Court Opinion

ID: 5321
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:04:43+00
Date Added: 2024-06-11T16:44:34.918966
License: Public Domain

United States Court of Appeals, Fifth Circuit.

                               Nos. 91–1592, 91–7028 and 92–1474.

                       Larry L. and Patricia A. LONGDEN, et al., Plaintiffs,

                                                   v.

                            Jeffrey S. SUNDERMAN, et al., Defendants.

        Deborah R. MASSIE, A.P.C. and Approximately 1008 Class Plaintiffs, Appellants,

                                                   v.

SUSMAN GODFREY, Burleson, Pate & Gibson, Furth, Fahrner & Mason, Much, Shelist, Freed,
Denenberg, Ament & Eiger, P.C. and Schall, Boudreau & Gore, Appellees.

                                            Dec. 28, 1992.

Appeals from the United States District Court for the Northern District of Texas.

Before BROWN, GARWOOD and DeMOSS, Circuit Judges.

        JOHN R. BROWN, Circuit Judge:

                                             PROLOGUE

        Appellant, Deborah R. Massie (Massie), on behalf of herself and some 1008 class plaintiffs,

appeals from a district court judgment awarding attorneys' fees to Appellees (Susman Attorneys) in

this securities fraud and RICO class action settlement. At the district court level, Massie submitted

a fee petition, and, after the district court ruled against her, filed motions to reconsider the rulings.

The key issue that Massie raises on appeal is whether the district court abused its discretion in

granting the Susman Attorneys' joint petition for attorneys' fees and their motion for payment of

attorneys' fees. We affirm the district court's judgment.

                                       HOW IT ALL BEGAN

        This case is the classic situation where a small law firm, Massie & O'Brien, A.P.C., later

Deborah R. Massie, A.P.C. (Massie) having initiated, with the assistance of a local counsel, Boyd &

Fults (Boyd) multiple, individual actions against common defendants, found the ensuing litigation too

complex to handle, joined larger, specialized firms, Much, Shelist, Freed, Denenberg, Ament & Eiger,

P.C. (Much), Susman Godfrey, L.L.P. (Susman), Furth, Fahrner & Mason (Furth), Burleson, Pate

& Gibson (Burleson), and Schall, Boudreau & Gore (Schall) (altogether, including Massie, Class
Counsel) to salvage the lawsuits. Upon conversion of the litigation by these firms into a class action

and upon their negotiation of a successful settlement, Massie sought payment of attorneys' fees,

including costs and expenses, for time and resources expended prior to the larger firms' involvement.

          From October 1986 to June 1987, Massie, representing 1008 plaintiffs, filed 93 individual

actions in United States District Court for the Northern District of Texas against Jeffrey Sunderman

and several corporate entities which he controlled in the syndication of 114 limited partnerships

(altogether Sunderman). In the same suit, Massie also filed against attorneys who assisted in

formation of the partnerships (the Linde defendants), and against accountants, including Arthur

Andersen, who assisted in forming the partnerships (the Anderson defendants) for securities fraud and

RICO violations in connection with the sale of interests in the Sunderman partnerships.1 In March

1987, the district court urged Massie and Boyd to convert the case to a class action. They responded

with a written opposition to conversion, arguing that the factual prerequisites to class certification

under F.R.Civ.P. 23 were nonexistent and that neither counsel nor plaintiffs contemplated conducting

or funding litigation on a large scale.2

          In the summer of 1987, one of the individual plaintiffs, also a Much client, asked Much to

investigate the status of the litigation. Much contacted Susman, and the two firms concluded that the

case should be converted to a class action. After discussion with Massie, Much and Susman agreed

to enter into the litigation and to convert the case to a class action.3

          In December 1987, Massie, Much and Susman filed a motion for leave to file a class action

complaint on behalf of Longden et al.4 Because discovery deadlines had lapsed in several of the

individual act ions due to the Massie and Boyd firms' negligent handling of the cases, Much and

   1
    Massie had one-third contingency fee agreements with plaintiffs and collected a
non-refundable $500 retainer from each plaintiff, amounting to approximately $492,600. Record
V. 8, p. 30 & 138–39 (Unless indicated otherwise, all citations to the Record refer to 91–1592).
   2
       Record V. 10, p. 61–71.
   3
       Record V. 6, p. 3–4.
   4
    Class plaintiffs are three marital couples that had pending actions and another marital couple
that had no pending action and had not retained Massie. Record V. 1, p. 173–74.
Susman assist ed Massie from 1987 to early 1988 in defending several motions to dismiss for

discovery violations. The Susman Attorneys did not contest most of Massie's time spent after entry

of Much and Susman.

