Opinion ID: 2266285
Heading Depth: 1
Heading Rank: 7

Heading: Fee Application Common Fund Doctrine

Text: In a class action, the attorney for the plaintiff initially seeks judicial approval of any proposed settlement. Ch.Ct.R. 23(e). Skelton v. General Motors Corp., 860 F.2d 250, 253 (7th Cir.1988). Since a class action is fiduciary by nature, before a settlement is approved the Court of Chancery must make an independent determination, through the exercise of its own business judgment, that the settlement is intrinsically fair and reasonable. Nottingham Partners v. Dana, Del. Supr., 564 A.2d 1089, 1103 (1989). The Court of Chancery's role has been characterized as the third-party to the settlement. Id. An essential component of that approval process is a judicial determination that the adequate representation requirement of Rule 23(a)(4) has been satisfied. Prezant v. DeAngelis, Del.Supr., 636 A.2d 915, 924 (1994). See also Matsushita Electric Industrial Co., Ltd. v. Epstein, ___ U.S. ___, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996). If the settlement of a class action is approved and has provided for a monetary recovery, the common fund doctrine permits an attorney to independently request an award of fees from that same settlement fund. See Maurer v. International Re-Insurance Corp., 95 A.2d at 831; Central Railroad & Banking Co. v. Pettus, 113 U.S. at 124-25, 5 S.Ct. at 391-92. At that point, the plaintiffs' attorney's role changes from one of fiduciary for the clients to that of a claimant against the fund created for the clients' benefit. Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d 513, 516 (6th Cir.1993) (quoting Report of the Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. 237, 255 (1985)). This divergence of interests requires a court to continue its third-party role in reviewing common fund fee applications. [T]here is often no one to argue for the interests of the class, because class members with small claims often do not file objections to proposed settlements and fee applications. Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d at 516. See Swedish Hospital Corp. v. Shalala, 1 F.3d 1261, 1265 (D.C.Cir.1993). See also Rutherglen, Better Late Than Never: Notice and Opt Out at the Settlement Stage of Class Actions, 71 N.Y.U.L.REV. 258 (1996). [6] The defendant who contributed to the fund also will usually have no interest in how the fund is divided between the class and the plaintiff's attorney. [7] Swedish Hospital Corp. v. Shalala, 1 F.3d at 1265. This case is illustrative of those dynamics. First, there was a relative paucity of objections from the 581,000 class members. Second, although E.F. Hutton had a reversionary interest in the undisposed portion of the settlement fund, it agreed to take no position with regard to Goodrich's application for attorney's fees. Therefore, the Court of Chancery's review of common fund attorney fee applications must be more than cursory. See Nottingham Partners v. Dana, 564 A.2d at 1102. We hold that a request for an award of attorney's fees from a common fund must be subjected to the same heightened judicial scrutiny that applies to the approval of class action settlements. Id. Consequently, we hold the Court of Chancery must make an independent determination of reasonableness on behalf of the common fund's beneficiaries, before making or approving an attorney's fee award. Id. See also Ch.Ct.R. 88. Accord In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 821 (3d Cir.1995).