Brytus v. Spang & Company , 203 F.3d 238 ( 2000 )

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
2-7-2000
Brytus v. Spang & Company
Precedential or Non-Precedential:
Docket 98-3627
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2000
Recommended Citation
"Brytus v. Spang & Company" (2000). 2000 Decisions. Paper 21.
http://digitalcommons.law.villanova.edu/thirdcircuit_2000/21
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2000 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
Filed February 7, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 98-3627
JEAN E. BRYTUS; JOHN LAZOR; WHEAT GIACOBBE;
JOHN STANKO; STEVE KOTYK; ALEX WARCHOLAK, and
others similarly situated; JOHN KOTYK; SAM BORIELLE,
JR., and others similarly situated; EDWARD J. GOLONKA,
and others similarly situated
v.
SPANG & COMPANY; UNION NATIONAL BANK; PENSION
PLAN, for Former Bargaining Unit Employees of Fort Pitt
Bridge and Electric Weld Divisions at Cannonsburg, PA
Plant; UNITED STEELWORKERS OF AMERICA,
AFL-CIO-CLC., a labor organization
(D.C. Civil No. 88-02548)
EDWARD J. GOLONKA, and others similarly situated
v.
SPANG & COMPANY; PENSION PLAN, for Former
Bargaining Unit Employees of Fort Pitt Bridge and Electric
Weld Divisions at Cannonsburg, PA Plant; UNITED
STEELWORKERS OF AMERICA
(D.C. Civil No. 91-01041)
DANIEL P. MCINTYRE, ESQ. and SCHWARTZ,
STEINSAPIR, DOHRMANN & SOMMERS, LLP,*
Appellants
(*Pursuant to Rule 12(a), F.R.A.P.)
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 88-cv-02548)
(District Judge: Hon. Donald J. Lee)
Argued: July 30, 1999
Before: SLOVITER, NYGAARD and STAPLETON,
Circuit Judges
(Filed February 7, 2000)
Daniel P. McIntyre (ARGUED)
Miami Beach, Florida 33119
William T. Payne
Schwartz, Steinsapir, Dohrmann
& Sommers, LLP
Pittsburgh, PA 15223
Attorneys for Appellants
Carl B. Frankel
General Counsel
United Steelworkers of America
Pittsburgh, PA 15222
Jeremiah A. Collins (ARGUED)
Bredhoff & Kaiser, P.L.L.C.
Washington, D.C. 20036
Attorneys for Appellee,
United Steelworkers of America
OPINION OF THE COURT
SLOVITER, Circuit Judge.
Counsel for a class of plaintiffs who were successful in
their suit under the Employee Retirement Income Security
Act of 1974 ("ERISA"), 29 U.S.C. SS 1001-1461, against the
sponsor of a pension plan who had terminated the plan and
seized the surplus plan assets sought counsel fees, both
under the statutory fee shifting provision and from the fund
recovered on behalf of the class. The employer/plan
2
sponsor agreed to pay the successful plaintiffs $460,000 in
attorney's fees and expenses, pursuant to ERISA's statutory
fee provision. The union representing the employees, which
opposed payment of any additional fee from the
participants' fund, intervened and objected to any
additional fees from the fund awarded on behalf of the plan
participants and beneficiaries. The District Court denied
counsel's application for recovery of fees from the common
fund, a position it reaffirmed on reconsideration. Counsel
appeals. In reviewing the award of counsel fee, this court
determines whether the District Court abused its
discretion, see Silberman v. Bogle, 683 F.2d 62, 64-65 (3d
Cir. 1982), although in this case the scope of review will be
discussed in more detail hereafter.
I.
In 1988 and 1989, counsel initiated two lawsuits on
behalf of eight individual plaintiffs against plaintiffs' former
employer Spang & Company ("Spang"), alleging that Spang
violated ERISA by failing to distribute surplus pension plan
assets to retired workers and violated the Labor
Management Relations Act ("LMRA"), 29 U.S.C.S 185, by
breaching a labor agreement. At the inception of the
litigation, the individual plaintiffs assigned their right to a
fee award under ERISA to counsel in exchange for counsel's
services. Those two lawsuits were later consolidated with a
similar lawsuit filed by other plaintiffs and all three suits
ultimately were certified as a class action.
