denying a
particular fee award, it is difficult, if not impossible, for an
appellate court to review such an award for abuse of
discretion.
Such is the case here. The District Court's opinion
making the fee award and its subsequent opinion denying
3
reconsideration are vague and conclusory. These opinions
do not address or apply the relevant criteria, established by
our jurisprudence, that a district court should consider in
awarding attorneys' fees in a class action. Under the
circumstances, we cannot properly review the
reasonableness of the fee award. We will therefore vacate
the challenged order and remand for proceedings consistent
with this opinion.
I.
A.
This case arises from a series of failed oil and gas
investments. The named plaintiffs as well as the unnamed
class members were investors in a series of limited
partnerships involving oil and gas interests formed and
promoted by the defendants named in the caption.
According to the plaintiffs, the defendants fraudulently
marketed and sold approximately $150 million worth of
interests in the partnerships between 1986 and 1990. The
plaintiffs brought suit in January 1995, alleging violations
of the Racketeer Influenced and Corrupt Organization Act
("RICO") and SS 10(b) and 20(a) of the Securities Exchange
Act of 1934 (the "Securities Exchange Act"). The complaint
also asserted pendent state law claims for fraud and deceit,
breach of fiduciary duty, and negligent misrepresentation.
In terms of relief, the plaintiffs sought damages as well as
the imposition of a constructive trust.
Discovery and pretrial motion practice ensued for the
next several years. Counsel's papers reflect that they
traveled across the country performing myriad tasks related
to the case, including defending depositions and deposing
numerous witnesses; conducting informal background
investigations into the defendants' allegedly fraudulent
scheme; reviewing voluminous documentary evidence;
meeting with clients and potential class members; and
retaining and consulting with experts in the areas of
geology, oil and gas production, and oil and gas reservoirs.
Counsel also document that they spent a great deal of time
litigating pretrial issues before the Magistrate Judge and
4
District Judge assigned to the case. Most notably, Counsel
point to the fact that they successfully argued a motion to
certify the class, and that they were victorious in litigating
several key discovery disputes.
In 1997, both sides moved for partial summary
judgment. After further discovery, the District Court denied
the plaintiffs' motion, and granted summary judgment for
the defendants with respect to the plaintiffs' claims under
the Securities Exchange Act and the breach of fiduciary
duty claim brought against one of the defendants. The
Court denied the defendants' motion with respect to the
plaintiffs' RICO and other state law claims. Counsel submit
that their efforts to defend against summary judgment on
their clients' RICO claims are noteworthy for, during the
pendency of this litigation, Congress enacted the Private
Securities Litigation Reform Act of 1995, Pub. L. No. 104-
67, 109 Stat. 737 (codified as amended at 15 U.S.C. SS 77z-
1 to 78u-5), and the Supreme Court issued a RICO
decision, Klehr v. A.O. Smith Corp., 521 U.S. 179 (1997),
both of which could have been interpreted as barring the
plaintiffs' RICO claims. Yet, according to Counsel, they were
able to convince the District Court that neither the Act nor
Klehr barred their clients' claims, even though case law
from other jurisdictions appeared to hold otherwise.
The District Court thereafter set a trial date, and the
parties revived settlement talks that had been ongoing since
the inception of the litigation. Settlement discussions had
initially stalled because the defendants had informed
Counsel that they lacked the financial resources to fund
any settlement in excess of $1 million. Eventually, however,
the parties' discussions proved successful, and in June
1999, Counsel procured, and their clients agreed to, a
settlement of $9.5 million. According to the "Notice of
Proposed Settlement of Class Action," which was sent to
plaintiffs and class members, but was not an "expression of
opinion by the [District] Court on the merits of the
Litigation or the Proposed Settlement," App. at 87, the
"plaintiffs' damages expert" estimated that"the total loss of
investment principal sustained by the Class [was] equal to
approximately $18.7 million. The proposed settlement
amount of $9.5 million represents more than half of that
5
amount." Id. at 89. The settlement provided for payments
by the defendants over four years, including $4 million that
was paid on June 30, 1999; $1.5 million that was due on
or before June 30, 2000; $1.5 million due on or before
June 30, 2001; $1.25 million due on or before June 30,
2002; and $1.25 million due on or before June 30, 2003.
According to the settlement terms, Counsel remain
responsible for overseeing the distribution of these
payments.
B.
