In Re: San Juan v. Massaro

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 95-2285

IN RE SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION

PASQUALE MASSARO, ET AL.,

Appellants,

v.

STANLEY CHESLEY, ET AL.,

Appellees.

No. 96-1142

IN RE SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION

RICHARD BIEDER, ET AL.,

Appellants,

v.

STANLEY CHESLEY, ET AL.,

Appellees.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Raymond L. Acosta, Senior U.S. District Judge]

Before

Selya, Cyr and Lynch,

Circuit Judges.

Judith Resnik, with whom Dennis E. Curtis, Richard A. Bieder,

Koskoff, Koskoff & Bieder and Jos E. Fernandez-Sein were on brief for

appellants.
Will Kemp, with whom Harrison, Kemp & Jones, CHTD was on brief

for appellees.

April 22, 1997

2

CYR, Circuit Judge. Plaintiffs and their counsel
CYR, Circuit Judge.

appeal from a district court order awarding the Plaintiffs'

Steering Committee ("the PSC") approximately $10,670,000 for

costs incurred in representing plaintiffs in this mass-tort

litigation. We affirm the district court order in substantial

part and direct appellees to remit $1,023,903 ($913,503 in PSC

"expert" fees, and $110,400 in photocopying charges).

I
I

BACKGROUND1
BACKGROUND

Ninety-seven people perished in a tragic New Year's Eve

fire at the San Juan Dupont Plaza Hotel on December 31, 1986, and

many others sustained serious personal injuries and property

losses. After thousands of individual plaintiffs filed hundreds

of claims against a host of defendants in many different juris-

dictions ("multidistrict litigation" or "MDL"), the Judicial

Panel on Multidistrict Litigation consolidated all cases for

trial in the United States District Court for the District of

1We relate only the record facts directly material on
1
appeal. The following cases offer the hardy reader a more
complete history of these marathon proceedings at the appellate
level. See In re Three Additional Appeals Arising Out of the San

Juan Dupont Plaza Hotel Fire Litig., 93 F.3d 1 (1st Cir. 1996);

In re Thirteen Appeals Arising Out of the San Juan Dupont Plaza

Hotel Fire Litig., 56 F.3d 295 (1st Cir. 1995); In re San Juan

Dupont Plaza Hotel Fire Litig., 45 F.3d 569 (1st Cir. 1995); In

re San Juan Dupont Plaza Hotel Fire Litig., 45 F.3d 564 (1st Cir.

1995); In re Two Appeals Arising Out of the San Juan Dupont Plaza

Hotel Fire Litig., 994 F.2d 569 (1st Cir. 1993); In re San Juan

Dupont Plaza Hotel Fire Litig., 989 F.2d 36 (1st Cir. 1993); In

re Nineteen Appeals Arising Out of the San Juan Dupont Plaza

Hotel Fire Litig., 982 F.2d 603 (1st Cir. 1992); In re San Juan

Dupont Plaza Hotel Fire Litig., 907 F.2d 4 (1st Cir. 1990); In re

San Juan Dupont Plaza Hotel Fire Litig., 888 F.2d 940 (1st Cir.

1989).

3

Puerto Rico (Acosta, J.), see 28 U.S.C. 1407.

As most plaintiffs had already retained their own

counsel (hereinafter: "individually retained plaintiffs' attor-

neys" or "IRPAs"), the district court recognized the need to

coordinate their representation through the PSC. Eventually

comprised of eleven attorneys with expertise in mass-tort litiga-

tion, the PSC served as plaintiffs' lead counsel, responsible for

coordinating discovery, settlement negotiations and, if neces-

sary, trial matters common to all plaintiffs. The eleven PSC

members nonetheless retained their respective roles as IRPAs,

directly representing approximately seventy percent of the

individual plaintiffs. The IRPAs, on the other hand, were to

focus their efforts on litigation tasks idiosyncratic to their

respective clients' cases.

A. Pretrial Case-Management Orders
A. Pretrial Case-Management Orders

In two pretrial orders, the district court directed

plaintiffs, who would derive common benefit from PSC services, to

pay PSC attorney fees and costs from the common fund ultimately

recovered in the litigation. See Pretrial Order No. 127 (Dec. 2,

1988); Pretrial Order No. 2 (Mar. 23, 1987). At the time, the

district court tentatively proposed to limit the PSC to a com-

bined attorney fee/cost award not exceeding ten percent of the

eventual common fund, see Pretrial Order No. 127, at 48, which

ultimately approximated $220 million. The district court estab-

lished the following cost-submission and reimbursement guide-

4

lines:

[A]ssessments2 will be deposited in a
fund that will defray the reasonable expenses
of the PSC in the performance of its duties.
The PSC shall maintain a careful statement of
account on the fund, that is, prepare and
keep accurate, contemporaneous, detailed

records of the receipts, deposits, accumu-

lated interest and subsequent disbursements.
The fund shall be used only to make disburse-
ments (whether directly to creditors or to
reimburse the PSC) for expenses incurred for
the benefit of all plaintiffs. Any disburse-
ments made for the benefit of a particular
plaintiff represented by a member of the PSC
shall be the sole responsibility of the
plaintiff in question. The PSC shall be
authorized to periodically expend monies from
the fund as needed to defray the necessary

"hard" costs of its work, such as office
overhead, staff salaries, warehousing, dupli-
cation, expert fees, deposition costs, etc.
The members of the PSC shall be reimbursed
from time to time for the "hard" expenses of
the PSC-related work incurred by them or
their employees/appointees, provided they
submit to the PSC careful, contemporaneous,

detailed records of their expenditures.

"Soft" costs such as travel, meals,
transportation, lodging, etc., shall be borne
by the individual PSC members who shall be
reimbursed at the conclusion of this litiga-
tion or as otherwise provided by the Court.
All persons interested in reimbursement,
particularly members of the PSC, must keep
careful, contemporaneous, detailed records of

individual expenses. Only reasonable and

necessary expenses will be reimbursed. For

example, airplane/transportation expenses
should be at economical rates, not first
class; and hotel accommodations/meals should
be moderate, not deluxe, etc. Reimbursements

are conditioned, of course, on the proper

2As commonly occurs in mass-tort MDLs, plaintiffs' attor-
neys, inter alios, were required to advance and pool the monies

needed to fund their clients' litigation, including the interim-
cost petitions filed by the PSC and its members. See Pretrial

Order No. 127, at 37-43. Reimbursement for their advances were
contingent upon their recoveries from defendants.

5

verification of expenses.

The PSC and/or its members, as perti-
nent, shall submit to the Court for its ap-

proval a statement for reimbursable "hard"

expenses and another for "soft" expenses as
well as statements of account beginning on
August 1, 1987 and every sixty (60) days

thereafter.

Id. at 44-45 (emphasis added). See also Pretrial Order No. 2, at

14.

B. The PSC-Office Cost Regimen
B. The PSC-Office Cost Regimen

Although individual PSC members performed some PSC

litigation tasks through their individual law firms, the district

court also authorized the PSC to recover its direct costs in

establishing, staffing, and operating a centralized PSC Office

(hereinafter: "PSC-Office costs"). Further, the PSC bylaws

required prior approval, by five PSC members, for any PSC-office

cost reimbursement above $500, as well as payment of such costs

by PSC check.

In March 1987, certified public accountant ("CPA")

Donald Kevane was retained to review and submit to the PSC

monthly reports summarizing PSC-office costs. In February 1991,

the PSC submitted its final report to the district court, claim-

ing $6,956,368 in PSC-office costs attributable to Phases I and

II of the litigation.3

3Phase I involved liability claims against the hotel and its
affiliates, whereas Phase II involved claims against the suppli-
ers of goods and services to the hotel. The district court has
yet to rule on attorney fees and costs attributable to Phase III,
which allocated liability among defendants' various insurers.
See In re Nineteen Appeals, 982 F.2d at 608-10 (determining that

Phase I and II cost awards were final, appealable orders).

6

C. The PSC-Member Cost Regimen
C. The PSC-Member Cost Regimen

Similarly, the district court authorized reimbursements

of costs incurred by the eleven individual PSC members in per-

forming PSC litigation tasks (hereinafter: "PSC-member costs"),

as distinguished from their respective duties as IRPAs. Every

sixty days, the PSC submitted, under seal and "for [court] ap-

proval," a consolidated report summarizing each PSC member's

individual "hard" and "soft" costs. (Emphasis added.)4

In September 1989, the district court appointed C.

