Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-93-01498/USCOURTS-ca10-93-01498-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

DIANE ROSENBAUM, on behalf of herself 

and all others similarly situated; 

PAMELA CAGAN, derivatively on behalf 

of US West, Inc., 

Plaintiffs-Appellees, 

DRAKE G. RUSSELL, 

Appellant, 

v. 

JACK MACALLISTER, RICHARD D. MCCORMICK, 

A. GARY AMES, US WEST, INC., 

RICHARD J. CALLAHAN, HOWARD P. DOERR, 

Defendants. 

FILED 

United States Court of Appcab Tenth Circuit 

.4UG 15 1995 

PATRICK FISHER 

Clerk 

No. 93-1498 

Appeal from the United States District Court 

for the District of Colorado 

(D.C. No. 91-B-2164) 

Dirk T. Biermann of Biermann & Fretz, Denver, Colorado, and Donald 

Salcito of Ballard Spahr Andrews & Ingersoll, Denver, Colorado 

(Joseph H. Fretz of Biermann & Fretz, Denver, Colorado, and 

David B. Kelly of Ballard Spahr Andrews & Ingersoll, Denver, 

Colorado, with them on the briefs) for Appellant Drake G. Russell. 

Judith L. Spanier (Arthur N. Abbey, also of Abbey & Ellis, New 

York, New York; Gerald L. Bader, Jr. and Renee B. Taylor of Bader 

& Villanueva, Denver, Colorado; and James V. Bashian, New York, 

New York, with her on the briefs) for Plaintiffs-Appellees. 

Appellate Case: 93-1498 Document: 01019279486 Date Filed: 08/15/1995 Page: 1 
Before HENRY and LOGAN, Circuit Judges, and REED, District Judge.* 

LOGAN, Circuit Judge. 

In this appeal we are asked to determine whether the district 

court abused its discretion in awarding plaintiffs' counsel 

$2,500,000 attorney's fees and $100,000 expenses, to be paid by US 

West, Inc., based on the settlement reached in a combined class 

action and derivative suit against US West and certain of its officers and directors. Drake G. Russell, an unnamed class member 

who is also a US West shareholder, made written and oral objections in the district court, not to the settlement itself, but to 

the amount of attorney's fees sought in the settlement agreement 

and ultimately granted by the court. He did not attempt to intervene in the underlying suit. The first issue on appeal is 

whether Russell has standing to appeal the district court's fee 

award to plaintiffs' counsel. We hold that he does have standing, 

and that the district court erred and must reconsider its fee 

award. 

Plaintiff Diane Rosenbaum initiated the class action suit 

under Fed. R. Civ. P. 23(b) (3), alleging violations of federal 

securities laws under the Securities Act of 1933 and the Securities Exchange Act of 1934 for false statements and omissions by 

defendants affecting the market value of US West stock. The complaint was later amended to add another plaintiff, Pamela Cagan, 

* The Honorable Edward C. Reed, Jr., Senior United States District Judge, United States District Court for the District of Nevada, sitting by designation. 

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and a derivative claim under Fed. R. Civ. P. 23.1 on behalf of US 

West against the same individual defendants. The derivative claim 

alleged that the individual defendants breached their fiduciary 

duties and wasted corporate assets in connection with the transactions and nondisclosures specified in the class action complaint. 

The parties began negotiations toward a possible settlement, 

and the district court certified a class of US West shareholders 

who purchased common stock between February 15, 1990, and March 6, 

1992. After discovery the parties entered a stipulation of settlement. The district court held a hearing to review the stipulation and the settlement notices proposed to be sent to the class 

members and, for the derivative suit, to US West shareholders of 

record. 

At a settlement hearing in November 1993, the district court 

determined that the class members and current shareholders were 

given adequate notice as required by Rules 23 and 23.1. The district court then heard from attorneys for the named class representatives, the shareholders, US West, and the individual defendants. Attorneys appeared on behalf of Russell, who had filed a 

written objection to the attorney's fees sought in the settlement 

proposal, and argued that the benefit to the shareholders did not 

justify $2,500,000 in attorney's fees. The district court, however, approved the settlement after finding it was fair, adequate 

and reasonable, and awarded plaintiffs' counsel fees of $2,500,000 

and expenses of $100,000. 