Having successfully resolved their clients' action, Counsel
submitted to the District Court a fee and cost award
application, which was accompanied by extensive
declarations detailing the nature, quality, and amount of
work that Counsel had performed. Based on the alleged
lengths that Counsel went to prosecute their clients' case,
the claimed difficulty of the case and excellence of the
result achieved, and the size of fee awards in similar cases,
Counsel requested a cost award of roughly $300,000, and
a fee award of 33 1/3% of the $9.5 million settlement.
According to Counsel, their requested fee award was not
excessive in that it only represented approximately 1.1
times their "lodestar" amount; i.e., the number of hours
that Counsel reasonably had worked on plaintiffs' case
multiplied by the reasonable hourly rate they could charge
for such services on the market. Counsel also sent to the
plaintiffs and class members, in a form approved by the
Court, a "Notice of Proposed Settlement of Class Action,"
informing them that Counsel would request the award of
legal fees "not to exceed 33 and 1/3%" of the settlement
award. App. at 89. The notice explained procedures for
objecting to Counsel's application, but none of the plaintiffs
or class members raised any objections. Counsel argued to
the District Court that their fee request was fair and
reasonable when one took all of these factors into account.
In a terse opinion, the District Court approved Counsel's
request for costs, but set the fee award at 18% of the
settlement fund, or $1.71 million, which was to be paid
with interest over time. The Court's analysis, in full, was as
follows:
6
This court has carefully reviewed the submissions of
plaintiffs' counsel, their stated efforts required to settle
this litigation, and the number of hours expended. The
nature of this litigation, its resolution at this stage
without the necessity of trial, the nature of the
settlement, and its value, convince the court that it
would place a reasonable burden on the class to award
attorneys' fees of 18% of the Settlement Fund, or
$1,700,000. Additionally, the request for interest is
granted because the settlement involves yearly
payments by the defendants until 2003 and plaintiffs'
attorneys will only receive their fees as money is paid
into the escrow account. The court also grants
plaintiffs' attorneys' request for reimbursement of their
expenses in the amount of $158,152.65 for the Law
Offices of G. Martin Meyers and $142,063.29 for
Goodkind, Labaton, Rudoff & Sucharow LLP.
Gunter v. Ridgewood Energy Corp., Civ. No. 95-438 (WHW),
at 3 (D. N.J. Nov. 16, 1999).
Counsel moved for reconsideration, contending that the
18% fee award represented a penalty to Counsel, because
it entitled them to only 55% of their lodestar. The District
Court rejected this argument, writing,
The Court considered all relevant factors at the time
the fee was set, including the lodestar and the efforts
of counsel to settle the action, and concluded, upon a
detailed examination of the exhibits submitted with the
fee application, that the determined 18% was a
reasonable fee to counsel.
As said at oral argument, the Court does not credit
the unexplained and undetailed expenditure of 2500
hours by counsel--such is the equivalent of one
hundred and four 24-hour days, or three hundred and
twelve 8-hour days, or four hundred and sixteen 6-
hour days. How were such hours and such days
devoted to plaintiffs' cause? Such a considerable
amount of time cannot be unexplainable. The Court is
of the opinion that these hours merely serve as a
hindsight prop to the one-third percentage of plaintiffs'
recovery sought by counsel as their fee. Counsel had
7
their opportunity to provide full information to the
Court upon their original submission. They did not.
And, interestingly, they did not even attempt to do so
by their motion for reconsideration. The motion for
reconsideration is denied.
Gunter v. Ridgewood Energy Corp., Civ. No. 95-438 (WHW),
at 2-3 (D. N.J. Dec. 29, 1999).
Counsel timely appealed, challenging the District Court's
reduction of their requested fee award. Defendants in the
underlying litigation, as well as the named plaintiffs and
unnamed members of the class, have elected not to
participate in this appeal. We have jurisdiction pursuant to
28 U.S.C. S 1291. The District Court had jurisdiction under
28 U.S.C. SS 1331, 1367; 18 U.S.C. SS 1964(a) and (c); and
15 U.S.C. S 78aa.
II.
Counsel submit that the District Court abused its
discretion in not awarding them their requested fee. They
point to the several factors that district courts are charged
with considering in awarding fees, and contend both that
these factors militate in favor of Counsel's requested
percentage fee, and that the District Court failed to take
these factors into account in reaching its ultimate award
decision. Our jurisprudence governing fee awards is well
developed and familiar; and hence we relegate to the
margin our recital of the factors that district courts should
consider in awarding fees.1
_________________________________________________________________
1. In common fund cases of this sort--in which the attorneys' fees and
the clients' award come from the same source and the fees are based on
a percentage amount of the clients' settlement award--district courts
should consider several factors in setting a fee award. Among other
things, these factors include: (1) the size of the fund created and the
number of persons benefitted; (2) the presence or absence of substantial
objections by members of the class to the settlement terms and/or fees
requested by counsel; (3) the skill and efficiency of the attorneys
involved; (4) the complexity and duration of the litigation; (5) the risk
of
nonpayment; (6) the amount of time devoted to the case by plaintiffs'
counsel; and (7) the awards in similar cases. See In re Prudential Ins.