In 1995, the District Court, relying on our prior decision
in Delgrosso v. Spang & Co., 769 F.2d 928 (3d Cir. 1985)
(relating to a similar pension fund at a different Spang
plant), found that Spang had wrongfully acquired the
surplus assets of an ERISA-protected retirement fund
instead of distributing the surplus proportionately to the
retirees as required by the pension plan. The court ordered
Spang to pay the entire amount of the reversion which
Spang had taken when the pension plan terminated, plus
interest since August 31, 1988. As a result, the class
received approximately $12,500,000. We affirmed the
judgment of the District Court. See Brytus v. Spang & Co.,
3
79 F.3d 1137 (3d Cir.) (unpublished table decision), cert.
denied, 519 U.S. 818 (1996).
After the District Court had completed the merits phase,
the litigating plaintiffs sought reasonable attorney's fees
under the statutory fee provision of ERISA, 29 U.S.C.
S 1132(g)(1); in the same motion, two of the counsel for the
plaintiff class,1 Daniel P. McIntyre and William T. Payne
(referred to herein as "counsel"), "also invoke[d] the
common fund doctrine as warranting a recovery of fees out
of the fund they have recovered on behalf of the class."
App. at 224. Spang did not contest the right of the litigating
plaintiffs to recover from it reasonable attorney's fees under
the fee provision of ERISA, objecting only as to the hourly
rates and costs claimed. The United Steelworkers
Association (the "Union") intervened to oppose counsel's
motion for the recovery of fees from the common fund.
In its first Memorandum Order on this issue, dated July
14, 1997, the District Court distinguished between
counsel's entitlement to reasonable statutory fees and
expenses under ERISA and under a common-fund theory.
It noted the Union's position that because the action was
litigated to judgment under the fee-shifting provision of
ERISA, counsel cannot also recover fees under a common
fund theory. However, the District Court did not make such
a determination as a matter of law, but held that"under
the facts and circumstances of this case," counsel were not
entitled to recover fees pursuant to a common fund theory.
In re Spang & Co. Litig., Nos. 88-1548, 91-1041, slip op. at
2 (W.D. Pa. July 14, 1997) (hereafter "July 14 slip op.").
Counsel moved for reconsideration of that order,
asserting that they had not had an opportunity tofile a
brief in response to the Union's opposition to a common
fund fee. Counsel argued that they should be awarded a fee
of 20 to 30 percent of the then-$11,500,000 dollar common
fund, or approximately $2,300,000 to $3,450,000. Upon
reconsideration, the District Court affirmed its earlier order,
holding that in its discretion a reasonable fee to be paid by
Spang pursuant to the ERISA fee provision was warranted,
_________________________________________________________________
1. In contrast, the attorney who represented the plaintiffs in the third
suit did not move for additional fees.
4
but that an additional fee award to be paid from the
common fund was not. See In re Spang & Co. Litig., Nos.
88-2548, 91-1041, slip op. at 5-6 (W.D. Pa. August 15,
1997) (hereafter "August 15 slip op.").
Counsel appealed from that order. However, because the
District Court had not yet quantified the amount of
statutory fees, we held the order was not final and
dismissed the appeal for lack of jurisdiction. See Brytus v.
Spang & Co., 151 F.3d 112 (3d Cir. 1998). Now that the
statutory fee award has been quantified, we have
jurisdiction pursuant to 28 U.S.C. S 1291 over counsel's
renewed appeal from the final order denying additional fees
from the common fund.
II.
Under what has been denominated the "American Rule"
for payment of fees, "the prevailing litigant is ordinarily not
entitled to collect a reasonable attorneys' fee from the
loser." Alyeska Pipeline Service Co. v. Wilderness Society,
421 U.S. 240, 247 (1975). Instead, attorneys are paid
pursuant to contract with their clients. Over the years, a
widespread exception has grown as an increasing number
of statutes have authorized payment of attorney's fees by
one party to the party that prevailed. The ERISA statutory
fee provision is such a congressional enactment. It provides
that "the court in its discretion may allow a reasonable
attorney's fee and costs of action to either party." 29 U.S.C.
S 1132(g)(1).