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Russell appeals, asserting that the attorney's fees award was 

excessive, and that the district court erred in denying his motion 

for an evidentiary hearing on that award.l 

I 

We may address the attorney's fee issue only if Russell has 

standing to bring this appeal. He asserts that he has standing 

both as a member of the class who purchased stock during the class 

period and as a US West shareholder. 

The issue whether a class member must intervene in the underlying suit to have standing to challenge approval of a settlement has split the circuits. Compare Shults v. Champion Int'l 

Corp., 35 F.3d 1056 (6th Cir. 1994) (requiring intervention) ; 

Croyden Assocs. v. Alleco, Inc., 969 F.2d 675, 679-81 (8th Cir. 

1992), (same) cert. denied, 113 S.Ct. 1251 (1993); Walker v. City 

of Mesquite, 858 F.2d 1071, 1074 (5th Cir. 1988) (same); Guthrie 

v. Evans, 815 F.2d 626, 628-29 (11th Cir. 1987) (same) with Carlaugh v. Amchem Prods., Inc., 5 F.3d 707, 713-14 (3d Cir. 1993) 

(no intervention required); Armstrong v. Board of Sch. Directors, 

616 F.2d 305, 327-28 (7th Cir. 1980) (same). This court has recently joined the circuits that require intervention by a class 

member in a Rule 23(b) (3) case in order to have standing to appeal 

the district court's approval of the settlement. Gottlieb v. 

Wiles, 11 F.3d 1004 (lOth Cir. 1993). Although Russell asks us to 

1 Russell appeals the district court's final order approving the 

settlement and awarding attorney's fees, as well as the order denying his "Motion for an Order Delaying Any Ruling on Plaintiffs' 

Attorney Fee Application and for an Order Granting an Evidentiary 

Hearing on Attorney Fees and his Motion for an Order Requiring 

Plaintiffs' Counsel to Produce their Time Records." 

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overturn that decision, as a panel we cannot; it would require a 

decision of the court sitting en bane. The Gottlieb v. Wiles 

case, however, did not involve, or necessarily preclude, nonintervenor Russell's right to appeal the derivative settlement. 

Indeed, the decision, by its analysis distinguishing shareholders' 

derivative suits and Bell Atlantic Corp. v. Bolger, 2 F.3d 1304 

(3d Cir. 1993), might be read to support Russell's standing to 

appeal the derivative suit portion of the settlement agreement. 

But Russell does not question the validity of the settlement 

agreement itself, only the court's award of attorney's fees. We 

believe that the most important rationales underpinning the rule 

that only intervenors may appeal the approval of the settlement 

itself do not apply to appeals of awards of attorney's fees and 

expenses to class counsel, even when the defendant agrees to the 

amount of the fees in the settlement agreement. 

The purpose of Rule 23, and class actions generally, is to 

unify and render manageable litigation in which there are many 

members of a homogeneous class with common claims against a defendant. Before certifying a class the court must find that the 

one who seeks to be its representative is typical of the class and 

is likely to "fairly and adequately protect the interests of the 

class." Fed. R. Civ. P. 23 (a). A class member who wishes to 

intervene must challenge the ability of the certified representative to represent the class as a whole. These Rule 23 requirements in part are for the benefit of the defendant, to allow it to 

settle in one suit its liability to all members of the class who 

have not opted out and thus put the case behind it. 

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To allow a nonintervening class member to appeal approval of 

a settlement would permit one dissident--and there is likely always to be one--to postpone realization of any of the benefits 

that might otherwise come to the class members and to prevent the 

defendant from settling its liability. To be sure a member of a 

Rule 23(b) (3) class may opt out in favor of individual litigation 

with the defendant; but that is seldom a major worry to the defendant because the individual claims are generally small and 

their costs of litigation are high. 

To allow an individual dissident class member who did not 

intervene to appeal an attorney's fee award would not be nearly as 

disruptive. It would not affect the defendant who has paid into 

court or made other concessions necessary to settle the case. In 

the usual case, in which the settlement creates a fund to be 

shared by the plaintiff class, all of the assets the court would 

have ordered distributed to the class members could be distributed 

despite the appeal. The only result of allowing the appeal would 

be to delay the payment of fees and expenses to the attorneys for 

the plaintiff class. Should the dissident's appeal succeed in 

reducing those fees, there would be additional funds for later 

distribution to the class members. 