Co.
8
Counsel also represent that in their initial fee application
they offered to provide detailed billing records to
substantiate the number of hours they billed to the
plaintiffs' case, but that the District Court never asked to
see these records, notwithstanding the Court's stated
_________________________________________________________________
of Am. Sales Practice Litig., 148 F.3d 283, 336-40 (3d Cir. 1998); In re
General Motors Corp. Pick-Up Truck Fuel Tank Products Liability
Litigation, 55 F.3d 768, 819-22 (3d Cir. 1995); MOORE'S FEDERAL PRACTICE,
MANUAL FOR COMPLEX LITIGATION (THIRD) S 24.121,at 207 (1997) (hereinafter
"MANUAL FOR COMPLEX LITIGATION"). In cases involving extremely large
settlement awards--for example, those over one billion dollars--district
courts are counseled to give these factors less weight. See In re
Prudential, 148 F.3d at 338-40.
In mainstream cases, such as this one, we have also suggested that
district courts cross-check the percentage award at which they arrive
against the "lodestar" award method, which is normally employed in
statutory fee-award cases. See id. at 333 (noting that "[t]he lodestar
method is more commonly applied in statutory fee-shifting cases, and is
designed to reward counsel for undertaking socially beneficial litigation
in cases where the expected relief has a small enough monetary value
that a percentage-of-recovery method would provide inadequate
compensation"). A court determines an attorney's lodestar award by
multiplying the number of hours he or she reasonably worked on a
client's case by a reasonable hourly billing rate for such services given
the geographical area, the nature of the services provided, and the
experience of the lawyer. See id. at 331 n.102; Court Awarded Attorney
Fees, Report of the Third Circuit Task Force, 108 F.R.D. 237, 243 (1985)
(hereinafter "Task Force Report"). After arriving at this lodestar figure,
the
district court may, in certain circumstances, adjust the award upward or
downward to reflect the particular circumstances of a given case. See In
re Prudential, 148 F.3d at 338-40; In re General Motors, 55 F.3d at 821-
22. These calculations should be reduced to writing. See In re Prudential,
148 F.3d at 340-41 (noting that courts must "take care to explain" how
they apply the lodestar factor; "[w]ith no explanation for its
application,
we have no basis to evaluate it"); see also Task Force Report, 108 F.R.D.
at 252-53; MANUAL FOR COMPLEX LITIGATION, supra, SS 24.121, 24.122, at
206, 209-210.
The eight factors listed above need not be applied in a formulaic way.
Each case is different, and in certain cases, one factor may outweigh the
rest. For reasons detailed below, what the district court is required to
do
before reaching such a conclusion is principally to explain why. See infra
Sections II.A-B.
9
disbelief that Counsel worked the number of hours that
they submitted they had. Counsel argue that the District
Court abused its discretion in not crediting the number of
hours Counsel worked without ever having reviewed these
records or having them reviewed either by a special master
or the Magistrate Judge who essentially managed the case
through to settlement and handled the discovery. Before
turning to the merits of these two arguments, we briefly
discuss our standard of review.
A.
We give great deal of deference to a district court's
decision to set fees. See In re General Motors Corp. Pick-Up
Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 782 (3d
Cir. 1995); see also MOORE'S FEDERAL PRACTICE, MANUAL FOR
COMPLEX LITIGATION (THIRD) S 24.121, at 206 (1997)
(hereinafter "MANUAL FOR COMPLEX LITIGATION").
Notwithstanding our deferential standard of review, it is
incumbent upon a district court to make its reasoning and
application of the fee-awards jurisprudence clear, so that
we, as a reviewing court, have a sufficient basis to review
for abuse of discretion. See MANUAL FOR COMPLEX LITIGATION,
supra, S 24.121, at 206 ("The court awarding [attorneys'
fees] should articulate reasons for the selection of the given
percentage sufficient to enable a reviewing court to
determine whether the percentage selected is reasonable.")
(collecting cases).
