william-d-stratton-v-xto-energy-inc-bob-r-simpson-william-h-adams ( 2012 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-10-00483-CV
WILLIAM D. STRATTON APPELLANT
V.
XTO ENERGY INC., BOB R. APPELLEES
SIMPSON, WILLIAM H. ADAMS III,
LANE G. COLLINS, PHILLIP R.
KEVIL, JACK P. RANDALL, SCOTT
G. SHERMAN, HERBERT D.
SIMONS, KEITH A. HUTTON,
VAUGHN O. VENNERBERG II,
LOUIS G. BALDWIN, TIMOTHY L.
PETRUS, GARY D. SIMPSON,
EXXON MOBIL CORPORATION,
AND EXXON MOBIL INVESTMENT
CORPORATION
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FROM THE 352ND DISTRICT COURT OF TARRANT COUNTY
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MEMORANDUM OPINION1
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1
See Tex. R. App. P. 47.4.
In this shareholder class action, appellant William D. Stratton, the lead
plaintiff and representative of the class members (the Plaintiffs), appeals the trial
court‘s order awarding $3,972,367.75 in attorneys‘ fees. We affirm the trial
court‘s judgment as modified.
I. Background Facts
In late 2009, ExxonMobil Corporation (ExxonMobil) and XTO Energy, Inc.
(XTO) announced that they had entered into an agreement that resulted in one of
the largest mergers in U.S. history. Public shareholders of XTO filed a total of
sixteen putative class actions in a Texas state court, a Delaware chancery court,
and a Texas federal court. The Plaintiffs alleged that the XTO Board of Directors
breached their fiduciary duty to the shareholders by, among other things, failing
to make full and fair disclosures and failing to maximize shareholder value in the
merger.
On April 21, 2010, after two months of intensive discovery, the parties
agreed to a settlement. As part of the relief, ExxonMobil agreed, subject to court
approval, to pay ―up to‖ $8,800,000 in attorneys‘ fees and expenses. In
September 2010, with their motion for final certification of the settlement class
and final approval of the settlement, Plaintiffs‘ counsel filed their application for
attorneys‘ fees. Plaintiffs requested an award of $188,355.66 for expenses and a
lodestar of $3,972,367.75 and a multiplier of 2.17, for an award of $8,611,644.34
in attorneys‘ fees (a total award of $8,800,000). Counsel attached affidavits of all
twenty-one law firms attesting to the work done by each firm and the hours and
2
rates of their attorneys, and the affidavit of William Kelly Puls, which detailed the
history of the action, including the negotiations that lead to the settlement, the
terms of the settlement, and the benefits to Plaintiffs. Because the request was
within the range agreed upon in the settlement, the defendants did not object.
After a hearing in which no live witnesses or other additional evidence
were presented, the trial court issued its final judgment granting Plaintiffs‘ request
for $188,355.66 for expenses, but awarding only $3,972,367.75 of the requested
$8,611,644.34 for attorneys‘ fees. The trial court issued a letter ―to clarify some
of the reasons for the court‘s ruling.‖ In it, the trial court noted several problems
with the evidence supporting the award. Specifically, the trial court noted a lack
evidence that the hours worked and rates billed were reasonable. The trial court
also expressed concern that some of the factors to be considered in granting a
multiplier ―would not be appropriate across the board‖ because of the firms‘
differences in size, location, specialization, and degree of involvement with the
case. The trial court concluded,
[D]espite the concerns set forth above regarding the sufficiency of
the evidence and gaps in proof, the court accepted the billed
amounts as the lodestar on the assumption that the Johnson factors
have already been applied to justify the unusually high rates and
declined to increase that amount by any multiplier.
Plaintiffs filed a motion to modify the judgment and to supplement the
record. They attached twenty-one affidavits from Plaintiffs‘ counsel attesting to
the reasonableness of their respective firms‘ rates; an affidavit from Professor
Geoffrey P. Miller, an expert on attorneys‘ fees in class actions; and an affidavit
3
from Professor Arthur R. Miller, a member of the Advisory Committee on Civil
Rules of the Judicial Conference of the United States. At a hearing on the
motion to modify, Plaintiffs presented live testimony by Professor Geoffrey Miller
and Craig Enoch and submitted an exhibit comparing the rates of Plaintiffs‘
counsel with other firms in Texas and nationwide. The trial court took no action
on Plaintiffs‘ motion and it was denied by operation of law. The trial court did not
file findings of fact and conclusions of law. See Tex. R. Civ. P. 42(h)(3).
Plaintiffs then filed this appeal.
II. Standard of Review
In Texas, the amount of an attorneys‘ fee award in a class action is at the
sound discretion of the court, which determines what is reasonable under the
circumstances. See Cnty. of Dallas v. Wiland, 124 S.W.3d 390, 403 (Tex.
App.—Dallas 2003), rev’d and remanded on other grounds, 216 S.W.3d 344
(Tex. 2007). To determine whether a trial court abused its discretion, we must
decide whether the trial court acted without reference to any guiding rules or
principles; in other words, we must decide whether the act was arbitrary or
unreasonable. Low v. Henry, 221 S.W.3d 609, 614 (Tex. 2007); Cire v.