Terry Raben, a CPA, to "review the [PSC-member cost] information

supplied to . . . date to ensure it is complete, accurate and

contemporaneous[,] as well as to organize the reports before the

sheer number of them unduly complicates any reasonable accounting

procedures." Order No. 222 (docket No. 12671, entered under seal

Sept. 15, 1989). Raben previously had performed comparable cost

oversight responsibilities in another mass-tort litigation. See

generally In re MGM Grand Hotel Fire Litig., 660 F. Supp. 522 (D.

4On July 2, 1987, the district court approved PSC bylaws.
Article XI, entitled "Accounting and Expense Management," provid-
ed, inter alia, that: (1) all PSC members were to "insure the

exact and efficient management of plaintiffs' resources by
strictly complying with proper accounting and expense management
principles . . . [as] set forth in the Orders of the Court, in
the Manual for Complex Litigation, and herein," id. 11.01

(emphasis added); (2) PSC members were to submit to the PSC
secretary every 60 days a standardized form listing their total
costs, broken down into ten broadly enumerated categories (e.g.,

"air travel," "hotels and meals"), id. 11.02, 11.03 & 11.05;

(3) the PSC Secretary was to consolidate these member reports for
submission to the district court, with the individual members'
summary reports attached, id. 11.04; and (4) the PSC Secretary

would nominate an auditor for appointment by the court, id.

11.07.

7

Nev. 1987) (or "the MGM case"). The district court directed

Raben to scrutinize the PSC files for compliance with the crite-

ria in Pretrial Order No. 127, supra, to obtain any additional

documentation deemed appropriate, and submit findings to the

court.

In November 1990, almost four years into these proceed-

ings, the PSC became concerned that outside accountants like

Raben, who were not attorneys and lacked intimate knowledge of

the PSC's litigation responsibilities and inner workings, might

not adequately appreciate whether PSC-member cost claims met the

compliance criteria prescribed in Pretrial Order No. 127.

Accordingly, the PSC directed Monita Sterling, a paralegal for a

PSC-member law firm with prior exposure to PSC litigation tasks,

to review each PSC-member cost claim independently to determine

whether the expenditures were "necessary" to legitimate PSC

litigation tasks, "reasonable" in amount, and not duplicative of

other PSC-member cost claims. Sterling thereafter reviewed

"every receipt or other piece of documentation submitted," noting

each questionable claim.5 Sterling submitted her reports and

5Sterling, who had acquired extensive prior experience in
the MGM case, established eleven criteria for determining whether

PSC-member costs were reimbursable: (1) major expenditures only
if documented by receipts; (2) minor expenditures (e.g., tips,

pay-phone charges), for which the use of receipts was impractica-
ble, only if supported by affidavit; (3) coach air fare only; (4)
federal express charges if documented by airbills designating
origin and destination; (5) long distance phone charges if
documented according to date, number, duration, and cost; (6)
photocopying expenditures at 25 cents per page and postage
charges at actual cost if the member indicated compliance with
normal in-house procedure at the member's law firm for tracking
these costs; (7) telefax charges at actual cost, not at a page

8

supporting documentation to Adamina Soto, a CPA who reviewed the

Sterling report and randomly checked its underlying documenta-

tion, then contacted PSC members about problem items and request-

ed further documentation. Soto eventually disallowed $207,475 in

costs and submitted her reports to Raben.

Raben submitted three final reports to the district

court, covering PSC-member cost claims through January 31, 1991.6

He disallowed an additional $138,569 of the total $3,847,233 in

claimed expenditures. The district court approved each Raben

report as submitted. See In re San Juan Dupont Plaza Hotel Fire

Litig., 768 F. Supp. 912, 934 (D.P.R. 1991), vacated on other

grounds, 982 F.2d 603 (1st Cir. 1992). PSC members ultimately

recovered $3,708,665. Id.

D. Attorney Fee/Cost Rulings
D. Attorney Fee/Cost Rulings

In February 1991, the PSC submitted its final applica-

tion for cost reimbursements, attaching the report previously

prepared by Donald Kevane and requesting $6,956,368 in PSC-office

costs attributable to Phases I and II. See supra p. 6. Three

months later, the district court abandoned its earlier tentative

rate; (8) secretarial expense if specifically authorized by the
PSC; (9) costs relating to equipment placed at the PSC Office for
use by PSC staff; (10) no reimbursement for court-ordered mone-
tary sanctions imposed on the PSC; and (11) duly authorized
miscellaneous costs only if "reasonable and necessary in the
prosecution of the case, . . . for the benefit of the PSC and the
plaintiffs as a whole, and not for individual clients."

6These reports were dated: March 13, 1990 (costs from
January 1987 to September 1989); October 12, 1990 (costs from
October 1989 to March 1990); and February 20, 1991 (costs from
April 1990 to January 1991).

9

proposal, see supra p. 4, to limit the PSC's combined attorney

fee/cost award to ten percent of the common fund. Thereafter,

the court approved the entire PSC fee/cost application. See

Order No. 346 (June 21, 1991).

10

On appeal, we vacated the fee/cost award for failure to

afford the plaintiffs and IRPAs a meaningful opportunity to chal-

lenge the PSC attorney fee application on the merits. According-

ly, we remanded for further proceedings. See In re Nineteen

Appeals Arising Out of the San Juan Dupont Plaza Hotel Fire

Litig., 982 F.2d 603, 608, 615-16 (1st Cir. 1992) [hereinafter

"Nineteen Appeals"]. Following the remand and a second appeal,

the PSC and IRPAs were directed to share the available attorney-

fee fund ($68 million) equally. See In re Thirteen Appeals Aris-

ing Out of the San Juan Dupont Plaza Hotel Fire Litig., 56 F.3d

295, 312 (1st Cir. 1995) [hereinafter "Thirteen Appeals"].

Following the remand in Nineteen Appeals, the district

court separately reconsidered the PSC application for costs,

fixing March 12, 1993, as the deadline for the plaintiffs and

IRPAs to submit "specific/detailed written objections" to all

PSC-cost submissions through January 31, 1991. See Order No. 478

(Jan. 15, 1993). The court further directed three categories of

documents to be filed in the joint document depository ("JDD")

for review by the plaintiffs and IRPAs: (1) the three Raben

reports analyzing PSC-member costs; (2) the Kevane monthly

reports summarizing PSC-office costs; and (3) the PSC-member cost

documentation. See Order No. 479 (Jan. 20, 1993). Although the

court rejected a request by the plaintiffs and IRPAs for addi-

tional formal discovery, see Thirteen Appeals, 56 F.3d at 303

(noting that mandated exchanges of documentation, rather than

"searching discovery," are appropriate where only attorney fees

11

and expenses are at issue), it ordered both Raben and Kevane to

submit descriptions of their auditing procedures and directed

Kevane to produce his working papers, correspondence, and docu-

mentation. See Order No. 485 (Mar. 3, 1993).

Within the extended deadline for further objections to

costs, the plaintiffs and IRPAs submitted a report and affidavit

by William Torres, a CPA newly retained to audit the PSC-cost

submissions, attesting that he had requested the PSC to "provide

[him] with access to all of the records documenting the costs

incurred in this case, . . . including but not limited to,

original bills or statements kept by the PSC staff or any PSC

member, and any summaries or supporting documentation (including

charge account bills) of the same." Even though necessary to a

"meaningful analysis," Torres attested, the PSC failed to provide

the requested documents, including the Raben working papers; and,

until March 10, 1993, the "critical" Kevane working papers were

not made available; many documents made available were unread-

able; the PSC did not allow access to the PSC-member-cost-reim-

bursement policies or the PSC-policy meeting minutes relating to

cost reimbursements; and, finally, the PSC refused to permit him

to depose Raben, Kevane or any PSC member regarding questionable

cost submissions or documentation.

On November 24, 1993, the district court overruled most

major objections to the PSC-cost submissions. See Order No. 510-

A. For example, as regards hotel charges, the court rejected the

contention that the maximum per diem rate should be $116, the

12

rate considered "reasonable" by the IRS for tax-deduction purpos-

es. It ruled that reasonableness must be assessed case by case,

to reflect such variants as locale, seasonal fluctuations, room

availability, the number of persons sharing a room, accessibility

of equipment and facilities essential to the litigation task at

hand, as well as other exigencies. Id. at 7-8. The court ruled

that, like the IRPAs, PSC members were entitled to "reasonable"

reimbursement for photocopying costs and had not "profit[ed]"

from the authorized twenty-five-cents-per-copy rate. Id. at 9.