          In January 1988, the district court granted leave to file a class action. At this time, Craig

Zafis, the member of the Massie firm who had principally handled the litigation, left Massie and joined

Schall, but remained involved in the case. It is not contested that Massie's involvement in the class

action from this point on was other than de minimus.

          In 1989, t he Linde defendants settled for $7 million. On May 1, 1990, the district court

denied Andersen's summary judgment motion for dismissal due to lapse in discovery as to 77 of the

114 partnerships and granted summary judgment against plaintiffs in 37 of the partnerships. Longden

v. Sunderman, 737 F.Supp. 968 (N.D.Tex.1990).

          The Andersen defendant s settled on March 5, 1991 for $19.2 million plus interest.5 In

mid-March, Class Counsel mailed court notice concerning a hearing on approval of the settlement

to all class plaintiffs and published the notice in the Wall Street Journal.6 Based on Susman, Much

and Furths' review of all Class Counsels' time and expense records, the Susman Attorneys filed a joint

petition for fees benefitting the class as a whole. Massie disagreed with the other firms' calculations

and filed what she characterized as her own fee petition. Included i n the court notice was the

requirement that for the court to hear objections to the settlement or fee petitions, the parties must

submit written objections by April 15, 1991. 7 The Susman Attorneys filed a written objection to

Massie's fee petition; however, no one filed a written objection to the Susman Attorneys' petition.

          Massie appeals from the district court judgment awarding (1) the full amount requested by

the Susman Attorneys' petition, that is 27.5% of both the Andersen and Linde Settlement funds, to

Class Counsel, excluding her firm, and (2) 40% of her requested fee, based on a finding that her

   5
    The Andersen Settlement compensated 23.5% of the actual economic loss due to Sunderman
investments. Attorneys' fees were to constitute a maximum of 27.5% of the $19.2 million.
   6
       Record V. 2, p. 478, 484 & 487.
   7
       Record V. 2, p. 490.
efforts constituted only a 40% benefit to the class. Massie's total fee award was $260,000.8

        Massie sought compensation for its time and expenses as a firm, and, in addition,

reimbursement on behalf of all its individual clients for the $492,600 that they had paid to Massie as

a retainer when they employed Massie to prosecute their individual actions. Massie argues that the

district court erred by applying, or applying incorrectly, the incorrect standard when evaluating the

competing fee petitions.

                                 Lodestar or Percentage of Recovery

        This circuit utilizes the "lodestar method" to calculate attorneys' fees.9 Copper Liquor, Inc.

v. Adolph Coors Co., 684 F.2d 1087, 1092 (5th Cir.1982). The "lodestar" is computed by

multiplying the number of hours reasonably expended by the prevailing hourly rate in the community

for similar work. Id. The court then adjusts the lodestar upward or downward depending on the

respective weights of the twelve factors set forth in Johnson v. Georgia Highway Express, Inc., 488

F.2d 714, 717–19 (5th Cir.1974).10 The district court must explain how each of the Johnson factors

affects its award, regardless of their specific factual significance; and "while the subsidiary fact

findings are reversible only if clearly erroneous ... review of the total fee is [governed] by the precept

that its amount lies in the trial judge's discretion, and is to be recalculated only if that discretion is

abused." Copper Liquor, 684 F.2d at 1092, 1094 (emphasis added).