Pursuant to that statute, the defendant in an ERISA
action usually bears the burden of attorney's fees for the
prevailing plaintiff or plaintiff class, thus "encourag[ing]
private enforcement of the statutory substantive rights,
whether they be economic or noneconomic, through the
judicial process." Report of the Third Circuit Task Force,
Court Awarded Attorney Fees 15 (Oct. 8, 1985), reprinted at
108 F.R.D. 237, 250. Although the statutory fee belongs to
the litigating party, often, as in this case, plaintiffs will
assign their right to any statutory fee to their counsel at the
outset of the litigation, thus making payment of fees to
counsel contingent on successful litigation and attainment
of the statutory fee from the losing party.
5
Another well-recognized exception to the general principle
that an attorney must look to his or her own client for
payment of attorney's fees is the common fund doctrine.
Since the decisions in Trustees of the Internal Improvement
Fund v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1882),
and Central Railroad & Banking Co. of Ga. v. Pettus, 113
U.S. 116 (1885), the Supreme Court has consistently
recognized "that a litigant or a lawyer who recovers a
common fund for the benefit of persons other than himself
or his client is entitled to a reasonable attorney's fee from
the fund as a whole." Boeing Co. v. Van Gemert, 444 U.S.
472, 478 (1980). The doctrine reflects the traditional
practice in equity, and "rests on the perception that
persons who obtain the benefit of a lawsuit without
contributing to its cost are unjustly enriched at the
successful litigant's expense." Id. Parties as well as counsel
can seek fees under the common fund doctrine, for the
doctrine rests on a theory of unjust enrichment on the part
of beneficiaries of a successful lawsuit at the expense of the
litigants. See id.The distinction between the fee in these two types of
cases, statutory fee and common fund fee, has practical
relevance. First, it determines who pays the awarded fee.
Under the common fund doctrine the plaintiff class as a
whole rather than the defendant bears the burden of
attorney's fees. Second, it affects how the fee is calculated,
as the "lodestar" method applied to set a reasonable
attorney's fee under a statutory fee provision, see Hensley
v. Eckerhart, 461 U.S. 424, 433-34 (1983), is not
necessarily applied under the common fund doctrine.
The method for establishing the statutory fee is now
settled by Supreme Court cases. The court must start by
taking the amount of time reasonably expended by counsel
for the prevailing party on the litigation, and compensate
that time at a reasonable hourly rate to arrive at the
lodestar. See Pennsylvania v. Delaware Valley Citizens'
Council for Clean Air, 478 U.S. 546, 564 (1986) (Delaware
Valley I). Originally, it was contemplated that the lodestar
could be adjusted upward or downward depending on a
variety of factors, see Lindy Bros. Builders, Inc. of Phila. v.
American Radiator & Standard Sanitary Corp., 487 F.2d
6161, 167-69 (3d Cir. 1973), but more recently the Supreme
Court has sharply limited the number of factors which can
be considered in adjusting the lodestar amount.
Of particular relevance to this appeal, the Supreme Court
has held that courts may not increase the lodestar amount
in consideration of the attorney's contingent risk when
calculating a fee awarded pursuant to statute. See City of
Burlington v. Dague, 505 U.S. 557, 567 (1992). According to
the Court, the lodestar amount "is ``presumed to be the
reasonable fee' to which counsel is entitled." Delaware
Valley I, 478 U.S. at 564 (quoting Blum v. Stenson, 465
U.S. 886, 897 (1984)) (emphasis in original). "Although
upward adjustments of the lodestar figure are still
permissible, such modifications are proper only in certain
rare and exceptional cases, supported by both specific
evidence on the record and detailed findings by the lower
courts." Id. at 565 (internal quotations and citations
omitted).
Attorney's fees under the common fund doctrine may be
calculated using the lodestar method but more frequently
such fees have been awarded using the percentage-of-
recovery method, which awards a fee based on a percentage
of plaintiffs' recovery. See generally In re Prudential Ins. Co.
Am. Sales Practices Litig., 148 F.3d 283, 333 (3d Cir. 1998),
cert. denied, 119 S.Ct. 890 (1999). The Supreme Court has
not yet decided whether its decision in Dague precluding
the use of a multiplier in consideration of risk taken when
calculating fees under the lodestar method applies in
common fund cases, but some courts of appeals have held
it does not. See, e.g., In re Washington Pub. Power Supply
System Sec. Litig., 19 F.3d 1291, 1299 (9th Cir. 1994);
Florin v. NationsBank of Ga., N.A., 34 F.3d 560, 564-65 (7th
Cir. 1994). But see In re General Motors Corp. Pick-up Truck
Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 822 (3d Cir.
