United States Court of Appeals
For the First Circuit
No. 09-2684
UNITED STATES OF AMERICA,
Appellee,
v.
OVERSEAS SHIPHOLDING GROUP, INC.,
Defendant,
ZACK HAWTHORN,
Movant, Appellant.
ON APPEAL FROM AN ORDER REGARDING ATTORNEY’S FEES ENTERED IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Boudin, Dyk,* and Thompson, Circuit Judges.
Zack Hawthorn, pro se.
Jonathan F. Mitchell, Assistant United States Attorney, with
whom Carmen M. Ortiz, United States Attorney, was on brief, for the
appellee.
October 18, 2010
*
Of the Federal Circuit, sitting by designation.
DYK, Circuit Judge. Zack Hawthorn (“Hawthorn”) appeals
from a district court decision limiting Hawthorn’s legal fees under
two contingent fee agreements. The district court barred Hawthorn
from receiving a fee in excess of $25,000 under a contingent fee
agreement with Benedict Barroso (“Barroso”) and barred Hawthorn
from recovering any fee at all under a contingent fee agreement
with John Altura (“Altura”). We conclude that the district court
did not err in finding Hawthorn’s contractual fee amounts with
respect to both clients to be excessive. However, we conclude that
the district court abused its discretion in disallowing any fee
from the representation of Altura. We hold that Hawthorn should
receive a fee of $25,000 for each client and accordingly affirm-in-
part and reverse-in-part.
I.
This case arises out of a government investigation in six
judicial districts into allegations that Overseas Shipholding
Group, Inc. (“OSG”) had for years engaged in the practice of
discharging oil from its vessels in American waters and falsifying
mandatory ship records to conceal the discharges, in violation of
the Act to Prevent Pollution from Ships (“APPS”), 33 U.S.C. §
1908(a).
In September of 2005, Barroso worked aboard the M/T
Pacific Ruby (“the Pacific Ruby”), a tanker ship owned and operated
by OSG. On September 15, 2005, Barroso telephoned the United
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States Coast Guard on behalf of himself and three crew members
(including Altura), all Filipino nationals (“the Texas
whistleblowers”). Barroso reported that he had observed the chief
engineer illegally bypassing the ship’s oil pollution prevention
equipment. Barroso told the Coast Guard that the four men were
willing to testify against OSG. Based on Barroso’s report, the
Coast Guard conducted two boardings of the ship. The four Texas
whistleblowers provided information that supported the allegations
of illegal activity by OSG.
A grand jury investigation was commenced in the Eastern
District of Texas in late 2005. A magistrate judge appointed
separate counsel for each whistleblower from the district’s
Criminal Justice Act (“CJA”) panel. On October 7, 2005, Hawthorn
was appointed to represent Barroso, and another lawyer, Bill Harris
(“Harris”), was appointed to represent Altura. The scope of the
representation in each case was to determine whether the client was
a target or subject of a criminal investigation, to advise him of
his Fifth Amendment rights, and to assist him in his appearance
before the grand jury and during interviews with the government.
Based on the Texas whistleblowers’ testimony, in August
of 2006, the chief engineer of the Pacific Ruby, Kun Yun Jho, and
OSG were indicted in the Eastern District of Texas on charges of
conspiracy under 18 U.S.C. § 371, false statements under 18 U.S.C.
§ 1001, and violations under APPS, 33 U.S.C. § 1908(a). The APPS
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case against OSG was then expanded to include a dozen OSG ships
involved in oil dumping incidents in five other judicial districts,
including the District of Massachusetts. Twelve whistleblowers in
total provided information as to the incidents that formed the
basis for the charges in the six districts.
The APPS, 33 U.S.C. § 1908(a), provides that “[i]n the
discretion of the Court, an amount equal to not more than 1/2 of [a
criminal APPS] fine may be paid to the person giving information
leading to conviction.” In November and December of 2006,
government counsel informed Hawthorn that Barroso might be eligible
for a monetary whistleblower award under the APPS. As a result,
Hawthorn learned for the first time that his client might receive
an award. However, on December 4, 2006, the Eastern District of
Texas dismissed the APPS counts against OSG and the government
appealed. See United States v. Kun Yun Jho & Overseas Shipholding
Grp. Inc., 465 F. Supp. 2d 618 (E.D Tex. 2006).1 On December 19,
2006, the government announced an agreement covering the six
districts in which OSG was under investigation, including the
District of Massachusetts and the Eastern District of Texas.2 With
respect to the cases other than the Texas case, the agreement
specified that the parties would recommend that the five cases be
1
The Fifth Circuit ultimately reversed and reinstated
the APPS charges. See United States v. Kun Yun Jho & Overseas
Shipholding Group, Inc., 534 F.3d 398 (5th Cir. 2008).
2
The other four districts were: the Central District of
California, the Northern District of California, the District of
Maine, and the Eastern District of North Carolina.