It seems proper to allow the nonintervenor class member to 

appeal for at least three reasons: First, the ability of the 

class representative to adequately represent the other class members is likely to break down when the issue is the appropriate fee 

for her own lawyers. Indeed, it is sometimes the lawyers who recruit the class representative and initiate the suit. In any 

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event, that the named class representative will resist an excessive fee request by her own lawyers is not nearly as plain as 

whether that representative, with the assistance of the lawyers, 

will negotiate or litigate fairly for the class against an allegedly wrongdoing defendant. 

Second, class members notified of a proposed settlement are 

informed of the recovery against the defendant but often only informed of an outside limit for attorney's fees. For example, in 

the instant case the notice stated only that "Plaintiffs' lawyers 

may ask for up to $2,500,000 in fees and $100,000 in expenses." 

Appellant's App. 309; see also id. at 288, 316 ("not be in the aggregate greater than $2,500,000 for fees and $100,000 for . 

expenses"). The expectation is that the fees will be set by the 

court upon consideration of the evidence, including the objections 

of nonintervening class members. We do not believe that a class 

member who is satisfied with the settlement should have to intervene because of the possibility the court might award an unreasonable attorney's fee. 

Third, the opt out feature of Rule 23(b) (3) class actions 

seems inoperable in the context of a member satisfied with the 

settlement generally, but potentially dissatisfied with the 

attorney's fee award. By the time the member knows the amount of 

the fee the court awards the time to opt out has expired. 

The same considerations apply even more clearly in the context of a shareholders' derivative suit in which the nonparty 

shareholder wishes to appeal only the fee allowed the party 

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shareholder's attorney in a settlement. There is no opt out possibility. The benefits of the settlement inure to the corporation 

and hence only indirectly to the shareholder.2 The attorneys for 

the named representative are entitled to a fair fee; but an appeal 

of the court's fee award--to be paid out of the corporate 

treasury--would seem not to delay the benefits of the settlement. 

For the reasons stated, we hold that Russell, the nonintervenor class member and shareholder who made written and oral objections at the fee hearing, has standing to appeal the court's 

award of attorney's fees and expenses to the plaintiffs' attorneys. 

2 To have standing to sue as a representative plaintiff in a 

shareholder derivative action, a person must have owned stock at 

the time of the complained of acts (the "contemporaneous ownership 

rule"), and "must be a shareholder of the defendant corporation at 

the time suit is brought." Schilling v. Belcher, 582 F.2d 995, 

999 (5th Cir. 1978) (citing Fed. R. Civ. P. 23.1); see also Lewis 

v. Knutson, 699 F.2d 230, 238 (5th Cir. 1983) (quoting Schilling). 

"[I]t is generally held that the ownership requirement continues 

throughout the life of the suit and that the action will abate if 

the plaintiff ceases to be a shareholder before the litigation 

ends." Schilling, 582 F.2d at 999 (citing, inter alia, 7A 

Charles A. Wright et al., Federal Practice and Procedure§ 1826, 

at 325 (1972), and 3B Moore's Federal Practice ,! 23.1.17, at 23.1-

63 (2d ed. 1978). To merely object to the settlement of a derivative action, however, the objector apparently need only own stock 

in the corporation at the time of the settlement hearing, and 

appear at the settlement hearing to raise his or her objections. 

Saylor v. Bastedo, 78 F.R.D. 150, 151-153 (D.C.N.Y. 1978); see 

Bell Atlantic Corp. v. Bolger, 2 F.3d 1304 (3d Cir. 1993); Webcor 

Electronics v. Whiting, 101 F.R.D. 461 (D. Del. 1984); and 7C 

Charles A. Wright et al., Federal Practice & Procedure§ 1839, at 

182 (1986) . Russell was a shareholder at the time of the acts and 

at all times thereafter. But in another case it is quite possible 

a shareholder who acquired stock after the acts occurred but 

before the settlement or fee hearing might be held ineligible for 

intervenor status. 

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II 

We turn now to the merits: Russell's objections to the attorney fee award. Before determining the attorney's fee award, 

the district court summarized the settlement terms: 

[T]he class members are vested with a right to purchase 

certain shares of stock in US West at a three percent 

discount and absent the payment of brokerage fees and 

expenses determined by the formula set forth in detail 

in the parties' settlement. 

