Court Opinion

ID: 8931254
Source: CourtListenerOpinion
Date Created: 2022-11-27 07:05:23.029747+00
Date Added: 2024-06-11T17:09:31.177584
License: Public Domain

JON O. NEWMAN, Circuit Judge,
concurring:
I concur in Judge Oakes’ comprehensive opinion and write these additional words only to express a caution concerning the continued use in settlements of a “clear sailing” clause whereby a defendant agrees not to challenge a plaintiff’s request for attorney’s fees up to a stipulated amount.
It has long been recognized that any agreement concerning plaintiff’s attorney’s fees, entered into in the course of settling *907litigation, poses a danger of pitting the interests of the plaintiff in receiving a recovery against the interests of the plaintiffs attorney in receiving a fee. The tension between their interests exists even in the garden-variety tort cases in which the attorney has an agreement to receive a contingency fee at a stated fraction of the recovery. The attorney, anxious to assure himself a fee, may urge a settlement at a low figure, contrary to the position of the plaintiff, who might be willing to take the risk of no recovery for the chance to win a larger recovery. Or the plaintiff may be anxious to assure himself a recovery and therefore favor settlement at a low figure, contrary to the position of his attorney, who might be willing to take the risk of receiving no fee for the chance to win a larger fee based on a larger recovery.
These potential conflicts between a plaintiff and his attorney arise in the context of cases proposed to be settled for a cash payment from the defendant, out of which the plaintiffs attorney receives a fee. In that context, the defendant is indifferent to the amount of the fee that results from an allocation of the payment between the plaintiff and the plaintiffs attorney. The defendant’s interest is in knowing his total exposure.
However, the defendant’s interest in ascertaining the amount of the fee of the plaintiff’s attorney vitally affects the settlement of cases like the present one in which the settlement does not provide a fund but calls only for injunctive relief, and the plaintiff’s attorney is entitled to a fee for having conferred a benefit upon the members of the class.1 In this circumstance, the defendant is entitled to know the limit of his total exposure, and, as the Supreme Court has recognized, it is unrealistic to expect him to agree to a settlement concerning the injunction terms until he knows the limit of his exposure for the attorney’s fees. See White v. New Hampshire Dep’t of Employment Security, 455 U.S. 445, 453-54 n. 15, 102 S.Ct. 1162, 1167-68 n. 15, 71 L.Ed.2d 325 (1982); see also A. Miller, Attorneys’ Fees in Class Actions, A Report to the Federal Judicial Center 219 (1980). The settlement terms that benefit the plaintiff class all have a cost to the defendant, and the defendant will be more likely to settle when a limit upon all his costs has been determined. Thus, settlements are promoted by permitting the parties to a class action to negotiate a ceiling on the amount of attorney’s fees that the plaintiffs will seek.
However, a plaintiffs agreement not to seek attorney’s fees above a stipulated ceiling must be distinguished from a defendant’s agreement not to contest an application for fees up to the amount of that ceiling. The two agreements differ in fundamental respects. The negotiated ceiling restricts the plaintiff; the “clear sailing” clause restricts the defendant. When only a “ceiling” clause is used, though the plaintiff will almost always make a claim equal to the amount of the ceiling, the figure awarded by the court will not necessarily be so high and may frequently be considerably less; the defendant has a strong incentive to persuade the court to award some figure below the ceiling, since it will save from its anticipated maximum exposure any dollar below the ceiling that is not awarded in fees. But when a “clear sailing” clause is used and the fee application is not challenged by the defendant, the figure allowed by a trial court will tend to be very close to, and frequently precisely at, the negotiated ceiling, as occurred in this ease.
A “clear sailing” clause has two adverse effects that cast substantial doubt on the legitimacy of its use. First, it deprives the trial court and a reviewing court of the certainty of having the propriety of the fee request tested in the adversary process. Sometimes, as in this case, objectors will come forward to challenge the reasonable*908ness of the attorney’s fee claimed by the plaintiffs, even when the fee is within the negotiated ceiling. But a “clear sailing” clause creates the risk that a fee request within the negotiated ceiling will not be challenged, placing upon the courts the burden of examining the basis for the fee, unaided by the challenges of an adverse party. See Prandini v. National Tea Co., 557 F.2d 1015, 1020-21 (3d Cir.1977); Foster v. Boise-Cascade, Inc., 420 F.Supp. 674, 678, 689 n. 8 (S.D.Tex.1976) (agreed upon fee), aff'd, 577 F.2d 335 (5th Cir.1978) (per curiam). Second, the clause creates the likelihood that plaintiffs’ counsel, in obtaining the defendant’s agreement not to challenge a fee request within a stated ceiling, will bargain away something of value to the plaintiff class. It is unlikely that a defendant will gratuitously accede to the plaintiffs’ request for a “clear sailing” clause without obtaining something in return. That something will normally be at the expense of the plaintiff class. See A. Miller, supra, at 219-20.
An agreement whereby the plaintiffs agree to place a limit on the amount of attorney’s fees to be sought does not encounter similar objections. The amount of the fee ultimately allowed always remains subject to the adversary process. Moreover, the agreement not to seek fees above a stated sum represents a concession on the part of the plaintiffs and their counsel, rather than a benefit for which the defendant may expect something in return.2
In future cases it may be well to scrutinize carefully the use of “clear sailing” clauses. Perhaps they should be forbidden in all cases. Since the parties in this case had no reason to doubt the propriety of agreeing to thé clause, I do not object to its use in this case.

. The defendant would also want to ascertain the amount of the plaintiff’s attorney’s fee in the settlement of any case in which the plaintiff, whether or not representing a class, is entitled to recover an attorney’s fee by virtue of a statute authorizing an attorney’s fee to the prevailing party. See, e.g., 42 U.S.C. § 1988 (1982).

. At least this is so whenever the plaintiffs propose a fee ceiling that they will not exceed, and the defendant gladly agrees to incorporate this assurance into the proposed settlement. The risk that a defendant will extract a concession from the class is also normally absent when the defendant holds out for a fee ceiling lower than that initially proposed by the plaintiffs. Perhaps, in some instances of the latter type, a defendant, bargaining about the fee ceiling, might suggest its willingness to accept a ceiling closer to the plaintiffs' demand if the plaintiffs will surrender some benefit unrelated to the fee. The occasional occurrence of this sort of bargaining about the amount of the ceiling is far less troublesome than the negotiation of a "clear sailing" clause, which always confers a benefit upon the plaintiffs and their counsel for which the defendant will always be tempted to demand something in return.