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consolidated in Massachusetts for plea and sentencing. OSG agreed
to plead guilty to representative APPS counts in each of the five
cases. Under the terms of the agreement, OSG would pay a total
monetary fine of $27.8 million, of which $10.5 million was
allocated to APPS violations. The agreement also provided that if
the Fifth Circuit reversed the Texas dismissal of the three APPS
counts, OSG would plead guilty to those counts as well and a fine
under the APPS of $2.4 million would be imposed. If not, OSG would
instead plead guilty in the Eastern District of Texas to three
additional counts of making false statements in violation of 18
U.S.C. § 1001. The agreement left open the possibility that an
additional fine would be imposed in the Texas proceeding. The
agreement contemplated that a single plea and sentencing proceeding
for the five cases would be scheduled in the Massachusetts district
court in the near future, at which time that court would consider
whistleblower awards.
On January 3, 2007, Hawthorn sent Barroso an email in
which he informed Barroso of the plea agreement and that he might
be eligible for a whistleblower award. Hawthorn added that he
could represent Barroso in pursuing any legal rights he might have
to a whistleblower award, but that his representation would be
separate from his court-appointed representation. The email stated
that despite the dismissal in the Eastern District of Texas,
Hawthorn thought that Barroso could still be compensated in the
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Massachusetts proceeding, but that the possibility of recovery was
uncertain. Because Barroso was indigent, Hawthorn proposed
representation on a contingent fee basis whereby he would receive
33% of whatever award Barroso received. A proposed contingent fee
agreement was attached. Hawthorn also stated that he could not
begin working for Barroso on the whistleblower award matter until
Hawthorn received a signed copy of the agreement. Barroso
responded, stating that he needed to discuss the matter with the
other three whistleblowers with whom he was associated.
On January 29, 2007, the five pending cases (other than
the Texas case) were consolidated and the plea and sentencing
hearings were set for March 21, 2007, in Boston. On March 9, 2007,
government counsel contacted Hawthorn, along with the lawyers for
the other whistleblowers to advise them of the potential
availability of the APPS awards in the Massachusetts case. On
March 12, 2007, government counsel informed Hawthorn that the
government was considering filing a motion in support of an award.
That same day, since Hawthorn was not familiar with whistleblower
proceedings, he asked government counsel for a sample of a motion
filed on behalf of whistleblowers in other cases. The government
provided Hawthorn with a sample motion filed by the government in
another case.
On March 13, 2007, Altura contacted Hawthorn by email,
introducing himself and requesting that Hawthorn represent him in
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the upcoming whistleblower action on the same contingency terms
that Hawthorn had proposed to Barroso, stating: “[I] would gladly
appreciate if you could represent me in a legal matter concerning
any claim from the Pacific Ruby Incident.” Gov’t’s Suppl. App’x
251. He explained that he was having trouble reaching his court-
appointed attorney (Harris) in the criminal case, stating that “I
want to inform you that since I’ve joined this vessel I haven’t
heard from Bill Harris. That’s why I’ve decided to ask you if you
could represent myself.” Id. at 252. Hawthorn did not attempt to
contact Altura’s court-appointed attorney nor did he contact the
Texas district court. Hawthorn e-mailed Altura the fee agreement
along with a conflict of interest waiver. Altura signed the fee
agreement, which Hawthorn had dated March 13, 2007. On March 14,
2007, Barroso agreed to a fee agreement as well. Hawthorn advised
both Altura and Barroso of a possible conflict of interest in
representing both in the same matter, and they waived any conflicts
of interest stemming from the joint representation.
On March 14 and 15, 2007, the government filed motions
for whistleblower awards in the Massachusetts proceeding, detailing
the contributions of all of the whistleblowers (i.e., the four
whistleblowers in the Texas case and the eight whistleblowers in
the other cases) and recommending that the court award $437,500 to
each whistleblower. The government asked that the court award
equal sums to each of the whistleblowers involved in the
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consolidated cases as well as to the whistleblowers involved in the
Eastern District of Texas case because the contributions of the
twelve whistleblowers to the overall outcome of the case were
roughly equal. This recommendation was made even though the
whistleblowers from the Texas case, including Barroso and Altura,
were not witnesses in any of the five cases consolidated in the
District of Massachusetts and there had been no APPS conviction in
the Eastern District of Texas.
On March 16, 2007, OSG filed a response to the
government’s whistleblower motion, stating that though it did not
oppose the government’s motion, it was concerned about a grant of
awards to the whistleblowers in the Texas case. OSG argued that
any APPS awards to those individuals should be administered by the
district court in Texas. On March 19, 2007, the government
replied, explaining that because the four Texas whistleblowers
contributed to the successful overall resolution of the case
against OSG, the Massachusetts district court had discretion to
issue awards to them. That same day, Hawthorn filed a nine-page
memorandum responding to OSG, and arguing that Barroso and Altura
deserved awards because they contributed to OSG’s plea of guilty in
the consolidated case. Hawthorn also pointed out that all of the
APPS counts that were pending in the Eastern District of Texas had
been dismissed and as it currently stood, there were no awards to
be administered by that court. He argued that even if the
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dismissal were overturned, Altura and Barroso would receive less in
the Eastern District of Texas as the total amount of the fine there
would be less than the fine from the consolidated cases, even
though Barroso and Altura contributed to the overall result.