1995) (stating in dictum that court using lodestar method
in common fund case could not apply a multiplier for risk
after Dague). We took cognizance of the issue in In re
Prudential, assumed "that multipliers for risk or counsel's
expertise are appropriate in the lodestar cross-check in
common fund cases," but cautioned that "they require
particular scrutiny and justification." In re Prudential, 148
F.3d at 341 n.121.
7
This case presents a hybrid situation. Because ERISA
provides for a statutory fee, the district court has the
discretion to require the defendant to pay a reasonable
attorney's fee calculated under the lodestar method. See 29
U.S.C. S 1132(g)(1). However, because a common fund was
created from which all plaintiff members of the class will
benefit, the court may be able to use the common fund
doctrine in awarding attorney's fees from that fund, which
would be deducted from the amount owing to all the
beneficiaries. As we explain in greater detail below, the fact
that a common fund has been created does not mean that
the common fund doctrine must be applied in awarding
attorney's fees, a suggestion that is implicit in counsel's
argument.
III.
It is important to note at the outset that counsel do not
contend that the $460,000 fee paid to them by Spang
under the ERISA fee-shifting provision was calculated
contrary to established Supreme Court precedent, and, in
fact, they stipulated to that amount. They do not argue that
it provides inadequate recompense for the work performed
on an hourly basis. We do not understand them to take
issue with the Union's contention that the statutory fee
covered every compensable hour spent by counsel, who
were paid at the rate of $300 per hour for McIntyre and
$275 per hour for Payne. Rather, they assert that the
District Court should have awarded a fee from the common
fund using the percentage-of-recovery method to account
for the contingent nature of the undertaking and the result
achieved, and then subtracted from that figure the
statutory fee award paid by Spang. They argue that in this
way they would have been satisfactorily paid and yet
avoided the duplicative recovery that concerned the District
Court.
Counsel thus stand on the position that since the result
of the litigation was to create a common pension fund for
the benefit of all plaintiff class members, they are entitled
to additional fees based on the common fund doctrine of
awarding attorney's fees. This presupposes that the Dague
bar is inapplicable and that counsel in common fund cases
8
are entitled to a multiplier for risk of contingency, an issue
we need not decide today.
A.
When the appellate courts have referred to the review of
an award of attorney's fees under the abuse of discretion
standard, the focus has been on the amount of the
attorney's fee. See Hensley, 461 U.S. at 437 ("district court
has discretion in determining the amount of a fee award").
However, it is also within the district court's discretion
whether to award attorney's fees under an equitable
doctrine such as the common fund doctrine. See Sprague v.
Taconic Nat'l Bank, 307 U.S. 161, 166-67 (1939)
(recognizing the federal court's power in equity to award
costs and fees in its discretion from a common fund); see
also Dardovitch v. Haltzman, 190 F.3d 125, 146 (3d Cir.
1999) (noting that "the District Court's discretion in
deciding whether to grant attorney's fees in an equity case
is exceedingly broad").
Counsel argue that we should review the District Court's
decision in this case de novo because the decision rested on
a determination of law. We agree that whether the District
Court applied the proper standard in making its
discretionary determination is a question of law subject to
plenary review. See Student Pub. Interest Research Group of
N.J. v. AT & T Bell Lab., 842 F.2d 1436, 1442 (3d Cir.
1988). Once we determine there was no legal error, we
review for abuse of discretion.
Counsel argue that the District Court proceeded on the
legal misunderstanding that ERISA precludes a common
fund fee award because it contains a statutory fee
provision. We do not read the District Court decision to so
hold. Nor does the Union argue here that the ERISA fee
provision preempts use of the common fund doctrine in all
cases.
It is true that in its first opinion the District Court
included some statements that could be interpreted as a
categorical rejection of a common fund award to counsel
who recovered fees under a statutory fee-shifting provision.
See, e.g., July 14 slip op. at 6 ("The Court also concludes
9
that in seeking an award of counsel fees in an ERISA action
litigated to judgment and subject to a fee-shifting provision,
counsel may not recover fees under both the statute and
against the common fund."). However, in the next sentence
the court explained that its disapproval was directed to
duplicative fees. See id. ("To permit counsel to recover fees
under both a fee-shifting provision and against the common
fund is to award counsel duplicative recovery, a goal not
contemplated by either the fee-shifting provision or the
common fund theory."). The court did explain that the
underlying rationales of the two approaches were
inconsistent. But, as previously noted, the court limited its
holding to "the facts and circumstances of this case." Id. at
2.
