UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
Nos. 92-2219
92-2274
BTZ, INC.,
Plaintiff, Appellant,
v.
GREAT NORTHERN NEKOOSA CORP., ET AL.,
Defendants, Appellees.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
Torruella, Selya and Cyr,
Circuit Judges.
David L. Lee, with whom Law Offices of Frederic F. Brace, Jr. was
on brief for appellant.
Peter J. Brann, Assistant Attorney General, with whom Michael E.
Carpenter, Attorney General, and Thomas D. Warren, Director,
Litigation Unit, were on brief for State of Maine, Amicus.
Tami L. Brown for appellee Great Northern Nekoosa Corp.
February 16, 1995
CYR, Circuit Judge. BTZ, Inc., a former shareholder in
CYR, Circuit Judge.
Great Northern Nekoosa Corporation ("Great Northern"), appeals a
district court order disallowing its application for an award of
attorney fees against Great Northern. The fee application was
predicated on the theory that the lawsuit BTZ brought against
Great Northern in the United States District Court for the
District of Maine caused Great Northern to capitulate to a
hostile takeover by Georgia Pacific Corporation ("GPC") which
resulted in substantial benefit to other Great Northern share-
holders. We affirm.
I
I
BACKGROUND1
BACKGROUND
In October 1989, GPC made an unsolicited tender to
acquire Great Northern. The Board of Directors of Great Northern
("Board") balked. GPC commenced suit in Maine federal district
court, seeking a judicial declaration that the Board's anti-
takeover defenses violated state and federal law, as well as the
Board's fiduciary duty to Great Northern shareholders. Several
Great Northern shareholders [hereinafter: "plaintiffs"], includ-
ing appellant BTZ, brought derivative "class action" suits
1We set forth only the facts essential to our holding.
Greater factual detail is provided in other reported decisions.
See Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518 (1st
Cir. 1991); Weinberger v. Great Northern Nekoosa Corp., 801 F.
Supp. 804 (D. Me. 1992); Georgia-Pacific Corp. v. Great Northern
Nekoosa Corp., 731 F. Supp. 38 (D. Me. 1990); Georgia-Pacific
Corp. v. Great Northern Nekoosa Corp., 727 F. Supp. 31 (D. Me.
1989).
2
against the Board in Maine federal district court. The class
action suits were consolidated and the State of Maine intervened
to defend its anti-takeover statute from constitutional chal-
lenge.
The Board concurrently opened a second line of defense
by instituting an antitrust action against GPC in Connecticut
federal district court. Plaintiffs' counsel took no part in the
Connecticut action. On February 12, 1990, GPC announced its
divestiture of all paper company holdings, thereby effectively
mooting the Board's antitrust action. One week later, the Board
capitulated and accepted GPC's tender offer. See Weinberger v.
Great Northern Nekoosa Corp., 925 F.2d 518, 521 (1991).
Concerned that the plaintiffs in the Maine anti-take-
over suits might impede the GPC-Great Northern settlement and
merger, GPC entered into a "clear sailing" agreement with plain-
tiffs: plaintiffs would dismiss their federal actions in Maine
and "take no steps to attach any part of the funds to be paid to
[Great Northern] shareholders pursuant to the upcoming tender
offer"; GPC-Great Northern, in turn, would "pay the plaintiffs'
attorneys' fees and expenses [up to $2 million,] as shall be
awarded by the United States District Court for the District of
Maine." Id. at 518 n.1, 521.
The federal district court in Maine ultimately denied
plaintiffs' fee applications, however, ruling that their attor-
neys' services were not a significant precipitating "cause" of
the GPC-Great Northern merger. Rather, their legal services
3
merely mimicked GPC's legal efforts in the Maine lawsuits, and
played no role whatever in the truly decisive takeover skirmish
the Connecticut antitrust litigation. Weinberger v. Great
Northern Nekoosa Corp., 801 F.Supp. 804, 811 (D. Me. 1992). BTZ
appeals.2
II
II
DISCUSSION
DISCUSSION
A. The American Rule
A. The American Rule
Under the American Rule, absent a specific statutory
authorization or contractual agreement to the contrary, litigants
are responsible for their own attorney fees. See In re San Juan
Dupont Plaza Hotel Fire Litig., 982 F.2d 603, 606 (1st Cir.
1992). One notable exception to the American Rule obtains in so-
2The State of Maine, as amicus curiae, suggests that we may
lack appellate jurisdiction because the "clear sailing" agreement
obligates GPC-Great Northern, not BTZ, to pay fees to BTZ's
attorneys. Thus, it says, BTZ the only appellant named in the
notice of appeal lacks either standing to appeal from a denial
of the fee application, see United States v. AVX, 962 F.2d 108,
112-13 (1st Cir. 1993), or a demonstrable stake in the outcome of
the appeal.