Cummings, 134 S.W.3d 835, 838–39 (Tex. 2004). An appellate court cannot
conclude that a trial court abused its discretion merely because the appellate
court would have ruled differently in the same circumstances. E.I. du Pont de
Nemours & Co. v. Robinson, 923 S.W.2d 549, 558 (Tex. 1995); see also Low,
221 S.W.3d at 620. An abuse of discretion does not occur when the trial court
4
bases its decisions on conflicting evidence and some evidence of substantive
and probative character supports its decision. Unifund CCR Partners v. Villa,
299 S.W.3d 92, 97 (Tex. 2009); Butnaru v. Ford Motor Co., 84 S.W.3d 198, 211
(Tex. 2002).
III. Discussion
In their third issue, Plaintiffs complain that the trial court abused its
discretion by failing to apply the lodestar enhancement factors in determining the
reasonableness of their request for attorneys‘ fees.
Texas Rule of Civil Procedure 42(i)(1) states
In awarding attorney fees, the court must first determine a lodestar
figure by multiplying the number of hours reasonably worked times a
reasonable hourly rate. The attorney fees award must be in the
range of 25% to 400% of the lodestar figure. In making these
determinations, the court must consider the factors specified in Rule
1.04(b), Tex. Disciplinary R. Prof. Conduct.
Tex. R. Civ. P. 42(i)(1). Those factors are:
(1) the time and labor required, the novelty and difficulty of the
questions involved, and the skill requisite to perform the legal service
properly;
(2) the likelihood, if apparent to the client, that the acceptance of the
particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal
services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the
circumstances;
5
(6) the nature and length of the professional relationship with the
client;
(7) the experience, reputation, and ability of the lawyer or lawyers
performing the services; and
(8) whether the fee is fixed or contingent on results obtained or
uncertainty of collection before the legal services have been
rendered.
Tex. Disciplinary Rules Prof‘l Conduct R. 1.04(b), reprinted in Tex. Gov‘t Code
Ann., tit. 2, subtit. G, app. A, art. 10 § 9 (West Supp. 2011). The factors are very
similar, but not identical, to the factors articulated in Johnson v. Georgia Highway
Express, Inc., 488 F.2d 714, 717–19 (5th Cir. 1974).2
In its letter, the trial court expressed concern that ―many of the hourly rates
charged seemed excessive on their face.‖ It stated that in order for the trial court
to consider the high rates to be reasonable, ―Johnson factors would have to be
applied to the rates themselves.‖ It then explained that its award of attorneys‘
fees was ―on the assumption that the Johnson factors have already been
applied‖ to the lodestar.
2
The Johnson factors are: (1) the time and labor required for the litigation;
(2) the novelty and difficulty of the questions presented; (3) the skill required to
perform the legal services properly; (4) the preclusion of other employment by
the attorney due to acceptance of the case; (5) the customary fee; (6) whether
the fee is fixed or contingent; (7) time limitations imposed by the client or the
circumstances; (8) the amount involved and the result obtained; (9) the
experience, reputation and ability of the attorneys; (10) the ―undesirability‖ of the
case; (11) the nature and length of the professional relationship with the client;
and (12) awards in similar cases. Johnson, 488 F.2d at 717–19. Plaintiffs‘
counsel and the trial court refer to the Rule 1.04(b) factors and the Johnson
factors interchangeably. Because they are so similar, we will do the same and
will rely on cases applying the Johnson factors.
6
Texas law is clear that the trial court is required to complete two distinct
steps in awarding attorneys‘ fees. First, the court must calculate the lodestar by
multiplying the number of hours reasonably worked by a reasonable hourly rate.
Tex. R. Civ. P. 42(i)(1). Some Johnson factors may be used to determine the
lodestar. Guity v. C.C.I. Enter., Co., 54 S.W.3d 526, 529 (Tex. App.—Houston
[1st Dist.] 2001, no pet.) (citing Shipes v. Trinity Indus., 987 F.2d 311, 320 (5th
Cir. 1993)). Second, the court must apply a multiplier between .25 and 4.0 based
on any Johnson factors not already considered in the lodestar. Tex R. Civ. P.
42(i)(1); see Dillard Dep’t Stores, Inc. v. Gonzales, 72 S.W.3d 398, 412 (Tex.
App.—El Paso 2002, pet. denied) (―If some of [the Johnson] factors are
accounted for in the lodestar amount, they should not be considered when
making adjustments.‖).
Considering the record as a whole and the trial court‘s explanation in its
letter, it appears that the trial court did not complete the required steps. 3
Particularly, in view of the clear, direct, and uncontradicted evidence presented in
support of the motion to modify the judgment, Plaintiffs met their burden of
showing an adjustment was needed to arrive at a reasonable fee. Instead of
calculating the lodestar itself based on what it determined to be the reasonable
3
As the dissent points out, the trial court‘s letter states that it ―should not be
considered an exhaustive or complete discussion of all considerations given to
the Motion for Final Certification prior to the court‘s ruling thereon,‖ and it was not
intended to be findings of facts and conclusions of law. It is, however, the only
insight in the record into the court‘s reasons for its judgment and we consider it
for what usefulness it provides.