Even more significant, counsel had the opportunity to
argue their position and entitlement to the common fund
award to the court when the District Court agreed to
reconsider its ruling. In particular, they directed the
District Court to three unreported cases in which district
courts awarded both statutory and common fund fees. The
District Court noted that in those cases, where the common
fund was derived from a settlement, the "courts were
engaged foremost with awarding reasonable fees rather
than with establishing a rule of law concerning the recovery
of both statutory and common fund fees." August 15 slip
op. at 3-4. The District Court here rejected counsel's
suggestion that it was obliged to award common fund fees
in a fee-shifting action whenever a fund is created that
benefits non-plaintiffs, but made explicit that it was not
establishing a categorical rule. It stated: "Without
addressing the question of whether a fee-shifting statute
does or does not preempt the application of the common fund
doctrine, the Court finds that Counsels' argument [that they
were entitled to recover both statutory and common fund
fees] is logically flawed." Id. at 4 (emphasis added). The
court continued: "[m]erely because a statute does not
preempt the application of a doctrine, it does not follow that
a court is required to apply the doctrine." Id. (emphasis in
original). The court reiterated its understanding"that a
district court's duty in awarding attorneys fees is to
determine the reasonable amount of attorney fees to be
awarded in each case," id. at 3 (emphasis in original), and
10
explained "it is precisely because the common fund doctrine
is an equitable doctrine that its application rests within the
discretion of the district court," id. at 4.
This discussion in the District Court's opinion on
reconsideration should lay to rest any suggestion in the
court's initial opinion that it believed it was unable to
award the requested fee should it have wanted to. Indeed,
at the end of that opinion, the court explained that it
denied counsel a common fund fee because it believed
counsel had already been reasonably compensated,
"[c]onsidering the fact that the result in this case is
principally driven by ERISA, the Court, in the exercise of its
equitable powers, finds that under the totality of the
circumstances, an award of reasonable attorneys' fees
based on an unenhanced lodestar formula plus expenses is
the only reasonable method of compensating . . . counsel
for their services." Id. at 5-6. Thus, as was the case for the
Court in its review of the fee in Pettus more than one
hundred years ago, the touchstone for the District Court's
determination of the amount of the fee award was its
reasonableness. We therefore review the District Court's
determination of reasonableness as well as its decision that
no additional fees were warranted from the common fund
for abuse of discretion.
B.
In considering whether the District Court abused its
discretion, we consider primarily whether the
circumstances of this case present an inequity that needs
redress, which is the typical situation for application of the
common fund doctrine. As the Supreme Court has
explained, the common fund doctrine "rests on the
perception that persons who obtain the benefit of a lawsuit
without contributing to its cost are unjustly enriched at the
successful litigant's expense." Boeing, 444 U.S. at 478. For
example, in Trustees of the Internal Improvement Fund v.
Greenough, 105 U.S. 527 (1882), the first Supreme Court
case to recognize the common fund doctrine, the Court held
an individual plaintiff was entitled to an attorney's fee from
the common fund as he had paid counsel over the course
of the litigation. The Court found that it would be unjust if
11
that plaintiff were required to bear the entire cost of the
litigation with no contribution from the other beneficiaries
of the fund. See id. at 532.
Unjust enrichment was also the basis for upholding an
award of attorney's fees in Boeing to be paid from an
unclaimed common fund to compensate the individual
class action claimants for their legal expenses. See 444 U.S.
at 480. The litigating plaintiffs had brought a class action
against Boeing for its failure to provide adequate notice of
the class members' rights to convert the company's
debentures into stock. As damages, plaintiffs were each
awarded the difference between the redemption price of the
outstanding debentures and the price at which the shares
of Boeing's stock traded on the last day for exercising
conversion rights. A common fund was created for the
unclaimed portion of the judgment from which non-
litigating class members could assert claims, with the
remainder to return to Boeing. The award of attorney's fees
from the unclaimed portion of the judgment was upheld on
the ground that absentee class members had received a
benefit within the meaning of the common fund doctrine.
As the Supreme Court explained, "Unless absentees
contribute to the payment of attorney's fees incurred on
their behalves, they will pay nothing for the creation of the
fund and their representatives may bear additional costs."