   8
    The district court ruled that $197,500 of Massie's $260,000 award was to be reimbursed to
the original plaintiffs for their retainer to Massie, because 40% of the $492,600 total retainer
benefitted the class as a whole. Massie's final fee was $63,000.
   9
    Although the prevailing trend in other circuits and district courts has been towards awarding
fees and expenses in common fund cases based on percentage amounts, the Fifth Circuit has yet to
adopt this method. The following cases hold that a percentage award is proper: Paul, Johnson,
Alston & Hunt v. Graulty, 886 F.2d 268, 271 (9th Cir.1989); Brown v. Phillips Petroleum Co.,
838 F.2d 451, 454 (10th Cir.1988); Bebchick v. Washington Metro. Area Transit Comm'n, 805
F.2d 396, 406 (D.C.Cir.1986); Howes v. Atkins, 668 F.Supp. 1021, 1024 (E.D.Ky.1987); and In
re SmithKline Beckman Corp. Sec. Litig., 751 F.Supp. 525, 533 (E.D.Pa.1990).
   10
     The Johnson factors are as follows: (1) time and labor required, (2) novelty and difficulty of
the issues, (3) skill required to perform the legal services properly, (4) preclusion of other
employment, (5) customary fee, (6) whether the fee is fixed of contingent, (7) time limitations
imposed by the client or the circumstances, (8) amount involved and results obtained, (9)
experience, reputation and ability of the attorneys, (10) undesirability of the case, (11) nature and
length of the professional relationship with the client, and (12) awards in similar cases. Johnson,
488 F.2d at 717–19.
           Massie contends that the district court abused its discretion by evaluating the Susman

Attorneys' fee petition differently than the Massie fee petition and by making its determination

without substantial factual support in the record. Specifically, Massie argues that although the court

used the lodestar method to some extent in evaluating her fee petition, the court erred by not using

this method in evaluating the Susman Attorneys' petition.

          It is clear from the district court's discussion, however, that it had reviewed all of the relevant

time and expense records before arriving at its conclusions, and that it discussed each Johnson factor

when it ruled on the fee issue.11 Not only did the district court use the proper standard in evaluating

and determining attorneys' fees, its findings of fact were sufficiently based on record evidence.

          For example, in reducing Massie's requested fee of $651,582 by 60%, the district court

pointed out that the individual cases as handled by Massie and Boyd prior to the entry of Much and

Susman had been handled more ineptly than any litigation in that court since that district court judge

came on the bench in 1979. Considering that Massie originally opposed class certification and was

ultimately responsible to her clients for allowing discovery to lapse, which resulted in near dismissal

of several claims, the 40% award, or 60% reduction, was, as the court noted, generous.

          Massie, herself, acknowledged at the May 1, 1991 hearing that prior to Much and Susman's

involvement the case was a "litigation abyss."12 Moreover, in her fee petition, Massie admitted that

most of her claimed time excluded by the Susman Attorneys' evaluation did not provide a benefit to

   11
     Transcript of Proceedings (May 1, 1991) at 72–82. That the district court also calculated
fees on a percentage of the total recovery basis merely demonstrated its preference for that
method as a matter of policy. "... [T]he question in the circuit is as to whether or not a
percentage fee will stand up or is the circuit still controlled by the Johnson factors. I'm going to
address it both ways." Transcript of Proceedings (May 1, 1991) at 77. Using the percentage rule,
the district court concluded that it was generous to say that 40% of the amount which Massie
sought as a lodestar fee would conceivably benefit the class. Id. at 82. Using the Johnson
factors, the district court adjusted Massie's lodestar figure of $651,582 downward by 60% based
upon its observation that Massie mishandled the litigation prior to the involvement of Much and
Susman. Id. at 82–85. Using either method, the district court arrived at a final dollar amount of
$259,554.
   12
        Record V. 8, p. 4.
the class as a whole.13

           Massie also argues that the district court erred when it awarded a percentage amount to the