The district court further noted, inter alia, that the

objections the plaintiffs and IRPAs made to the PSC-cost submis-

sions were so voluminous and entwined with issues relating to

attorney fees that it was difficult to determine the particular

costs to which the plaintiffs and IRPAs were objecting. It

directed the plaintiffs and IRPAs to "sort out this chaos," id.

at 12; Torres and Sterling to meet and consult at the JDD not

later than December 10; and the plaintiffs and IRPAs to file

particularized objections to the remaining expenditures not later

than January 12, 1994.

The district court conducted an evidentiary hearing in

December 1993, to determine whether to allow the PSC to recover

its final cost installment for retaining Thomas Foulds, Esquire,

as an expert. The PSC maintained that Foulds, who had worked for

many years in the insurance industry before attending law school,

had been retained as an insurance expert, to interpret insurance

contracts, rather than as an attorney, and that his fee therefore

13

was fully reimbursable as a PSC-office cost. See Pretrial Order

No. 127, at 48. Although the plaintiffs and IRPAs objected that

Foulds had performed many litigation tasks, including legal

research and conducting depositions, normally performed by attor-

neys and not by insurance experts, the district court allowed the

Foulds fee reimbursement as a PSC-office cost after concluding

that Foulds "was not contracted merely as an attorney" but

primarily for his insurance expertise. See Order No. 520, at 3-4

(Jan. 28, 1994). The final installment brought the total Foulds-

fee reimbursement to $913,503.7

The plaintiffs and IRPAs filed their final objections

to PSC-member costs in January 1995, essentially reiterating that

the cost review and verification process had proven hopelessly

inadequate to document either the necessariness or reasonableness

of the claimed costs, and that it was unfair to require them to

sort through the chaotic documentation created by the PSC and its

members. Alternatively, the plaintiffs and IRPAs asserted

specific objections to a sampling of allegedly inappropriate PSC-

member costs (e.g., phone calls, tips, charges for "drinks,"

etc.) and urged an across-the-board reduction of all PSC-cost

claims by a fixed percentage (25-33%) to reflect the sampling-

based estimate of alleged PSC overcharges. Finally, the plain-

7The district court had approved two prior PSC reimburse-
ments relating to Foulds, totaling $850,000. See Margin Order

No. 755 (filed under seal Dec. 27, 1990); Order No. 398 (filed
under seal Oct. 15, 1991). The final PSC installment of $84,107
was disallowed in part, due to deficiencies in contemporaneous
documentation.

14

tiffs and IRPAs complained that Monita Sterling had refused to

allow CPA Torres to inspect the documentation pertaining to PSC-

office costs at the joint meeting required by Order No. 510-A.

The district court once again overruled the bulk of the

objections. See Order No. 584 (Aug. 29, 1995). First, it found

the PSC review process adequate, noting that it had resulted in

disallowance of several questionable expenditures based on the

independent review conducted by Raben, Sterling, and Soto under

objective criteria. Second, except for a handful of de minimis

mischarges totaling less than $2,000, the court rejected the

specific challenges asserted by the plaintiffs and IRPAs based on

their samplings of alleged overcharges. Finally, the court ruled

that its Pretrial Order No. 510-A, see supra pp. 11-12, had envi-

sioned only that Sterling and Torres inspect documentation

relating to "outstanding issues" those involving PSC-member

costs, not PSC-office-cost issues.

In due course, the plaintiffs and IRPAs [hereinafter:

"appellants"] appealed from the various orders approving PSC-cost

reimbursements (Order Nos. 478, 485, 510-A, 520, and 584).

II
II

DISCUSSION
DISCUSSION

A. The PSC-Cost Reimbursement Regimen
A. The PSC-Cost Reimbursement Regimen

1. Appellants' Position
1. Appellants' Position

Appellants aim their main broadside at the regimen

established for documenting, monitoring, submitting, and approv-

ing PSC costs. Although the PSC, IRPAs, and plaintiffs in mass-

15

tort MDLs share the same litigation goal (viz., an optimum common

fund), internecine differences as to subsidiary matters

particularly the appropriate allocations from the common fund for

their respective attorney fees and costs are commonplace. The

greater the attorney fees and costs awarded the PSC, of course,

the less available for the IRPAs and their individual clients.

Appellants maintain that these conflicting self-interests neces-

sarily entail heightened oversight responsibilities on the part

of the district courts in mass-tort MDLs to ensure stringent

monitoring and review procedures adequate to protect the individ-

ual plaintiffs and IRPAs from overreaching by the PSC.

Appellants fault the district court for adopting

reimbursement procedures which delegate important judicial

oversight responsibilities to auditors appointed either by the

court or the PSC. It is the PSC, they say, rather than the

appellants, which must bear the ultimate burden in establishing

entitlement to reimbursement, see Grendel's Den, Inc. v. Larkin,

749 F.2d 945, 956-57 (1st Cir. 1984), which in turn necessitates

three distinct showings by the PSC for each claimed reimburse-

ment; viz., that it document: (i) the actual expenditure; (ii)

its necessariness to the assigned litigation task; and (iii) its

reasonableness, see, e.g., In re Agent Orange Prod. Liab. Litig.,

611 F. Supp. 1296, 1314 (E.D.N.Y. 1985) ("Expenses must be both

reasonable in amount and reasonably related to the interests of

the class."), aff'd in pertinent part, 818 F.2d 226, 238 (2d Cir.

1987).

16

Appellants contend that the Raben and Kevane "audits"

did not inform the district court adequately regarding potential

PSC excesses. Raben and Kevane were accountants, neither trained

in the law nor familiar with the litigation tasks assigned to the

PSC. At best they could verify that the PSC and its members

actually made the claimed expenditures, but in many instances PSC

members maintained no detailed records relating to their reason-

ableness and necessariness. Moreover, appellants argue, though

Monita Sterling and others similarly designated by the PSC

undoubtedly were more familiar than Kevane and Raben with the

nature and demands of the PSC's litigation responsibilities,

their assessments of claimed expenses were inherently biased

because their employment with the PSC gave them a vested interest

in justifying PSC reimbursements.

Appellants contend that the district court erred in

suggesting that it was incumbent upon them, rather than the PSC,

to demonstrate that particular PSC expenditures were not reim-

bursable. See, e.g., Order No. 520, at 1 n.1 ("Parties question-

ing payments previously approved carried the burden of setting

them aside whereas the PSC/Mr. Foulds were required to justify

the pending request."). The court based its ruling on the ground

that most PSC cost-reimbursement claims during earlier stages in

the litigation had been approved, without opposition, as submit-

ted.

Appellants complain not only that the district court

thereby subverted the well-established burden of proof incumbent

17

upon the PSC, see Grendel's Den, 749 F.2d at 956-57, but foisted

on the plaintiffs and IRPAs the impracticable task of rummaging

through mountainous PSC documentation to determine within very

restrictive court-ordered deadlines which PSC-cost submissions

were either inadequately documented or otherwise nonreimbursable.

Appellants therefore urge that all otherwise allowable PSC-cost

reimbursements be reduced by a fixed (if somewhat arbitrary)

discount (25% to 33%), see, e.g., Mokover v. Neco Enters., Inc.,

785 F. Supp. 1083, 1093-94 (D.R.I. 1992), to reflect the likely

extent to which the PSC inferably overcharged due to its failure

to maintain "appropriate" documentation.

2. Standard of Review
2. Standard of Review

District court orders awarding costs normally are

reviewed only for abuse of discretion. See Grendel's Den, 749

F.2d at 950; see also Anderson v. Secretary of Health & Human

Servs., 80 F.3d 1500, 1507 (10th Cir. 1996); National Info.

Servs., Inc. v. TRW, Inc., 51 F.3d 1470, 1471 (9th Cir. 1995);

Estate of Borst v. O'Brien, 979 F.2d 511, 517 (7th Cir. 1992)

("The award of costs 'is the type of discretionary ruling to

which appellate courts should give "virtually complete" defer-

ence.'") (citations omitted).

3. "Burdens of Proof"
3. "Burdens of Proof"

The PSC and its members undoubtedly must establish

their entitlement to reimbursement. See Grendel's Den, 749 F.2d

at 956-57. Furthermore, there can be no quarrel that the respec-

tive self-interests of the plaintiffs, the IRPAs, and the PSC in

18

mass-tort MDLs often diverge, nor for that matter that the cost-

containment regimen initiated at the outset in this case (without

benefit of hindsight) ultimately proved inadequate and even

chaotic, see supra Section I.D, as the district court itself

acknowledged several years later.

We nevertheless part company with appellants' conten-

tion that the belatedly perceived shortcomings in the adopted

safeguards against PSC overreaching proximately caused the

unsatisfactory regimen in this case, or that the PSC and its

members must therefore be required to bear the entire brunt of

its failure to function as envisioned by the district court.

