Zucker v. Westinghouse Elec.

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
6-30-2004
Zucker v. Westinghouse Elec
Precedential or Non-Precedential: Precedential
Docket No. 02-3389
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PRECEDENTIAL STEPAK; GERRY KRIM
UNITED STATES COURT OF v.
APPEALS FOR THE THIRD CIRCUIT
WESTINGHOUSE ELEC.; J. C.
MAROUS; P. E. LEGO;
No. 02-3389 WESTINGHOUSE FIN. SER.;
__________ WESTINGHOUSE CREDIT; WILLIAM
A. POWE; THEODORE STERN;
ALBERT ZUCKER; STANLEY WARREN H. HOLLINSHEAD;
HERSHFANG; JACOB JOSEPH ROBERT E. FAUST; ROBERT F.
MILLER; TOBY FEUER; SPRING PUGLIESE; SHEARSON LEHMAN
CREEK CARDIO-MEDICAL BROS.; GOLDMAN SACHS & CO.;
ASSOCIATES, INC. PROFIT LAZARD FRERES & CO.; LEHMAN
SHARING PLAN AND TRUST, on BROS INTL; LAZARD BROS. CO.
behalf of itself and all others similarly LTD.; PRICE WATERHOUSE;
situated; GLORIA BERTINATO, on
behalf of herself and all others similarly (D.C. No. 91-cv-00354)
situated; JOSEPH H. LEVIT; GEORGE
M.D. RICHARDS; MICHAEL
CHRISTNER; JIM L. THOMPSON, DANIEL MOGELL, in his capacity as a
Trustee for Thompson Chemical Profit shareholder, suing derivatively, and
Sharing Plan; LOUISE M. JACOB, for individually
Herself, as Trustee for Arnold M. Jacob
Ten Year Trust and as Trustee of P.J. v.
VanArtsdalen Ten Trust of P.J.
VanArtsdalen Ten Trust; PATRICIA J. BARBARA H. FRANKLIN; RICHARD
VANARTSDALEN, as Custodian for M. MORROW; HAYS T. WATKINS;
Jennifer VanArtsdalen Custodial DONALD F. HORNIG; JOHN B.
Account; ARNOLD M. JACOB, and CARTER; JOHN C. MAROUS;
Patricia J. VanArtsdalen, as Trustees for ROBERT W. CAMPBELL; RENE C.
the Jennifer VanArtsdalen Irrevocable MCPHERSON; FRANK C.
Trust, David J. VanArtsdalen Irrevocable CARLUCCI; RICHARD R.
Trust, Adam T. Jacob Irrevocable Trust PIVIROTTO; PAUL E. LEGO;
and Noah B. Jacob Irrevocable Trust; WILLIAM A. POWE; GARY M.
MICHAEL E. NOGAY; MARGARET CLARK; WILLIAM H. GRAY, III;
ALESSI; NATHAN KLEINHANDLER; PAULA STERN; DAVID T.
MICHAEL SLAVIN; RONALD MCLAUGHLIN; LEO W. YOCHUM;
GOLDSTEIN; RICHARD MICHAEL H. JORDAN; ROBERT E.
SCHWARZSCHILD; THOMAS CAWTHORN; GEORGE H.
MITCHEL; JOSEPH RASCHAK; CONRADES; DAVID K.P. LI;
DONALD H. MCLENNAN; RUTH ROBERT D. WALTER; CBS CORP,
f/k/a Westinghouse Elec. Leonard Fornella
Heintzman, Warren, Wise & Fornella,
(D.C. No. 99-cv-00596) P.C.
Pittsburgh, PA 15219
WILLIAM C. RAND, Stockholder
Objector, owner of 100 shares of CBS Attorney for Appellee,
Corporation, Westinghouse Electric
Appellant Corporation
Dennis J. Block
Cadwalader, Wickersham & Taft
On Appeal from the United States New York, NY 10038
District Court for the Western District of
Pennsylvania Joseph A. Katarincic
(D.C. No. 91-cv-00354) Thorp Reed & Armstrong, LLP
District Judge: D. Brooks Smith Pittsburgh, PA 15129
Attorneys for All Other Appellees
Argued January 23, 2004
Howard J. Bashman (Argued)
Before: SLOVITER, MCKEE, and Buchanan Ingersoll, P.C.
