Opinion
Emanuel Becker, New York City, H. James Conaway, Jr., Young, Conaway, Stargatt & Taylor, Wilmington, Del., Delaware Counsel, Saul S Freeman, C. P. A., David Berdon & Co., New York City, K. Gordon Green, Nesbitt, Thomson & Co., Ltd., Toronto, Ontario, Canada, Security Appraisers for plaintiffs.
Sullivan & Cromwell, New York City, for defendant; John F. Arning, Charles W. Sullivan, New York City, of counsel.
Louis E. Dolan, Minneapolis, Minn., Gen. Counsel for defendant; Stephen A. Milwid, Lord, Bissell & Brook, Chicago, Ill., of counsel.
A. Edward Grashof, Winthrop, Stimson, Putnam & Roberts, New York City, for John Hanna and others.
BARTELS, District Judge.
This is an application for counsel fees and disbursements, accountants' fees, and expenses of certain assistants engaged by counsel in the prosecution of a minority stockholders' class action against Gamble-Skogmo, Inc. ("Skogmo"), arising out of a breach of fiduciary obligations by Skogmo and certain omissions and misrepresentations in proxy material delivered to stockholders of General Outdoor Advertising Co., Inc.
by Skogmo in support of its merger with the latter corporation. The complaint demanded an accounting and restitution predicated primarily upon a violation of Section 14(a) of the Securities Exchange Act of 1934, as amended ("the Act"), 15 U.S.C. § 78n(a), and Rule 14(a)(9) adopted thereunder, which raised a number of new, difficult and complex questions including the proper remedy for such violation. After many protracted, lengthy and acrimonius hearings, the Court rendered an opinion in 1969, 298 F.Supp. 66 (E.D.N.Y.), holding Skogmo liable to account and to make restitution to the plaintiffs for damages, and referring the accounting to a Special Master to hear and report the amount of damages. After the Special Master had proceeded for almost a year, the defendant belatedly took exceptions to that part of the decree setting forth the format for the computation of damages, to which, in effect it had previously agreed. The case was then returned to the Special Master for computation of damages in accordance with a new and more practical formula, 332 F.Supp. 644 (E.D.N.Y.1971), retaining, however, as a basis, many of the Master's findings. Thereafter, the Special Master made another report fixing the amount of damages, which this Court, in substance, approved with certain modifications, 348 F.Supp. 979 (E.D.N.Y.1972).
After the entry of judgment on August 25, 1972 for $12,127,751, the case was appealed and as modified with respect to computation of prejudgment interest, was affirmed, 478 F.2d 1281 (2d Cir. 1973). Subsequently, a final judgment was entered on October 15, 1973, in the amount of $10,744,356. The case being ripe for fees and allowances, counsel filed his own application for fees and disbursements and has separately filed independent applications for allowances for those whose services he employed including accountants, as appears from the Appendix appended hereto.
After notice to stockholders, a hearing was held on September 24, 1973, at which the defendant appeared and objected primarily to the shifting of any portion of the counsel fees and expenses to Skogmo. At the same time there appeared representatives of a relatively small number of stockholders, objecting to the amount requested by plaintiffs, predicated upon excessive hourly charges. As stated in Grace v. Ludwig, 2d Cir., 484 F.2d 1262 at 1267, 1973:
See also J. I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964); Mills v. Electric Auto-Lite Company, 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Rosenfeld v. Black, 56 F.R.D. 604 (S.D.N.Y.1972); Schlesinger v. Wallace, CCH Fed.Sec.L.Rep. ¶ 94,098 (N.D.Ala., April 16, 1973). In making such awards, a distinction must be made between charging costs to a defendant and permitting a plaintiff's counsel to be rewarded from a fund created by his efforts. See Mills, supra, 396 U.S. at 392, 90 S.Ct. at 625.
In Mills the right to counsel fees was expressly extended to stockholders' class actions brought under Section 14(a) of the Act, forbidding solicitation of votes by a materially misleading proxy statement. In awarding such counsel fees as in other cases, there are a number of factors to be considered including the time spent, the quality of skill demanded by the situation, the actual
skill employed, the amount involved, the result, and the eminence of the lawyer at the bar. See In re Osofsky, 50 F.2d 925 (S.D.N.Y.1931); Angoff v. Goldfine, 270 F.2d 185 (1st Cir. 1959); In re Continental Vending Machine Corp., 318 F.Supp. 421 (E.D.N.Y.1970). In addition, the contingent nature of the recovery and the difficulties involved must also be given substantial weight. Derdiarian v. Futterman Corp., 254 F.Supp. 617 (S.D.N.Y.1966). As usual, each case depends upon its individual facts and frequently differs from others with respect to the importance to be attached to any particular element. In this particular case, which extended over a period of approximately three and one-half years, novel and difficult questions emerged from the outset relative to recovery for violation of Section 14(a) of the Act and proxy rules issued thereunder. The nature of the remedy to be applied was also an important issue. At the time of the trial Mills v. Electric Auto-Lite Company, supra, had not yet been decided, and this case was the first which fixed liability for violation of the proxy requirements of the Act, as well as the right to counsel fees and expenses to be allowed. While computation of the compensation based upon the time involved by counsel in obtaining recovery results in an unusual and extraordinary rate of compensation, emphasis here must be placed upon the amount recovered. See In re Osofsky, supra; Derdiarian v. Futterman Corp., supra; Newman v. Stein, 58 F.R.D. 540 (S.D.N.Y.1973).