Susman Attorneys and then excluded her firm from this award. The record shows, however, that the

district court, based on its review of all counsels' records, apportioned an aggregate award amounting

to 27.5% of the total amount recovered by all petitioners, including Massie, based on its discretionary

application of the Johnson factors. This apportionment took the form of awarding a single sum to

the Susman Attorneys and another sum to Massie.14 Thus, the district court's award of attorneys' fees

and expenses to Furth and Schall, which entered the litigation after the entry of Much and Susman,

was entirely proper and supported under law and facts. The district court acted well within its

discretion in awarding an aggregate sum to the Susman Attorneys that was based on their collective

efforts, leaving apportionment of that sum up to the Susman Attorneys themselves. See In re Agent

Orange Prod. Liab. Litig., 818 F.2d 216, 223 (2d Cir.1987) ("There is authority for a court, under

certain circumstances, to award a lump sum fee to class counsel under the equitable fund action under

the lodestar approach and then to permit counsel to divide this lodestar-based fee among themselves

under the terms of a private fee sharing agreement.").

          The district court adequately explained the findings and reasons upon which its award was

based, including an indication of how each of the Johnson factors affected its decision. Because the

district court's findings are amply supported by the record, the district court did not abuse its

discretion.

                                           Issue of Expenses

          Massie's appeal also involves the $492,600 retained by Massie and used as a litigation fund

to cover expenses in the individual actions. In her fee petition, Massie requested that this entire

   13
     In evaluating the amount of Massie's time which benefitted the class as a whole, class counsel
came to a lodestar of $259,554. Massie's evaluations resembled a moving target including at least
the following variations: (1) a $504,333 lodestar with a 1.55 multiplier, for a total fee award of
$790,584; (2) a $259,544 lodestar with a 1.55 multiplier, plus 25% of the amounts recovered by
her 1008 clients out of the common fund, minus the $492,600 total retainer; (3) $321,323 plus
the right to seek additional compensation out of the amounts that her 1008 clients recovered from
the settlement fund; and (4) a flat $562,361 fee. Record V. 8, p. 27 & V. 4, p. 830, 883.
   14
        Record V. 4, p. 827–28.
amount be reimbursed to its individual clients as having benefitted the class. The district court,

exercising its discretion, adopted the Susman Attorneys' recommendation that because the court had

concluded that 40% of Massie's lodestar arguably benefitted the class, a similar 40% of the $492,600

in expenses would fairly be due Massie as benefitting the class. The court's adoption of this

recommendation resulted in a reimbursement of $197,500 to Massie's 1008 plaintiffs.

          In her second bite at the apple, a Motion to Reconsider that Massie submitted after the May

1, 1991 hearing, Massie included additional material ostensibly supporting her request for

reimbursement of expenses. At oral argument, this court asked Massie to provide post argument a

final comment on how, if at all, the $492,600 conferred a benefit on the class. In her third bite at the

apple, the September 4, 1992 letter, Massie simply rehashed arguments already made to the district

court. Massie herself admits that no more than $344,209 could have benefitted the class. This

amount includes $105,760 paid to her firm and $109,262 paid to Boyd. Both of these fees appear

as a line item entry without any accompanying time records. The absence of any time records to

support the amount demanded alone would justify the district court's discretionary denial of the

request for compensation from the common fund. Copper Liquor, Inc. v. Adolph Coors Co., 684

F.2d 1087, 1094 (5th Cir.1982).

          Of the nearly $130,000 remaining, about $60,000 consists of copying expenses and about

$18,000 consists of "Travel—Documents/Witness Stmts." September 4, 1992 Letter at 4 & 6. The

district court acted within its discretion in concluding that these expense items were unsupported.

Massie's September 4 letter does not contain any more enlightening documentation. Moreover,

Massie received $42,079 in expense reimbursement from the Linde Settlement, but Massie does not

acknowledge this reimbursement in her fee pet ition, Motion for Reconsideration or September 4

letter.

          But even assuming, arguendo, that the district court ought to have considered such

after-the-fact estimates, it is well settled that "[s]ervices rendered for the individual claims of named

plaintiffs ... [cannot] be compensated from funds belonging to the class." Parker v. Anderson, 667

F.2d 1204, 1214 (5th Cir.1982), cert. denied, 459 U.S. 828, 103 S.Ct. 63, 74 L.Ed.2d 65 (1982).
Both Massie and Boyd opposed class certification, and the district court emphasized that such action

delayed by at least a year and a half the filing of the Class Action Application. Thus, the district court

was acting solidly within its discretion in ruling on expenses.

