Opinion ID: 754085
Heading Depth: 1
Heading Rank: 2

Heading: Rejection of the Special Master's Recommendation

Text: 7 We begin by addressing whether Judge Manning erred when she declined to follow the special master's recommendation to award a percentage of the cash recovery to Cook's attorneys. Before reaching the merits of the question, we must focus on the applicable standards of review. Because this case involves a special master and a district judge, two standards of review are relevant: the standard the district court applies to the special master's report and the standard we apply to the district court's opinion. With respect to the former, the general rule is that the district court steps into the shoes of an appellate court and employs the same standards that an appellate court uses to review a lower court opinion. See Williams v. Lane, 851 F.2d 867, 884 (7th Cir.1988). Hence a district court reviews a special master's legal conclusions de novo, see id. at 885, and accepts findings of fact unless they are clearly erroneous, see Fed.R.Civ.P. 53(e)(2). But the choice between the lodestar and percentage-of-fund methods is neither a question of law nor of fact; rather, a district judge has discretion to use either method, depending on the particular circumstances of the case. See Harman v. Lyphomed, Inc., 945 F.2d 969, 975 (7th Cir.1991). What is not clear is how much deference the district court, in exercising this discretion, should afford the special master's recommendation. 8 Cook's attorneys argue that the general rule should apply--that the district court should review the master's recommendation for an abuse of discretion, the same standard an appellate court would use to review a district court's choice between the lodestar and percentage-of-fund methods. In support of this position, Cook's attorneys cite Gottlieb v. Barry, 43 F.3d 474 (10th Cir.1994). We agree that Gottlieb provides the proper standard of review, but do not understand the case as holding that abuse of discretion is the appropriate standard. While the Tenth Circuit analogized the master's recommendation of a method to a credibility finding, it stated only that the district court should give[ ] some deference to the master's assessment [of which] method was more likely to result in a reasonable fee in this particular case. Id. at 487 (emphasis added). Although some deference is neither precise nor easily quantifiable, we believe it adequately captures the weight that a district court should assign to the master's recommendation of the lodestar or percentage-of-fund method. It also comports with the language of In re Continental Ill. Sec. Litig., 962 F.2d 566 (7th Cir.1992), where we encouraged a district judge to appoint a special master who would advise the court with respect to attorney's fees. Id. at 573. While In re Continental recognized the value of a master's opinion, it noted that [t]he judge may have insights to add by virtue of having observed the lawyers in action. Id. at 573-74. A district court that extends some deference to the master will consider his recommendation and the factors influencing it, but will not regard the recommendation as the alpha and omega of the fee analysis. 9 While not as familiar as, for example, abuse of discretion and de novo, some deference is not a novel standard of review. See, e.g., Goluba v. School Dist. of Ripon, 45 F.3d 1035, 1037-38 (7th Cir.1995) (when district court oversees and approves consent decree, its interpretation of the decree is entitled to some deference); Brown & Williamson Tobacco Corp. v. Jacobson, 827 F.2d 1119, 1141 (7th Cir.1987) (appellate court gives some deference to jury's determination of presumed damages in libel suit while also considering whether the award is excessive); United States v. Ceballos, 812 F.2d 42, 47 (2d Cir.1987) (district court is entitled to some deference when it concludes whether a person has been seized within the meaning of the Fourth Amendment). These cases illustrate that while appellate courts extend due regard to those who are especially familiar with a matter, they do not forfeit the authority to independently decide issues within their province. A special master who facilitates settlement and reviews fee applications is likely to have direct and extensive knowledge about the particular circumstances of a case and which method will produce a reasonable fee. Gottlieb, 43 F.3d at 487 n. 10. Just as an appellate court displays some deference to those with special knowledge, a district court must extend some deference to the master's recommendation regarding the lodestar and percentage-of-fund methods. But the judgment of the special master does not usurp that of the district judge, who retains the discretion to choose the method she finds most appropriate in light of the particular circumstances of the case. 10 Next we address the standard under which we review the district court's decision to reject the master's recommendation of methods. Perhaps we risk redundancy, because we have already stated that the district court has discretion to choose between methods. But it is worth emphasizing that we will review the district court's decision for an abuse of discretion. Typically when the district court disagrees with the special master, we bypass the district court's decision altogether and review only the report of the special master. See McDonald v. United Air Lines, Inc., 745 F.2d 1081, 1089 (7th Cir.1984); Gottlieb, 43 F.3d at 486 (Where the district court rejects a factual finding by the master, we ... directly review the findings of the special master, thereby effectively ignoring the district court's review of the master's