United States Court of Appeals
For the First Circuit
No. 98-1902
IN RE: FIDELITY/MICRON SECURITIES LITIGATION
[DIANE WEISBURGH, ETC., ET AL. v. FIDELITY MAGELLAN FUND, ET AL.].
BERGER & MONTAGUE, P.C., ET AL.,
Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Selya, Circuit Judge,
Bownes, Senior Circuit Judge,
and Lipez, Circuit Judge.
Glen DeValerio, with whom Kathleen M. Donovan-Maher, Berman,
DeValerio & Pease LLP, Stuart H. Savett, Barbara A. Podell, Savett
Frutkin Podell & Ryan, P.C., Sherrie R. Savett, Gary E. Cantor,
Berger & Montague, P.C., Stephen T. Rodd, and Abbey, Gardy &
Squitieri, LLP were on brief, for appellants.
February 23, 1999
SELYA, Circuit Judge. In certain types of complex
litigation, the lawyers' monetary interests often comprise a tail
that wags the dog. So it is here: this dispute over the
reimbursement of certain payments fronted by the lawyers is what
remains of a consolidated class action (actually, an amalgam of
some 16 suits) asserting claims of securities fraud. After the
district court approved a global $10,000,000 settlement, the
plaintiffs' attorneys filed a petition seeking 30% of the common
fund in fees and approximately $277,000 in out-of-pocket expenses.
The district court awarded the movants 17% of the fund
($1,750,000) as counsel fees, but turned down their request for
expenses. See In re Fidelity/Micron Sec. Litig., No. 95-12676-RGS,
1998 WL 313735 (D. Mass. June 5, 1998).
In refusing reimbursement, the district court alluded to
the movants' failure to provide adequate documentation to support
the expense request, but it based its ruling principally on its own
Standing Order Regarding Costs. The Standing Order, reprinted in
the appendix hereto, states in substance that, absent exceptional
circumstances, the court as a matter of practice will eschew
reimbursement of certain categories of expenses. To the chagrin
of the lawyers who appear as appellants here, the categories
enumerated in the Standing Order (e.g., postage, facsimile
transmission costs, copying expenses, telephone charges, cost of
computer-assisted legal research) enveloped much of what they
sought to collect. The one major exception related to the cost of
retaining an expert witness. After the appellants moved for
reconsideration of the expense reimbursement request and produced
the expert's billing records, the district court promptly granted
them the $124,000 they had spent on that front. The court remained
resolute, however, as to the balance of the expenditures. This
appeal followed. In it, the lawyers protest only the court's
refusal to allow broader expense reimbursement.
We begin with bedrock: in situations in which expenses
are potentially reimbursable, district courts enjoy wide latitude
in shaping the contours of such awards. See In re Thirteen Appeals
San Juan Dupont Plaza Hotel Fire Litig., 56 F.3d 295, 309 (1st
Cir. 1995). Such awards are permissible in "common fund" cases
but the district court, called upon to make awards of fees and/or
expenses in such a case, functions as a quasi-fiduciary to
safeguard the corpus of the fund for the benefit of the plaintiff
class. See, e.g., Cook v. Niedert, 142 F.3d 1004, 1011 (7th Cir.
1998). Consequently, a reviewing court has the right, if not the
obligation, to view skeptically efforts by attorneys to charge
substantial expenses to that account.
Even so, law firms are not eleemosynary institutions, and
lawyers whose efforts succeed in creating a common fund for the
benefit of a class are entitled not only to reasonable fees, but
also to recover from the fund, as a general matter, expenses,
reasonable in amount, that were necessary to bring the action to
a climax. See Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1265
(D.C. Cir. 1993); In re Nineteen Appeals San Juan Dupont Plaza
Hotel Fire Litig., 982 F.2d 603, 606 (1st Cir. 1992).
This general rule does not give counsel carte blanche to
spend freely and expect that reimbursement automatically will
follow. Administration of the rule is subject to the trial court's
informed discretion. Reasonableness is the touchstone, and a
request that promises to yield an unreasonable result must be
trimmed back or rejected outright. See In re Coordinated Pretrial
Proceedings in Petroleum Prods. Antitrust Litig., 109 F.3d 602, 607
(9th Cir. 1997) (explaining that "[r]easonableness is the goal,"
and that courts should avoid "mechanical or formulaic application"
of rigid rules). Moreover, because each common fund case presents
its own unique set of circumstances, trial courts must assess each
request for fees and expenses on its own terms. See Camden I
Condo. Ass'n, Inc. v. Dunkle, 946 F.2d 768, 774-75 (11th Cir.