The plea and sentencing hearing was held on March 21,
2007. In accordance with the plea agreement, the district court
imposed a fine of $10.5 million for APPS violations. Under the
statue one-half of the total was available for awards to
whistleblowers. At the hearing, OSG argued that the Texas
whistleblowers should not receive whistleblower awards. The
government urged the district court to award fees to all twelve
whistleblowers. The court then voiced “a modest reservation” about
issuing awards to the Texas whistleblowers. Gov’t’s Suppl. App’x
159. The court heard from Hawthorn, who argued for an award to
Barroso and Altura. The district court then concluded it would
make the whistleblower awards as proposed by the government. On
May 25, 2007, the court issued an order authorizing awards of
$437,500 to each of the twelve whistleblowers, and further ordered
that “any proposed legal fees in excess of $10,000 for legal
services performed in connection with the granting of the
whistleblower awards in this case, must be approved by the Court
after notice to the government.” United States v. Overseas
Shipholding Grp., Inc., No. 1:06-cr-10408-RGS (D. Mass. May 25,
2007) (order concerning whistleblower awards).
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On August 15, 2007, Hawthorn filed a motion for approval
of attorney’s fees in which he sought to receive one third of the
whistleblower awards to Barroso and Altura, for a total of $291,677
in legal fees. No other counsel for the whistleblowers sought
approval for a fee in excess of $10,000. Barroso and Altura did
not object to Hawthorn’s fees at the time. The government opposed
Hawthorn’s request on the ground that the fees were unethically
excessive.
The district court referred the matter of Hawthorn’s fee
request to a magistrate judge for a recommendation. On April 22,
2008, after conducting an evidentiary hearing, the magistrate judge
issued a memorandum and order finding that Hawthorn’s requested
fees were “unethically excessive,” and recommending reducing the
fees to $25,000 for each client for a total of $50,000, a figure
that represented the “outer limit of reasonableness.” United
States v. Overseas Shipholding Grp., Inc., 547 F. Supp. 2d 75, 91
(D. Mass. 2008) (opinion of magistrate judge) (quotations omitted).
However, the magistrate judge requested that the district court for
the Eastern District of Texas determine whether it would violate
that court’s CJA plan if Hawthorn were to receive a contingent fee
for representing Barroso in the whistleblower matter. The Eastern
District of Texas eventually advised that Hawthorn’s contingent fee
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agreement with Barroso did not violate the terms of the CJA plan.
The magistrate judge adopted this ruling.3
On December 1, 2009, the district court adopted the
magistrate’s recommendation in part. United States v. Overseas
Shipholding Grp., Inc., 672 F. Supp. 2d 188 (D. Mass. Dec. 1,
2009). The court held that the $50,000 award for legal services to
both men “approach[es], if not exceed[s], the limits of reasonable
compensation under the circumstances,” but stated that it would
defer to the magistrate judge in setting the “baseline figure.”
Id. at 197. (In the following discussion, we refer to the portions
of the magistrate’s recommendation adopted by the district court as
the district court’s decision.)
However, the district court sua sponte further held that
because Altura may still have been represented by Harris in the
same matter at the time that Hawthorn sent him a contingent fee
agreement, and because Altura may not have fully understood his
3
On June 23, 2008, without filing an objection in the
district court to the Magistrate Judge’s order, Hawthorn filed a
notice of appeal directly with this court. On September 18,
2009, this court dismissed his appeal for lack of jurisdiction.
On October 7, 2008, Hawthorn filed an objection to the Magistrate
Judge’s order in the district court.
Although Hawthorn failed to object to the Magistrate
Judge's report within ten days, see Fed. R. Civ P. 72(b)(2), the
failure to timely file an objection is not jurisdictional. See
Spence v. Superintendent, Great Meadow Corr. Facility, 219 F.3d
162, 174 (2d Cir. 2000); United States v. Polishan, 336 F.3d 234,
239-40 (3d Cir. 2003); Souter v. Jones, 395 F.3d 577, 585 (6th
Cir. 2005); Allen v. Sybase, 468 F.3d 642, 658 (10th Cir. 2006);
see also Thomas v. Arn, 474 U.S. 140, 155 (1985).
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legal interests, Hawthorn “violated the spirit, if not the letter,
of two, and perhaps three, attorney disciplinary rules,” namely
Mass. R. Prof’l. C. 4.2 (concerning communications with represented
persons), 4.3(b) (prohibiting legal advice to potentially
conflicted persons), and 7,3(b) (prohibiting solicitation of
professional employment from impaired persons). Id. at 198-99.
The district court accordingly disallowed the $25,000 awarded to
Hawthorn for services rendered to Altura.