Although dismissal on jurisdictional grounds might be
warranted, the matter is not without difficulty and there is no
circuit precedent directly in point. BTZ signed no enforceable
fee agreement with its attorneys, but the "clear sailing" agree-
ment, qua contract, might arguably afford BTZ a status analogous
to a "prevailing party" in a statutory fee-shifting case. Cf.
Pontarelli v. Stone, 978 F.2d 773, 775 (1st Cir. 1992) (since
statute specifically authorizes fees to "prevailing party,"
prevailing party's attorney has no independent standing to appeal
from grant or denial of fee award); Benitez v. Collazo-Collazo,
888 F.2d 930, 933 (1st Cir. 1989) (same). We therefore bypass
the jurisdictional issue and turn to the merits. See FDIC v. Bay
Street Dev. Corp., 32 F.3d 636, 639 n.4 (1st Cir. 1994).
4
called "common benefit" cases, where a plaintiff's suit is
prematurely mooted but nonetheless results in a "substantial
[pecuniary or nonpecuniary] benefit" to a larger class [hereinaf-
ter: "beneficiaries"]. In these common benefit cases, a court
may invoke its equitable jurisdiction to assess attorney fees
against beneficiaries of the legal services; and, where the
beneficiaries are corporate shareholders, their assessment may be
imposed upon the corporate defendant. See, e.g., Reiser v. Del
Monte Properties Co., 605 F.2d 1135, 1137-38 (9th Cir. 1979)
(citing cases).
BTZ insists that its legal services fit squarely within
the "common benefit" exception to the American Rule, since the
GPC takeover enhanced the pecuniary interests of all Great
Northern shareholders. The threshold question, of course, is
whether the BTZ lawsuit in Maine federal district court actually
caused the Board to capitulate to the GPC takeover, thereby
contributing substantially to the per-share price increase in
Great Northern shares. The district court rejected BTZ's claim
on two fronts.
B. Causation
B. Causation
First, the court found insufficient evidence that BTZ's
legal services caused the Board to capitulate to the GPC take-
over. As we have noted, "causation questions are grist for the
factfinder's mill . . . ," Dedham Water Co. v. Cumberland Farms
Dairy, Inc., 972 F.2d 453, 457 (1st Cir. 1992) (citing Peckham v.
Continental Cas. Ins. Co., 895 F.2d 830, 837 (1st Cir. 1990)),
5
which we review under the "clear error" standard, see ICC v.
Holmes Transp., Inc., 983 F.2d 1122, 1129 (1st Cir. 1993) (noting
that "clear error" leaves reviewing court with the "definite and
firm conviction that a mistake has been committed"). Cf. Lipsett
v. Blanco, 975 F.2d 934, 937, 941 (1st Cir. 1992) (according
deference to trial court's "front row seat" determination as to
whether legal services contributed to favorable outcome in
underlying litigation) (citation omitted).
The district court finding that the efforts of BTZ's
counsel were neither a substantial nor a material factor in GPC's
"decision to increase its bid or in Great Northern's decision to
auction itself," Weinberger, 801 F. Supp. at 809, is amply
supported by the record. The withdrawal of the Connecticut
antitrust action and the defeat of Great Northern's anti-takeover
mechanisms in the Maine litigation were the decisive factors
contributing to the GPC takeover. See id. at 811 & n.11. BTZ's
counsel took no part in the pivotal Connecticut litigation. Id.
at 809. And to the limited extent that BTZ's counsel participat-
ed in the Maine litigation, they did little more than track GPC's
filings and audit depositions conducted by GPC. Id. at 808-811.
The district court's robust skepticism of the benefits
contributed by BTZ's counsel is especially appropriate given the
increasing concerns that redundant or peripheral legal services
may parasitize the litigation efforts of lead counsel, yet
command a substantial fee. Insofar as lead counsel reasonably
perceive a consequent dilution of the limited resources available
6
for legal services, allowances for phantom legal services frus-
trate the adversary process and undermine the congressional
policy favoring private enforcement of the securities laws.3
C. Burden of Proof
C. Burden of Proof
The district court also rejected BTZ's fallback attempt
to realign the burden of proof on the issue of causation. We
review its legal ruling de novo. Liberty Mut. Ins. Co. v.
Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir. 1992).