Id. at 480. Thus, the Court continued, an award from the
common fund "rectifies this inequity by requiring every
member of the class to share attorneys' fees to the same
extent that he can share the recovery." Id.In this case, there is no inequity to redress, as Spang
ultimately bore the entire cost of the litigation. Counsel
argue that their clients, the original plaintiffs, assigned to
counsel any statutory fee they received, but in fact those
plaintiffs paid nothing toward counsel's fee, as that was
received from Spang. The class members may have been
enriched, but their enrichment was not at the expense of
either the litigating parties or their counsel.
Nor in this case can counsel argue they did not receive a
reasonable fee. This is unlike the situation in Central
Railroad & Banking Co. of Georgia v. Pettus, 113 U.S. 116(1885), where, in approving an attorney's fee award from
12
the common fund created by counsel on behalf of all
unsecured creditors of the debtor, the Court noted both
that the non-litigating creditors would have benefitted
without contributing toward compensation for counsel for
services performed, see id. at 126-27, and that the amount
of fees counsel had received from their clients was not a
"reasonable" fee in that case. See id. at 127. Here, the
District Court found that the fee was reasonable, and we
have no reason to disagree.2
Of the many additional arguments counsel raise, the one
that we believe requires some discussion is their contention
that the District Court penalized them for proceeding to
judgment, which resulted in the award of a statutory fee,
whereas they would have been entitled to a fee under the
common fund doctrine had they accepted a settlement.
Counsel argue that, as a result, lawyers' self-interest might
lead them to accept an otherwise inadequate settlement
rather than rely on the vagaries of a court-awarded counsel
fee. This, of course, is not a case that was concluded by
settlement. This case was tried to judgment, and a fee
awarded on that basis. We are not inclined to base our
ruling on some hypothetical situation that might be
presented in the future.
It is true that some courts have awarded a percentage fee
under the common fund doctrine from class action
settlements in which a statutory provision would have
applied had the case gone to judgment. See, e.g., Florin, 34
F.3d at 563; Skelton v. General Motors Corp., 860 F.2d 250,
255 (7th Cir. 1988). This court also has approved an award
of fees from the common fund when the case has settled.
See In re Fine Paper Antitrust Litig., 751 F.2d 562, 583 (3d
Cir. 1984) ("settlements releasing defendants from both
damage and statutory fee liability . . . result in a fund in
court from which fees [can] be awarded under the equitable
fund doctrine"). When there has been a settlement, the
_________________________________________________________________
2. Counsel argue that the District Court's decision failed to reflect that
they had evoked the LMRA in the complaint. The District Court
acknowledged that an LMRA claim was included, but treated this case as
principally driven by ERISA. There was no additional recovery on the
basis of the LMRA.
13
basis for the statutory fee has been discharged, and it is
only the fund that remains. It is possible to negotiate a fee
from the defendant in the context of a settlement although
this must be carefully monitored to avoid conflicts of
interest. See In re Prudential, 148 F.3d at 334-35. In any
event, consideration of the attorney's fees was likely
factored into the amount of settlement.
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. We have directed the
district courts to subject all fee applications in class action
settlements to "thorough judicial review." See In re General
Motors, 55 F.3d at 819. The disparity between fees resulting
from application of the different methods of calculation will
be minimized if the district courts cross-check the fee from
the percentage of recovery method against that from the
lodestar method to assure that the percentage awarded
does not create an unreasonable hourly fee. Id. at 822; In
re Prudential, 148 F.3d at 341, n.121. The Union has
suggested that the percentage fee counsel asks from the
common fund would give them a fee of $1,000 per hour. We
have no occasion to check that figure. The ultimate goal in
these cases is the award of a "reasonable" fee to
compensate counsel for their efforts, irrespective of the
method of calculation.
Further, the distinction between the statutory fee and the
fee from a common fund is more than the amount of the
fee; it is the party who pays the fee. The District Court
stressed this fact and made explicit its concern that an
award of fees from the common fund would deprive the
beneficiaries of a portion of the award, whereas it was
defendant Spang who was responsible for the statutory fee.
Counsel suggest that nothing in ERISA insulates fund
participants from litigation costs, and note that there have
been ERISA cases which applied the common fund
doctrine. Counsel concede, however, that by far the largest
number of ERISA cases to apply the common fund analysis
are those that were settled, which, as we have noted,
present a different circumstance.
