Opinion ID: 355121
Heading Depth: 1
Heading Rank: 4

Heading: award of attorneys' and accountants' fees and expenses

Text: 86 Under the American rule ordinarily applied in our courts, a prevailing litigant is not entitled to recover attorneys' fees from a losing party absent statutory authority. Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). However, the courts, exercising their equitable powers, have permitted a plaintiff whose efforts have created a fund benefiting others as well as himself to recoup some of the costs of the litigation, including attorneys' fees, out of the common fund or directly from the other parties enjoying the benefits who are required to pay their proportionate share of the costs. Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240, 257, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975); Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1882). The plaintiffs in a shareholders' derivative action may, thus, recover their expenses, including attorneys' fees, from the corporation on whose behalf their action is taken if the corporation derives a benefit, which may be monetary or nonmonetary, from their successful prosecution or settlement of the case. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 391-395, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Levine v. Bradlee, 378 F.2d 620, 622 (3d Cir. 1967). 87 In the present case, as we have seen, the district court awarded to the attorneys and accountants of the plaintiffs the total sum of $607,777.95 for fees and reimbursement of expenses to be paid by Gulf. Pat S. Holloway, at our No. 77-1158, and the Project, at our No. 77-1157, appeal from the order making this award. Their contentions are essentially that the settlement did not result in a net benefit to Gulf and that, therefore, the plaintiffs are not entitled to any award of attorneys' fees and expenses. In the alternative, they contend that the district court failed to adhere to the standards set forth in Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973) (Lindy I ), and Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 540 F.2d 102 (3d Cir. 1976) (Lindy II ), and erred in awarding fees in excess of the objective value of the attorneys' services. 88 In Part III of this opinion, we have discussed the appellants' contention that the award of attorneys' fees and expenses left Gulf without any net benefit from the settlement. For the reasons there explicated, we have concluded that this contention is without merit and that the district court did not err in approving the settlement as fair and beneficial to Gulf. 12 It follows that some award of plaintiffs' attorneys' fees and expenses was justified. This brings us to the appellants' alternative contention that even if there was a benefit to Gulf justifying an award of attorneys' fees in this case, the district court nonetheless abused its discretion in awarding excessive fees and in failing to follow the standards for determining the amount of such fees set forth in Lindy I and II, supra. 89 Although we recognize that the presence and active involvement of the corporation against which an award of the plaintiffs' attorneys' fees and other litigation costs may be assessed distinguishes a shareholders' derivative suit from a class action for purposes of the fee award, we, nevertheless, agree with the appellants that the guidelines for arriving at an appropriate award established in the Lindy cases, although they dealt with a class action, are applicable to a shareholders' derivative suit. Similar standards have been applied to shareholders' derivative suits in other circuits. See Ramey v. Cincinnati Enquirer, Inc., 508 F.2d 1188, 1196 (6th Cir. 1974), cert. denied, 422 U.S. 1048, 95 S.Ct. 2666, 45 L.Ed.2d 700 (1975); Green v. Transitron Electronic Corp., 326 F.2d 492, 496 (1st Cir. 1964). In this circuit, our policy is to require the application of the Lindy criteria to the extent reasonably possible in any case in which the district court is called upon to make an award of attorney's fees. See Kutska v. California State College, 564 F.2d 108, 112 (3d Cir. 1977); NBO Industries Treadway Cos., Inc. v. Brunswick Corp., 523 F.2d 262, 279 (3d Cir. 1975), vacated on other grounds sub nom. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). The district court's award of attorneys' fees, which is, otherwise, a matter within its discretion, is, therefore, subject to review to determine whether the court adhered to the Lindy guidelines in arriving at the amount of the award. 90 We do not, however, apply to this shareholders' derivative suit the suggestion articulated in Prandini v. National Tea Co., 557 F.2d 1015, 1021 (3d Cir. 1977), a class action, that the district court require that the approval of the settlement of the damage aspect of a case involving the creation of a fund precede the consideration of attorneys' fees. In Prandini the district court was asked to approve the settlement of a class action under which the defendant agreed to pay a specific amount to the class and a separate sum to the plaintiffs' attorneys. These two amounts together constituted one recovery fund from the viewpoint of the defendant who could have little interest in its allocation between the attorneys and their clients. The plaintiffs' attorneys negotiating the settlement, on the other hand, were subject to an obvious conflict of interest with the class in making the allocation. 