Opinion
CAUSE NO. IP 99-C-9313 H/K, MDL DOCKET NO. 1313, THIS DOCUMENT RELATES TO: IP 99-1889-C (Peschell)), IP 00-827-C (Reynolds)
August 21, 2003
ENTRY ON MOTIONS FOR FINAL PAYMENTS OF ATTORNEY FEES AND EXPENSES
I. Introduction
These two class actions come before the court on motions of the plaintiff classes and their counsel for final payment of attorney fees and expenses. Plaintiffs in Peschell v. AT T Corp., No. IP 99-1889-C, are a class of current and former property owners in Connecticut. Plaintiffs in Reynolds v. AT T Corp., No. IP 00-827-C, are a class of current and former property owners in Maine. In both cases, class members have owned property adjoining abandoned railroad corridors through which defendant AT T installed fiber optic cables for its communications network. Plaintiffs sought relief for trespass, unjust enrichment, and slander of title. In essence, plaintiffs alleged that the abandonment of railroad easements and rights-of-way meant that the easements or rights-of-way had terminated, so that AT T trespassed on plaintiffs' land when it installed the cable. Both cases were transferred to this court as party of Docket No. 1313 for the Judicial Panel on Multi-District Litigation, In re AT T Fiber Optic Cable Installation Litigation.
The claims based on abandoned railroads in both cases were resolved by class-wide settlements that established claims procedures and authorized payment of approximately $12.00 to $145.00 per linear foot in Connecticut and $1.00 per linear foot ($5,280 per mile) in Maine. The court is simplifying some details, such as minimum payments per parcel and the allocation between current and former landowners of the same property. The different rates of payment reflect widely varying land values along the abandoned railroad lines.
To establish a claim in either case, a property owner was required to submit a claim form and a certified copy of the recorded deed for the parcel. (Some of the property in the railroad corridors was actually owned by the railroads in fee simple. On those portions, the railroads and AT T could not have trespassed on class members' adjoining property by installing the cable.) If there was any dispute over the validity of a claim, the settlement agreements established a claims procedure involving class counsel and defense counsel, with a right of appeal to the court. In the claims process, the class members were required to do more than identify themselves. They were required to prove actual ownership of the land where the fiber optic cable was laid.
Both settlement agreements specified a maximum amount of total cash payments to class members. Both settlement agreements also specified that AT T would pay reasonable attorney fees and expenses for plaintiff class counsel, which would not be subtracted from the amounts that were available to class members. The amount of attorney fees for plaintiffs' counsel would be left to the sound discretion of the court, but AT T agreed in each case that it would not oppose a request equal to a specified fraction of the maximum amount of cash available to the class members.
The court approved the settlements in both cases. After notice and an opportunity for a hearing, there was no opposition from any class members. The court also authorized immediate payment of 75 percent of the maximum available attorney fees. The settlement administration has now been completed in both Connecticut and Maine. All payments to class members that will be made have been made. Class counsel have moved for court orders directing payment of the remaining 25 percent of the maximum available attorney fees.
For the reasons explained below, the court denies the requests for any additional attorney fee awards for class counsel in these cases. After administration of the settlements, it is now clear that the benefits to the plaintiff classes were substantially less than was anticipated by the parties and the court when the settlements were approved. Further awards would not be reasonable under these circumstances.
II. Connecticut
The Connecticut settlement agreement provided a maximum amount of cash for class members of $2,820,871. The settlement agreement also stated that class counsel would not seek more than 25 percent of "total potential claimant benefits," and that AT T would not object to an award of that amount. That amount for the Connecticut case was $940,000. (The "total potential claimant benefits" thus included the potential fee award.) When the court approved the settlement, the court authorized payment of 75 percent of that sum, $705,000. The remaining $235,000 was held back pending completion of the settlement process.
After the settlement in Connecticut had been administered so that all claims had been resolved, owners of only 97 out of 658 parcels of land within the class definition were eligible for cash awards. Of those 97, only 32 submitted claim forms, of which 29 were approved for payment. The total payments of cash to class members were $297,460.15, including a $500 payment to the lead class representative. See Final Report of Claims Administrator.
III. Maine
The Maine settlement provided a maximum amount of cash for class members of $103,219. The settlement agreement also provided that class counsel would seek no more than one third of that amount, and that AT T would not object to an award of that amount. The agreed cap on the fee for the Maine case was $33,680. When the court approved the settlement, the court authorized payment of 75 percent of that sum, $25,260.