1991). After all, the authority to order reimbursement from a
common fund has its origins in equity and, when a court exercises
this equitable power, individualization is the name of the game.
See Sprague v. Ticonic Nat'l Bank, 307 U.S. 161, 167 (1939).
Here, the district court's Standing Order raises a core
concern: it does not leave sufficient room for individualized
consideration of expense requests. It may very well be that, at
the end of the day, a district court will decide in most cases that
the lawyers cannot justify particular kinds of expense requests.
But, for the most part, that decision must be made after
consideration of each particular request; it is not to be asserted
beforehand upon the authority of an inflexible, informally
promulgated rule.
Due to this lack of individualized consideration, we
vacate the district court's order denying expense reimbursement and
remand so that the court may reconsider the request. We hasten to
add that we do not equate reconsideration with compulsory
reimbursement. For one thing, in percentage-of-the-fund cases,
district courts may, if they so elect, set the percentage at a
level which not only accounts for fees, but also suffices to cover
reimbursable expenses in whole or in part. Insofar as we can tell,
the district court did not take this route, but we leave open the
possibility that the court did so implicitly, or that it will do
so on remand. We caution, however, that such an approach requires
the court to set forth specific reasons for selecting the
percentage and to explain its analysis with particularity. See,
e.g., Camden I, 946 F.2d at 775.
For another thing, lawyers are not necessarily entitled
to the quantum of reimbursement to which they aspire. To the
contrary, they must establish the reasonableness of their requests.
In the course of that exercise, the trial court may insist on
examining particulars, such as receipts and logs, so that it can
determine whether the claimed expenses were reasonable, necessary,
and incurred for the benefit of the class. Unverified expenses may
be rejected out of hand. See Weinberger v. Great N. Nekoosa Corp.,
925 F.2d 518, 527 (1st Cir. 1991).
The lower court also may restrict reimbursement to those
lawyers or law firms who pulled the laboring oar in prosecuting the
case. Equity ordinarily contemplates that those responsible for
bringing home the bacon will receive repayment of expenditures made
in that endeavor. This is simply another way of determining
whether certain expenditures were reasonable and necessary to the
creation and maintenance of the common fund.
There is one last matter. In their appellate brief, and
again at oral argument, the appellants informed us that they seek
counsel fees and expenses referable to work done in this court.
On appeal, awards of counsel fees and expenses for litigating the
magnitude of attorney reimbursement in common fund cases are few
and far between. Although we ruled long ago that trial courts had
some discretion in this regard, see Sprague v. Ticonic Nat'l Bank,
110 F.2d 174, 177 (1st Cir. 1940), recent case law suggests that,
even if a measure of discretion exists, such awards should rarely,
if ever, be bestowed, see In re Washington Pub. Power Supply Sys.
Sec. Litig., 19 F.3d 1291, 1299 (9th Cir. 1994); United States v.
110-118 Riverside Tenants Corp., 5 F.3d 645, 646-47 (2d Cir. 1993)
(per curiam); Lindy Bros. Builders, Inc. v. American Radiators &
Standard Sanitary Corp., 540 F.2d 102, 111 (3d Cir. 1976) (en
banc). The concern animating the general rule is evident: once
a common fund is established, class members and class counsel wind
up playing a zero sum game, in which every dollar awarded to
counsel represents one dollar less that is available for
distribution to class members. See Weinberger, 925 F.2d at 524.
In this instance, we conclude that the lawyers are not
entitled to fees and expenses incurred while prosecuting the
appeal. The decisive datum is that they did not render the subject
services or incur the subject expenses in an effort to create or
maintain the common fund. Moreover, no class member opposed their
application, and the appellants have given us no good reason why,
in the circumstances of this case, we should overlook the general
rule that disfavors reimbursement from the common fund for
appellate litigation over fees and expenses. Because the
appellants' interests in this proceeding run counter to that of
their clients, we reject the request for the payment of fees and/or
expenses in connection with this appeal.
We need go no further. For the reasons elucidated above,
we direct the district court to mull the appellants' request for
expenses anew.
Vacated and remanded. APPENDIX
STANDING ORDER REGARDING COSTS
As a matter of practice, the court does not award, unless
special circumstances are shown, the following categories of costs:
(1) postage, express mail costs, courier fees, and the
cost of electronic facsimiles;
(2) ordinary copying charges;
(3) travel expenses;
(4) the costs of deposition transcripts not used at
trial;
(5) fees for clerical and word processing services;
(6) telephone charges;
(7) office supplies;
(8) exemplification costs for chalks and exhibits not
used at trial;
(9) automated document preparation costs;
(10) charges for computer research services, and
(11) jury consultant fees.