CHERTOFF, Circuit Judges Fort Washington, PA 19034
(Filed June 30, 2004) Attorney for Amicus
William Rand, Sr. (Argued) OPINION OF THE COURT
William C. Rand
Coudert Brothers
New York, NY 10036 SLOVITER, Circuit Judge.
Attorney for Appellant Under the common fund doctrine,
the court may award a shareholder-
Richard D. Greenfield objector attorney’s fees for successfully
Greenfield & Goodman pursuing a shareholder derivative suit that
Royal Oak, MD 21662 confers a benefit upon the corporation.
The question that we confront in this case
Attorney for Appellee, is whether a successful shareholder-
Daniel Mogell objector who represented only himself as
a pro se attorney in such a suit is entitled to
2
attorney’s fees. 1996).
I. In 1998, insurers of the officers and
directors of Westinghouse agreed to pay
Because we have published a prior damages to the class action plaintiffs on
opinion on another issue in this case in the condition that the plaintiffs in the
Zucker v. Westinghouse Electric Corp., derivative suit terminate that litigation.2
265 F.3d 171 (3d Cir. 2001), we repeat Zucker, 265 F.3d at 173. In 1999, the
only those details that are relevant to the parties in the derivative suit reached a
issue before our court. Shareholders of settlement agreement, stipulating, inter
Westinghouse/CBS1 filed a derivative suit alia, that the plaintiffs’ attorneys in the
and a related class action suit following the derivative suit could submit to the court an
announcement of Westinghouse that it application for attorney’s fees and
would suffer multi-million dollar losses expenses of $750,000 , wh ich
because of several loans it made. Id. at Westinghouse agreed to pay. Id. at 174.
173. In the derivative suit they alleged
that the officers and directors of The District Court approved the
Westinghouse grossly and recklessly settlement for both the derivative suit and
mismanaged the corporation. Id. In the the class action suit. Id. Plaintiffs’
c l a s s a c t io n th ey a l l eg e d t h at counsel then requested attorney’s fees and
Westinghouse had violated Sections 10(b) expenses of $750,000. However, Rand, a
and 20 of the Securities Exchange Act of holder of 100 shares of Westinghouse
1934, as amended (the Exchange Act), 15 stock and an attorney acting pro se,
U.S.C. §§ 78j(b), 78t (1988), and Rule objected to the award on the ground that
10b-5 promulgated thereunder, 17 C.F.R. the settlement had not conferred a benefit
§ 240.10b-5 (1992), as well as Sections 11, upon Westinghouse. The District Court
12(2), and 15 of the Securities Act of nonetheless awarded to plaintiffs’ counsel
1933, as amended (the Securities Act), 15 fees and expenses in the amount of
U.S.C. §§ 77k(a), 77l (2), 77o (1988). The $582,443.
class action plaintiffs also alleged a claim
for negligent misrepresentation under Rand, acting as a pro se attorney,
principles of Pennsylvania common law. filed an appeal to this court, contesting the
In re Westinghouse Sec. Litig., 832 F. fees award. We reversed the District
Supp. 948, 961 (W.D. Pa. 1993), aff’d in Court’s judgment on the ground that the
part, rev’d in part, 90 F.3d 696 (3d Cir.
2
Several of the insurance policies
1
CBS Corporation is the successor covered claims in both cases and the
to Westinghouse Electric Corporation. insurers were not willing to pay for the
We refer to it hereafter as Westinghouse. settlements in both cases.