7
amount of hours worked and a reasonable rate for those hours, and then
determining whether the Johnson factors warranted an increase or a decrease of
that amount, the trial court ―assumed‖ that the Johnson factors were accounted
for in Plaintiffs‘ calculation. Although the letter does not make clear what value
the trial court placed on each Johnson factor, it is clear, after considering the
letter in conjunction with the complete record, that the trial court ignored the
uncontroverted evidence that (1) the suggested lodestar was calculated without
enhancement by the Johnson factors and (2) that an enhancement was
warranted by the facts of the case. The trial court‘s assumption was not based
on the evidence presented, was without reference to the guiding rules and
principles, and resulted in an award that cannot be said to be just. 4 Because the
trial court did not follow the steps as articulated in rule 42(i)(1), it abused its
discretion by failing to calculate an appropriate lodestar and adjusting it as
warranted. See Forbush v. J.C. Penney Co., 98 F.3d 817, 823 (5th Cir. 1996)
(holding that it would not reverse the decision of a court that fails to discuss a
Johnson factor ―so long as the record clearly indicates that the district court has
utilized the Johnson framework as the basis of its analysis, has not proceeded in
a summary fashion, and has arrived at an amount that can be said to be just
4
Plaintiffs‘ fourth issue challenges the award as failing to consider the
undisputed evidence that the requested amount was reasonable. As we stated
above, we agree that the trial court ignored the uncontroverted evidence on the
reasonableness of the requested award. Thus, we could alternatively reverse
the award on the grounds asserted in Plaintiffs‘ fourth issue.
8
compensation‖) (quoting Cobb v. Miller, 818 F.2d 1227, 1232 (5th Cir. 1987));
Copper Liquor, Inc. v. Adolph Coors Co., 624 F.2d 575, 584 (5th Cir. 1980)
(noting that ―we should go slow in finding that‖ a trial judge abused his discretion
but holding that ―the district court abused its discretion by failing to attach
appropriate significance to the Johnson criteria most pertinent to reasonable
attorneys‘ fees and by neglecting to develop fully the reasons for his award‖).
The dissent would have us remand the case for further proceedings. In
this case, however, we do not think remand is necessary. See Tex. R. App. P.
43.3 (―When reversing a trial court‘s judgment, the court must render the
judgment that the trial court should have rendered, except when: (a) a remand is
necessary for further proceedings . . . .‖). The record before us contains all of the
affidavits and records submitted in support of the request for attorneys‘ fees, and
the testimony presented was not contradicted by any other witness or attendant
circumstances but instead was clear, positive, and free from circumstances
tending to cast suspicion thereon. In the interest of judicial economy and our
duty to render judgment unless remand is necessary, we review the evidence
and render the appropriate judgment. See id.; Ragsdale v. Progressive Voters
League, 801 S.W.2d 880, 882 (Tex. 1990) (rendering a judgment on attorneys‘
fees ―[i]n the interest of judicial economy‖); see also Louisiana Power & Light Co.
v. Kelstrom, 50 F.3d 319, 325–26 (5th Cir. 1995) (choosing to exercise its option
to modify an award of attorneys‘ fees ―[b]ecause the record contains sufficient
information to allow a fair determination of a reasonable fee‖); Sidag
9
Aktiengesellschaft v. Smoked Foods Prods. Co., 960 F.2d 564, 566–67 (5th Cir.
1992) (rendering instead of remanding when sufficient evidence existed in the
record because ―no useful purpose would be served by further delaying [the
case‘s] final disposition, not to mention exposing the parties and this court to yet
[another] appeal‖).
A. Calculating the lodestar
The lodestar is calculated by multiplying the number of hours reasonably
spent by counsel on the matter by a reasonable hourly rate. Dillard Dep’t Stores,
72 S.W.3d at 412; Guity, 54 S.W.3d at 528–29. Plaintiffs submitted roughly
7,370 hours at various rates from $200 to $845 per hour for a lodestar of
$3,972,367.75. We will review the evidence supporting both the number of hours
and the hourly rates requested.
1. Hours
With their application for attorneys‘ fees, Plaintiffs‘ counsel presented no
evidence in the twenty-one attached affidavits by the attorneys that their hours or
their rates were reasonable. With their motion to modify, Plaintiffs submitted
twenty more affidavits from the attorneys.5 In all but five of those affidavits, the
attorneys testified that the hours spent by their firm on the case were reasonable
5
One firm that had submitted an affidavit with the application did not submit
a second affidavit with the motion to modify.
10
and necessary.6 All of the firms detailed in their affidavits the tasks that the
attorneys accomplished, such as researching, drafting, and filing; reviewing
documents; responding to discovery requests; conducting depositions; and
negotiating the settlement.
Plaintiffs also submitted the affidavits of expert witness Geoffrey P. Miller.7
Miller and Craig Enoch also testified at trial. In his affidavit, Miller opined that
based on his review of the hours billed by the attorneys, ―[t]he hours spent
appear reasonable for the tasks accomplished.‖ He further stated, ―Considering
the huge amount of work done as described in the submissions in support of the
fee application, this time is, in my experience, consistent with the time needed to
properly litigate a case of this type and magnitude.‖ He noted that ―expertise of
the Plaintiffs‘ firms contributed to efficiency and reduced hours‖ and that,
Where practical and appropriate, work appears to have been
performed by associates, paralegals[,] and law clerks. By far, the
overwhelming bulk of the work was done by attorneys with the
appropriate, but not excessive, seniority to handle level-appropriate
aspects of the Actions. In sum, based on my review of the affidavits
of counsel submitted with the Final Approval Motion and wit[h] this
Motion, my analysis indicates that Plaintiffs‘ counsel put in the time
necessary to achieve a successful result but did so in an efficient
manner.
6
Of the 7,369.9 hours submitted, the number of hours without direct
testimony supporting their reasonableness and necessity equaled 386.35, or
5.2% of the total hours submitted.