G. Hornstein, Legal Therapeutics: The "Salvage" Factor in Counsel Fee Awards, 69 Harv.L.Rev. 658, 669 (1956).
Emanuel Becker, the principal attorney for the plaintiff class, claims to have worked 7,250 compensable hours on this litigation. His application for $3,000,000 therefore amounts to a request of about $414 an hour. Included within the total of 7,250 hours, however, is a general claim of 1,500 hours for "telephone calls, general correspondence, supervision of work of experts not hereinabove accounted for." In this Circuit, attorneys are required to keep careful records of the amount of time expended in working on cases such as the present one and thus, when only general estimates of unrecorded time have been submitted, Courts have given little weight to same. Derdiarian v. Futterman Corp., 254 F.Supp. 617 (S.D.N.Y.1966); In re Borgenicht, 470 F.2d 283 (2d Cir. 1972). If the 1,500 hours are eliminated, Becker's request averages out to almost $522 an hour.
In making awards of this character including all expenses, some courts have used as a measuring rod a percentage of the amount of recovery, which ranges between 20% and 30% of the recovery. Pergament v. Kaiser-Frazer Corp., 224 F.2d 80 (6th Cir. 1955); Schlusselberg v. Keystone Custodian Funds, Inc., CCH Fed.Sec.L.Rep. ¶ 93,901 (S.D.N.Y., Mar. 15, 1973); Siegel v. Realty Equities Corp. of N. Y., CCH Fed.Sec.L.Rep. ¶ 94,102 (S.D.N.Y., July 30, 1973). In other cases where the amount of the recovery has been large, courts have applied a descending scale of percentages amounting to less than 20%. See Newmark v. RKO General, Inc., 332 F.Supp. 161 (S.D.N.Y.1971); Newman v. Stein, supra; Cherner v. Transitron Electronic Corp., 221 F.Supp. 55 (D.Mass.1963), aff'd sub nom., Green v. Transitron Electronic Corp., 326 F.2d 492 (1st Cir. 1964); Angoff v. Goldfine, supra; Winkelman v. General Motors Corp., 48 F.Supp. 504 (S.D.N.Y.1942), aff'd sub nom., Singer v. General Motors Corp., 136 F.2d 905 (2d Cir. 1943). In cases of this type, the Court must walk a narrow line between being too niggardly on the one hand, and resorting to vicarious generosity on the other. Smolowe v. Delendo Corp., 136 F.2d 231 (2d Cir. 1943); In re Gilbert, 276 U.S. 294, 48 S.Ct. 309, 72 L.Ed. 580 (1928). Obviously, fees and allowances cannot be quantified or calculated with any mathematical precision. But in making such allowances, after considering all the pertinent factors, it is proper for the Court to take some guidance from the relative percentage of the fees to the recoveries utilized in other cases. With this background
Cole, Counsel Fees in Stockholders' Derivative and Class Actions-Hornstein Revisited, 6 Richmond L.Rev. 259 (1972).
in mind, the Court is prepared to first consider separately an allowance to Emanuel Becker as counsel, together with his ordinary disbursements. The Court believes that $1,600,000 together with disbursements would be fair and reasonable compensation to counsel.
The applications of the accountants and other retainers employed by counsel are not subject to the above considerations since they have no standing to apply directly to this Court. Reference is made to the applications of David Berdon & Co., accountants; Shufro, Rose & Ehrman, investment firm; Martin J. Whitman, financial consultant, for services and testimony; Nesbitt, Thomson and Company, Ltd. for services and testimony; Mathematica, Inc., relating to interest calculations; and H. James Conaway, Jr. of Young, Conaway, Stargatt & Taylor, concerning filing of a complaint and services with respect to a companion complaint filed in Delaware, which the Court will consider seriatim, as follows:
The above allowances as disbursements amount to $404,000, which sum will be added to the $1,600,000 allowed to Emanuel Becker as counsel (excluding his disbursements), so that the final award will total the sum of $2,004,000, or 18.7% of the amount of recovery, plus Emanuel Becker's disbursements. This amount was not the result of an across-the-board application of a percentage figure but, instead, the result of the totality of appraisals of the factors above mentioned.
Settle order on notice, providing the necessary mechanics for computing and delivering to the stockholders the remainder of $8,740,356.
II
In view of the manner in which this case was tried, it becomes necessary for the Court to ascertain what portion, if any, of the foregoing allowances should be charged to the defendant due to dilatory and vexatious tactics unnecessarily increasing the difficulties of the trial and the time spent for its completion. It is appropriate in this connection to make mention of the Court's observations in its 1972 opinion, 348 F.Supp. 979, at 981-982, as follows:
and again, at p. 987:
The Court is also mindful of the statements made by the Court of Appeals in its affirmance in 478 F.2d 1281, at 1308-1310 (2d Cir. 1973), with respect to the charge of at least a portion of plaintiffs' counsel's fees and expenses against Skogmo. If there is to be any such charge, it must be predicated upon the principles enunciated in the opinion of the Court of Appeals and not for any punitive purpose. Accordingly, the Court will set down for a prompt hearing, subject to consultation with counsel, to determine what amount, if any, of the foregoing allowances should be paid directly by the defendant. In order to prevent further delay, this hearing can take place after the stockholders of Skogmo have received their pro rata portion of the remainder of the recovery after deducting the foregoing allowances. If a portion of these allowances is chargeable to the defendant, a second check for the stockholders' pro rata amount thereof may be mailed to them.
So ordered.
APPENDIX