Quite apart from formal burdens of proof, all litigants must

share in their mutual obligation to collaborate with the district

court ab initio in fashioning adequate case management and trial

procedures, or bear the reasonably foreseeable consequences for

their failure to do so. See, e.g., Reilly v. United States, 863

F.2d 149, 160 (1st Cir. 1988) (noting that district court reason-

ably may presume affected parties, which take no exception to an

announced course of action, have no objection); see also Clemente

v. Carnicon-Puerto Rico Mgt. Assocs., 52 F.3d 383, 387 (1st Cir.

1995); K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 913

(1st Cir. 1989); Austin v. Unarco Indus., Inc., 705 F.2d 1, 15

(1st Cir.), cert. dismissed, 463 U.S. 1247 (1983).

As the lawbooks bear out, in many respects this has

been a groundbreaking mass-tort MDL from its onset in 1987. See,

e.g., supra n.1. The district court was confronted not only with

19

the daunting task of devising (sometimes from "whole cloth")

mechanisms for streamlining case administration (e.g., the JDD),

but with establishing auxiliary administrative entities, includ-

ing the PSC itself, which would permit adequate ongoing judicial

oversight to be reserved for the most pressing and essential

litigation. The PSC, IRPAs, and plaintiffs were indispensable

partners in this important endeavor. Spurred by their respective

self-interests, these broadly allied litigants were far better

positioned than the trial judge to propose the prophylactic

procedures believed necessary to protect their respective inter-

ests from undue encroachment by potential adversaries, including

one another.

These complex and unwieldy "mass tort cases are a breed

apart," Thirteen Appeals, 56 F.3d at 311, to the point that

efficient, and often innovative, administrative arrangements

become absolutely essential to enable the "court[] [to] run [a]

tight ship[] to ensure that [the] litigation stays on course."

Nineteen Appeals, 982 F.2d at 614. See In re Reticel Foam Corp.

(In re San Juan Dupont Plaza Hotel Fire Litig.), 859 F.2d 1000,

1004 (1st Cir. 1988) ("In multi-party, multi-case litigation, the

district court's success is largely dependent upon its ability to

uncomplicate matters."). Trial judges newly immersed in mass-

tort MDLs simply cannot reasonably be expected to anticipate,

from the inception, all potential flaws in their unopposed

procedural and administrative initiatives.

It is essential, therefore, that counsel collaborate

20

with the trial judge from the outset in fashioning workable

programmatic procedures, and thereafter alert the court in a

timely manner as operating experience points up infirmities

warranting further judicial attention. Absent this collaborative

administrative monitoring, there inevitably remains an unaccept-

able potential for internecine conflicts among the PSC, IRPAs and

plaintiffs over their respective dormant claims to the common

fund, which threaten to convert their cost-reimbursement disputes

into wasteful satellite litigations. See Hensley v. Eckerhart,

461 U.S. 424, 437 (1983) (cautioning that cost claims "should not

[be allowed to] result in a second major litigation").

Even at the outset, while their primary focus remained

on establishing defendants' liability, the PSC, IRPAs, and plain-

tiffs surely could anticipate that their respective financial

stakes in future PSC-cost reimbursement rulings would be substan-

tial (e.g., $10 million, or 4 1/2 percent of common fund),

especially since the district court had authorized the PSC not

only to take over certain IRPA litigation tasks but to establish

and finance its own ad hoc law firm at a centralized and inevita-

bly costly adjunct office. Confronted with this serious poten-

tial for conflicting self-interests, see Pretrial Order No. 2

(cautioning counsel that "your working relationship will occa-

sionally be strained, communication hampered, and mutual trust

impeded"), and the virtually certain prospect that the massive

litigation would be protracted, see id. (cautioning that counsel

would "probably be laboring together [in strained relationships]

21

for several years"), the PSC, IRPAs, and plaintiffs were on

reasonable notice from the outset that establishing adequate

prophylactic procedures was a priority matter.

Thus forewarned, the PSC, IRPAs, and plaintiffs all

were fairly alerted that the massive cost-submission documenta-

tion generated over the years ahead would become critically

important to them; viz., to satisfy the PSC's burden of proof

under Grendel's Den and enable both the IRPAs and plaintiffs to

assert informed objections to inappropriate PSC cost-reimburse-

ment submissions. Clearly, then, their timely fashioning of

mutually satisfactory documentation and monitoring procedures

offered the most reasonable prospect for forfending this satel-

lite litigation. See Hensley, 461 U.S. at 437.

As appellants acknowledge that there are no legal

precedents which provide detailed models for designing suitable

mass-tort cost-reimbursement procedures, they now urge, after the

fact, that we define the relevant responsibilities incumbent upon

the district court and the PSC in these matters. We decline

their request, however, in large part for the reason that the

guidance presently available plainly runs counter to their

premise that the primary responsibility for designing cost-

submission procedures, ab initio, rests with the district court.

Although the Manual for Complex Litigation ("the MCL")

itself includes no detailed provisions on the subject, opting

instead to encourage counsel for the principal parties to forge

22

ad hoc prophylactic procedures by mutual agreement from the

outset,8 it envisions that prescriptive procedural models will

emerge, and deserving ones gain currency, through the litigants'

own collaborative ad hoc initiatives, rather than originate in

appellate case law. See Pretrial Order No. 127, at 22 ("The

Manual for Complex Litigation . . . has been and will continue to

8The MCL provides, in relevant part:

Expenses incurred and fees earned by designated
counsel acting in that capacity should not be borne
solely by their clients, but rather shared equitably by
all benefiting from their services. If possible, the
terms and procedures for payment should be established

by agreement among counsel, but subject to judicial

approval and control (see infra section 24.214, compen-

sation for designated counsel). Whether or not agree-
ment is reached, the judge has the authority to order
reimbursement and compensation and the obligation to
ensure that the amounts are reasonable. Terms and
procedures should be established before substantial

services are rendered and should provide for, among
other things, the following: periodic billings during

the litigation or creation of a fund through advance or
ongoing assessments of members of the group; appropri-
ate contributions from parties making partial settle-
ments with respect to services already rendered by
designated counsel; and contributions from parties in
later filed or assigned cases who benefit from the
earlier work of designated counsel.
Designated counsel should render services as
economically as possible under the circumstances,
avoiding unnecessary activity and limiting the number
of persons attending conferences and depositions and
working on briefs and other tasks. The court should
make clear at the first pretrial conference that com-
pensation will not be approved for unnecessary or
duplicative activities or services. The court should
also inform counsel what records should be kept and
when they should be submitted to the court to support
applications to recover fees and expenses from copar-
ties. See infra section 24.21, which discusses ground

rules and record keeping where attorneys' fees are
awarded by the court.

MCL 20.223 (3d ed. 1995) (emphasis added).

23

be a primary reference text in this litigation. Counsel must

become familiar with the Manual."). Furthermore, ex post facto

pronouncements detailing model procedures would be particularly

inappropriate in these circumstances as it is readily apparent

that the present dispute sprang inexorably from the flawed proce-

dural design in which appellants acquiesced from the outset, and

for six years thereafter, to the point that its deficiencies

became both systemic and irremediable. Appellants simply waited

too long before asking the district court to undo, with their

broad axe (viz., a 25% to 33% across-the-board cut), the documen-

tary muddle allowed to accumulate.

Moreover, pressed on many other fronts since 1987, it

was not practicable for the district court alone to scrutinize

all cost-related documentation maintained by the PSC for nearly

half a decade. See Grendel's Den, 749 F.2d at 950 (noting that

courts must strive for cost-setting processes which are "not

unnecessarily burdensome to the courts themselves"). Unlike less

attenuated and complex litigation, mass-tort MDLs by their very

nature predetermine that detailed monitoring of case-administra-

tion-related responsibilities be delegated. The early pretrial

orders entered by the district court, with appellants' acquies-

cence, accordingly established a cost-monitoring regime which

required the PSC to submit cost summaries every sixty days for

interim approval by the court. The PSC-cost summaries, which

merely reflected total expenses by general type and category,

represented the cumulative, edited product of the Raben and

24

Kevane "audits," without the underlying documentation. Thus, the

interim-approval regime was reasonably designed to ensure that

cost verification and containment by the parties not simply await

an end to the entire litigation, by which time the accompanying

avalanche of documentation would all but preclude cogent review.