3
derivative litigation did not confer a conferred a definite benefit
benefit on Westinghouse and therefore upon the corporation by
plaintiffs’ counsel was not entitled to any successfully challenging the
fee award. Id. at 175-78. We remanded award of attorneys’ fee [sic]
the case to the District Court with to plaintiff’s counsel in the
instructions to deny the application of the underlying derivative action.
plaintiffs’ attorneys for fees and expenses. Rand represented himself,
Id. at 178. however. As a result, he did
not incur any attorney fees
Following our remand order, Rand for which he is personally
petitioned the District Court for an award responsible. Thus, an award
of $250,000 as attorney’s fees for his of attorney’s fees would not
successful appeal. In support, Rand com pens ate him for
asserted that the $250,000 request e x p e n s e s i n c u r re d in
represented one-third of the $750,000 that initially objecting and
plaintiffs’ counsel might have received but subsequently prosecuting
for Rand’s successful intervention. He the appeal.
cited several class action cases in which
the attorneys for the shareholder-objector App. at 6. The Court thus denied Rand’s
received attorney’s fees, ranging from 21% motion for attorney’s fees and costs and
to 53% of the fund. In the alternative, declined to endorse the stipulation for
Rand appended a lodestar calculation of $95,000 for attorney’s fees. However, it
$67,100 for attorney’s fees (based on an approved the portion of the stipulation
$250 hourly rate) and $673 in expenses. awarding Rand $673 for expenses.
Rand also submitted to the District Court
a stipulation in which Rand and Rand timely appealed, seeking
Westinghouse stated that Westinghouse reversal of the District Court’s order and
benefitted economically from Rand’s an award of $95,000 for attorney’s fees.
appeal and agreed to pay Rand $95,000 for Appellees, Westinghouse and the directors
attorney’s fees and expenses. and officers thereof, take no position on
this appeal, except to acknowledge that
The District Court concluded that they entered into the stipulation described
Rand was not entitled to recover attorney’s above. Amicus Curiae Howard Bashman 3
fees based on his pro se representation.
The Court stated, inter alia,
3
In the posture of this case, there
At first blush, it appears that
was no party who took the position that
Rand should be entitled to
the District Court order should be
counsel fees. As a pro se
affirmed. We asked Howard Bashman,
attorney objector Rand
Esq., to do so and are most appreciative
4
urges that although Rand successfully bondholder of the Florida Railroad
raised a shareholder objection, a pro se Company, sued the trustees of several
attorney should not be able to recover fees. realty companies to prevent them from
wasting a land trust fund and failing to pay
II. interest on its bonds. Vose ultimately
succeeded and saved the trust fund a
We exercise de novo review of “the significant amount of money. Trustees,
standards and procedures applied by the 105 U.S. at 529. Vose then petitioned for
District Court in determining attorneys’ “an allowance out of the fund for his
fees, as it is purely a legal question.” expenses and services” because he had
Planned Parenthood v. Att’y Gen. of N.J., borne “the whole burden of this litigation”
297 F.3d 253, 265 (3d Cir. 2002). for more than a decade and had “advanced
However, we review the District Court’s most of the expenses which were
findings of fact for clear error. Id. In this necessary for the purpose of rendering [the
case, there are no disputed issues of fact. litigation] effective and successful.” Id.The District Court recognized that Rand The courts below had approved the bulk of
had conferred a “definite benefit upon the Vose’s requests, including the fees for his
corporation.” App. at 6. We agree. That, solicitor and counsel, costs of court, and
however, is not the issue before us. copying. Critically, they also approved an
award for “personal services” and “private
Rand argues that the District Court expenses.” Id. at 537.
erred as a matter of law in holding that
attorney’s fees may not be awarded to an The Supreme Court approved of
attorney who represented himself in a compensating Vose for his attorney’s fees
shareholder derivative suit even where the and court fees as a matter of “equity and
suit has benefitted the corporation. The justice.” Id. at 536-37. Because Vose had
Supreme Court has issued two opinions “worked for [other bondholders] as well as
that guide our decision on this appeal: for himself,” the Court found that it would
Trustees of the Internal Improvement Fund have been “unjust” to give other
of Fla. v. Greenough, 105 U.S. 527 (1882), bondholders an “unfair advantage” by not
and Kay v. Ehrler, 499 U.S. 432 (1991). requiring them to contribute to “the
expenses which [Vose had] fairly
A. Trustees of the Internal incurred” in the course of litigation that
Improvement Fund of Fla. v. had benefitted all bondholders. Id. at 532.