Though a district court may have many good reasons to
set or reduce a proposed fee award, if those reasons are not
explicated, at least in some meaningful degree, we can
arrive at one of only two conclusions: either (1) that the
district court had good reasons based on the factors
enumerated, supra, in footnote 1 to award the fees that it
did; or (2) that it ignored those factors and picked an award
figure arbitrarily. Either way, if the district court's fee-
award opinion is so terse, vague, or conclusory that we
have no basis to review it, we must vacate the fee-award
order and remand for further proceedings. See Court
Awarded Attorney Fees, Report of the Third Circuit Task
Force, 108 F.R.D. 237, 245 (1985) (hereinafter"Task Force
Report") (noting that "conclusory statements [denying or
10
setting award figures] often are subject to reversal and
remand"). For us to act as seers and to attempt to soothsay
what was on the district court's mind when setting a fee
award is a waste of judicial resources.
Moreover, if a district court does not fulfill its duty to
apply the relevant legal precepts to a fee application, it
abuses its discretion by not exercising it. See Hensley v.
Eckerhart, 461 U.S. 424, 437 (1983) ("It remains important
. . . for the district court to provide a concise but clear
explanation of its reasons for the fee award."). As the Third
Circuit Task Force on Court Awarded Attorney Fees noted,
"district courts, in awarding attorneys' fees, may not
reduce an award by a particular percentage or amount
(albeit for justifiable reasons) in an arbitrary or
indiscriminate fashion. If the court believes that a fee
reduction . . . is indicated, it must analyze the
circumstances requiring the reduction and its relation to
the fee, and it must make specific findings to support its
action."
Id. at 253 (quoting Cunningham v. City of McKeesport, 753
F.2d 262, 269 (3d Cir. 1985), vacated on other grounds, 478
U.S. 1015 (1986)) (emphasis added by Task Force Report).
B.
The problem in this case is that the District Court dealt
with the fee-award issue in a cursory and conclusory
fashion. The Court spent little more than a few sentences in
its two opinions analyzing the fee-award issue in this case.
See supra Section I.B (reproducing, in its entirety, the
Court's analysis of the fee-award issue). Even after reading
the District Court's opinions, it remains difficult to discern
both how the Court arrived at the 18% award figure, and
why it reached certain other conclusions that it did. The
Court mentioned the costs award factors that a court
should consider in such circumstances, but did not apply
any of the factors, at least insofar as we can ascertain.
The Court's analysis in its two opinions therefore
constitutes an abuse of discretion for two principal reasons.
First, the Court's statements (reproduced in the margin2)
_________________________________________________________________
2. See, e.g., Gunter v. Ridgewood Energy Corp., Civ. No. 95-438 (WHW),
at 3 (D. N.J. Nov. 16, 1999) ("This court has carefully reviewed the
11
that it reviewed the record and applied the relevant case
law are an ipse dixit insofar as they are unsupported by
careful analysis explicated in written opinions or rulings
from the bench. Even trusting the verity of such
statements, they give us little, as a reviewing court, with
which to work. Unfortunately, a large part of the District
Court's analysis consisted of such statements, which in our
view, do not constitute sufficiently "articulate[d] reasons for
the selection of a given [fee] percentage . . . ." MANUAL FOR
COMPLEX LITIGATION, supra, S 24.121, at 206.
Second, and more importantly, when the Court did
reference the fee-award factors in its opinions, it neither
engaged those factors nor explained its reasoning. In the
entirety of its analysis of the issue in its first opinion, the
Court wrote: "[1] The nature of this litigation, [2] its
resolution at this stage without the necessity of trial, [3] the
nature of the settlement, and [4] its value, convince the
court that it would place a reasonable burden on the class
to award attorneys' fees of 18% of the Settlement Fund, or
$1,700,000." Gunter v. Ridgewood Energy Corp. , Civ. No.
95-438 (WHW) (D. N.J. Nov. 16, 1999) (numbers added). In
its opinion denying Counsel's motion for reconsideration,
the Court advanced a fifth reason for awarding the fee it
did. It expressed disbelief that Counsel worked the number
of hours they claimed they did on behalf of the class. See
Gunter v. Ridgewood Energy Corp., Civ. No. 95-438 (WHW),
at 2-3 (D. N.J. Dec. 29, 1999). In the next Section, we
address, in turn, each of these enumerated considerations,
as well as the District Court's ultimate conclusion. In so
doing, we explain why each factor was given too short shrift
or was misapplied. We also mention certain factors the
Court did not consider, but should have.