Hawthorn timely appealed, and we have jurisdiction
pursuant to 28 U.S.C. § 1291.
II.
Hawthorn first argues that the district court lacked the
authority to adjudicate the propriety of the contingent fee
agreements because neither Barroso nor Altura objected. Hawthorn
posits that there was never any “case” or “controversy” to be
decided, and that accordingly the district court lacked
jurisdiction. See, e.g., Moore v. Charlotte-Mecklenburg Bd. of
Ed., 402 U.S. 47, 48 (1971) (finding no case or controversy under
Article III of the United States Constitution where “both litigants
desire[d] precisely the same result”). Hawthorn’s argument is
premised on the Fifth Circuit’s holding in Brown v. Watkins Motor
Lines, Inc., 596 F.2d 129, 131 (5th Cir. 1979). In Brown, the
Fifth Circuit held that where the parties agreed to the fee
arrangement there was no case or controversy, and that the district
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court lacked jurisdiction to adjudicate the amount to be paid to
the plaintiff’s lawyer. Id.
We disagree with Brown, and its approach has been
previously rejected by this court. It is well-established that a
district court has inherent authority to supervise the conduct of
attorneys that appear before it. See United States v. Klubock, 832
F.2d 664, 667 (1st Cir. 1987) (en banc). Both this court and other
courts of appeals have held that this supervisory authority
encompasses the power to assess the fairness of attorney fee
agreements, including contingent fee arrangements. See, e.g., Bos.
& Me. Corp. v. Sheehan, Phinney, Bass & Green, P.A., 778 F.2d 890,
896 (1st Cir. 1985) (“Contingent fees are, of course, of special
concern to courts and are subject to strict judicial
supervision.”); Farmington Dowel Prods. Co. v. Forster Mfg. Co.,
421 F.2d 61, 87 (1st Cir. 1969) (“Farmington Dowel I”).4 This is
so because “[c]ourts have a stake in attorney’s fees contracts; the
fairness of the terms reflects directly on the court and its bar.”
Rosquist v. Soo Line R.R., 692 F.2d 1107, 1111 (7th Cir. 1982).
Thus, a court “has a particular interest in assuring itself that it
4
See also McKenzie Constr., Inc. v. Maynard, 758 F.2d
97, 101 (3d Cir. 1985) (“Because courts have special concern to
supervise contingent attorney fee agreements, they are not to be
enforced on the same basis as ordinary commercial contracts.”);
In re A.H. Robins Co., 86 F.3d 364, 373 (4th Cir. 1996) (“The
district courts’ supervisory jurisdiction over contingent fee
contracts for services rendered in cases before them is well-
established.”).
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is not an unwitting accessory to an excessive fee.” Farmington
Dowel I, 421 F.2d at 87.
As this court explained in Farmington Dowel I, “courts
generally are not without power to modify excessive fee
arrangements.” Farmington Dowel I, 421 F.2d at 87-88. While a
court is not obligated in every case to ask whether a fee
arrangement provides for excessive fees, “a court may in its
discretion inquire into such issue, particularly when it is brought
to the court’s attention.” Id. Further, this supervisory power is
not dependent on whether a party challenges a fee arrangement. To
the contrary, “it seems clear that the court’s power to prevent
excessive fees must be operative regardless of the arrangement by
which the fee is obtained.” Id. at 87. Thus, whether a client
objects to a fee arrangement is relevant to whether the fee is
excessive, but it is “not controlling, for the object of the
court’s concern is not only a particular party but the conformance
of the legal profession to its own high standards of fairness.”
Id. at 90 n.62. We conclude that the district court had the
authority to review the fee agreements even though the clients did
not object at the time.
III.
We review the district court’s exercise of its
supervisory authority for abuse of discretion. See De Jesus
Nazario v. Morris Rodriguez, 554 F.3d 196, 199 (1st Cir. 2009);
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Ramos Colon v. Sec’y of Health & Human Servs., 850 F.2d 25, 26 (1st
Cir. 1988).
Unlike awards under the fee-shifting statutes, where fees
are normally limited to “reasonable” compensation, fee awards
stemming from privately negotiated attorney’s fees agreements are
reviewed deferentially. The court may exercise its supervisory
power to reduce a fee only in exceptional circumstances. Sargeant
v. Sharp, 579 F.2d 645, 648 n.4 (1st Cir. 1978). Thus, “if the
Court finds that an agreement provides for an unethically excessive
fee, it may sparingly exercise its supervisory powers over the bar
to limit the amount the attorney may actually receive.” Id. at
648. The power to review fees pursuant to an agreement is not
limited to situations in which the fee is ethically excessive at
the inception but extends to situations in which “the
unreasonableness is due to factors that occur after the fee
arrangement is made.” McKenzie, 758 F.2d at 101.