Greenough The Supreme Court thus established the
“common fund” doctrine as a federal
In Trustees, Francis Vose, a common law doctrine that prevents the
unjust enrichment of non-litigant
beneficiaries at the litigant’s expense.
Accordingly, it affirmed the award for
of his efforts.
5
reimbursement for attorney’s fees and In short, Trustees emphasizes that a
costs to Vose, the litigant whose actions person who draws a salary or other
resulted in the creation of the common compensation from a trust or settlement
fund for the benefit of himself and others. fund should not have a personal stake in
the fund and instead should objectively
Critically for our purposes, the seek to maximize the settlement fund to
Supreme Court denied Vose’s petition for the benefit of the corporation or group.
“personal services” and “private expenses” The Court’s refusal to award Vose a fee
because such an award would have been for “personal services” illustrates its
without precedent in law or equity. Id. at unwillingness to set up financial incentives
536-38. The Court found pivotal that for objectors to pursue potentially
Vose “was a creditor, suing on behalf of unnecessary litigation to obtain a salary (or
himself and other creditors, for his and fees for “personal services”) that might
their own benefit and advantage.” Id. at conflict with the best interest of the
537. In denying Vose’s request for corporation or other shareholders. The
payment of “personal services” and Court thus denied Vose’s request for fees
“priva te expenses,” the Court for “personal services” because such
distinguished the character of a trustee, compensation might reward and encourage
who could properly receive a salary from potentially useless litigation by others
the trust, from that of an interested seeking lucrative “salaries.”
objector such as Vose, who could not reap
a salary: As with Vose, Rand is not a trustee
of corporation nor is it his job description
Where an allowance is made to objectively and selflessly protect it.
to trustees for their personal Rand is a doubly interested party: he has
services, it is made with a a shareholder’s interest in the corporation
view to secure greater as well as an attorney’s interest in
activity and diligence in the obtaining attorney’s fees. Because the
performance of the trust, conflict of interest as a lawyer and an
and to induce persons of objector-shareholder might lead him to
reliable character and take actions contrary to the best interest of
business capacity to accept the corporation, he is not entitled to a
the office of trustee. These “salary” of attorney’s fees under Trustees.
considerations have no As the District Court properly noted,
application to the case of a awarding Rand attorney’s fees potentially
creditor seeking his rights in could “tempt” other lawyer-shareholders to
a judicial proceeding. “advance garden variety objections
because of the prospect of an award of
Trustees, 105 U.S. at 537-38. attorney fees for their personal service.”
App. at 10; see also Trustees, 105 U.S. at
6
537-38 (observing that an award for acknowledged that the traditional
personal services may be “too great a American rule ordinarily prevents a
temptation to parties to intermeddle” in prevailing litigant from recovering
affairs in which they had “only the interest attorney’s fees from the loser but urged the
of creditors, and that perhaps only to a court to consider whether their fee request
small amount”). We note that Rand did fell within any of the equitable exceptions
not incur any financial liabilities for his to the American rule. Id. at 245. After
work on this case. Failure to award Rand determining that neither the bad faith nor
fees should not discourage other the common fund doctrines applied, the
shareholders from raising meritorious Court of Appeals for the District of
objections in the future; it will only ensure Columbia Circuit held that the plaintiffs
that they pursue objections with the were entitled to one-half of their fee
assistance of third-party counsel. request for acting to “vindicate important
statutory rights” for all citizens under the
We also find instructive the “private attorney general” doctrine. Id. at
Supreme Court’s decision in Alyeska 245-46 (internal quotation marks and
Pipeline Service Co. v. Wilderness citations omitted). The Supreme Court
Society, 421 U.S. 240 (1975). Although reversed that decision, holding that
Alyeska did not address whether pro se Congress may authorize new exceptions to
attorneys may recover fees under the the American rule, but the courts are not
common fund doctrine, it underscored the empowered to do so without statutory
limitations on the judiciary’s power to authorization. Id. at 262 (“[I]t is apparent
award attorne y’s fees w ithout that the circumstances under which
congressional authorization. In Alyeska, attorneys’ fees are to be awarded and the
an environmental group requested an range of discretion of the courts in making
award of attorney’s fees for their third- those awards are matters for Congress to
party attorneys. 4 The plaintiffs determine.”). Absent a congressional
directive that pro se attorneys should be
able to recover attorneys’ fees in derivative
4 actions, we find no basis to create a new
Plaintiffs had sought to enjoin the
equitable exception for attorneys who
Secretary of the Interior from issuing
represent themselves in shareholder
permits for the construction of the trans-
derivative actions.