91 In the present case, Gulf, as part of the settlement, has agreed not to oppose an application for the plaintiffs' attorneys' fees not exceeding $600,000 and expenses not over $25,000. Gulf, as the real party in interest and the recipient of the fund created under the settlement, is not in a position of indifference, as was the defendant in Prandini, to the amount which it must pay the plaintiffs' attorneys for fees and expenses. On the contrary, it has an interest in retaining for itself as much of the settlement fund as possible. Moreover, here there is no one fund settlement giving rise to a conflict such as we condemned in Prandini. Indeed, even had Prandini been decided prior to the district court's approval of the settlement and award of fees in the present case we would not deem it controlling. 92 In this circuit, as we have already pointed out, the district court, in the exercise of its discretion to award reasonable attorneys' fees in an appropriate case, is required to follow the guidelines for determining the reasonable value of the attorneys' services set forth in the Lindy cases. Moreover, we have held that failure of the district court to follow these guidelines constitutes an abuse of discretion. Lindy II, 540 F.2d 102, 116; Merola v. Atlantic Richfield Company, 493 F.2d 292, 295 (3d Cir. 1974). Under these guidelines the court is required first to arrive at the objective value of the individual attorneys' services by multiplying their hours of work by their normal billing rates per hour. The resulting basic or lodestar figure may be increased or decreased depending upon the applicability of other factors, primarily, the contingent nature of success in the litigation and the quality of the attorneys' efforts. The district court must make a separate inquiry and findings of fact with respect to each of those factors. Lindy II, 540 F.2d 102, 116. Lindy II requires that if the district court decided that consideration of the contingency of success justifies a change in the basic fee, it must indicate the elements of contingency involved, examples of which it mentions, 540 F.2d at 117. Also, it must state the specific amount of the increase or decrease to be made in the fees by reason of the contingency feature and the reasons supporting such increase or decrease. Lindy II, 540 F.2d 102, 117. The same procedure must be followed in evaluating the quality of the attorneys' work with a view to an increase or decrease in the lodestar figure to reflect the effect of that factor. Lindy II, 540 F.2d 102, 117-118. 93 The district court's calculation of the objective value of the plaintiffs' attorneys' services benefiting Gulf is not in dispute. The court accepted, with some modification, 13 the statement of the hours spent on the case by the various attorneys, accountants and paraprofessionals and the normal hourly billing rates of those individuals contained in the plaintiffs' verified petition for fees. The court found that the aggregate objective value of the services of all the individuals entitled to compensation amounted to $407,429.50. 94 The district court then applied percentage increases, ranging from 7% to 82%, to the lodestar figures for the various lawyers and accountants involved. The aggregate increase over the total produced by the lodestar figures brought the fee award to $575,000, with an award of $32,777.95 for reimbursement of expenses producing a total of $607,777.95 which the court awarded to the attorneys and accountants of the plaintiffs for their fees and expenses. 95 Although the district court pointed out several factors which might permit alteration of the lodestar figures 14 at which it had arrived, it failed to make the necessary findings with respect to its alteration of the basic fees which are required by Lindy II, 540 F.2d 102, 116-117. Nor did it articulate the reasons for its increase over the lodestar figures with the specificity required by Lindy II, either as to the factors which entered into its decision to grant the increase or the amount and basis of the increase attributable to each factor. The order of the district court awarding the plaintiffs' attorneys' and accountants' fees and reimbursement of expenses amounting to $607,777.95 must, therefore, be vacated and the case remanded to permit the required findings to be made and the basis of the ultimate award articulated in accordance with the guidelines of Lindy I and II. The district court may, of course, take such further evidence, if any, as it deems necessary. We emphasize that our decision in this regard relates only to the standards and procedures utilized and articulated by the district court in arriving at its fee award. It will be time enough to consider the amounts awarded when and if an appeal is taken from the ultimate action of the district court following remand. We need only here reiterate that in fixing the amount to be awarded after making the findings required by Lindy I and II, the district court is vested with wide discretion. 96 The order of the district court entered November 18, 1976, dismissing Price Waterhouse & Company as a party defendant in the action will be affirmed. 97 The order of the district court entered November 18, 1976, approving the terms of the compromise and settlement as fair, reasonable and adequate, and dismissing the complaint as to the settling defendants, being all of the defendants except Price Waterhouse & Company, will be affirmed. 98 The order of the district court entered November 19, 1976, awarding fees to the attorneys and accountants of the plaintiffs in the total sum of $575,000 and reimbursement of their expenses in the total sum of $32,777.95 and directing the payment thereof by Gulf Oil Corporation will be vacated and remanded to the district court for further proceedings not inconsistent with this opinion.