Nevertheless, two serious deficiencies made their way

into these interim-approval procedures with appellants' acquies-

cence: (1) the failure to include defined criteria for assessing

"reasonableness" and "necessariness"; and (2) the failure explic-

itly to authorize or require appellants to monitor the underlying

documentation as interim PSC-cost summaries were submitted to the

district court.9 Thus, appellants settled from the outset simply

for the broad, undefined general criteria that claimed-PSC costs

be "necessary" and "reasonable," thereby implicitly foregoing

such ongoing prophylactic measures as particularized monetary

guidelines and/or ceilings on major cost categories; for example,

maximum per diem rates for hotels and page-rates for photocopy-

ing.10

9The record discloses no indication that appellants either
objected to these deficiencies or proposed alternative proce-
dures. See Silva v. Witschen, 19 F.3d 725, 729 n.4 (1st Cir.

1994) (appellant bears brunt of failure to include pertinent
material in record).

10The MCL notes:

Rules and practices vary widely with
respect to reimbursement of expenses incurred
by lawyers in the course of the case out of a
fee award. Charges for paralegals and law
clerks at market rates and the fees of neces-
sary experts are generally reimbursable. Sec-
retarial assistance, on the other hand, is a

25

Yet more fundamentally, the pretrial procedural orders

did not identify a minimum level of detail in the documentation

required to substantiate that a particular PSC-member cost was

"necessary" to a PSC litigation task and "reasonable" in amount.

Rather, the orders simply directed the PSC to keep "careful,

contemporaneous, detailed records" and provide "proper verifica-

tion" of its expenditures. Although Grendel's Den makes clear

that an entity requesting reimbursement must document its actual

expenditures, normally by itemized receipt, see 749 F.2d at 956-

57, the more amorphous and subjective criteria for substantiating

that a given expenditure was "necessary" and "reasonable" may not

be so readily documented. For example, in some instances courts

do not require exacting documentation even for major cost reim-

bursements, such as overhead expenses incurred in connection with

the PSC office, relying instead on their intimate knowledge of

the litigation for determining whether entire categories of costs

pass the reasonableness test; viz., whether the nature of the

expenditure strikes the court as clearly superfluous or its

amount transcends the broad bounds of reasonableness in the

normal part of overhead, but courts have
differed over whether overtime is reimburs-
able. Similarly, rulings vary on such items
as copy and printing costs, certain meals and
travel, and fax, telephone, and delivery
charges. The determination of these kinds of
claims should not be left to costly and
time-consuming adversary adjudication at the
end of the litigation; ground rules on reim-
bursement should be established at the out-

set.

MCL 24.215 (emphasis added).

26

circumstances.11

Furthermore, the early pretrial orders afforded both an

obvious and ready opportunity for appellants, inter alios, to

propose, with somewhat greater particularity at least, more

definite contours for monitoring, testing, and verifying PSC

compliance with the amorphous "necessariness" and "reasonable-

ness" criteria laid down by the district court. As this litiga-

11The district courts differ quite sharply regarding the
detail needed in cost-reimbursement submissions:

The defendants next object that the plaintiffs' attor-
neys have not documented their request for expenses
with receipts. It is not necessary or desirable for
federal courts to review receipts for every five dollar
expenditure. Judges, being former practicing attor-
neys, are quite capable of determining the reasonable-
ness of expenses incurred during litigation. Neither
is it necessary to itemize expenses in great detail.
For example, it is sufficient that copying costs were
submitted without listing how many pages of which docu-
ments were copied during the three years of litigation.
Law firms generally do not keep such records and little
would be served by requiring them except to make liti-
gation more expensive. The amount of the expenses
submitted is certainly reasonable given the length and
complexity of this case.

Duke v. Uniroyal Inc., 743 F. Supp. 1218, 1227 (E.D.N.C. 1990),

aff'd, 928 F.2d 1413 (4th Cir.), cert. denied, 502 U.S. 963

(1991). See Laffey v. Northwest Airlines, Inc., 572 F. Supp.

354, 383 (D.D.C. 1983) ("It is not necessary for plaintiffs to
explain the purpose of every photocopy that is produced and every
expenditure that is made in connection with the litigation. For
most out-of-pocket costs, it is enough for the plaintiffs to
identify the expenses by category, with a general description of
the types of charges included in each category. In the case of
particularly large or unusual expenditures, some additional
explanation of the purpose of the expense may be necessary, but
it is not the norm."), aff'd in pertinent part, 746 F.2d 4, 30

(D.C. Cir. 1984), cert. denied, 472 U.S. 1021 (1985). But cf.,

e.g., Starnes v. Hill, 635 F. Supp. 1270, 1273 (W.D.N.C. 1986)

(requiring exquisite detail).

27

tion demonstrates all too well, the terms "detailed records" and

"proper verification" though perhaps perfectly adequate

benchmarks in a smaller, non-MDL litigation simply were not up

to the task in this mass-tort MDL. See MCL 20.223 ("The court

should also inform counsel what records should be kept . . . .").

For example, even though early pretrial orders forewarned that

the litigation would be prolonged and that it would be impracti-

cable for the PSC to submit all its underlying documentation

directly to the district court for interim-approval review, the

PSC, IRPAs, and plaintiffs nonetheless refrained from proposing

any further definition of the required level of documentary

particularity. Thus, these matters were left unattended until

the end of the litigation at their peril.

Moreover, appellants exacerbated the documentary muddle

from the start by opting to forego ongoing monitoring of the PSC

documentation. Unlike less prolonged and complex litigation,

wherein interim-cost reimbursement claims may be deferable until

the litigation nears completion, the hands-off approach taken by

appellants is utterly impracticable in these large and enduring

mass-tort proceedings.

Given the potential for serious, long-term overreaching

by the PSC under the relaxed regime envisioned by these pretrial

orders, we discern no sound justification for appellants' failure

to propose in 1987 that one of their own number be designated to

conduct closer review of the underlying PSC-cost documentation on

28

an ongoing basis.12 See Francis Bacon, Of Suspicion ("There is

nothing makes a man suspect much, more than to know little.").

Alternatively, the IRPAs could have sought district court autho-

rization to retain an auditor to monitor these interim-cost

reports on an ongoing basis for "necessariness" and "reasonable-

ness." Thus, appellants' failure even to attempt interim moni-

toring directly contributed to the serious and otherwise avoid-

able consequences ultimately brought to the district court's

attention at a time when corrective action could no longer be

considered practicable.

Nor are appellants absolved of their primary responsi-

bility for protecting their own interests based on the mere fact

that the pretrial orders did not explicitly direct interim

monitoring. Rather, the record is clear that appellants were

12The PSC submitted its interim-cost claims under seal,
presumably to preclude their perusal by "adverse" litigants
(i.e., the defendants). In some attorney fee and cost shifting

disputes, the requesting party may not wish to disclose its
documentation to a party-opponent during the litigation, out of
fear that its litigation strategies may be divulged, even though
the party-opponent eventually may be liable for the fees or
costs. See, e.g., Ring v. Commercial Union Ins. Co., 159 F.R.D.

653, 659-60 (M.D.N.C. 1995) (party-opponent barred from obtaining
fee statements in circumstances where it could "examine the bill
to find out the nature of the services in order to discover what
advice the attorney was providing defendants and to learn other
details about defendants' investigation of her claim"); Colonial

Gas Co. v. Aetna Cas. & Sur. Co., 144 F.R.D. 600, 607-08 (D.

Mass. 1992) ("To the extent that time records and statements
reveal the nature of the services provided, however, such docu-
ments are privileged.").
Of course, these IRPAs and plaintiffs were not opposing
parties in the underlying litigation. Thus, there was no privacy
impediment to allowing them access to the PSC's interim materials
and supporting documentation simply on request. In fact, the
appellees note that their cost documentation was always accessi-
ble to the IRPAs and plaintiffs on request.

29

neither precluded nor incapacitated from taking appropriate and

timely precautions. First and foremost, fundamental deficiencies

in the interim PSC-cost submissions to the court, especially

their lack of particularity, readily could have been addressed

and corrected ab initio, rather than at the end of the litiga-

tion. Second, appellants placed too much reliance upon non-MDL

case authority, see, e.g., Grendel's Den, supra, in failing to

conduct interim monitoring, based on their ill-advised assumption

that the PSC's ultimate burden of proving its entitlement to

reimbursement relieved appellants of their independent responsi-

bility to collaborate with the district court and other parties

to develop and monitor appropriate cost-containment procedures.

30

Appellants were well aware, throughout the proceedings,

that the PSC had not been directed to submit its voluminous cost

documentation to the district court together with the interim

summaries. Thus, appellants knowingly failed to assume their

rightful responsibilities for safeguarding their own interests by

monitoring interim PSC-cost submissions as required to ensure

that the evolving documentation practices actually utilized by

the PSC were equal to the task and, if not, to broach the matter

first with the PSC and, as need be, with the court, in time to

permit effective preventive and corrective measures before

matters became completely unmanageable.13

We underscore the central administrative necessity in

mass-tort MDLs, that the PSC, IRPAs, and plaintiffs attempt very

early on to work out mutually acceptable procedures for document-

ing and monitoring costs for which reimbursement is to be sought.