7
Plaintiffs also submitted the affidavit of expert witness Arthur R. Miller.
Arthur Miller, however, did not state an opinion specifically as to the
reasonableness or necessity of the hours billed.
11
At trial, Miller testified again that the hours billed were reasonable in light of the
―extraordinary intensity of the litigation.‖ Enoch also testified at trial that the
hours billed were reasonable.
Plaintiffs provided evidence, by way of expert testimony, that the hours
billed were reasonable and necessary. And although neither Miller nor Enoch
reviewed line by line each task billed, Texas courts have repeatedly held that an
itemized bill is not necessary to support an award of attorneys‘ fees. La Ventana
Ranch Owners’ Ass’n v. Davis, No. 03-09-00452-CV, --- S.W.3d ---, 2011 WL
2162886, at *16 (Tex. App.—Austin June 3, 2011, no pet.) (holding that the
evidence was factually sufficient to establish the reasonableness of the time
spent ―[e]ven without an itemized billing statement or testimony regarding the
reasonableness and necessity of the amount of time spent on each particular
task‖ when the attorney and an expert witness testified that the amount was
reasonable and the attorney listed the various tasks he accomplished); Burnside
Air Conditioning & Heating, Inc. v. T.S. Young Corp., 113 S.W.3d 889, 898 (Tex.
App.—Dallas 2003, no pet.) (upholding fee award absent any itemized billing
statement based solely on attorney‘s testimony regarding his customary hourly
rate, total hours spent on the case, his experience and expertise, and complexity
of the case). There is thus sufficient evidence before us to determine that the
number of hours billed were reasonable.
Plaintiffs stated in their application for attorneys‘ fees that the total amount
of hours equaled 7,369.55. However, in adding up the hours listed in the
12
affidavits, we arrived at 7,369.9 total hours submitted. In examining the amounts
submitted, we discovered two additional errors. First, one attorney at Baron &
Budd, P.C. submitted 47.25 hours at a rate of $700 per hour (a total of $33,075 in
fees), but requested only $23,100, which would be the correct fee for 33 hours of
work. Second, an attorney at Grant & Eishenhofer, P.A. submitted 592.8 hours
at $295 per hour (a total of $174,876 in fees) but requested only $174,787.50,
which would be the correct fee for 592.5 hours of work. Because it is unclear
that the higher number of hours for the two attorneys is appropriate, we hold
there is support for 7,355.3 hours of work reasonably expended. See Stewart
Title Guar. Co. v. Sterling, 822 S.W.2d 1, 10 (Tex. 1991) (noting that as a general
rule, a party seeking to recover attorney‘s fees carries the burden of proof to
establish that it is entitled to them).
2. Rates
All twenty-one of the attorneys‘ affidavits attached to the original
application for attorneys‘ fees stated merely that the rates requested were the
firms‘ ―regular rates that [the] firm[s] charge[] both hourly clients and contingent
clients alike for [their] services.‖8 In the twenty affidavits submitted with their
motion to modify, all but six attorneys testified that the rates charged by their firm
8
All of the affidavits in which a firm requested expenses also contained the
same language that their expenses were ―reasonable under the circumstances
and were necessary to achieve the settlement reached in this case.‖ The trial
judge awarded all of the requested $188,355.66 in expenses. The Plaintiffs do
not contest that part of the award.
13
were reasonable in comparison with the rates charged for similar work in their
communities. Although the customary fees charged in the local legal community
for similar legal services is helpful in determining the reasonableness of the fees
requested, it is not fatal to an attorney‘s application for fees if it is not included.
See In re A.B.P., 291 S.W.3d 91, 98 (Tex. App.—Dallas 2009, no pet.) (noting
that a trial court is not required to receive evidence of each of the factors that
should be considered in determining the reasonableness of an award of
attorneys‘ fees); Burnside Air Conditioning & Heating, 113 S.W.3d at 897–98
(same). All of the rates charged by those six firms fall within the range of hourly
rates charged by other attorneys in this case with similar experience. Four firms
also noted that their rates have been approved by other Texas courts. One
affiant attached The National Law Journal‘s survey of firm billing rates for 2007,
2008, and 2009, which showed that all of the rates requested were within the
range of rates billed by other firms in their state. Further, in their motion for
reconsideration, Plaintiffs cite a number of cases demonstrating that the high
rates for the New York law firms were not out of line with the customary rates of
the area. See In re Comverse Tech. Secs. Litig., No. 06-CV-1825(NGG)(RER),
2010 WL 2653354, at *4 (E.D.N.Y. Jun. 24, 2010) (noting hourly rates from $125
to $880); In re Marsh ERISA Litig., 265 F.R.D. 128, 146 (S.D.N.Y. 2010) (hourly
rates of $125 to $775); In re Telik, Inc. Secs. Litig., 576 F. Supp. 2d 570, 589–90
(S.D.N.Y. 2008) (hourly rates of $300 to $750); In re Gilat Satellite Networks,
Ltd., No. CV-02-1510(CPS)(SMG), 2007 WL 2743675, at *17 (E.D.N.Y. Sept. 18,
14
2007) (hourly rates of $325 to $725); In re Merrill Lynch & Co. Research Reports
Secs. Litig., No. 02-MDL-1484(JFK), 2007 WL 313474, at *22 (S.D.N.Y. Feb. 1,
2007) (hourly rates of $515 to $850).