          Massie relies entirely on the Third Circuit decision in Dunn v. H.K. Porter Co., 602 F.2d 1105

(3d Cir.1979), but that opinion is not binding upon this court, and, moreover, is entirely consistent

with the district court's order in this case. Unlike Massie, counsel in Dunn filed a class action and

were responsible for litigating it to a successful settlement. Also unlike the instant case, in Dunn no

questions were raised or negative findings entered concerning counsel's competency.

           Because Massie failed adequately to support her representation that the $492,600 litigation

fund benefitted the class as a whole, the district court clearly acted within its discretion in reducing

that figure by 40% and ordering the resulting $197,000 to be paid pro rata to Massie's clients out of

Massie's $260,000 award for fees and expenses.

                                            No Continuance

           Massie also argues that the district court denied her the right to conduct discovery in

connection with the May 1, 1991 hearing, but the record is quite different. Despite sufficient notice

of the May 1 hearing, Massie failed to serve any written discovery requests, notice any depositions,

or file any written request seeking a continuance of the May 1 hearing so that additional time would

be awarded to conduct discovery. Even though Massie contends that such a request was made orally

at the May 1 hearing, review of the transcript reflects that Massie requested only that a continuance

be granted in order that an evidentiary hearing could be held.15 Because the May 1 hearing was

noticed as, and in fact constituted an evidentiary hearing, the district court properly denied Massie's

request.

                                           Rule 60(b) Motion

          Continuing in her numerous and unsuccessful challenges to the May 1 fee order, Massie filed

   15
        Transcript of Proceedings (May 1, 1991) at 66.
a Rule 60(b) motion on August 15, 1991.16 The district court denied this motion in a detailed opinion

set forth in Record on Appeal (91–7028), V. 2, p. 288–302. Rule 60(b) provides, in relevant part:

        On motion and upon such terms as are just, the court may relieve a party or his legal
        representative from a final judgment, order, or proceeding for the following reasons: ...

        (2) newly discovered evidence which by due diligence could not have been discovered in time
        to move for a new trial under Rule 59(b);

        (3) fraud (whether heretofore determined intrinsic of extrinsic), misrepresentation, or other
        misconduct of an adverse party; ....

FRCP 60(b).

                            Newly Discovered Evidence—Rule 60(b)(2)

         Massie alleged the existence o f an agreement between herself and the Susman Attorneys

guaranteeing her complete reimbursement for all time and expenses prior to institution of the class

action. To support this claim Massie offered several interoffice memoranda from Mr. Zafis to herself,

her own allegations and the affidavit of a class plaintiff in one of the original individual actions.

        A motion under this rule is an extraordinary motion, and the requirements of the rule must

be strictly met. Ag Pro, Inc. v. Sakraida, 512 F.2d 141, 143 (5th Cir.1975), rev'd on other grounds,

425 U.S. 273, 96 S.Ct. 1532, 47 L.Ed.2d 784 (1976). The newly discovered evidence must be in

existence at the time of trial and not discovered until after trial. Id. In addition, the evidence must

not be cumulative, must be material and must be such that a new trial would probably produce a

different result. Id.

        It is undisputed that the evidence offered by Massie was in her files prior to the May 1

   16
    In denying Massie's Rule 60(b) motion, the district court expressed a dim view of her
apparent strategy to litigate the matter of her attorney's fees "into the next century":

                ... This [Rule 60(b) ] motion follows Massie's May 9, 1991 motion for
                reconsideration of the May 1 order; Massie's two appeals of May 30, 1991;
                Massie's July 15, 1991 motion for disqualification based on the alleged bias of the
                presiding judge against women; Massie's July 23, 1991 notice of appeal of the
                Attorney's Fee Order of July 15, 1991; Massie's July 25, 1991 application for stay
                and approval of supersedeas bond; and Massie's July 25, 1991 motion for an
                immediate stay.