In addition there was secured through 

certain insurance carriers the payment 

in insurance proceeds and a waiver of 

ductible, rendering a benefit of true 

million. 

negotiation with 

of $3.5 million 

a $1 million devalue of $4.5 

Finally, the settlement requires the implementation of 

certain therapeutic corporate governance measures 

through the Corporate Development and Finance Committee, 

the Public Policy Committee, the Human Resources Committee and the Audit Committee directed specifically to 

the conduct of the corporate business giving rise to the 

claims made the subject matter of this action, so as to 

define standards of future corporate governance against 

which the actions of the directors and officers may 

reasonably be measured. 

Appellant's App. 511; see also Stipulation of Settlement, id. at 

96-134. 

The court then discussed the value of the benefits gained, 

and essentially applied both a common fund and a lodestar-type 

analysis. The district court concluded that an attorney's fee of 

$2,500,000 was reasonable. 

Objector Russell argues that the award of attorney's fees was 

improper, asserting that the settlement primarily benefitted the 

class members; therefore, the fees should not be shifted so that 

the corporation (thus, the shareholders) pays them. Alternatively, he asserts that even if the corporation/shareholders benefitted enough to require the corporation to pay the attorney's 

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fee award, those fees should be based on an unenhanced lodestar 

rather than a percentage of the fund. We review the award of 

attorney's fees for abuse of discretion, Gottlieb v. Barry, 43 

F.3d 474, 486 (lOth Cir. 1994); "[h]owever, 'the court's legal 

analysis which provides the basis for the fee award is reviewable 

de novo.'" Aguinaga v. United Food and Commercial Workers Int'l 

Union, 993 F.2d 1480, 1481 (lOth Cir. 1993) (quoting Homeward 

Bound. Inc. v. Hissom Memorial Ctr., 963 F.2d 1352, 1355 (lOth 

Cir. 1992)). 

The award of attorney's fees to plaintiffs in class action 

and derivative suits is based upon the common benefit doctrine, an 

exception to the American Rule that prevailing litigants must pay 

their own attorneys' fees. Hall v. Cole, 412 U.S. 1, 5 (1973). 

It applies where "the plaintiff's successful litigation confers 'a 

substantial benefit on the members of an ascertainable class, and 

where the court's jurisdiction over the subject matter of the suit 

makes possible an award that will operate to spread the costs 

proportionately among them.'" Id. at 5 (quoting Mills v. Electric 

Auto-Lite Co., 396 U.S. 375, 393-94 (1970)). The common benefit 

doctrine originates from the common fund exception, under which 

"the successful plaintiff is awarded attorney fees because his 

suit creates 'a common fund, the economic benefit of which is 

shared by all members of the class.'" Aguinaga, 993 F.2d at 1482 

(quoting Hall, 412 U.S. at 5 n.7). 

"The common fund doctrine 'rests on the perception that persons who obtain the benefit of a lawsuit without contributing to 

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its costs are unjustly enriched at the successful litigant's expense.'11 Brown v. Phillips Petroleum Co., 838 F.2d 451, 454 (lOth 

Cir.) (quoting Boeing Co. v. Van Gernert, 444 U.S. 472, 478 

(1980)), cert. denied, 488 U.S. 822 (1988). When the common benefit is a fund, fees are 11 extracted from the predetermined damage 

recovery rather than obtained from the losing party. 11 Id. Thus 

when a class action yields a fund for class members, fees may be 

paid from the recovery. See Boeing Co., 444 U.S. at 481. Similarly, in a typical shareholder derivative suit, 11 the successful 

shareholder plaintiff confers a substantial benefit on all of the 

shareholders of the defendant corporation. Any fees assessed 

against the corporation can be spread proportionately among all of 

the shareholders, who are the real beneficiaries of the litigation, because the corporation is the alter ego of the shareholders ... Johnson v. U.S. Dep't of HUD, 939 F.2d 586, 590 (8th Cir. 

1991) . 

The district court acknowledged Russell's argument that in 

common fund cases, the fees are spread evenly among all those who 

benefit in proportion to the benefit, whereas here US West pays 

the entire fee even though the class members received more relief 

than the shareholders. The district court, however, accepted 

plaintiff counsel's argument that the therapeutic relief was a 

substantial benefit to both the shareholders and class members. 