While we do not think the fee here was ethically
excessive, the court’s supervisory power is not limited to the
situation in which the fees are ethically excessive. Courts can
limit the fee on the ground that it exceeds the outer limit of
reasonableness even if it is not ethically excessive. McKenzie,
758 F.2d at 100-01 (3rd Cir. 1985); Green v. Nevers, 111 F.3d 1295,
1302 (6th Cir. 1997). In these circumstances, the court is
determining whether the fee “has resulted in such an enrichment at
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the expense of the client that it offends a court’s sense of
fundamental fairness and equity.” McKenzie, 758 F.2d at 101. A
fee can exceed the outer limit of reasonableness “without
necessarily being so ‘clearly excessive’ as to justify a finding of
a breach of ethics.” Id. at 100; Green, 111 F.3d at 1302.
Although limitations on fees should only be imposed in
exceptional circumstances, they are particularly appropriate in
situations such as this where awarding an excessive fee to the
attorney would itself undermine the objectives of the federal
statutory scheme. The whole purpose of the discretionary award to
whistleblowers under this statute is to create incentives for the
whistleblower to take risks that may disadvantage the whistleblower
in his relationship to his employer. The amount of the fee that
will be siphoned off by the lawyer significantly affects the size
of that award and the power of the incentive. The court in
administering this statute is obligated to ensure his excessive
legal fees will not diminish the statutory incentive.
In determining whether an attorney’s fee is clearly
excessive, this court has held that courts should consider a
variety of factors to determine the “outer limit” of
reasonableness:
1. the time and labor required, the novelty and
difficulty of the questions involved and the necessary
skill level;
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2. whether work on the case would preclude the attorney’s
performing other work;
3. the customary charges of the Bar for similar services;
4. the amount involved in the controversy;
5. the contingency or the certainty of the compensation;
and
6. the character of the employment, whether casual or for
an established and constant client.
Farmington Dowel I, 421 F.2d at 89. (adopting factors listed in
Farmington Dowel Prods. Co. v. Forster Mfg. Co., 297 F. Supp. 924,
926 n.1 (D. Me. 1969)).5 For the purposes of determining whether
a fee is excessive, “the fee arrangement should be viewed to some
extent according to the circumstances in which it was made.” Id.;
see also Bos. & Me. Corp., 778 F.2d at 898 (“To deny [a] fee . .
. because it exceeds time charges and looks high in hindsight would
penalize [an attorney] for a job well done . . . .” (emphasis in
original)). However, a court may nonetheless consider “post-
agreement factors such as complexity of problems, quality of work,
and results obtained.” Farmington Dowel Prods. Co. v. Forster Mfg.
Co., 436 F.2d 699, 701 (1st Cir. 1970) (“Farmington Dowel II”); see
also McKenzie, 758 F.2d at 101.
5
We note that these factors are similar to those used by
Massachusetts courts to determine whether a fee is “clearly
excessive.” See Mass R. Prof’l Conduct 1.5(a) (listing eight
factors to consider).
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IV.
Hawthorn contends that the district court applied an
improper standard in evaluating the fee agreements. There is no
merit to the contention that the district court improperly applied
the criteria from the fee-shifting statutes (which look to the
reasonableness of the fee). The magistrate judge’s opinion
explicitly rejected that standard, noting that “the Court is
applying the more ‘deferential’ standard applicable to contingent
fee agreements rather than the ‘reasonable compensation’ standard
applicable to determining fee awards pursuant to fee shifting
statutes.” See Overseas Shipholding, 547 F. Supp. 2d at 91. The
magistrate judge’s opinion, adopted in this respect by the district
court, also looked to the pertinent factors as set forth in
Farmington Dowel. There is no requirement that all of the listed
factors be explicitly considered, especially when not appropriate
to the particular case, and we have clearly stated that it can be
appropriate to consider additional factors. See Farmington Dowel
I, 421 F.2d at 89.
The district court’s factual findings are, of course,
reviewed under a clearly erroneous standard. Cumpiano v. Banco
Satander Puerto Rico, 902 F.2d 148, 152 (1st Cir. 1990). We see no
error in the district court’s findings with respect to the specific
factors.
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First, there was no clear error in finding that the time