        Record on Appeal (91–7028), V. 2, p. 288 & 290.
hearing.17 This fact alone is enough to deny the motion. Kentucky Fried Chicken Corp. v.

Diversified Packaging Corp., 549 F.2d 368, 391 (5th Cir.1977); Johnson Waste Materials v.

Marshall, 611 F.2d 593, 598 n. 9 (5th Cir.1980) (distinguishing between evidence newly discovered

and evidence merely newly produced).

          Moreover, it is apparent that the district court was within its discretion in finding that Massie

did not exercise due diligence in discovering the evidence. Massie claimed that a 25 day search after

the May 1 hearing finally produced the evidence, but due diligence before the hearing must be shown.

Cf. Washington v. Patlis, 916 F.2d 1036, 1039 (5th Cir.1990) (finding lack of due diligence where

party was aware of witness prior to trial but neither moved for a continuance to locate witness nor

attempted to find her by doing more than make a telephone call).

          Finally, the district court properly concluded that the evidence was not material, in addition

to being unsubstantiated, because it is the court, not Class Co unsel, who is the final judge of the

appropriate fee. That the district court determined existence of the evidence at the May 1 hearing

would not have produced a different result is a valid and proper use of its discretion.

                    Fraud, Misrepresentation or Other Misconduct—Rule 60(b)(3)

           A Rule 60(b)(3) assertion must be proved by clear and convincing evidence, and the conduct

complained of must be such as to prevent the losing party from fully and fairly presenting its case or

defense. Rozier v. Ford Motor Co., 573 F.2d 1332, 1339 (5th Cir.1978). Massie asserts that she

submitted documentary evidence to the district court showing that certain Susman Attorneys'

testimony was false, and that the court failed to directly address whether the judgment was obtained

by perjury. Specifically, Massie alleges that the named Susman Attorneys falsely denied making any

representations to her that they would suppo rt reimbursement of all of her pre-class fees and

expenses. The district court, after full review of the exhaustive argument and record on this issue,

concluded that the evidence "... even when viewed in the light most favorable to Massie, simply fails

to show that any agreement by which [t he Susman Attorneys] agreed to support [Massie's] fee

petition for pre-class time was an agreement by [the Susman Attorneys] that they would support all

   17
        Record on Appeal (91–7028), V. 2, p. 294.
pre-class time claimed by [Massie], regardless of whether that time benefitted the class."18 Upon

thorough examination of the entire record, including what Massie characterized as credible evidence

for her Rule 60(b) motion, this court agrees with the district court's finding of no clear and convincing

proof of perjury. Thus, it was well within the district court's discretion to conclude that the evidence

proffered by Massie simply was not credible.

                                         Distribution of Award

          Since this court finds the May 1, 1991 order on attorneys' fees valid, Massie's appeal of the

July 15, 1991 order authorizing the distribution of funds is without merit, and, therefore, need not

be addressed.

          Furthermore, in light of our ruling that the district court did not abuse its discretion in

determining attorneys' fees and expenses, Massie's remaining arguments are without merit.19

                                            CONCLUSION

          The district court was in a unique position to observe this case from start to finish, and it

could properly include observation of the performance by all counsel, including Class Counsel. The

district court made adequate findings under Johnson v. Georgia Highway Express, Inc., 488 F.2d

714, 717–19 (5th Cir.1974) to support its fee award to the different attorneys in this case, and it has

not abused its discretion in so doing. For the reasons discussed above, the district court's judgment

was correct.

          AFFIRMED.

   18
        Record on Appeal (91–7028), V. 2, p. 299.
   19
     Massie's remaining arguments are: (1) the district court abused its discretion in invalidating
the Massie firm's contingency fee agreements; (2) the district court violated the express terms of
the Andersen settlement by allocating attorneys' fees; (3) the district court erred in not
conducting a full hearing on the issue of attorneys' fees; and (4) the district court abused its
discretion in not allowing the Massie firm a continuance pursuant to the May 1, 1991 hearing.