No less importantly, both at the outset and thereafter, where

cooperative efforts fail to produce agreement, or cost-benefit

considerations independently warrant, judicial intervention

13For example, in 1993 Torres and Sterling were at logger-
heads over whether the PSC cost-documentation records were
adequate. Torres considered them an incomprehensible muddle.
Sterling countered that the records were thoroughly organized at
the outset but that Torres had "disorganized" them with his
haphazard rummaging. The district court, after crediting
Sterling's account, attempted to resolve the impasse by directing
Torres and Sterling to meet and consult at the JDD. By then,

however, the damage had been done and the resultant adminis-
trative "chaos" alluded to by the district court made it impossi-
ble even to ascertain whether the PSC had maintained suitable
documentation for the vast majority of its cost claims. With
prudent ongoing monitoring by appellants from the outset, of
course, the administrative confusion need never have gotten out
of hand.

31

should be promptly sought before matters worsen or become irreme-

diable. See Jaquette v. Black Hawk County, Iowa, 710 F.2d 455,

463 (8th Cir. 1983) ("[T]he key to avoiding excessive costs . . .

is early and stringent judicial management of the case.") (empha-

sis added).

The individual plaintiffs and IRPAs have enough at

stake in these matters to prompt their early intervention. For

example, if overly particularized PSC-cost documentation on

"reasonableness" and "necessariness" were to be required without

regard to sound cost-benefit considerations, its unnecessary

procedural costs ultimately would be borne by the individual

plaintiffs. See Laffey v. Northwest Airlines, Inc., 572 F. Supp.

354, 383 (D.D.C. 1983) ("Indeed, the amount of time that would be

required to document each item of expense in the detail apparent-

ly suggested by Defendant would be prohibitive; the compensable

time required to generate the detail would exceed the expenses

claimed."). Conversely, if appellants were to designate an IRPA,

or retain an independent auditor, to monitor PSC-cost submis-

sions, the expense conceivably could exceed whatever direct

savings might be derived through any resulting cost-reimbursement

disallowances. Thus, as the ultimate payors the individual

plaintiffs and IRPAs have enough at stake to warrant reasonable

efforts at ensuring that adequate documentation and cost-monitor-

ing procedures also make cost-benefit sense.

An adequate cost containment and monitoring system in a

mass-tort litigation cannot be economically and efficiently

32

designed and implemented from the outset absent a series of

tradeoffs among the PSC, IRPAs, and plaintiffs, all of whom are

under a mutual obligation to engage in an earnest effort to

resolve their differences early on. These appellants, on the

other hand, elected to acquiesce for four years in the flawed

cost containment and monitoring system first set in place in

1987, awaiting an end to the principal litigation before coming

forward with their objections. See Reilly, 863 F.2d at 160

(litigants share mutual burden to collaborate with district court

in fashioning workable litigation procedures).

4. Evidence of PSC Overreaching
4. Evidence of PSC Overreaching

Next we consider whether the PSC-cost reimbursements

should be subjected to the across-the-board cuts (25% to 33%)

urged by appellants notwithstanding their own failure to take

appropriate preventive or corrective action. In our view, their

crude cuts ought not be imposed in these circumstances absent

evidence that the PSC acted in bad faith or took unfair advantage

of the procedural deficiencies. Not only have we found no such

evidence, but we can discern no appreciable PSC overreaching from

the record.

First, there should be no ready presumption that

counsel appointed to the PSC expended its funds in bad faith;

that is, with intent to inflate PSC-cost reimbursement submis-

sions. This is especially true in the present circumstances,

since the PSC members repeatedly attested that their cost submis-

sions were bona fide. See, e.g., Alabama Power Co. v. Gorsuch,

33

672 F.2d 1, 5 (D.C. Cir. 1982) ("[I]n most cases, the court

should be content to rely upon the integrity of counsel, and

allow the[] expenses [claimed]."); Greenspan v. Automobile Club

of Mich., 536 F. Supp. 411, 413-14 (E.D. Mich. 1992) (refusing to

"second-guess" necessariness of costs and relying in part on

affidavits filed by requesting parties and their attorneys); cf.

also, e.g., In re Agent Orange Prod. Liab. Litig., 611 F. Supp.

at 1322 ("If there was doubt about the reason for a[n]

[attorney's phone] call, it was allowed."); 28 U.S.C. 1924

(permitting attorneys to vouch for necessariness of costs).

Whether or not there is a direct or formal attorney-client

relationship between plaintiffs and the PSC, the PSC and its IRPA

members necessarily owed a fiduciary obligation to the plain-

tiffs. Cf. In re Agent Orange Prod. Liab. Litig., 818 F.2d at 223

(noting that lead counsel owes fiduciary duty to class plain-

tiffs); see also MCL 20.22 (counseling court to remind PSC

members of "their responsibility to the court and their obliga-

tion to act fairly, efficiently, and economically in the inter-

ests of all parties and their counsel"). Furthermore, these PSC

members simultaneously were acting in their respective roles as

IRPAs, with direct professional responsibility for representing

approximately seventy percent of the plaintiff class. In these

circumstances especially, given their professional obligations to

the court and their individual clients, we would be highly

reluctant to suppose that the PSC members promoted overreaching

by the PSC.

34

Second, the PSC "auditing" which did occur, whether or

not adequate, cannot be dismissed as perfunctory, since it did

screen out some significant cost excesses. For example, Adamina

Soto attested that she contacted PSC members concerning problem

expenses and followed up with requests for further documentation.

Indeed, the Raben and Soto audits resulted in cost reductions

exceeding $346,000. Although appellants object that some PSC

auditing was conducted at random, particularly that performed by

Kevane and Soto, as it did not purport to verify each expense

claim, the reviews conducted by Raben and Sterling were not

random. Finally, even the random "audit" procedures were not

conducted under PSC control. Thus, we are not persuaded that the

random review procedures were flawed to the point that they could

provide no effective deterrent to substantial PSC overreaching.

Third, appellants emphasize that Kevane and Raben were

accountants, with little personal knowledge regarding the precise

litigation tasks assigned to the PSC. Both were professional

CPAs, however, and Raben in particular was no neophyte, having

been responsible for comparable cost oversight in the MGM case,

itself a hotel fire litigation. It does not seem unreasonable,

therefore, absent evidence to the contrary, to expect that Raben

was reasonably qualified for the professional task assigned to

him.

Fourth, as there is no indication in the appellate

record that the PSC ever attempted to prevent appellants from

examining its underlying cost documentation prior to 1991, the

35

reasonably foreseeable prospect that appellants might well

(indeed should) have requested interim access to the documenta-

tion presumably had some deterrent effect upon PSC overreaching.

Not only did the pretrial orders not preclude ongoing access by

appellants to the PSC documentation, but there would appear to

have been no conflict of interest or "work product" privilege

which would have prevented the individual plaintiffs or IRPAs

from inspecting the PSC documentation at any time during the

litigation. See supra note 12.14

Finally, and most importantly, the district court

initially proposed to limit PSC attorney fees and costs, com-

bined, to ten percent of the eventual common fund, thus providing

PSC members a substantial inducement to exert reasonable efforts

to minimize PSC costs with a view to preserving a larger balance

with which to fund their attorney fees as PSC members. See In re

Wells Fargo Sec. Litig., 157 F.R.D. 467, 470 (N.D. Cal. 1994)

("[A]n attorney generally has no incentive to minimize litigation

expenses unless his fee award is inversely related to such

expenses."). Appellants respond that the ten percent ceiling did

not deter inflated costs, however, because the district court

14Appellants point out that the PSC refused Torres access to
certain "derivative" documents after 1991, such as the Raben work
papers. Nevertheless, Torres had access to the raw materials
examined by Raben (viz., actual PSC receipts and other documenta-

tion). Moreover, appellants were not necessarily entitled to
full-fledged discovery, at least absent district court authori-
zation. See Thirteen Appeals, 56 F.3d at 303 (noting that

normally it is sufficient, for purposes of a fee and expense
application, to order exchange of the "raw materials" or "all the
data reasonably necessary to formulate . . . objections") (cita-
tion omitted).

36

announced in January 1991 that it would not be enforced after

all. See Thirteen Appeals, 56 F.3d at 307 n.10 (holding that

tentative cap was not binding on district court); Nineteen

Appeals, 982 F.2d at 612 (same). Nevertheless, until January

1991, by which time the lion's share of its $10 million in costs

had accrued, the PSC could not have known that the district court

would discard the ten percent ceiling.