and labor actually expended were not significant. See Overseas
Shipholding, 672 F. Supp. 2d at 195. The record reflects that
Hawthorn performed little or no substantive work on the
whistleblower claims until approximately one week before the
sentencing hearing on March 21, 2007. Hawthorn was contacted by
Altura on March 13, 2007, and received the signed agreement from
him the same day. Hawthorn did not receive the signed agreement
from Barroso until March 14, 2007, and represented in an email to
Barroso that he could not begin work on the whistleblower award
matter until he received a signed agreement. Between March 13,
2007 and the sentencing hearing on March 21, 2007, a period of only
8 days, Hawthorn worked on a nine-page memorandum during parts of
two days. On March 20, 2007, he traveled to Boston and met with
local counsel concerning the sentencing hearing. On March 21,
2007, he argued at the sentencing hearing. Hawthorn maintained
below that he devoted a significant amount of time to communicating
with his clients in order to prepare his arguments. However, the
district court rejected this claim as “implausible.” Overseas
Shipholding, 547 F. Supp. 2d at 90 n.8; see Overseas Shipholding,
672 F. Supp.2d at 195 nn.14 & 16.
Second, there was no clear error in finding that there
was no significant risk that substantial additional time and effort
might be required. Hawthorn contends that there was a possibility
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of a trial-type hearing pursuant to Miller v. United States, 455
F.2d 833 (4th Cir. 1971). In Miller, the Fourth Circuit held that
where individuals had monetary claims pursuant to a whistleblower
provision of the Refuse Act, 33 U.S.C. § 411,the due process clause
of the Fifth Amendment guaranteed those individuals the “right to
confront and to cross-examine adverse witnesses, the right to
participate in the proceedings by counsel and to adduce relevant,
admissible evidence in their own behalf, and the right to a
decision based upon evidence adduced at such a hearing.” Miller,
455 F.2d at 836. Even if we were to assume that Miller was
correctly decided and that it applied to the whistleblower
provision of the APPS (both dubious propositions), there was no
showing that at the time the agreements were executed Hawthorn
intended to request a trial-type hearing in the Massachusetts
proceeding.
Indeed, the evidence is to the contrary. Hawthorn’s
March 12, 2007, correspondence with the government, which took
place shortly before the agreements were executed on March 13 and
14, shows that he intended to largely piggyback on the government’s
efforts and that he was aware that substantial effort on his part
would not be required. In that correspondence, he asked the
government for a sample motion in support of a whistleblower award,
which he received and used to prepare his motion. He also noted
that he would wait until the government had filed its sentencing
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memorandum before he filed his, stating: “I trust you would set
forth everything fairly and accurately because your knowledge of
the case is substantially greater than mine.” Overseas
Shipholding, 547 F. Supp. 2d. at 81. Hawthorn’s January 3rd email
to Barroso stated that “I expect . . . expenses to be minimal.”
Id. at 80. This statement is strong evidence that a trial-type
proceeding was not anticipated. There is no error in the district
court’s finding that as of the time when Hawthorn executed the
contracts with Barroso and Altura, “Hawthorn must have known that
he did not face depositions, discovery or a protracted trial” and
that he “should have been aware that his efforts would be limited
to filing a sentencing memorandum and presenting an argument at
sentencing.” Id. at 88.
Hawthorn also argues that there was a possibility of
significantly more work under the agreements as both agreements
provided that Hawthorn would represent Barroso and Altura in the
event of an appeal. Even if we were to assume that Barroso and
Altura had a right to appeal the denial of a Massachusetts award,
any such appeals would not likely require significant work on
Hawthorn’s part, given the government’s lead role.
Hawthorn also contends that if his efforts to secure
compensation in Massachusetts were ineffective, he would have been
obligated to proceed in Texas. Additionally, he notes that as the
Fifth Circuit has now overturned the dismissals in Texas, an
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additional criminal fine may be imposed, and Barroso and Altura may
now, if they choose, seek whistleblower awards in Texas. Hawthorn
suggests the he is still obligated under the contracts to file and
litigate these claims if his clients so choose, and therefore, his
work under the contracts may not yet even be completed. But again,
assuming that this is so, this can not affect the propriety of the
fee in the Massachusetts proceeding. The district court did not
abuse its discretion in assessing the excessiveness of Hawthorn’s
fee exclusively with respect to work performed in the Massachusetts
proceeding. If Hawthorn were to eventually secure an additional
award from the Eastern District of Texas on behalf of his clients
(perhaps an unlikely eventuality), under the fee agreements he
would be entitled to a third of the Texas award. The Eastern
District of Texas could then, in an exercise of its discretion,
inquire into the appropriateness of Hawthorn’s compensation with
respect to the work performed before that court. We see no error
in evaluating the Massachusetts and Texas proceedings
independently.
Third, the results obtained in the Massachusetts
proceeding were quite beneficial to Hawthorne’s clients. The APPS
permits but does not require the district court to award
compensation to whistleblowers who supply information “leading to
conviction,” 33 U.S.C. § 1908(a) (2006). In fact the Texas
prosecution based on the information that Barroso and Altura
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supplied to the government had been dismissed. See United States
v. Jho, 465 F. Supp. 2d 618, 622-26 (E.D. Tex. 2006). OSG,
moreover, objected to an award to the Texas wistleblowers. Despite
these objections, Hawthorn's clients were awarded substantial sums.
Nonetheless, the district court did not err in finding that the
success achieved was largely due to the government’s efforts.
Hawthorn was not skilled in the relevant area of law. The record
reflects that Hawthorn was unfamiliar with whistleblower awards
until this case. He relied on the government’s expertise and
advocacy on behalf of the whistleblowers and acknowledged that the
government’s knowledge of the case was “substantially greater than
[his].” Overseas Shipholding, 547 F. Supp. 2d at 80-81. It is
clear that whether or not Barroso and/or Altura received an award
was almost entirely dependent on the government’s recommendations,
and that Hawthorn’s efforts had little effect. See id. at 91.