Enoch testified at the hearing that the rates charged by the attorneys in
this case were ―eminently reasonable‖ based on ―the quality of the lawyers that
are in this representation here and my familiarity with the fees that are generally
charged for this type of complex litigation.‖ He testified that he saw no ―bonus or
premium embedded‖ in the rates charged by the attorneys. Geoffrey Miller
opined in his affidavit that ―the rates charged by Plaintiffs‘ counsel in the three
actions are commensurate with the rates prevailing in their respective
communities for attorneys who practice in the same areas in which these
attorneys specialize or concentrate.‖ Miller noted that the average hourly rate
requested in this case was $539 per hour for all attorneys and compared that to a
study that ―found that the average hourly rate based on attorneys‘ fees awarded
in 277 securities cases settled from 1973 to 2003 was $1,370 in 2003 dollars.‖
We therefore hold that the rates submitted by the attorneys in this case are
reasonable.
15
3. Lodestar
As discussed above, we hold that a reasonable number of hours expended
in this litigation is 7,355.3. Multiplying the hours by the respective rates
submitted by the attorneys results in a lodestar of $3,968,277.25.9
B. Applying a multiplier
Once the lodestar is calculated, rule 42(i)(1) requires the court to award an
amount ―in the range of 25% to 400% of the lodestar figure.‖ Tex. R. Civ. P.
42(i)(1). Plaintiffs requested an award of 217% of the lodestar. In determining
whether this is a reasonable award, the court is required to consider the factors
listed in Texas Disciplinary Rule of Professional Conduct 1.04(b). Id.
1. The time and labor required, the novelty and difficulty of the
questions involved, and the skill requisite to perform the legal
service properly
Enoch testified at the hearing on Plaintiffs‘ motion to modify that he
believed a multiplier should be used in this case because the ―intensity of the
issue‖ called for a lot of time and labor. Geoffrey Miller testified that the ―Actions
involved a plethora of difficult, unsettled, and novel issues of law.‖ He opined,
―[T]here can be no question that the magnitude, complexity and novelty of the
issues presented in this litigation favor a substantial risk multiplier.‖ Miller also
9
The attorney at The Briscoe Law Firm, PLLC submitted 45.25 hours at
$525 (a total of $23,756.25 in fees) but requested $27,756.25 in fees. We see
no justification for the additional $4,000. See Stewart Title Guar. Co., 822
S.W.2d at 10.
16
testified to the added risks of a class action such as getting class certification.
From his research he concluded that
Multipliers in securities actions tend to be higher than multipliers in
statutory fee-shifting or other types of less complex or costly class
actions. This fact reflects reality that cases pursued on a class basis
are among the most difficult to litigate, require a high degree of
sophistication, are defended invariably by capable and sophisticated
law firms, and involve risks in terms of dedication of resources,
expenditure of time and potential for non-payment.
2. The likelihood, if apparent to the client, that the acceptance of the
particular employment will preclude other employment by the
lawyer
Enoch described this type of fast-paced litigation as ―all-hands-on-deck‖
and noted that the document-intensive discovery and short deadlines means that
―when someone is asking you to do this[,] they recognize they‘re calling on all
your people to be available on this one item or this one project.‖
3. The fee customarily charged in the locality for similar legal
services
As noted above, the hourly rates charged by the attorneys in this case are
within the range of rates charged by other attorneys in their respective localities.
We do note that the rates charged in some of the larger markets, such as New
York, are higher than those charged in Tarrant County.
4. The amount involved and the results obtained
In his affidavit, expert witness Arthur Miller testified that that the results that
Plaintiffs‘ counsel obtained were excellent. He believed that the supplemental
disclosures that resulted from the litigation provided vital information to the
17
Plaintiffs and supported the requested attorneys‘ fee award. He noted that
discovery in this case revealed that the defendant companies had not provided
the financial advisor who was responsible for valuing XTO and opining on the
fairness of the merger with all the necessary documents to make a fully-informed
opinion, and he detailed the value of the information gleaned from the litigation in
his fifteen-page affidavit. Miller also noted that in his research he found only one
other instance of plaintiffs‘ counsel ―achieving a similar type and level of
disclosure.‖ That case was a New York case concerning a $9 billion merger and
the attorneys‘ fee award was $8.5 million. The merger that formed the basis of
this litigation was valued at $41 billion—as Geoffrey Miller described it, ―one of
the most important mergers in American history.‖ Enoch testified, ―The results
being sought [were] to assure full, accurate information. It seemed to me that
was a very good result here, and that‘s a positive.‖ Enoch testified that the value
of the disclosures was significant and went on,
But it seems to me there was even greater benefit here, where the
specialist, the financial advisers that were advising on the deal, were
directed to consider further information and then report on that. It
seems to me it says—it‘s greatly valuable to have the
confirmation. . . . So it seemed to me this was tremendously
beneficial in the concept of what this is all about, which is to make
sure the voters are informed at the time they‘re casting their vote.
In William Kelly Puls‘s affidavit attached to the application for attorneys‘
fees, he noted that ―overwhelmingly positive reaction of the Class members to
date further illustrates the excellence of the Settlement.‖ Plaintiffs‘ counsel
18
estimated the percentage of class members who objected to the settlement to be
roughly .002 percent.