We therefore conclude, based on the foregoing consider-

ations, particularly the absence of reliable evidence of over-

reaching or bad faith on the part of the PSC, that it would be

inequitable to resort to the crude cost-cutting bludgeon proposed

by appellants, who share at least equal responsibility for these

procedural lapses. Although the procedural deficiencies dis-

cussed above may have led to some unnecessary or unreasonable

expenditures, appellants clearly failed to alert the district

court until it had become impracticable either to prevent or

assess, let alone correct them in any reliable or cost-effective

manner.

B. Individualized Objections
B. Individualized Objections

Next we consider appellants' objections to particular

categories of cost-reimbursement claims.15

15We see no need to catalog certain meritless challenges
appellants raise to various miscellaneous expenses, especially in
light of the deferential standard of review. See Order No. 584

(Aug. 29, 1995). We note simply that our review has disclosed no
abuse of discretion in these regards.

37

1. PSC-Office Costs16
1. PSC-Office Costs

Appellants contend that the $913,503 fee paid to

Attorney Thomas H. Foulds by the PSC for services rendered as a

putative "insurance expert" should not have been treated as a

PSC-office cost, see Order No. 520 (Jan. 28, 1994), but as an

attorney fee chargeable against the fifty percent share of the

attorney-fee fund already recovered by PSC members. The district

court determined that Foulds, who had worked for twenty years as

an insurance claims manager before attending law school, had been

hired not as an attorney, but primarily to consult with PSC

attorneys regarding the nuts-and-bolts interpretation of various

insurance policies. The PSC concedes that Foulds handled certain

litigation tasks normally performed by attorneys (e.g., deposi-

tions in the liability case against defendant Alexander and

Alexander), but nonetheless insists that this was the most cost-

efficient approach, especially given Foulds' intimate under-

standing of the pertinent insurance policies.17 Although the

parties cite no authority regarding the appropriate criteria for

16Appellants likewise attack the district court determina-
tion that they waived objection to any PSC-office costs other
than the Foulds fee. We need not resolve the issue, however,
since appellants' objections to these cost-reimbursement claims
are based on their contention that the PSC failed to meet its
burden of proof and verification under Grendel's Den, a position

which we have already rejected. See supra Section II.A; see also

In re Agent Orange Prod. Liab. Litig., 611 F. Supp. at 1331

(allowing "[a]ll reasonable, verifiable expenses for running" the
PMC's centralized office).

17The PSC also protests that it came as no "surprise" to
appellants that Foulds was retained. But this is beside the
point. Appellants simply maintain that they were never informed
that Foulds would be used as an "attorney."

38

determining whether one in Foulds' position should be considered

an insurance expert or an attorney, we are persuaded that the

district court ruling constituted error in these particular

circumstances.18

As a general rule, a PSC member who serves simulta-

neously as an IRPA in a mass-tort MDL is entitled to recover

separate compensation from the common fund for the legal services

performed in each distinctive role. See Thirteen Appeals, 56

F.3d at 300 n.2. The prospect of more lucrative returns for

their services prompted many IRPAs to compete for these coveted

PSC appointments in 1987, respectively urging upon the district

court their particular experience and expertise in previous mass-

tort suits. See Nineteen Appeals, 982 F.2d at 605 ("[A]ppointment

to the PSC was much coveted . . . .").

On the other hand, all the unsuccessful IRPA candidates

for PSC appointment must nevertheless contribute toward defraying

PSC attorney fees/costs, since the district court's decision to

establish a PSC diverts a significant portion of their respective

18The applicable standard of review is not clear and we find
no controlling precedent. Nonetheless, the basic determination
as to what work Foulds performed would call for fact-finding,
reviewable only for clear error. See Damon v. Sun Co., Inc., 87

F.3d 1467, 1483 (1st Cir.1996). In this case, however, the
parties agree as to what work Foulds performed. On the other
hand, the determination as to which fund attorney fee or cost
should bear the expense incurred for a particular type of
service, would appear to be a legal question, or a mixed question
in which the legal component predominates, either of which
normally would be reviewed de novo. As we are persuaded that the

district court ruling cannot withstand review under either
standard, we need not determine the precise standard at this

juncture.

39

contingent fees toward funding the PSC. Cf. id. at 310 (noting

that though the PSC may be "a necessary concomitant to skillful

case management of mass tort suits, it nevertheless significantly

interferes with [the respective IRPAs'] expectations regarding

the fees that his or her client has agreed to pay"). According-

ly, due regard should be had for these nonmember-IRPAs' dimin-

ished fee expectations, at least to the extent that "the judge .

. . attempt to avoid any perception of favoritism" in mediating

disputes between PSC members and nonmember IRPAs. See Nineteen

Appeals, 982 F.2d at 605.

At the time the nine original PSC members were appoint-

ed, from among forty applicants, the district court expressly

directed, inter alia, that the PSC "shall neither be enlarged nor

diminished in size or membership without Court approval," Pretri-

al Order No. 127, at 29, that the PSC "conduct all pretrial

liability and damage discovery," id. at 30, and that "only two

members of the PSC, or counsel duly authorized by them, may

question [] deponent[s]," id. Given the acknowledgement by the

appellees that Foulds, on occasion, served as a de facto PSC

attorney without prior district court authorization, his reten-

tion, to that extent at least, directly contravened the explicit

pretrial orders prohibiting any de facto expansion of PSC member-

ship. Thus, the district court's subsequent authorization of

reimbursement to the PSC for the Foulds fee as an insurance

expert cannot cure the PSC's unauthorized, unilateral expansion

of its attorney ranks, without inviting similar circumventions in

40

the future.

We therefore reject the suggestion that we remand to

permit the district court to apportion the $913,503 fee as

between the "insurance expert" and "attorney" services performed

by Foulds. We wish to make clear, however, that the PSC was not

precluded from retaining Foulds based on a reasonable belief that

he was the best qualified insurance expert available, simply

because he happened to be an attorney. Nonetheless, once the PSC

did retain Foulds, it owed nonmember IRPAs a duty of fair dealing

to ensure that he undertook no unauthorized "attorney" tasks

which might have been performed by some disappointed candidate

for PSC membership.

2. PSC-Member Costs
2. PSC-Member Costs

a) Photocopying Costs
a) Photocopying Costs

Appellants oppose the twenty-five-cent page rate at

which the district court permitted reimbursement to PSC members

for photocopying; in all, amounting to $184,000. The district

court explained that it "fail[ed] to see the difference between

PSC members and any IRPA charging a client a reasonable amount

for copying charges." Order No. 510-A, at 8 (Nov. 24, 1993).

Appellants cite numerous decisions which hold the twenty-five-

cent rate unreasonable, and argue that the PSC provided no proof

that it actually incurred that cost to copy each page.

The PSC members offer three justifications for the

approved rate. First, most photocopying was done at the PSC

office and no reimbursement claim was made. Second, appellants

41

knew early on in the litigation that the PSC had voted to permit

its members to claim reimbursement at twenty-five cents per page.

Third, the twenty-five-cent rate, standard in many law offices,

had been allowed in the MGM case. Although the district court's

cost-allowance rulings are entitled to deferential review,

Grendel's Den, 749 F.2d at 950, we are persuaded that its ruling

does not withstand scrutiny.

Unlike the PSC, the IRPAs are free to assess their own

clients for photocopying in accordance with their respective

contingent fee agreements and any applicable ethical-code provi-

sion. On the other hand, the PSC is a creature of the district

court, whose mission is to promote more efficient litigation, see

MCL 20.223 ("Designated counsel should render services as

economically as possible under the circumstances."). In a

"common benefit" case of this sort, therefore, the court must

ensure that PSC members recover only their actual costs, with no

"profit" margin. See Fogleman v. Aramco, 920 F.2d 278, 286 (5th

Cir. 1991) ("To the extent that counsel charges a party more than

actual cost for any service, be it reproduction of documents or

telephone calls, counsel is recovering additional fees."); Spicer

v. Chicago Bd. Options Exch., Inc., 844 F. Supp. 1226, 1260 (N.D.