After the settlement in Maine had been administered and all claims were resolved, the net result was that owners of only four parcels of land out of 111 parcels within the class definition turned out to be eligible for payment. Owners of only two of those parcels submitted claim forms. The result was that only $1,676.14 was distributed to the class, including $500 for the lead class representative. See Final Report of Claims Administrator.
IV. Discussion
It is now clear that the actual benefits to the classes in these two cases were substantially less than originally estimated. Much of the difference can be attributed to the low return rates of claim forms. For purposes of determining the reasonableness of fees, however, the court is not concerned with the fact that return rates for claims forms were less than 100 percent. See Boeing Co. v. Van Gemert, 444 U.S. 472, 480 (1980) (holding that fee award from common fund created in class action should be based on total amount to which class members had vested rights, not the lesser amount actually claimed by class members); Newberg on Class Actions § 14:6, at 547 (4th ed. 2002).
Much of the difference between the estimated value and the actual value of the settlements, though, resulted from determinations that the class members did not actually own fee simple title to the corridor where the fiber optic cable was laid. That difference is not governed by the reasoning of Boeing, and it has a substantial effect on the reasonableness of fees.
The Final Report of Claims Administrator shows that the Peschell case in Connecticut started with 658 parcels of land whose owners initially fell within the class definition. Six of those parcels were excluded because they were owned by railroad entities. But another 555 parcels were excluded because either the railroad owned the cable location in fee simple or the parcel was not on the side of the right-of-way where the cable was laid. Owners of only 97 parcels turned out to be eligible for the class benefits under the settlement.
In the Reynolds case in Maine, the numbers were smaller but the proportions more dramatic. The Final Report of Claims Administrator shows that the Maine case started with 111 parcels of land whose owners initially fell within the class. One was excluded because it was owned by a railroad entity. Another 106 were excluded because either the railroad owned the cable location in fee simple or the parcel was not on the side of the right-of-way where the cable was laid. As a result, owners of only four parcels were eligible for class benefits under the settlement.
The rationale supporting the fee awards here is the benefit to the class rather than a "lodestar" calculation based on attorney hours and hourly rates. Although there are many variables, fee awards based on benefit to the class typically range from 20 to 35 percent of the total value. Newberg on Class Actions § 14:6, at 550-51 (4th ed. 2002). The Newberg treatise notes that 50 percent is usually the upper limit for a fee award from a common fund. Id.
Under the reasoning of Boeing, the appropriate measure of the benefit to the class is not the amount of money actually paid out to class members, but the amount available to class members for the asking. 444 U.S. at 480. In Boeing, the district court entered a judgment ordering the defendant in a securities class action case to pay to all class members a total of approximately $3.3 million. The district court then fixed an amount that each class member would receive, from which a proportionate share of attorney fees and expenses would be deducted. As is typical in class actions, not all class members submitted claims. Defendant Boeing then sought return of all the unclaimed funds, including the share of attorney fees and expenses assigned to the class members who did not submit claims. The district court and the court of appeals (en banc) rejected Boeing's claim and held that the class counsel were entitled to the share of the fees and expenses assigned to class members who did not submit claims.
The Supreme Court affirmed. The Court found that under the terms of the judgment, class members who did not submit claims nevertheless had benefits available to them for the asking, and that class counsel were entitled to compensation for creating that benefit:
On the other hand, the criteria [for a common-fund fee award based on the total available fund] are satisfied when each member of a certified class has an undisputed and mathematically ascertainable claim to part of a lump-sum judgment recovered on his behalf. Once the class representatives have established the defendant's liability and the total amount of damages, members of the class can obtain their share of the recovery simply by proving their individual claims against the judgment fund. This benefit devolves with certainty upon the identifiable persons whom the court has certified as members of the class. Although the full value of the benefit to each absentee member cannot be determined until he presents his claim, a fee awarded against the entire judgment fund will shift the costs of litigation to each absentee in the exact proportion that the value of his claim bears to the total recovery. See generally Dawson, Lawyers and Involuntary Clients in Public Interest Litigation, 88 Harv. L. Rev. 849, 916-922 (1975).