5. The time limitations imposed by the client or by the circumstances
Because Plaintiffs filed for a temporary injunction to halt an upcoming vote
by the XTO shareholders on the merger, the parties to this case agreed on an
expedited discovery schedule. In the roughly four months of discovery, Plaintiffs‘
attorneys reviewed hundreds of thousands of pages of public filings, financial
analyst reports, business media articles, and about 65,000 pages of confidential
documents. At the hearing, Enoch testified that this kind of intensive document
review is stressful and time consuming. He described cases with a short
deadline and complex issues as ―all-hands-on-deck and it‘s full speed ahead for
a very short period of time.‖ Geoffrey Miller opined that highly compressed
timelines ―strongly favor[] a substantial lodestar enhancement.‖
6. The nature and length of the professional relationship with the
client
This was a contingency fee case in which Plaintiffs‘ attorneys represented
a large class of shareholders who held approximately 584 million shares of XTO
stock. 179,618 copies of notice of the suit were mailed to potential class
members. As Geoffrey Miller opined,
Unlike hourly billing attorneys, there was little likelihood that
Plaintiffs‘ counsel would be retained on an hourly basis by members
of the plaintiff class based on their representation of the class in a
class action. Thus the concept of undertaking a potentially less
economically beneficial retention as a ―loss leader‖ plays no role in
cases such as this.
19
7. The experience, reputation, and ability of the lawyer or lawyers
performing the services
With ninety different attorneys performing work on this case, the amount of
experience and ability will naturally vary. Some of the senior partners had thirty
or forty years of experience. There were also young associates with little
experience. Overall, there were many firms with good reputations and national
practices. Enoch testified that this factor ―gets a lot of weight from me. . . .
You‘re talking about pretty significant litigation. . . . [I]t‘s a significant transaction.
. . . [T]he quality of the lawyer in here is a critical piece of it, and that should get
a positive.‖ Geoffrey Miller testified that the favorable settlement ―evidences the
superior quality of their work.‖
8. Whether the fee is fixed or contingent on results obtained or
uncertainty of collection before the legal services have been
rendered
Geoffrey Miller stated in his affidavit, ―The contingent nature of the fee
arrangement is, without doubt, the most important factor in a lodestar/multiplier
analysis.‖ All of the firms‘ fees were on a fully contingent basis. Enoch noted,
―[T]here is a recognition of an additional value for the services performed in
exchange for running the risk that there [will] be no recovery at all.‖ Increasing
the lodestar for contingent work, he said, is ―about trying to attract quality lawyers
to work in this field and assure that their risk is carefully accounted for.‖ He
testified, ―[T]he straight lodestar does not take into account the risk, the
evaluation of the . . . economic value of the lawyer taking on the risk of not being
20
paid at all.‖ All of the attorneys testified that the hourly rates they submitted were
the ―regular rates that [the] firm[s] charge[] both hourly clients and contingent
clients alike.‖ See El Apple I, Ltd. v. Olivas, 324 S.W.3d 181, 193–94 (Tex.
App.—El Paso 2010, pet. granted) (upholding the application of a multiplier
based in part on the contingent nature of the fee ―[b]ecause there is no indication
the trial court considered the contingency factor more than once in its calculation‖
when the attorneys testified that they did not adjust their hourly fee because of
the contingent nature of the case). We also note that Texas courts consistently
allow the use of a multiplier based upon the contingent nature of a fee under
Texas statutes allowing recovery of attorney‘s fees. Toshiba Mach. Co., Am. v.
SPM Flow Control, Inc., 180 S.W.3d 761, 783 (Tex. App.—Fort Worth 2005, pet.
granted, judgm‘t vacated w.r.m.); Dillard Dept Stores, 72 S.W.3d at 412; Guity,
54 S.W.3d at 529; Borg-Warner Protective Servs. v. Flores, 955 S.W.2d 861, 870
(Tex. App.—Corpus Christi 1997, no pet.); Crouch v. Tenneco, 853 S.W.2d 643,
648 (Tex. App.—Waco 1993, writ denied).
Miller also opined that ―Plaintiffs‘ counsel was entitled to a substantial risk
multiplier for their efforts in the Actions‖ and that the requested multiplier ―is both
fair and reasonable under the law of Texas and under the circumstances of the
Actions.‖ In his opinion, a multiplier of 2.17 is ―eminently fair based on how the
courts generally handle cases of this type‖ and that even a multiplier ―at or near
the upper limit . . . would not have been unreasonable.‖ A multiplier of 2.17 is not
unusual in large, complex, and expedited cases. See Dillard Dep’t Stores, 72
21
S.W.3d at 413 (upholding a multiplier of 2 based on the novelty and difficulty of
the issues, the contingent nature of the fee, the time limitations imposed by the
circumstances, and the preclusion of other employment); Flores, 955 S.W.2d at
870 (upholding use of a 1.5 multiplier when plaintiff prevailed on all issues and
―was required to pierce numerous layers of corporate bureaucracy in order to
bring her case to trial‖).
The trial court ordered attorneys‘ fees paid in the amount of the
unenhanced lodestar based on the assumption that the Johnson factors were
applied in justifying the hourly rates requested. The unenhanced lodestar does
not reflect the exceptional results achieved by Plaintiffs‘ counsel, the
undesirability of this litigation, the high risk borne by its contingent nature, or the
fact that the fee award requested is comparable to that awarded in similar class
action litigation, all of which were directly established by uncontradicted
evidence. The court was obligated to consider the adjustment based on that
evidence and the Johnson factors, and it was an abuse of discretion to fail to do
so based on an unsubstantiated assumption. We hold that the requested
multiplier of 2.17 is appropriate in this case. The lodestar of $3,968,277.25
multiplied by 2.17 equals an award of $8,611,161.63, which we hold to be an
appropriate and reasonable award.