Ill. 1993); In re Washington Pub. Power Supply Sys. Sec. Litig.,

779 F. Supp. 1063, 1111-12 (D. Ariz. 1990) (reducing in-house

photocopying costs claimed at twenty or twenty-five cents:

"[t]hat this amount may be charged to regular clients by the

firm, or that it is 'standard' in the firm's area of practice, is

42

not controlling, [and] Class members will not be assessed an

amount that produces a clear and unwarranted profit for the

firm"), rev'd on other grounds, 19 F.3d 1306 (9th Cir. 1994).19

Unlike the PSC's alleged failure to document the

"necessariness" and "reasonableness" of other types of expenses

(e.g., hotel charges, air fares), see supra Section II.A, its

failure to document its own in-house photocopying costs presents

a fundamental problem. As in-house photocopying costs are not

incurred with "outside" providers (e.g., hotel, airline, or even

an outside photocopying service), there is no third-party receipt

to verify the expenditure and its amount.20

19See also ABA Comm. on Ethics and Professional Responsibil-

ity, Formal Op. 379 (1993) (noting that counsel is "obliged to
charge the client no more than the direct cost associated with
the service (i.e., the actual cost of making a copy on the

photocopy machine) plus a reasonable allocation of overhead
expenses directly associated with the provision of the service
(e.g., the salary of a photocopy machine operator)"); id. ("[I]t

is impermissible for a lawyer to create an additional source of
profit for the law firm beyond that which is contained in the
provision of professional services themselves. The lawyer's stock
in trade is the sale of legal services, not photocopy paper, tuna
fish sandwiches, computer time or messenger services."); cf.

Alpine Pharmacy, Inc. v. Chas. Pfizer & Co., Inc., 481 F.2d 1045,

1050 (2d Cir. 1973) (counsel in class actions "serve[] in some-
thing of a position of public trust . . . [and] share[] with the
court the burden of protecting the class action device against
public apprehensions that it encourages . . . excessive
attorneys' fees).

20See In re Motor Freight Express, 80 B.R. 44 (Bankr. E.D.

Pa. 1987)) ("In the case of photocopying, counsel should inform
the Court of the number of copies, the cost of each copy, and
provide, if possible, a breakdown of the reasons why photocopying
of certain documents was necessary."); In re Old South Transp.

Co., 134 B.R. 660, 667 (Bankr. M.D. Ala. 1991) (same); cf.

Berryman v. Hofbauer, 161 F.R.D. 341, 344 (E.D. Mich. 1995)

(noting that, under 28 U.S.C. 1920, cost-reimbursement
claimant's conclusory statement that copying costs were necessary
is insufficient).

43

Even if only by reasoned approximation, therefore, the

PSC needed either to demonstrate the various components of its

in-house photocopying costs (e.g., the prorated cost of purchas-

ing or leasing the photocopier, the copy paper, and salaries

attributable to making the copies), or show the prevailing cost

of comparable outside copy services, see, e.g., Haroco, Inc. v.

American Nat'l Bank and Trust Co. of Chicago, 38 F.3d 1429, 1441

(7th Cir. 1994) (holding that "charges for in-house reproduction

may not exceed the charges of an outside print shop"). See

Grendel's Den, 749 F.2d at 950 (noting that the district court's

discretion "must, of course, be exercised within evidentiary

bounds," and the court must "provide a 'clear explanation of its

reasons for the fee award'").

44

The PSC does not pretend to have established that it

actually incurred a twenty-five-cent-per-page photocopying cost.

As all three PSC justifications for the requested twenty-five-

cent rate, supra, are inapposite to this essential showing, we

vacate the district court ruling, and direct the PSC members to

reimburse appellants for all PSC in-house photocopying cost

claims calculated at a rate exceeding ten cents per page. Thus,

appellees are to remit $110,400 of the $184,000 disbursed to the

PSC.

b) Hotel Rates
b) Hotel Rates

Lastly, appellants contend that the district court

abused its discretion by allowing reimbursement to various PSC

members for hotel-room charges ranging from $180 to $450 per day,

notwithstanding its pretrial order cautioning that "hotel accom-

modations/meals should be moderate, not deluxe . . . ." Pretrial

Order No. 127, at 44-45. Appellants assert that any hotel-room

charge above the $116 per diem rate then deemed deductible by the

Internal Revenue Service, should not have been reimbursed, that

less expensive rooms were available in Puerto Rico, and that on

occasion PSC members obtained less expensive rates. There was no

abuse of discretion.

First, the district court correctly noted that substan-

tial leeway was due PSC members regarding their scheduling needs

during the frenetic early stages of the litigation, when most

investigation and discovery had to be conducted. See Order No.

584, at 9 (noting that the PSC conducted over 2300 depositions,

45

and retained twenty-nine expert witnesses); id. ("[The investi-

gative] stage was decisive in terms of immediately preserving

evidence and conducting valuable investigations regarding the

fire origin and spread. Time was of the essence and because of

this, the activity was feverish, leaving scant opportunity to

fine-tune the preparation and justification of expenses.").

Consequently, the appropriate inquiry here is not simply whether

an individual attorney might have booked a room at a lower rate

during a given time period. Rather, the PSC frequently was

required to coordinate lodging for many individuals and without

much advance notice.

Thus, the appropriate inquiry must be whether the rate

was reasonable in relation to the legitimate needs occasioned by

the litigation tasks at hand. Against this backdrop, appellants

have failed to demonstrate an abuse of discretion. None of the

hotel rates strike us as facially abusive in these particular

circumstances. Cf. Grendel's Den, 749 F.2d at 957 (finding abuse

of discretion where hotel bill of $917 could be considered

"unreasonable on its face").

Second, as with other PSC-costs, see supra Section

II.A, appellants settled, from the outset and without protest,

for amorphous general standards, such as "moderate" and non-

"deluxe" hotel accommodations, whereas they were free from the

start to propose the $116 per-diem rate they now suggest.

Furthermore, there has been no showing that the hotel charges for

which reimbursement was sought were either "deluxe" or not

46

"moderate" in the circumstances.21 Finally, as concerns

appellants' contention that PSC members did not keep adequate

supporting documentation relating to the "necessariness" and

"reasonableness" of each hotel expense, their position is fore-

closed. See supra Section II.A.

III
III

CONCLUSION
CONCLUSION

We acknowledge the rational force in appellants'

contention that inherent conflicts of interest exist between the

PSC and individual plaintiffs in mass-tort MDLs, yet serious

deficiencies in the cost-submission procedures nevertheless

persisted throughout this litigation. Nonetheless, despite

reasonable notice of the obvious peril to their own financial

interests, and their clear obligation to forfend against it from

the outset, appellants did not turn serious attention to the PSC-

cost reimbursement regime deficiencies until the Gordian knot

could no longer be undone. Consequently, we determine, as we

must, that the requested relief has been rendered impracticable,

through appellants' inaction, to the extent that further redress

at this point would extend this satellite litigation for no cost-

effective purpose. See Hensley, 461 U.S. at 437.

Accordingly, within 30 days, appellees shall remit to
Accordingly, within 30 days, appellees shall remit to

the Clerk of the United States District Court for the District of
the Clerk of the United States District Court for the District of

21With respect to the $450 per diem rate, the district court
supportably made the specific finding that the room in question
was a suite, shared by several members and situated near facili-
ties necessary to the litigation tasks to be performed.

47

Puerto Rico $1,023,903 (consisting of the $913,503 previously
Puerto Rico $1,023,903 (consisting of the $913,503 previously

received as reimbursement for PSC costs incurred for services
received as reimbursement for PSC costs incurred for services

rendered by Mr. Foulds and the $110,400 for the PSC-Member
rendered by Mr. Foulds and the $110,400 for the PSC-Member

photocopying costs), plus interest calculated at the legal rate
photocopying costs), plus interest calculated at the legal rate

(6% per annum), P.R. Laws Ann. tit. 31, 3025, from the dates of
(6% per annum), P.R. Laws Ann. tit. 31, 3025, from the dates of

the respective disbursements to the PSC from the litigation
the respective disbursements to the PSC from the litigation

expense fund established in Pretrial Order No. 127. In due
expense fund established in Pretrial Order No. 127. In due

course, the Clerk shall distribute the remitted funds to those
course, the Clerk shall distribute the remitted funds to those

plaintiffs who prosecuted the instant appeal, in equal shares.
plaintiffs who prosecuted the instant appeal, in equal shares.

In turn, these plaintiffs shall pay their respective IRPAs
In turn, these plaintiffs shall pay their respective IRPAs

whatever share of the rebated funds (if any) may be due the IRPAs
whatever share of the rebated funds (if any) may be due the IRPAs

under their respective contingent fee contracts for services
under their respective contingent fee contracts for services

rendered in prosecuting this appeal. In all other respects, the
rendered in prosecuting this appeal. In all other respects, the

district court order is affirmed. The parties shall bear their
district court order is affirmed. The parties shall bear their

own costs on appeal. SO ORDERED.
own costs on appeal. SO ORDERED.

48