findings.). Or, in other words, we review the district court's decision de novo to determine whether the master has erred. In this circumstance, however, it would be foolish to circumnavigate the opinion of the district judge. No matter how thoroughly an appellate court combs the record, it has no more than a sterile and second-hand account of what occurred in the court below. Of course, the same can be said of a district court when it reviews a master's factual findings--it too is one step removed. But an award of attorney's fees reflects the services counsel performs from the inception of a case through its ultimate resolution. A district judge has witnessed the progress a case has made while on the court's docket and is in the best position to evaluate the litigation in light of its entire history. Here, for instance, almost five years elapsed between the filing of Cook's suit and final approval of the settlement agreement. During that time, Judge Manning certified the class, consolidated the case with a similar action, appointed a special master and placed her stamp of approval on the settlement. In light of involvement such as this, even when a district judge is assisted by a special master, the district judge is far better suited than [an] appellate court[ ] to assess a reasonable fee. Harman, 945 F.2d at 973. Therefore we will review the district court's selection of the lodestar or percentage-of-fund method for abuse of discretion. 11 Of course, whether this discretion has been abused depends ... on the bounds of that discretion and the principles that guide its exercise. United States v. Taylor, 487 U.S. 326, 336, 108 S.Ct. 2413, 2419-20, 101 L.Ed.2d 297 (1988). We do not believe that Judge Manning violated any of the precepts that govern the choice between the lodestar and percentage-of-fund methods, although in some respects her opinion renders resolution of this issue more difficult than it ordinarily would be. She neither expressly rejected nor accepted the findings of the special master that related to attorney's fees. Yet her adoption of the master's findings is implicit in her opinion, which notes the riskiness of the litigation, the extent of the Fund's recovery and the substantial part that Cook's attorneys had in obtaining the result--all questions of fact that had been determined by the special master. Thus it is apparent that Judge Manning accepted Special Master McGarr's factual findings, as she was required to do unless the findings were clearly erroneous. See Fed.R.Civ.P. 53(e)(2). 12 It also is clear that Judge Manning was concerned with the fact that Cook's litigation resulted in the creation of a common fund, an actuality not emphasized by the special master. In common fund cases, after attorneys obtain a settlement for the class, they petition the court for compensation from the fund that has been established for the benefit of the plaintiffs. Because the payment of attorney's fees ultimately reduces the amount of the common fund, after attorneys secure a settlement, their role changes from one of a fiduciary for the clients to that of a claimant against the fund created for the clients' benefit. Skelton v. General Motors Corp., 860 F.2d 250, 253 (7th Cir.1988) (internal quotation marks omitted). As the district judge (and no doubt the special master) understood, this metamorphosis on the part of counsel means that [t]he court becomes the fiduciary for the fund's beneficiaries and must carefully monitor disbursement to the attorneys by scrutinizing the fee applications. Id. When, as here, the plaintiff class has independent legal representation with respect to fees, the need for vigilance by the district court inevitably diminishes. But the district judge nonetheless must balance the competing goals of fairly compensating attorneys for their services rendered on behalf of the class and of protecting the interests of the class members in the fund. Id. at 258. This is not to suggest that the district court should compel attorneys to sacrifice a portion of their reasonable fee for the good of the class. But the district court must ensure that the plaintiffs pay no more than what is reasonable. 13 Judge Manning plainly was concerned that the percentage-of-fund method resulted in excessive compensation for Cook's attorneys. In recommending that Cook's counsel receive 30 percent of the common fund, Special Master McGarr did not consider the hourly rates that would result from such an award: roughly $750 for each attorney and paralegal on Cook's team, more than twice the usual hourly rate of the most expensive attorney involved in the litigation. We suspect that this figure weighed heavily on the mind of Judge Manning when she decided that the percentage approach was not necessarily this case's Rosetta Stone. Indeed, she expressly noted that the lodestar method provides for greater accountability and a more careful check on excessive fees. Mem. Op. at 39 (citing Harman, 945 F.2d at 974). 14 This is not a case like Gottlieb, where the district court abused its discretion by rejecting the master's recommendation of the percentage-of-fund method for reasons largely unrelated to the particular circumstances of [the] case. 43 F.3d at 487. Here Judge Manning afforded some deference to the master, as she considered the riskiness of the litigation and the other factors that influenced his recommendations. But she also contemplated her responsibility to the plaintiff class and recognized that the lodestar method encourages accountability and guards against excessiveness. Under these circumstances, we cannot say that Judge Manning abused her discretion when she rejected the special master's recommendation. 15