The court did not appear concerned that the class members may have 

received a benefit--discount purchase rights--that nonmember 

shareholders did not receive. Other circuits, however, have rejected fee awards in class action suits against corporations on 

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the ground that any benefit of the class action accrued only to 

class members, not to the corporation itself or its shareholders 

in general. See Christensen v. Kiewit-Murdock Inv. Corp., 815 

F.2d 206, 211 (2d Cir.), cert. denied, 484 U.S. 908 (1987) (class 

action by shareholders of certain classes of stock opposing merger 

agreement; in response board revised merger plan); cf. O'Neill v. 

Church's Fried Chicken, Inc., 910 F.2d 263, 266-67 (5th Cir. 1990) 

(derivative suit) . However, as the O'Neill opinion noted, any 

result that benefits the corporation benefits the shareholders. 

When there is a common fund created by a settlement, courts 

have applied one of two methods of determining reasonable attorney's fee awards: by a percentage of the fund, or by the lodestar 

method developed in the statutory fee shifting cases. See Uselton 

v. Commercial Lovelace Motor Freight, Inc., 9 F.3d 849, 853 (lOth 

Cir. 1993). We have recently implied "a preference for the percentage of the fund method" in common fund cases. Gottlieb v. 

Barry, 43 F.3d at 483. "In all cases, whichever method is used, 

the court must consider the twelve Johnson factors."3 Id. 

3 The Johnson factors include: "the time and labor required, the 

novelty and difficulty of the question presented by the case, the 

skill requisite to perform the legal service properly, the preclusion of other employment by the attorneys due to acceptance of 

the case, the customary fee, whether the fee is fixed or contingent, any time limitations imposed by the client or the circumstances, the amount involved and the results obtained, the experience, reputation and ability of the attorneys, the 'undesirability' of the case, the nature and length of the professional relationship with the client, and awards in similar cases." Gottlieb 

v. Barry, 43 F.3d at 482 n.4 (citing Johnson v. Georgia Highway 

Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974)). 

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In reaching the fee award, it is not entirely clear whether 

the district court applied a lodestar or a percentage of the fund 

analysis.4 The district court acknowledged that the essential 

focus was the value of the benefits achieved by plaintiff attorneys' efforts. The court stated that "the quantification of benefit in this case is exceedingly difficult." Appellant's App. 

563. It noted the $3.5 million in insurance proceeds, enhanced by 

the $1 million deductible, then stated that it is difficult or 

impossible to quantify the benefits to shareholders of savings in 

brokerage fees,S and the benefit of the corporate governance procedures. The district court then stated that 

there is a persuasive argument before me in the context 

of this case that at this phase of participation by 

class members, there is a rough benefit, which can be 

expected to be exceeded, of $15 million. 

My rough calculation of the fee requested reflects that 

that would be about 16 percent of that estimated benefit. 

The point of this exercise is this: The benefit is 

manifest, and given the manifest benefit I have no 

qualms or reservations in finding and concluding that 

benefit is substantial. 

4 The district court stated that the trend in the field, and in 

this circuit, is to award fees "in cases of this nature" on a 

percentage basis, "but that begs the question of percentage of 

what." Appellant's App. 561. The court then stated that "I am 

cognizant that the lodestar method is one method to approach an 

award of fees, but the shortcomings of the lodestar method in a 

case of this nature are manifest, whereas its more reasoned application in statutory fee cases has greater benefit." Id. The 

court then listed the Johnson factors as appropriate to consider. 

5 The court acknowledged it would be easier to quantify the discount savings and purchase of stock after the offering ended, but 

it rejected the objector's request to delay the award until April 

1994. 

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Id. at 564. The district court proceeded to consider each of the 

Johnson factors, and in the process referenced the time and labor, 

"a lodestar type of analysis." Id. In concluding that the proffered lodestar of around $780,000 was reasonable the court did not 

question plaintiffs counsels' statement of the hours spent on the 

case and hourly rate figures averaging over $300 per hour ($185 to 

$450) for attorney time and paralegal rates as high as $125 per 

hour.6 It applied the requested multiplier of approximately 3.16 

to reach the $2,500,000 figure. Id. at 567. Thus, applying both 

the percentage of the fund and the lodestar analysis the district 

court somehow arrived at exactly the same figure, $2,500,000, the 

maximum fee plaintiffs' counsel said they might ask for in the 

settlement. 