14
This is not to say that the common fund doctrine may
never be applied in a case for which there is a statutory fee
provision and which goes to judgment. One such instance
could be when the defendant responsible for the statutory
fee has become bankrupt or otherwise has insufficient
funds. Another is when there has been a showing that
competent counsel could not have been obtained for that
case or that line of cases. No such showing has been
attempted here. We see no reason to list all the other
possible situations. For the purposes of this case, it is
enough to hold that the District Court here did not abuse
its discretion in declining to award additional fees to be
taken from the ERISA recovery under the common fund
doctrine.3
IV.
For the reasons set forth above, we will affirm the District
Court's order awarding statutory attorney's fees pursuant
to 29 U.S.C. S 1132(g)(1) and denying additional fees out of
the common fund.
_________________________________________________________________
3. In arguing that the District Court gave only one reason for its
decision
not to award common fund fees in this case, the dissent overlooks the
District Court's statements that counsel had already been compensated
by the defendant Spang when the case went to judgment and that
counsel had received a reasonable fee from that source. The dissent does
not dispute either reason. Instead, the entire dissent is directed to
countering the suggestion that the District Court would "never award [ ]
common fund fees in an ERISA case that goes to judgment," a statement
the District Court did not make and that we, in any event, have
expressly rejected.
15
STAPLETON, Circuit Judge, dissenting:
I would reverse the judgment of the District Court and
remand the case for further proceedings. While the District
Court's August 15th opinion can be read as an exercise of
discretion, it does not adequately explain its decision to
deny common fund fees in this case. The only reason the
District Court offered for its decision to deny such fees was
that "the Court remains concerned with awarding
reasonable fees in light of the fee-shifting statute." August
15 slip op. at 4-5. In my view, that single sentence, which
is essentially a reason for never awarding common fund
fees in an ERISA case that goes to judgment, does not
sufficiently explain why in this case such fees are
inappropriate. Without such an explanation, we are
effectively unable to review the District Court's decision.
Although today's decision leaves open the possibility that
common fund fee awards could be made in future ERISA
cases that proceed to judgment, such fees will only be
available in cases where either the defendant is unable to
pay the statutory fee or plaintiffs' counsel can successfully
show "that competent counsel could not have been
obtained for that case or that line of cases." Slip op. at 15.
On the other hand, my colleagues freely concede, as they
must, that common fund fee awards are routinely given in
settled cases in which a statutory-fee provision would have
applied had the case gone to judgment. They further
concede that "there remains a 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." Slip op. at 14. I find that
unacceptable. While my colleagues are content to have one
set of principles apply to settlements and another to
judgments, I would follow the course this Court charted in
In re General Motors Corp. Pick-Up Truck Fuel Tank Products
Liability Litigation, 55 F.3d 768 (3d Cir. 1995) (hereinafter
"General Motors"), and apply the same legal principles to
both those cases that go to judgment and those that settle.
In General Motors, we reviewed a counsel-fee award in
the context of a settled case. The relevant analysis,
however, is equally applicable to fee awards following a
judgment. We recognized that each of the two principal
16
methods of awarding fees -- percentage of recovery ("POR")
and lodestar -- "has distinct advantages for certain kinds of
actions, which will make one of the methods more
appropriate as a primary basis for determining the fee." 55
F.3d at 820. It is, therefore, important for "a court making
or approving a fee award [to] determine what sort of action
the court is adjudicating and then primarily rely on the
corresponding method of awarding fees . . . ." Id. at 821.
The Court in General Motors recognized that there are
essentially two types of cases -- "statutory fee cases" and
"common fund cases." The lodestar method is generally
more appropriate for the former, while the POR method is
more appropriate for the latter. In "hybrid" cases which
share the attributes of both a statutory fee case and a
common fund case, it is within the district court's
discretion to make a particularized determination as to
whether the case "more closely resembles" a common fund
case or a statutory fee case. General Motors, 55 F.3d at
822; see also McLendon v. The Continental Group Inc., 872
F. Supp. 142, 151 (D.N.J. 1994) (recognizing the
discretionary nature of the decision). I believe that the
District Court should be required to make such a
determination in this case.
I am concerned about the practical implications of the
Court's opinion. Now that risk multipliers can no longer be
used in calculating fees by the lodestar method, use of the
POR method often results in significantly higher fee awards.