_________________________________________________________________
submissions of the plaintiffs' counsel, their stated efforts required to
settle this litigation, and number of hours expended."); Gunter v.
Ridgewood Energy Corp., Civ. No. 95-438 (WHW), at 2 (D. N.J. Dec. 29,
1999) ("The Court considered all relevant factors at the time the fee was
set, including the lodestar and the efforts of counsel to settle the
action,
and concluded, upon a detailed examination of the exhibits submitted
with the fee application, that the determined 18% was a reasonable fee
to counsel.").
12
C.
1.
The complexity and duration of the litigation is thefirst
factor a district court can and should consider in awarding
fees. See supra note 1. From all appearances, this was a
complex case, involving the intersection of federal and state
law, common and public law, and more specifically
securities law, RICO, oil and gas law, and myriad state law
claims. The case was actively litigated for over four-and-a-
half years, and Counsel were forced to file motions dealing
with, inter alia, class certification, complicated discovery
disputes, and the vagaries of RICO statute-of-limitations
law. Moreover, according to Counsel's representations, they
not only deposed numerous witnesses, but also consulted
many experts in the field, and successfully defended
against a summary judgment motion that was bolstered by
authority from other jurisdictions that apparently
supported the defendants' litigation position.
In reducing Counsel's fee request from 33 1/3% to 18%
the District Court did not say that this was an
uncomplicated matter or one of a relatively short duration
as compared to similar cases; it merely mentioned the
"complexity and duration" factor. Perhaps the Court could
have reached such a reasoned conclusion, as it is more
familiar with this litigation than this court, even though we
have taken pains to review the extensive record. But
without that type of statement in the District Court's
opinion, it would seem that the "complexity and duration"
factor would weigh in Counsel's favor. Therefore, we cannot
confidently rely on this factor when, in accordance with our
deferential standard of review, we endeavor to accede to the
judgment of the District Court.3
_________________________________________________________________
3. In reaching this conclusion, we note that it is the practice in the
District Court in New Jersey, unlike, for example, in the Eastern District
of Pennsylvania, for magistrate judges to manage cases, even of this size,
before they proceed to trial. Given this arrangement--and the greater
familiarity of magistrate judges with the complexity and quality of
lawyering in cases that do not reach trial--district courts in such
districts might wish to consider referring fee and cost applications to
the
magistrate judge familiar with the case for a report and recommendation,
even if only for help respecting the fee-award factors listed in footnote
1,
supra.
13
2.
The second factor that the District Court invoked in its
initial opinion was the fact that this case was resolved via
settlement without the need to go to trial. For reasons
explained below, if the Court relied on this fact to deny
Counsel their requested fee award, it misapplied the law.
Commentators discussing fee awards have correctly noted
that "one purpose of the percentage method" of awarding
fees--rather than the lodestar method, which arguably
encourages lawyers to run up their billable hours--"is to
encourage early settlements by not penalizing efficient
counsel . . . ." MANUAL FOR COMPLEX LITIGATION, supra,
S 24.121, at 207 (citing 3 HERBERT B. NEWBERG & ALBA CONTE,
NEWBERG ON CLASS ACTIONS S 14.03, at 14-3 to 14-7 (3d ed.
1992)).
If the District Court, in fact, denied Counsel their
requested fee award merely because Counsel were able to
settle this complicated matter, then the Court ignored the
stated goal in percentage fee-award cases of "ensuring that
competent counsel continue to be willing to undertake
risky, complex, and novel litigation." Id. (citing Deposit
Guaranty Nat'l Bank v. Roper, 445 U.S. 326, 338-39 (1980)
(recognizing the importance of a financial incentive to entice
qualified attorneys to devote their time to complex, time-
consuming cases in which they risk non-payment)).
Procuring a settlement, in and of itself, is never a factor
that the district court should rely upon to reduce a fee
award. To utilize such a factor would penalize efficient
counsel, encourage costly litigation, and potentially
discourage able lawyers from taking such cases. 4
_________________________________________________________________
4. That is not to say that when a case settles counsel do not reduce the
risk of losing at trial, avoid non-recovery, and limit the number of hours
that they will ultimately devote to a case. But the risk of nonpayment
and the amount of time devoted to a case by counsel are separate factors
that should not be conflated with the outcome of a particular case. See
supra note 1; see also infra Sections II.C.4-5 (discussing the "risk of
nonpayment" and the "amount of time devoted" factors).
14
3.
The size of the settlement fund created and the number
of persons benefitted is another important factor in fee-
award cases; so too is comparing awards in similar cases.