Plaintiffs argue that we may not review the district court's 

determination of the value of the settlement because only the 

attorney's fee issue is being appealed. Of course, the propriety 

of the settlement itself is not before us. But in setting its fee 

award the court extolled the value of the benefits to the 

shareholders/corporation and the class and used its findings to 

justify its attorney's fee award. Thus, the value is a relevant 

issue in this appeal. 

We believe that properly analyzed this is not a common fund 

case and that the benefits secured to the corporation, and perhaps 

to the class members, are likely not worth the $15 million plus 

estimated by the district court. 

6 The court stated that going through the billing sheets of 

counsel would not allow it to articulate the basis for the fee any 

better. Appellant's App. 570-71. 

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We turn first to the derivative suit. In the notice to 

shareholders, "Answers to Questions You May Have About the Proposed Settlement," the only benefit stated was the new corporate 

governance procedures. Appellant's App. 318-19, 321. The court 

admitted this benefit was not quantifiable. Id. at 563. No new 

committees were established, only a commitment that for at least 

five years the existing Corporate Development and Finance Committee would review any sale or purchase of real estate involving $10 

million or more, any leases with an annual rental of $1.5 million 

or more, and any "substantial or material diversification" of the 

corporate business, id. at 108; that the Public Policy Committee 

would make an annual review of all "significant governmental or 

regulatory proceedings" involving the corporation's real estate or 

transactions with affiliates and provide that information to the 

Corporate Development Committee, id. at 108-109; that the Human 

Resources Committee would review the effect of any "employment 

resizing programs" on corporate trust funds, id. at 109; and that 

the Audit Committee would at least annually review the corporation's discussion of its real estate portfolio as contained in its 

10-K report to the SEC, review reserves established for employer 

resizing programs, and review the methodology used to determine 

the net realizable value of the corporation's real estate portfolio prepared by management, id. 

As counsel for Russell pointed out to the district court, 

these are not extraordinary modifications; the committees apparently were in place as a result of a prior separate lawsuit. See 

id. at 406, 550. Although the corporate governance procedures in 

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the settlement seem to us merely prudent safeguards any major 

corporation should have in place without the impetus of a lawsuit, 

whether this change was extraordinary and of special value should 

be established easily by the testimony of an expert familiar with 

other major corporations' governance provisions. 

Apparently the only contribution to the corporation or the 

class by the individual defendant directors and officers was the 

$3.5 million their insurers paid to US West. We do not see how 

the district court considered this to be a contribution equal to 

$4.5 million; regardless of the deductible, the amount made available to the corporation to use or to help fund the expenses it 

incurred was $3.5 million. Although this money came into the 

corporate treasury, it might well be treated as simply a contribution to the costs of the suit; US West apparently assumed and 

paid some $3 million in administrative costs in connection with 

the settlement and the notices to class members and shareholders. 

See id. at 403. That expense is in addition to the $2.6 million 

attorney's fees and expenses the court ordered US West to pay. 

Thus, if these costs are balanced against the contribution from 

the insurance, viewing this as a derivative suit it is difficult 

to ascertain any net benefit to the corporation. 

The third and final benefit to the corporation mentioned by 

the district court was the influx of capital from the stock purchases by class members under the settlement. The court appeared 

to believe this was unique, because it found the stock purchases 

benefitted both the corporation and the class members, a win/win 

situation with no detriment to anyone in the lawsuit. 

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The court made no finding that the corporation needed this 

influx of capital; but we may assume it did because US West apparently has in place a shareholder dividend reinvestment plan, 

id. at 135, 368, to continue to funnel new capital to the corporation. Of course, to the extent the corporation received less 

than the fair value for the shares sold to the class members it 

diluted the value of the stock held by the other common shareholders. It is also relevant to the value of this capital influx 

that other avenues were open to the corporation to obtain capital. 

Many corporations raise money by rights offerings to shareholders 

without brokerage fees and at discounts from market. Plaintiffs, 

in touting their success in the settlement, noted that a public 

offering would require the company to pay approximately $1 per 

share underwriting costs. This is close to the 3% discount the 

settlement offered the class members, considering that the stock 

apparently was selling for less than $50 per share. See id. at 

297, 300. Thus, although the class members' purchases of US West 

stock brought an influx of capital to the company, from the record 

before us it does not appear the addition was less costly or more 

valuable than raising the capital by another method. 

special benefit to the corporation resulting from the 

seems illusory. 