Fourth, the district court did not err in failing to
accord more weight to the fact that a contingency fee of 33% is not
unusual. While 33% contingent fees are not unusual as a general
matter, there was no showing that such a fee was usual in the
unique context of whistleblowing litigation or some similar
context. Moreover, even an agreement that was “reasonable when
made” is not necessarily “insulated from all attack” when “it
yields a fee out of proportion to the extent or the benefit of
services rendered.” Farmington Dowel I, 421 F.2d at 89.
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Fifth, the district court appropriately considered the
circumstances under which the fee agreements were executed. As the
magistrate judge observed, there was reason to question whether
Barroso and Altura were in a position to make informed decisions
about their representation. See Overseas Shipholding, 547 F. Supp.
2d at 87-88. Both men were foreign nationals who were sufficiently
indigent to quality for court-appointed counsel. Further, both
were out at sea when they signed the agreements and were
disadvantaged in their ability to shop around for other
representation. Although both were competent to retain counsel (as
we describe below), the information discrepancy between Hawthorn
and his clients suggests that Barroso and Altura were not in a
position to make an informed decision about the appropriate level
of compensation or to “shop around for other representation.” Id.
at 87; see Schlesinger v. Teitelbaum, 475 F.2d 137, 140 (3d Cir.
1973) (holding that contingent fee agreements were subject to
heightened scrutiny because of the vulnerabilities of seamen); In
re Vioxx Prods. Liab. Litig., 574 F. Supp. 2d 606, 612 n.12 (E.D.
La. 2008) (noting that “federal courts have long endeavored to
protect seamen from unfair contingent fee contracts”).
Sixth, the district court did not err in finding that the
contingent nature of the representation did not justify a higher
award. As we have noted, the fact that a fee arrangement is
contingent upon success is a relevant factor in determining the
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appropriate fee level. See Farmington Dowel I, 421 F.2d at 90.
The reason is that “the fact that the attorney is willing to take
an all-or-nothing arrangement might justify a fee which is higher
than the going hourly rate in the community.” Id. Though this
factor favors a higher fee for Hawthorn than the usual hourly rate,
the district court did not err in finding it not to be significant.
In assessing whether a contingent fee award is excessive, we
consider whether the attorney faced meaningful risk. See Bos. &
Me. Corp., 778 F.2d at 897. Here, there was indeed a risk of no
recovery because (as noted earlier) there was an issue as to
whether the Massachusetts district court had the authority to grant
awards to Barroso and Altura. Despite these hurdles, the amount of
the contributions Hawthorn could have, and did make, in this case
were “necessarily finite.” Overseas Shipholding, 547 F. Supp. 2d
at 89. The size of an appropriate contingent fee award should be
determined in part by multiplying the expected number of hours of
work times the usual hourly rate, increased to take account of the
possibility that the attorney’s efforts might not be successful.
Cf. Coutin v. Young & Rubicam Puerto Rico, Inc., 124 F.3d 331, 337
(1st Cir. 1997). Hawthorn has made no showing that a $25,000 fee
for each client (for a total of $50,000) is insufficient to take
account of the contingent nature of the agreement.
Finally, there was no evidence that the representation
precluded other employment by Hawthorn, or that other factors would
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justify the claimed fee. To be sure, the record reflects that at
least as of the time that Hawthorn moved for approval of his fees,
his clients wished the agreements to be enforced. As noted above,
a client’s willingness to abide by the fee arrangement is relevant
but not controlling. Farmingtown Dowel I, 421 F.2d at 90 n.62.
Rather, in reviewing the propriety of fee agreements, the key issue
is “the conformance of the legal profession to its own high
standards of fairness.” Id. The magistrate judge did not abuse
his discretion in discounting the clients' agreement, especially in
light of the indigent status of both clients.
In conclusion, the district court did not err in
considering the relevant factors and did not abuse its discretion
in concluding that Hawthorn’s requested fees were excessive. Nor
did the district court err in concluding that fees of $25,000 for
each client was an appropriate figure representing the outer limit
of reasonable compensation under the circumstances.
V.
Hawthorn contends that the district court abused its
discretion in further reducing his share of Altura’s award from
$25,000 to zero. Though “[d]enial of attorneys’ fees may be a
proper sanction for violation of an ethical canon,” Culebras
Enters. Corp. v. Rivera-Rios, 846 F.2d 95, 97 (1st Cir. 1988), we
conclude that Hawthorn did not violate any ethical canons.
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When Hawthorn was admitted pro hac vice to appear before
the district court, he became subject to the Massachusetts Rules of
Professional Conduct, which the District of Massachusetts has
adopted. See Local Rules for the District of Massachusetts
83.6(4)(b). The district court denied Hawthorn a fee for his
representation of Altura on the ground that “Hawthorn's conduct .