See supra note 1. The District Court's reference to the
"nature of the settlement" in this case and"its value,"
Gunter v. Ridgewood Energy Corp., Civ. No. 95-438 (WHW),
at 2 (D. N.J. Nov. 16, 1999)--without any analysis of
whether the $9.5 million that Counsel were able to procure
from the defendants was a favorable settlement for the
plaintiffs in view of the problems of this litigation, or as
compared to similar cases--does little to justify the Court's
decision to limit Counsel's requested fee award. Therefore,
based on the record before us and the reasons (not)
explicated in the District Court's opinion, the"size and
nature of the settlement award" do not appear to be an
adequate basis for the District Court's reduction of fees.
That is not to say that such a basis does not exist, or that
the Court did not have good reasons, which it did not
articulate, for reducing Counsel's fee award to 18%. In a
fully explicated opinion, the District Court could articulate
the soundness of its reasoning.5
_________________________________________________________________
5. We note that during the hearing on Counsel's motion to reconsider,
the Court stated that it "had, in its own experience, determined that
percentage bases much lower than 18 percent are quite appropriate."
Transcript of Proceedings filed Feb. 28, 2000, Gunter v. Ridgewood
Energy Corp., Civ. No. 95-438 (WHW), at 6 (D. N.J.). This citationless
determination not only seems inconsistent with developed case law, it
does not amount to comparing explicitly the fee award in this case to
those awarded in similar cases--the mode of analysis that we believe
necessary when applying this factor.
In assessing "size of the settlement" factor and whether the settlement
was favorable to the plaintiffs and class members, the District Court may
also want to determine what percentage of the plaintiffs' and class
members' approximated actual damages the settlementfigure represents.
See Entin v. Barg, 412 F. Supp. 508, 511 (E.D. Pa. 1976). This figure,
when viewed in context of the risk of non-recovery, see id. at 517-18,
may be helpful in determining how well counsel did for their clients, cf.
supra Section I.A (discussing representations made by Counsel regarding
the size of the plaintiffs' and class members' losses).
15
4.
We turn next to two factors that the District Court did
not analyze or at least mention in its two brief opinions. As
noted above, no one in the class objected to Counsel's
request for fees. Yet, a client's views regarding her
attorneys' performance and their request for fees should be
considered when determining a fee award. See supra note
1. Additionally, it seems that the risk of non-payment in
this case was present both because the defendants were
close to insolvency, and because other classes of plaintiffs
in similar cases against the defendants had lost on similar
legal theories. As noted above, the risk that counsel takes
in prosecuting a client's case should also be considered
when assessing a fee award. See id. In this case, the
District Court should have paid attention to these factors,
given that they could have militated against the result it
reached.
5.
The last two factors the District Court referenced in its
order denying Counsel's motion to reconsider were the
lodestar cross-checking factor and the amount of time
Counsel devoted to their clients' case. See supra note 1
(discussing these factors). In common fund cases, such as
this one, we have suggested that it is advisable to cross-
check the percentage award counsel asks for against the
lodestar method of awarding fees so as to insure that
plaintiffs' lawyers are not receiving an excessive fee at their
clients' expense. See In re Prudential Ins. Co. of Am. Sales
Practice Litig., 148 F.3d 283, 340-41 (3d Cir. 1998); In re
General Motors, 55 F.3d at 820, 821 n.40, 822; see also
infra note 6 (discussing the important role that district
courts play in safeguarding the interests of plaintiffs and
class members when awarding attorneys' fees in cases of
this sort). As we have explained, a court determines the
lodestar by multiplying the number of hours counsel
reasonably worked on a client's case by a reasonable hourly
billing rate for such services in a given geographical area
provided by a lawyer of comparable experience. See In re
Prudential, 148 F.3d at 331 n.102; Task Force Report, 108
F.R.D. at 243.