Under Delaware law, a fee award will be denied in a
common benefit case only if the party opposing it proves that the
applicant's legal services did not contribute to the favorable
outcome in the underlying takeover litigation. Compare Allied
Artists Pictures Corp. v. Baron, 413 A.2d 876 (Del. 1980);
Rosenthal v. Burry Biscuit Co., 209 A.2d 459 (Del. Chan. 1949)4
with Hensley v. Eckerhart, 461 U.S. 424, 437 (1983) ("[T]he fee
3See generally John C. Coffee, Jr., Rescuing the Private
Attorney General: Why the Model of the Lawyer as Bounty Hunter is
Not Working, 42 Md. L. Rev. 215, 249 (1983); John C. Coffee, Jr.,
Understanding the Plaintiff's Attorney: The Implications of
Economic Theory for Private Enforcement of Law Through Class and
Derivative Actions, 86 Colum. L. Rev. 669 (1986); Jonathan R.
Macey & Geoffrey P. Miller, The Plaintiffs' Attorney's Role in
Class Action and Derivative Litigation: Economic Analysis and
Recommendations for Reform, 58 U. Chi. L. Rev. 1, 68 (1991).
4The Delaware Chancery Court explained that "it is reason-
able to impose on the defendants the burden of showing that the
[benefit] was not in any way occasioned by the existence of the
lawsuit," and that, even were the defendant corporation to prove
that the fee applicant's suit in no way contributed to the
benefit conferred, "the [fee applicant's] attorney would still be
entitled to a fee if it is shown that the cause of action was
meritorious." Rosenthal, 209 A.2d at 461. The Delaware Supreme
Court later adopted the Rosenthal reasoning. See Allied Artists
Pictures Corp., 413 A.2d 876.
7
applicant bears the burden of establishing entitlement to a [fee]
award."); Nadeau v. Helgemoe, 581 F.2d 275, 281 (1st Cir. 1978)
(fee applicant has burden to prove suit served as "catalyst");
Koppel v. Wien, 743 F.2d 129, 135 (2d Cir. 1984) (same); 1 Mary
F. Derfner & Arthur D. Wolf, Court Awarded Attorney Fees
9.02[4][c], at 9-24.6 (1991).
The district court correctly interpreted our decision
in Weinberger, 925 F.2d at 522 n.6, to indicate that the BTZ fee
application does not fit squarely within the common benefit
exception to the American Rule, see Weinberger, 801 F.Supp. at
807, since "[BTZ] abjured a claim for fees under the common
benefit doctrine[,]" Weinberger, 925 F.2d at 524, both by negoti-
ating the "clear sailing" agreement, which neutralized Great
Northern's capacity to challenge a fee award, and by relying on
the "clear sailing" agreement as the basis for its alleged fee
entitlement. In contrast, neither Rosenthal nor Allied Artists
involved a "clear sailing" agreement. Their realignment of the
burden of proof was premised on the relative capacities of fee
applicants and fee opponents to establish the "causation" ele-
ment.
Aside from BTZ, three entities had cognizable interests
in the BTZ class action: Great Northern, GPC, and the State of
Maine. None was better positioned than BTZ to establish what
caused Great Northern to succumb to the GPC takeover bid. First,
following its merger with GPC, Great Northern no longer existed
as an independent legal entity. Second, immobilized as a fee
8
opponent by the terms of the "clear sailing agreement," GPC could
not attempt to rebut a presumption of substantial benefit without
breaching its agreement. Nor, finally, has there been any
showing that the State of Maine, intervenor below and amicus on
appeal even assuming it were able and inclined to oppose the
BTZ fee application on policy grounds was better situated than
BTZ to establish causation. There simply is nothing in the
record to suggest that the State of Maine, aligned by happen-
stance with Great Northern below, was privy to its inner workings
or litigation strategy during the decisive stages of the takeover
battle. Thus, the State of Maine likewise was not the "well-
informed" fee opponent whose presence would warrant the burden
shifting urged by BTZ.
Contractual fee shifting in class action suits impinges
on traditional judicial protocols for scrutinizing attorney-fee
allowances, by increasing the potential for conflicts of inter-
est. See id. at 524-25. Consequently, a rebuttable presumption
should not be endorsed in the context of a "clear sailing"
agreement unless the court is well satisfied that "the advantages
of the adversary process" are not blunted by undermining the
parties' incentives to proffer relevant evidence on causation.
Id. The district court prudently ruled out any rebuttable
presumption in the instant case.
As the district court findings and conclusions are
fully supported, its disallowance of the fee application must be
affirmed.
9
The district court order is affirmed. Costs to appel-
lees.
10