Alaska oil pipeline. The district court
initially granted a preliminary injunction
against the issuance of permits, but
dissolved it following the Secretary of
the Interior’s announcement granting the subsequently amended the Mineral
permits. Although pipeline construction Leasing Act “to allow the granting of the
was later enjoined as a result of the permits sought” by the defendant.
Mineral Leasing Act, Congress Alyeska, 421 U.S. at 242-44.
7
B. Kay v. Ehrler would deprive the litigation of the
detached, reasoned judgment associated
The distinction that the Supreme with third-party counsel. See id. at 437-38
Court drew in Trustees – between the (pro se attorneys deprived of independent
compensable work of an objective, judgment in “framing the theory of the
disinterested party and the non- case, evaluating alternative methods of
compensable work of an interested litigant presenting the evidence, cross-examining
– was further developed in its opinion in hostile witnesses, formulating legal
Kay v. Ehrler, 499 U.S. 432 (1991). Kay arguments, and in making sure that reason,
had brought a civil rights action rather than emotion, dictates the proper
challenging a Kentucky statute that ta c t ic a l r e s p o n s e t o u n f o r e se e n
precluded including his name on the developments in the courtroom”). The
primary ballot. Id. at 433-34. After he Court explained that unlike pro se
prevailed he sought attorney’s fees under representation, traditional third-party
42 U.S.C. § 1988, which provides for an compensable representation is objective,
award of attorney’s fees to successful civil unclouded by the emotional hindrances
rights plaintiffs. Id. at 434. The Court of borne of first-hand involvement in a case.
Appeals read the statute as assuming “the Id. Moreover, the Court emphasized that
existence of ‘a paying relationship the word “attorney” generally connotes
between an attorney and a client.’” Id. at some form of an agency relationship, id. at
435 (quoting Kay v. Ehrler, 900 F.2d 967, 436 n.6; thus, Congress likely had
971 (6th Cir. 1990)). The Supreme Court c o n t e m p l a te d “ a n a tt o r n e y- c l ie n t
affirmed. It noted that the circuits are in relationship as the predicate for an award
agreement that a pro se litigant who is not under § 1988.” Id. at 436.5
a lawyer is not entitled to attorney’s fees
but were in conflict as to “whether a
lawyer who represents himself should be 5
In Duncan v. Poythress, 777 F.2d
treated like . . . a client who has had the
1508 (11th Cir. 1985) (en banc), a case
benefit of the advice and advocacy of an
implicitly overruled by the Supreme
independent attorney.” Id. at 435. The
Court in Kay, the court addressed a
Court considered whether such an award
similar question to the one at bar. The
would run contrary to the statute’s purpose
Honorable Paul H. Roney, in dissent,
of creating incentives for plaintiffs to
focused upon the agency relationship,
obtain independent counsel who would
writing:
successfully prosecute meritorious claims.
Id. at 436-37.