16
Unfortunately, in this case, the District Court neither
reduced its lodestar calculation to writing, nor gave
Counsel a chance to justify their hours billed or their
hourly rates. In its opinion denying Counsel's motion to
reconsider, the Court stated that it had considered the
lodestar factor in arriving at its original fee award. See
Gunter v. Ridgewood Energy Corp., Civ. No. 95-438 (WHW),
at 2 (D. N.J. Dec. 29, 1999). Nowhere, however, in the
Court's original fee-award opinion is the lodestar factor
even mentioned, much less analyzed. Gunter v. Ridgewood
Energy Corp., Civ. No. 95-438 (WHW), at 3 (D. N.J. Nov. 16,
1999). To examine the lodestar factor properly, a Court
should make explicit findings about how much time
counsel reasonably devoted to a given matter, and what a
reasonable hourly fee would be for such services. See supra
note 1; see also In re Prudential, 148 F.3d at 340-41; Task
Force Report, 108 F.R.D. at 252-53; MANUAL FOR COMPLEX
LITIGATION, supra, S 24.122, at 209-10. The District Court
made none of these findings in its original opinion, nor did
it, in its subsequent opinion, explicitly use a lodestar figure
to cross-check against the 18% figure it reached. In merely
adverting to its consideration of the lodestar factor in the
second opinion, and not analyzing or applying it, the
District Court failed to exercise its discretion in such a way
that an appellate court could possibly review that decision.
Counsel's original fee application included all of the
information necessary to do this cross-checking analysis
and to determine how much time Counsel devoted to their
clients' case. As is customary in these cases, Counsel
submitted extensive briefing and affidavits detailing the
hours they spent on the instant litigation, see App. at 91-
150, listing the number of hours each lawyer, paralegal,
and law clerk worked on the case, see id. at 134-35, 148,
and providing documentation supporting the hourly billing
rates for which they applied, see id. at 171-74. Rather than
submit their actual time records, which were voluminous
and maintained by Counsel, Counsel informed the District
Court that such records "were available for review by the
Court in the event the Court wishes to do so." Id. at 122,
P 91. Waiting to submit such detailed records until they
were requested by the Court seems consonant with the
practice in this circuit. See, e.g., In re Prudential, 148 F.3d
17at 332 n.107 (noting that "time summaries" were adjudged
sufficient in a case in which "the court was only using
lodestar analysis as a cross check on the fee award"); id. at
338, 342 (noting further that the district court could permit
discovery or request further documentation to verify the
statements made in a fee application).
Somewhat inexplicably, however, the District Court
rejected the representations made in Counsel's application
without requesting or reviewing these additional records, or
giving Counsel any indication, before issuing its second
opinion, that the Court doubted the veracity of Counsel's
claims regarding the number of hours that they expended.
Refusing to credit 2500 of the 8424.9 hours submitted by
Counsel, and, in the process, chastising Counsel for not
explaining and detailing their expenditure of hours, the
Court wrote:
[T]he Court does not credit the unexplained and
undetailed expenditure of 2500 hours by counsel--
such is the equivalent of one hundred and four 24-
hour days, or three hundred and twelve 8-hour days,
or four hundred and sixteen 6-hour days. See
Sternberg Aff. Ex. A (2500 hours expended through
June 30, 1999); Meyers Aff. Ex. B (440 hours expended
through June 30, 1999). How were such hours and
such days devoted to plaintiffs' cause? Such a
considerable amount of time cannot be unexplainable.
The Court is of the opinion that these hours merely
serve as a hindsight prop to the one-third percentage of
plaintiffs' recovery sought by counsel as their fee.
Counsel had their opportunity to provide full
information to the Court upon their original
submission. They did not. And, interestingly, they did
not even attempt to do so by their motion for
reconsideration. The motion for reconsideration is
denied.
Gunter v. Ridgewood Energy Corp., Civ. No. 95-438 (WHW)
(D. N.J. Dec. 29, 1999).
The Court's statements are called into question by
Counsel's representations in their fee application that they
would provide the Court with these records if the Court so
18
requested, see App. at 122, P 91; hence, the Court's
decision to discount 2500 hours that Mr. Sternberg worked
without reference to Counsel's proffer seems arbitrary, if
not contrary to the facts in the record. Counsel summarized
the hours that Mr. Sternberg worked with no less
documentation and in no less detail than that of the other
6000 hours submitted by Counsel. In its first opinion in
this matter and during the hearings regarding the fee-
award issue, the Court never expressed any disbelief that
Counsel had devoted as much time to this case as they had
represented they had in their initial fee application.
Therefore, without further elaboration on the matter by the
District Court, it is impossible for us to discern why the
Court chose not to credit the number of hours Mr.
Sternberg declared that he worked on this case. Similarly,
it would have been difficult for Counsel to have known that
they should have departed from the usual practice of
submitting time report summaries and presented their time
support documentation in their entirety. Fundamental
fairness requires that Counsel have been given the
opportunity to make this proffer before the court rejected
Counsel's representations out of hand.
Moreover, according to Counsel's representations, Mr.