. . violated the spirit, if not the letter, of two, and perhaps
three, attorney disciplinary rules,” namely Massachusetts Rules of
Professional Conduct 4.2, 4.3, and 7.3. Overseas Shipholding, 672
F. Supp. 2d at 197-98.
Mass. R. Prof’l. Conduct 4.2 states that “[i]n
representing a client, a lawyer shall not communicate about the
subject of the representation with a person the lawyer knows to be
represented by another lawyer in the matter, unless the lawyer has
the consent of the other lawyer or is authorized by law to do so.”
The district court seemed to believe that Altura was represented by
his CJA counsel, Harris, in the same matter as in which Hawthorn
agreed to represent Altura. The record is unclear whether Altura
was still represented by Harris in the Texas criminal matter at the
time that he became Hawthorn’s client. However, the whistleblower
claim was not the "same matter” in which Harris represented Altura.
The record indicates that Harris was appointed under the Criminal
Justice Act to represent Altura and to determine whether Altura was
a target or subject of a criminal investigation, to advise him of
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his Fifth Amendment rights, and to assist him in his appearance
before the grand jury and during interviews with the government.
The magistrate judge in Massachusetts adopted the Eastern District
of Texas’ conclusion that Barroso’s whistleblower claim was not the
“same matter” as the CJA representation by Hawthorn. If that was
the case for Barroso, then certainly Hawthorn’s representation of
Altura for his whistleblower claim in Massachusetts was not the
“same matter” for which Harris had been appointed to represent him.
Since the criminal representation was not the same matter
as the whistleblower compensation proceedings, we do not think that
Hawthorn had any obligation to contact Hawthorn’s criminal counsel,
or to assist Altura in doing so as the district court suggested.
Moreover, Altura had already attempted to get in contact with
Harris and had indicated to Hawthorn that Harris was unresponsive.
There is a strong public interest in permitting an individual to
obtain the counsel of his choice. See Wheat v. United States, 486
U.S. 153, 164 (1988); Morris v. Slappy, 461 U.S. 1, 22-25 (1983).
The sentencing hearing was rapidly approaching and Altura was
entitled to secure counsel to represent him in that proceeding.
Requiring Hawthorn to contact previous counsel or to insist that
Altura make such a contact might interfere with Altura’s ability to
obtain counsel in time for the sentencing hearing. Requiring new
counsel to contact previous counsel or to insist that the client do
so might, in fact, subject the client to importuning from previous
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counsel to retain him in connection with the new matter, even where
the client had decided that he did not want previous counsel to
represent him in the new matter. While courtesy might typically
suggest that previous counsel be informed of the new
representation, we hold that Hawthorn had no duty to contact
Altura’s counsel in the Texas criminal matter or to require Altura
to do so, and accordingly, he did not violate the letter or spirit
of Mass R. Prof’l Conduct 4.2.
Mass. R. Prof’l. Conduct 4.3 states that “[i]n dealing on
behalf of a client with a person who is not represented by counsel,
a lawyer shall not state or imply that the lawyer is
disinterested.” The district court seemed to believe that Hawthorn
violated the spirit of this rule by communicating with Altura
although he was already representing Barroso. We see no basis for
concluding that Hawthorn violated either the letter, or the spirit,
of this rule. Altura already knew that Hawthorn was representing
Barroso—there was no need for Hawthorn to inform him of that fact.
Rule 4.3(b) states that “[d]uring the course of
representation of a client, a lawyer shall not give advice to an
unrepresented person, other than the advice to secure counsel, if
the interests of that person are or have a reasonable possibility
of being in conflict with the interests of the client.” Nothing in
the record shows that Hawthorn gave any advice to Altura before he
was engaged to represent Altura, other than to secure counsel.
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Hawthorn told both clients about a potential conflict of interest,
and they both waived those possible conflicts.
Mass. R. Prof’l Conduct 7.3(b) provides that “a lawyer
shall not solicit professional employment if . . . the lawyer knows
or reasonably should know that the physical, mental, or emotional
state of the prospective client is such that there is a substantial
potential that the person cannot exercise reasonable judgment in
employing a lawyer.” Hawthorn did not solicit business from
Altura; Altura sought Hawthorn out. There is no basis for
concluding that Altura was incapable of “exercis[ing] reasonable
judgment in employing a lawyer.” A contrary approach would deprive
individuals in Altura’s position of the opportunity to secure legal
representation. If Barroso was capable of employing Hawthorn, as
the district court assumed, so was Altura.
We therefore hold that the district court abused its
discretion in disallowing Hawthorn from recovering a fee from his
representation of Altura. He should receive a fee of $25,000 for
his representation of Altura.
VI.
For the foregoing reasons, we affirm the district court’s
approval of fees in the amount of $25,000 for Hawthorn’s
representation of Barroso. We reverse the district court’s
disapproval of any fee for the Altura representation, and hold that
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Hawthorn may collect $25,000 in fees from his representation of Altura.
Affirmed-in-part, reversed-in-part, and remanded.
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