This case turns on the
meaning of the word
The Court noted that an attorney
“attorney.” Although the
who represents himself would be hindered
majority believes the “plain
by his inability to testify in the case and
language” of section 1988
8
does not preclude an attorney in litigation
award of fees to a there must be two
lawyer representing people. Plaintiff
herself,” we have here appeared pro
simply been unable se. The term “pro
to find any se” is defined as an
definition which individual acting “in
permits a decision his own behalf, in
that a pro se lawyer person.” By
has an attorney. Set definition, the
forth in an person appearing “in
Appendix to this person” has no
opinion are the attorney, no agent
definitions found in appearing for him
over two dozen before the court.
dictionaries. The fact that such
Without exception plaintiff is admitted
they define the word to practice law and
“attorney” in terms available to be an
of someone who attorney for others,
acts for another, does not mean that
someone who is the plaintiff has an
employed as an attorney, any more
agent to represent than any other
another, someone principal who is
who acts at the qualified to be an
appointment of agent, has an agent
another. A basic when he deals for
principle of agency himself. In other
law is that “[t]here words, when applied
is no agency unless to one person in one
one is acting for and proceeding, the
in behalf of another, terms “pro se” and
since a man cannot “attorney” are
be the agent of mutually exclusive.
himself.” 2A C.J.S.
Agency § 27, at 592. Id. at 1517-18 (Roney, J., joined by
For there to be an Henderson, J., dissenting) (footnotes
9
Philadelphia Board of Education, 248 F.3d
Foreshadowing Kay, we have long 129, 131 (3d Cir. 2001), we held that a
underscored the importance of reimbursing pa r e nt- a tto r n e y wh o suc cessf ull y
a successful plaintiff for financial debts to represented his child in an action under the
his or her attorney and providing that Individuals with Disabilities Education
plaintiff with objective representation. In Act, 20 U.S.C. § 2000 (IDEA), could not
Pitts v. Vaughn, 679 F.2d 311 (3d Cir. be awarded attorney’s fees under the
1982), and Cunningham v. FBI, 664 F.2d statutory fee-shifting provision. Because
383 (3d Cir. 1981), we denied the petitions the “danger of inadequate representation is
of pro se non-lawyer litigants for as great when an emotionally charged
attorney’s fees under Section 1988 and the parent represents his minor child as when
Freedom of Information Act (FOIA), the parent represents himself,” providing
respectively. Although both plaintiffs had the parent-attorney with an award of
been skillful enough to prevail in their attorney’s fees would encourage and
respective cases, we noted that the fee- sanction potentially sub-par or deficient
shifting rationale was premised, in part, representation, rather than requiring the
upon financial indebtedness to a third- party to seek “independent, emotionally
party attorney, and, in part, upon the detached counsel.” Id.; see also Doe v.
presence of an objective, detached third- Bd. of Educ. of Balt. County, 165 F.3d 260party attorney who is likely to prevent (4th Cir. 1998) (denying parent-attorney’s
groundless or unnecessary litigation. See petition for fees under IDEA for same
Pitts, 679 F.2d at 313; Cunningham, 664 reasons).
F.2d at 386-87.6
Similarly, after the Kay decision the
More recently, we reiterated the courts of appeals have denied attorney’s
importance of retaining rational, fees to pro se attorneys under a variety of
disinterested counsel in a case involving fee-shifting statutes, including the Equal
an attorney who represented his own child. Access to Justice Act (EAJA), FOIA, and
In Woodside v. School District of Title VII. See, e.g., Kooritzky v. Herman,
178 F.3d 1315, 1319 (D.C. Cir. 1999)
(denying attorney’s fees for pro se attorney
omitted) (emphases in original). under EAJA); Hawkins v. 1115 Legal
6 Serv. Care, 163 F.3d 684, 694-95 (2d Cir.
Pitts and Cunningham also
1998) (denying attorney’s fees for pro se
focused upon the difficulty of valuating a
attorney for civil rights violations); Burka
non-lawyer’s pro se efforts. Pitts, 679
v. United States Dep’t of Health & Human
F.2d at 313; Cunningham, 664 F.2d at
Servs., 142 F.3d 1286, 1290 (D.C. Cir.