Sternberg is a seasoned class action attorney who"played
a major part in many of the most significant class actions
prosecuted" by his firm, which itself has appeared in many
major class actions. App. at 141. It is not implausible that
as a major partner working on this case for four-and-one-
half years he would have billed 2500 hours in the matter.
Partners and associates in large law firms involved in
complex litigation often bill that many hours in a single
year. Even assuming that he worked on several other
matters during those four and one-half years, it is not
prima facie unbelievable that he would have devoted so
many hours to the plaintiffs' and class members'file.
The District Court may well have good reason to discredit
Counsel's representations regarding Mr. Sternberg, but not
without first having reviewed Counsel's time records,
inquiring into other cases Mr. Sternberg was working on at
the same time, and documenting the reasons why it did not
believe Counsel's representations. Even if Mr. Sternberg did
19
not work 2500 hours on the case, the record reflects that
he devoted some amount of time to the named plaintiffs'
and class members' cause. The record reveals, for example,
that Mr. Sternberg made appearances and arguments in
this matter. See, e.g., Transcript of Motions, Gunter v.
Ridgewood Energy Corp., Civ. No. 95-438 (WHW), at 37 (D.
N.J. Sept. 9, 1999). Therefore, the District Court should not
have discounted his hours altogether. And even if the Court
were merely reducing the overall hours figure by 2500
hours as a penalty to Counsel for misrepresenting the
number of hours certain lawyers worked on this case, the
Court should have said so, so that we could review that
decision for abuse of discretion.
III.
In sum, the District Court abused its discretion in this
case by not exercising it; and when it did exercise it, by
misapplying our jurisprudence. We will therefore vacate the
order appealed from and remand for further proceedings
consistent with this opinion. In so doing, we express no
opinion as to what award should ultimately be fixed.6
_________________________________________________________________
6. We do note that district courts can avoid many of complications
associated with fee awards by setting fee guidelines and ground rules
early in the litigation process. Such ground rules may include:
developing means of record keeping that facilitate judicial review;
providing for periodic reports or status conferences at which counsel can
apprise the court of their efforts; establishing a reasonable hourly rate
at
which counsel can bill their clients for certain services; and capping the
amount of time that counsel or certain lawyers staffing the case may
spend on a particular matter or issue if they expect to be compensated
for all of their efforts. Keeping track of counsel's progress can prevent
lawyers from padding their hours or having high priced counsel perform
menial tasks. It also allows the court to digest smaller amounts of
information at regular intervals, and it gives counsel a better
understanding of what the court thinks is reasonable in terms of
expenditures and hours billed. Learned treatises on the subject provide
helpful suggestions for setting these ground rules and following through
on them. See, e.g., MANUAL FOR COMPLEX LITIGATION, supra, SS 24.2-24.214,
at 211-14.
20
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
Another approach is for the district court to determine the fee
arrangement in advance through competitive bidding. See, e.g., In re
Amino Acid Lysine Antitrust Litig., 918 F. Supp. 1190, 1192-1201 (N.D.
Ill. 1996) (Shadur, J.) (employing this approach); In re Cendant Corp.
Litig., 182 F.R.D. 144, 150-52 (D.N.J. 1998) (Walls, J.) (same); In re
Wells
Fargo Sec. Litig., 157 F.R.D. 467, 468-77 (N.D. Cal. 1994) (Walker, J.)
(same). This device appears to have worked well, and we commend it to
district judges within this circuit for their consideration.
At all events, whatever approach district courts choose to adopt they
must safeguard the plaintiffs and class members' interests, because as
is often the case (and as it was here), an attorneys' fee motion filed by
successful counsel in a common fund award case goes unopposed.
Therefore, the plaintiffs' rights need special protection. See Lindy Bros.
Builders, Inc. v. Am. Radiator & Standard Sanitary Co., 487 F.2d 161,
168 (3d Cir. 1973), aff 'd in part and vacated in part, 540 F.2d 102 (3d
Cir. 1976) (en banc), (" ``[U]nless time spent and skill displayed be used
as a constant check on applications for fees there is a grave danger that
the bar and bench will be brought into disrepute, and that there will be
prejudice to those whose substantive interests are at stake and who are
unrepresented except by the very lawyers who are seeking
compensation.' ") (quoting Cherner v. Transitron Elec. Corp., 221 F. Supp.
55, 61 (D. Mass. 1963)). To that end, a district court that suspects that
the plaintiffs' rights in a particular case are not being adequately
vindicated may appoint counsel, a special master, or an expert to review
or challenge the fee application filed by plaintiffs' attorneys.
21