Because we sustain Plaintiffs‘ third issue and because we have
determined an appropriate award of attorneys‘ fees, we need not reach the rest
of Plaintiffs‘ issues. See Tex. R. App. P. 47.1.
22
Conclusion
Having sustained Plaintiffs‘ third issue and holding that we do not need to
reach their other issues, we modify the trial court‘s award of attorneys‘ fees to be
$8,611,161.63 and affirm the trial court‘s judgment as modified.
LEE GABRIEL
JUSTICE
PANEL: WALKER, MEIER, and GABRIEL, JJ.
MEIER, J., filed a dissenting opinion.
DELIVERED: February 9, 2012
23
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-10-00483-CV
WILLIAM D. STRATTON APPELLANT
V.
XTO ENERGY INC., BOB R. APPELLEES
SIMPSON, WILLIAM H. ADAMS III,
LANE G. COLLINS, PHILLIP R.
KEVIL, JACK P. RANDALL, SCOTT
G. SHERMAN, HERBERT D.
SIMONS, KEITH A. HUTTON,
VAUGHN O. VENNERBERG II,
LOUIS G. BALDWIN, TIMOTHY L.
PETRUS, GARY D. SIMPSON,
EXXON MOBIL CORPORATION,
AND EXXON MOBIL INVESTMENT
CORPORATION
----------
FROM THE 352ND DISTRICT COURT OF TARRANT COUNTY
----------
DISSENTING MEMORANDUM OPINION1
----------
1
See Tex. R. App. P. 47.4.
The lynchpin of the majority opinion states ―it appears that the trial court
did not complete the required steps.‖ Because I would treat the October 8, 2010
letter as nothing more than what the trial court stated in the opening paragraph of
the letter—―This letter attempts to clarify some of the reasons for the court‘s
ruling, but it should not be considered an exhaustive or complete discussion of all
considerations given to the Motion for Final Certification prior to the court‘s ruling
thereon.‖—I do not read the letter to support an appellate ruling that ―the trial
court did not complete the required steps.‖ To the extent that we permit the trial
court‘s letter to function as rule of civil procedure 42(h)(3) findings of fact and
conclusions of law, reviewing the letter in its entirety—instead of considering one
short phrase contained within the letter in isolation—reveals that the trial court
declined to adjust the presumptively reasonable lodestar because it had already
accounted for relevant Johnson factors in determining the lodestar. For these
reasons, I dissent.
Our rules of civil procedure contain detailed requirements for class action
lawsuits, including procedures for determining an award of attorneys‘ fees. See
Tex. R. Civ. P. 42(h). After a motion for attorneys‘ fees and a hearing, ―[t]he
[trial] court must state its findings and conclusions in writing or orally on the
record.‖ Tex. R. Civ. P. 42(h)(3) (emphasis added). Rule 42 ―is patterned after
Federal Rule of Civil Procedure 23; consequently, federal decisions and
authorities interpreting current federal class action requirements are persuasive
authority.‖ Sw. Ref. Co. v. Bernal, 22 S.W.3d 425, 433 (Tex. 2000). Federal rule
2
of civil procedure 23(h)(3) provides that the trial court may hold a hearing on
attorneys‘ fees in a class action suit but, similar to our rules, ―must find the facts
and state its legal conclusions under Rule 52(a).‖ Fed. R. Civ. P. 23(h)(3). The
Fifth Circuit requires that ―[w]hen a district court awards attorneys‘ fees it must
explain how each of the Johnson factors affects its award.‖ See In re High Sulfur
Content Gasoline Prods. Liab. Litig., 517 F.3d 220, 228 (5th Cir. 2008). ―[T]he
district court‘s findings and reasons must be ‗complete enough to assume a
review which can determine whether the court has used proper factual criteria in
exercising its discretion to fix just compensation.‘‖ Id. at 229 (citing Brantley v.
Surles, 804 F.2d 321, 325–26 (5th Cir. 1986)).
The trial court‘s October 8, 2010 letter specifically warns at the outset that
it ―attempts to clarify some of the reasons for the court‘s ruling, but it should not
be considered an exhaustive or complete discussion of all considerations given
to the Motion for Final Certification prior to the court‘s ruling thereon.‖ Thus, on
its face, the letter purports to acknowledge its own inherent incompleteness. 2
The trial court did not explain how each of the Johnson factors affected its award,
and we are left to speculate as to the findings that are not contained in the letter.
As an appellate court reviewing an award of attorneys‘ fees in a complex class
action suit involving ―one of the largest mergers in U.S. history,‖ we should not
follow the analysis advocated by Stratton in his third issue and rely upon the
2
The majority even seems to acknowledge this.
3
incomplete letter as a substitute for rule 42(h)(3) findings and conclusions. This
is because, unless the trial court provides a reasonably specific explanation of
the fee determination, ―adequate appellate review is not feasible, and without
such review, widely disparate awards may be made, and awards may be
influenced . . . by a judge‘s subjective opinion regarding particular attorneys or
the importance of the case.‖ See Perdue v. Kenny A. ex rel. Winn, 130 S. Ct.
1662, 1676 (2010). The trial court‘s letter meets neither the Supreme Court‘s nor
the Fifth Circuit‘s standards for explaining an award of attorneys‘ fees.