In this case, the named respondents have recovered a determinate fund for the benefit of every member of the class whom they represent. Boeing did not appeal the judgment awarding the class a sum certain. Nor does Boeing contend that any class member was uninjured by the company's failure adequately to inform him of his conversion rights. Thus, the damage to each class member is simply the difference between the redemption price of his debentures and the value of the common stock into which they could have been converted. To claim their logically ascertainable shares of the judgment fund, absentee class members need prove only their membership in the injured class. Their right to share the harvest of the lawsuit upon proof of their identity, whether or not they exercise it, is a benefit in the fund created by the efforts of the class representatives and their counsel. Unless absentees contribute to the payment of attorney's fees incurred on their behalves, they will pay nothing for the creation of the fund and their representatives may bear additional costs. The judgment entered by the District Court and affirmed by the Court of Appeals rectifies this inequity by requiring every member of the class to share attorney's fees to the same extent that he can share the recovery. Since the benefits of the class recovery have been "traced with some accuracy" and the costs of recovery have been "shifted with some exactitude to those benefiting," Alyeska Pipeline Service Co. v. Wilderness Society, [ 421 U.S. 240, 265 n. 39 (1975)], we conclude that the attorney's fee award in this case is a proper application of the common-fund doctrine.444 U.S. at 479-81 (footnotes omitted; emphasis added). For present purposes, the important feature of Boeing is that class counsel were deemed to have created a benefit for all class members when cash was available for the class members for the asking. Only proof of identity was required.
In the cases now before this court, however, whether individual parcels of property actually qualified for compensation was not resolved by the classwide settlements. That critical question was left for individual evaluation. As things turned out, many of those parcels did not qualify for any compensation. In Maine, 96 percent did not. In Connecticut, about 85 percent did not. Those property owners did not benefit from the class settlement. It is not reasonable to base a fee award on money that might have been available to those property owners if they had actually owned the relevant property in fee simple, when they in fact did not.
In both cases before this court, the proportion of parcels not qualifying for benefits is inflated by including in the total number of parcels those that turned out not to have cable installed on their side of the railroad. In many instances, the general rule would be that owners of adjoining property would each hold title to the center line of the railroad right-of-way. Before the settlement administration, it was not practical or economical to make a final determination of which side of the center line the cable had been laid all along the right-of-way. The court is not troubled by the reductions in the numbers of eligible parcels for this reason, but even discounting for the non-cable-side parcels, many class parcels were not eligible for any compensation.
Courts in similar cases have distinguished Boeing on precisely this ground and have based fee awards on actual benefits to the class or on the lodestar method. See Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039, 1049 (Del. 1996) (affirming class counsel's fee based on actual payments rather than maximum available amount where claim process required substantial documentation and low participation was likely); accord, Strong v. BellSouth Telecommunications, Inc., 173 F.R.D. 167, 172 (W.D.La. 1997) (where claims rate was very low, class counsel's fee not based on "phantom" common fund but on lodestar; fee request for total of $6 million where class actually received $2 million was unreasonable), aff'd, 137 F.3d 844, 851-53 (5th Cir. 1998); Petruzzi's, Inc. v. Darling-Delaware Co., 983 F. Supp. 595, 606 (M.D.Pa. 1996) (applying lodestar method where actual claims were low and amount attributed to "common fund" was described as "phantom"); Union Fidelity Life Ins. Co. v. McCurdy, 781 So.2d 186, 191 (Ala. 2000) (where class participation in settlement was very low, class counsel's fee should be based on lodestar rather than percentage of total available fund).
In both the Connecticut case and the Maine case, the amount of fees already distributed substantially exceeds the benefit to the class. Under these circumstances, the court finds that no additional fees should be awarded to class counsel in the Connecticut and Maine settlements. The court sees no need or reason to order any refund to AT T of those amounts previously paid to class counsel in these cases. The previously distributed amounts were distributed with the court's approval, and there is no indication that class counsel or AT T were acting in bad faith. Also, the settlements provided, without objection, reasonable compensation to those members of the class who actually owned the property in question and therefore had arguable claims for trespass. Accordingly, for the reasons stated, class counsel's motions for final distribution of attorney fees and expenses in Peschell and Reynolds are hereby denied.
Based on the experience in these two cases, the court expects that if future statewide settlements in this multi-district litigation use a similar structure of separate recoveries for class members and for class counsel, the initial distribution of fees is likely to be limited to about half of the possible total. It is important to acknowledge that the use of separate recoveries for class members and for class counsel has benefitted class members in at least two important ways. First, it has been possible for class notices to provide relatively specific and reliable estimates the amount each property owner should receive. Second, it has been possible to distribute payments to each property owner before the conclusion of all claims processing, and before final determination of an attorney fee award.
So ordered.