Thus, any 

lawsuit 

It appears from the record that the principal benefit of the 

settlement inured to the class members who were able to buy company shares at a discount from the market price. Even here the 

benefit does not appear to be huge. Class members were permitted 

to purchase shares directly from the company at a 3% discount, but 

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only for up to one-tenth of the total number of shares they purchased during the approximately two year class period. Id. at 

104, 296-97. Plaintiffs made much of the saving to small investors, because the class members did not have to pay broker's fees. 

But class members who bought less than 20 shares during the class 

period had no right to purchase stock under the settlement. If 

they sent in their application they were paid cash equal to the 3% 

discount for either one or two shares; i.e., apparently no more 

than $3 total. Class members entitled to purchase apparently were 

treated like those who participated in the dividend reinvestment 

program, except for the discount. Russell cited authority that 

rights offerings to shareholders without brokerage fees are common 

and often offered at a discount of 5% or more from the market 

price. Reply Brief of Appellant at 9-10. One objecting shareholder's letter in the record included a list of 37 major corporations that offered their shares to their stockholders at a discount of 2-1/2 to 5% from market. Appellant's App. 354. 

What makes the value of the discount to the class members 

reach a significant total is simply the size of the corporation 

and the enormous number of class members eligible to purchase. 

Apparently 24 million shares had to be offered. Id. at 300.7 

This fact obviously impressed the judge, who noted that for a 

corporation with 400 million shares outstanding and 899,000 record 

7 Apparently only about 5.6 million shares were sold to class 

members, less than 24% of the offering. Brief of PlaintiffsAppellees at 13-14 n.6. We do not fault the district court, of 

course, for not waiting to see how many took advantage of the 

settlement offer. Nevertheless, the relatively small number is 

some indication that a large percentage of class members did not 

consider the settlement to have significant value. 

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holders, "$2.5 million is like a grain of sand in the Sahara." 

Id. at 548. 

The benefit of the settlement, we believe, inures almost entirely to the class members and comes from the value of the discount given those who were willing to buy more US West stock. 

There was no fund of money obtained for the class to share. 

Rather most class members had to pay the defendant corporation 97% 

of the market price for additional shares in order to realize any 

benefit. Cf. In re: General Motors Corp. Pick-Up Truck Fuel Tank 

Litigation, 55 F.3d 768, 802-03, (3d Cir. 1995) (rejecting products liability class action settlement that gave each owner a 

coupon whose value could be realized only by purchasing a new 

truck) . The only fund available to the class members to reimburse 

their lawyers in any sense arises from the $3.5 million contributed by the insurers of the individual defendants. The district 

court's order required that almost 75% of that be paid to the 

plaintiffs' attorneys. 

We are satisfied that this is a common benefit, but not a 

common fund, case, and that a percentage of the fund approach is 

not appropriate. Thus, this is a case for application of the 

twelve Johnson factors. See Gottlieb v. Barry, 43 F.3d at 483. 

These attorneys are entitled to a fair fee for their services. We 

do not suggest that the fee analysis must follow the approach of 

the statutory fee cases like Ramos v. Lamm, 713 F.2d 546 (lOth 

Cir. 1983). Nevertheless, even though the amount of money that 

changed hands here is great, our conscience is shocked by an award 

of a 3.16 multiplier that results in a fee equal to more than $900 

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per hour for every attorney, paralegal, and law clerk who worked 

on the case. 

Therefore, we must reverse and remand for further proceedings 

in the district court. We believe an evidentiary hearing is appropriate. The court may find it helpful to take evidence on the 

uniqueness of the corporate governance provision, on what are 

reasonable hourly rates for the attorneys in a case that does not 

produce a common fund, on whether the hours expended by counsel 

and their assistants were reasonable, and perhaps on other aspects 

affecting the appropriate fee award. We do not forbid some multiplier if there is evidence of something extraordinary in the results that was not apparent to this panel, or if one of the Johnson factors appears to demand it.8 We hold, however, that the 

high dollar figures necessarily involved in a corporation of this 

size cannot justify a multiplier. 

REVERSED and REMANDED. 

8 ~' as to contingency, what were the prospects for a successful suit; can a law firm be justified taking a class action or 

derivative suit on contingency if the chances of recovery are 

significantly less than 50%; if the success is not significant 

should a reverse multiplier be applied. 

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