See, e.g., In re Computron Software, Inc., 6 F. Supp.2d 313,
323 (D.N.J. 1998) (holding that fee award of approximately
2.5 times the lodestar amount was fair); Local 56, United
Food and Commercial Workers Union v. Campbell Soup Co.,
954 F. Supp. 1000, 1005 n.7 (D.N.J. 1997) ("[a]lthough the
court recognizes that $3,239,373 is more than two times
the lodestar, the court nevertheless finds such an award
fair and reasonable under the circumstances"); J/H Real
Estate Inc. v. Abramson, 951 F. Supp. 63, 65 (E.D. Pa.
1996) (finding that fee award more than 2.5 times the
lodestar is "generous but fair premium"); In re Residential
Doors Antitrust Litigation, No. 94-3744, Civ. A. 96-2125,
MDL 1039, 1998 WL 151804, at *11 (E.D. Pa. Apr. 2, 1998)
(finding that a fee 1.7 times the lodestar amount was a
reasonable fee). Under today's ruling, there will be a
17
significant number of cases in which plaintiffs' counsel will
be in a position to secure a POR award if there is a
settlement, but will be limited to a substantially smaller,
lodestar award if the case goes to trial. This creates a
compelling incentive for the plaintiffs' counsel to settle,
thus adding to the already significant conflict of interest
between plaintiff class members and their counsel. See
generally 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). For this reason, the method
of awarding attorneys' fees should not turn on the manner
in which the case is resolved.
If the District Court had determined that this case more
closely resembled a common fund case1 and had granted
the fee award here sought, its decision would not, in my
judgment, conflict in any way with ERISA's fee-shifting
provision. The defendant would wind up paying no more
and no less than it would pay if the award had been made
under the fee-shifting statute, 29 U.S.C. S 1132(g)(1). And
the plaintiffs' counsel would not receive any duplicative
recovery; the amount received from the defendant would be
deducted from the common fund award.
This leaves the union's argument that S 1132(g)(1) reflects
a general Congressional intent that a lodestar-calculated fee
from the opposing party would be the exclusive method for
court-ordered compensation of counsel in ERISA cases. I
fail to perceive any evidence of such an intention, much
less sufficient evidence to overcome the prescription against
construing legislation to abrogate the courts' traditional,
inherent authority.
The Supreme Court has expressly held that it is within
the "inherent power in the courts to allow attorneys' fees in
particular situations, unless forbidden by Congress . . . ."
_________________________________________________________________
1. This is not a case in which a class of plan participants seek to
recover
the benefits to which they are individually entitled. Rather, it is a suit
seeking to compel the restoration of trust funds wrongfully diverted. The
recovery is to be paid to the trust for the benefit of all participants.
This
suit, therefore, has much in common with the breach of fiduciary duty
cases in which the common fund doctrine has traditionally been applied.
18
Alyeska Pipeline Services Co. v. Wilderness Society , 421
U.S. 240, 259 (1975) (emphasis added). It has similarly
held that there is a strong presumption against the
abrogation of courts' traditional equity powers. See
Chambers v. Nasco, Inc., 501 U.S. 32, 47 (1991) (while the
inherent powers of the lower federal courts may be limited
by statute, as they were created by an act of Congress, "we
do not lightly assume that Congress has intended to depart
from established principles such as the scope of a court's
inherent power") (internal quotation omitted); see
also County of Suffolk v. Long Island Lighting Co., 907 F.2d
1295, 1327 (2d Cir. 1990) ("fee-shifting statutes are
generally not intended to circumscribe the operation of the
equitable fund doctrine").
Nothing in ERISA forbids courts from awarding common
fund fees in appropriate cases. Quite the contrary, to the
extent any general Congressional intent with respect to fee
awards can be gleaned from ERISA, it is to preserve the
courts' traditional equity powers. The statute specifically
authorizes courts to grant "appropriate equitable relief," Id.S 1132(a)(3), and its savings clause provides that it shall
not "be construed to alter, amend, modify, invalidate or
supersede any law of the United States." 29 U.S.C.
S 1144(d).
In conclusion, if the District Court had made a
particularized determination that this case more closely
resembled a common fund case than a statutory fee case,
it would have had the power to award common fund fees,
notwithstanding ERISA's fee-shifting provision. Because the
District Court made no such determination, however, I
believe the case must be remanded for further proceedings.
I respectfully dissent.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
19