386. Because Rand’s pro se work as a
1998) (denying attorney’s fees for pro se
licensed attorney does not present similar
attorney allegedly representing an
problems here, we need not discuss
undisclosed client under FOIA); SEC v.
valuation issues.
10
Price Waterhouse, 41 F.3d 805, 808 (2d rights suits.
Cir. 1994) (denying attorney’s fees for pro
se attorney under EAJA). We note that other courts also have
rejected Rand’s claims for attorney’s fees
Rand does not contend that Kay for representing himself. In In re Texaco
was decided incorrectly. Rather, he argues Shareholder Derivative Litigation, 123 F.
that Kay’s prohibition on compensating Supp. 2d 169 (S.D.N.Y. 2000), aff’d, 2002
pro se plaintiffs in civil rights cases should WL 126225 (2d Cir. Jan. 29, 2002), Rand
not apply with equal force to attorneys sought attorney’s fees for having served as
who represent themselves in securities a successful pro se attorney-objector
cases. Rand argues that unlike the whose objection conferred a material
plaintiffs in emotionally-charged civil benefit upon the corporation. Although
rights cases who are without legal the district court denied his claim as
expertise and whose testimony could be untimely, it proceeded to address the
necessary to advance the litigation, the merits of Rand’s claim. Id. at 171-74.
shareholder-attorney in the common fund That court applied the “logic of Kay and
actions such as the one at bar is its progeny” to deny Rand’s request for
dispassionate, skillful, and unlikely to be attorney’s fees because he had not acted as
called to testify. Rand’s attempted “independent, objective counsel.” Id. at
distinction is unpersuasive. Because 173. Moreover, the court noted that
attorney’s fees are awarded only to rewarding attorney-objectors might deter
prevailing plaintiffs, we can assume a other attorney-objectors, such as Rand,
relatively equal legal acumen. Moreover, from retaining counsel based on the
we have no reason to assume that possibility of being able to “enrich
shareholders who risk losing or have [oneself] by recovering attorney’s fees.”
already lost considerable sums of money in Id.
their stockholdings will be substantially
less emotionally involved in their suit than We agree with the District Court
civil rights plaintiffs. Lastly, and perhaps that the logic of Kay, as well as Trustees,
most critically, the Supreme Court’s supports the District Court’s conclusion
opinion in Trustees – which involved the that a rule barring attorney-objectors from
seemingly dispassionate issue of real estate recovering attorney’s fees would blunt any
funds – focused on the need for detached, temptation of attorneys to “advance garden
o b j e c ti v e c o u n s e l i n o r d e r t o variety objections” in order to recover a
coun terbalance whatever pecuniary salary of fees. App. at 10. Denial of a fee
motives a party might have for bringing award to attorneys who represent
litigation. Rand has offered no support for themselves will serve as a prophylactic to
his hypothesis that neutral third-party deter those attorneys, hopefully few, who
counsel is less desirable in the context of may be guided by financial incentives to
shareholder derivative suits than in civil pursue unnecessary litigation or to provide
11
representation that is not sufficiently
guided by objective, rational decision-
making. And we decline to create such an
incentive today.
III.
To be clear, we affirm the
continued vitality of the common fund
doctrine and its ethos of making-whole
litigants who pursued shareholder-objector
actions that have conferred a material
benefit upon a corporation.7 We merely
decline to endorse an interpretation of the
common fund doctrine that creates
untoward incentives for attorneys to
pursue unnecessary actions for pecuniary
gain or to pursue such actions without the
benefit of the reasoned and detached
judgment that attends the attorney-client
relationship. For the foregoing reasons,
we will affirm the judgment of the District
Court.
7
In his brief, Rand argues that he
“is entitled at a minimum to an award of
an incentive fee,” an award that some
courts have made to non-lawyers for
their service in conferring a benefit on
the class. We note that Rand effectively
waived the possibility of an incentive fee
during oral argument before us. We thus
express no opinion as to whether a pro se
attorney would be eligible to receive an
incentive fee.
12