Accordingly, I would either abate this appeal and remand the case to the trial
court for entry of findings and conclusions as required by rule 42(h)(3) or reverse
the trial court‘s judgment as to attorneys‘ fees and remand the case for further
proceedings.
To the extent that we construe the October 8, 2010 letter as sufficiently
identifying the trial court‘s findings and conclusions and proceed to address
Stratton‘s third issue, the trial court did not abuse its discretion by awarding
attorneys‘ fees in the amount of $3,972,367.75. The lodestar creates a
presumptively reasonable fee. Id. at 1673. ―While the lodestar is relevant to
determining a fee award, it is not the sole basis for determining that award; the
Johnson factors are applicable to deciding whether the lodestar is reasonable, as
well as to adjusting that award by a multiplier once the lodestar is calculated.‖
In re Enron Corp. Sec., Derivative & ERISA Litig., 586 F. Supp. 2d 732, 755 (S.D.
Tex. 2008); see Hensley v. Eckerhart, 461 U.S. 424, 434 n.9, 103 S. Ct. 1933,
4
1940 n.9 (1983) (―The district court also may consider other factors identified in
[Johnson] though it should note that many of these factors usually are subsumed
within the initial calculation of hours reasonably expended at a reasonable hourly
rate.‖). Indeed, four of the Johnson factors are presumably included in the
lodestar calculation (the novelty and complexity of the issues, the special skill
and experience of counsel, the quality of representation, and the results obtained
from the litigation), and the Fifth Circuit has reasoned that two other factors are
generally subsumed in the lodestar (the time limitations and the circumstances
and preclusion of other employment). See Enron Corp., 586 F. Supp. 2d at 756–
57 (citing Shipes v. Trinity Indus., 987 F.2d 311, 321–22 (5th Cir.), cert. denied,
510 U.S. 991 (1993)); see also Perdue, 130 S. Ct. at 1673 (reasoning that the
―lodestar includes most, if not all, of the relevant factors constituting a
‗reasonable‘ attorney‘s fee‖). The time and labor involved and the customary fee
may also be considered in calculating the lodestar. See, e.g., Nassar v. Univ. of
Tex. Sw. Med. Ctr., No. 3:08-CV-1337-B, 2010 WL 3000877, at *6 (N.D. Tex.
July 27, 2010) (mem. op.). But while these factors may be considered in
calculating the lodestar, it is well established that the lodestar may not be
adjusted in consideration of a Johnson factor if that factor was already accounted
for in arriving at the lodestar; ―to do so would be impermissible double counting.‖3
3
An upward adjustment of the lodestar based on factors that are
presumably included in the lodestar amount is still permissible, but ―such
modifications are proper only in certain rare and exceptional cases supported by
5
Saizan v. Delta Concrete Prods. Co., 448 F.3d 795, 800 (5th Cir. 2006); see
Perdue, 130 S. Ct. at 1673 (recognizing that the Court has ―held that an
enhancement may not be awarded based on a factor that is subsumed in the
lodestar calculation‖).
The trial court concluded its letter by stating that it had ―accepted the billed
amounts as the lodestar on the assumption that the Johnson factors have
already been applied.‖ From this snippet, the majority concludes that ―it appears
that the trial court did not complete the required steps‖ because the trial court
―‗assumed‘ that the Johnson factors were accounted for in Plaintiffs‘
calculations.‖ Maj. Op. at 7. This is a misconstruction of the letter and of the trial
court‘s attorneys‘ fees award. The mistake made by the majority is that it
construes the letter‘s final sentence in isolation and apart from the remainder of
the letter, which unambiguously indicates that the trial court had numerous
concerns about the reasonableness of both the rates charged and the hours
expended by the plaintiffs‘ attorneys. After explaining some of its concerns about
the rates and hours, the trial court stated,
Texas law seems clear that when Johnson factors are already
accounted for in determining the reasonable rates (the lodestar
amount), they should not again be considered when making
adjustments. To rely on Johnson factors both to justify high rates
and to justify the application of a multiplier would result in a
duplicative award of fees.
both specific evidence on the record and detailed findings by the lower courts.‖
Shipes, 987 F.2d at 320.
6
At the request of Stratton, the trial court conducted an exhaustive hearing on
December 17, 2010, and thereafter declined to modify the original Order and
Final Judgment.
Considering the letter as a whole, the trial court did not decline to adjust
the lodestar because it merely ―assumed‖ that the Johnson factors had already
been accounted for in the lodestar; rather, it did take into account certain
Johnson factors—and possibly all of the Johnson factors—in arriving at the
presumptively reasonable lodestar and then either (1) refused to double count
those same factors in considering a multiplier or (2) considered certain Johnson
factors not addressed in calculating the lodestar as irrelevant for purposes of the
multiplier. The trial court‘s inaction after permitting Stratton to supplement the
record—thus maintaining an award of 100% of the lodestar, an amount within the
range prescribed by rule 42(i)(1)—supports this conclusion. In light of the
introductory warning that the letter was meant to clarify only ―some of the
reasons for the court‘s ruling,‖ we have no way of knowing what Johnson factors,
if not all of them, were considered in calculating the lodestar and what factors, if
any, the trial court thought were irrelevant in considering a multiplier. What
evidence we do have, however, does not demonstrate an abuse of discretion.
Accordingly, to the extent that we address Stratton‘s third issue, I would affirm
the trial court‘s judgment.
7
For the foregoing reasons, I respectfully dissent.
BILL MEIER
JUSTICE
DELIVERED: February 9, 2012
8