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ZILKER v. KLEIN

United States District Court, Northern District of Illinois, E. D


June 2, 1982

FRED ZILKER, ETC., PLAINTIFF,
v.
SAM W. KLEIN, ET AL., DEFENDANTS.

The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Nothing more remains of this case than determination and allowance of fees to counsel for plaintiff, but that bids fair to become a full-fledged dispute on its own. After this Court's March 16, 1982 hearing at which it confirmed the settlement of the litigation itself and expressed a number of substantial reservations as to the fees petition, plaintiff's counsel filed a supplemental application and accompanying memorandum, followed by a brief supplemental memorandum by defendants. Because plaintiff's counsel's perception continues to differ so materially from that of this Court, this opinion seems called for.

This Court's Proper Role

In their supplemental memorandum plaintiff's counsel suggest that this Court's scrutiny of the petition for $200,000 in attorneys' fees is somehow a substitution of its own judgment for that of the Bally directors. That is unsound both in fact and in law.

First, it is not accurate to imply that Bally's board approved a $200,000 fee. What they did as part of the settlement of the merits of the controversy was to agree that they would neither endorse nor oppose a fee petition that did not exceed that amount. They did so because of a business judgment that, taking "cost" in the broadest economic sense, continuing the litigation would be more costly to Bally than the proposed settlement (even considering the latter on a worst-case basis). But that was of course done with the knowledge that the entire proposed settlement, including the petition for fees, would be subject to this Court's approval after the Bally stockholders had their opportunity to comment on the settlement.*fn1

Second, both Bally's directors and this Court have a responsibility, fiduciary in nature, to the Bally stockholders. Those stockholders have been represented in the litigation by plaintiff's counsel, and that representation has been vigorous and consistent with the other fiduciary relationship between lawyer and client. But when the question of fees arises the lawyer is at arms length with the client, who in that area is unrepresented. This Court would be delinquent in its responsibilities to Bally's stockholders if it did not give independent scrutiny to the propriety of fees.

Third, in response to this Court's April 16, 1981 opinion (the "Opinion," 510 F. Supp. 1070, 1073) Bally (albeit belatedly) appointed a subcommittee of independent directors to evaluate the litigation. Before that machinery was well under way the settlement was reached (anticipated cost of that procedure was part of the equation giving rise to Bally's decision to settle). But had the matter run its full course, Delaware law teaches that the trial court's obligation is to exercise its own independent business judgment in reviewing the committee's decision taken on behalf of the corporation. Zapata v. Maldonado, 430 A.2d 779, 787 (Del.Sup. Ct. 1981). This Court can do no less here.

Fourth, plaintiff's counsel makes an entirely invalid distinction between the class action and the derivative suit in terms of this Court's function. All the needs for protection of the unrepresented — the same considerations already identified — have equal force in the two situations. All that distinguishes them is the presence of a board of directors to represent stockholder rights in the derivative action. In real world terms the potential for sweetheart deals*fn2 is the same in the two types of action. Essentially the argument brings into play the principles already discussed, in which the Court must protect the rights of those without counsel at this point in the litigation.

Determination of the Allowable Fee

This opinion turns then to the $200,000 question. It is apparent from the Opinion that plaintiff was no more than marginally successful in this litigation. All the wide-ranging claims of the Complaint save one were rejected. Those rejected claims were variously but fatally flawed.

As this Court stated from the bench during the March 16 hearing, this case is not at all parallel to those in which a partially successful plaintiff is entitled to the allowance of all fees because he has prevailed substantially and it would be inappropriate to carve out the time spent on unsuccessful theories. Syvock v. Milwaukee Boiler Manufacturing Co., 665 F.2d 149, 162-65 (7th Cir. 1981); Seigal v. Merrick, 619 F.2d 160, 164-65 (2d Cir. 1980). Here the only successful claim was entirely discrete and a relatively minor part of the total litigation.*fn3

Under those circumstances the teaching of our Court of Appeals is that a court should determine what services were allocable to the matter on which plaintiff was the "prevailing party." Busche v. Burkee, supra; Muscare v. Quinn, 614 F.2d 577, 580-81 (7th Cir. 1980); and see in general Syvock, supra. It is unnecessary to posit any reductio ad absurdum to illustrate the inappropriateness of allowing all fees under such circumstances. This case itself demonstrates the unfairness of requiring Bally to pay twice — once to its own successful counsel and once to the other side's unsuccessful counsel — for separable claims that have been rejected after an extended and expensive litigation process.*fn4

Nor may plaintiff be viewed as the "prevailing party" on his claims (viewed as a totality) through settlement, which under such decisions as Harrington v. DeVito, 656 F.2d 264 (7th Cir. 1981) could justify the allowance of all time spent by plaintiff's counsel. Any comparison of plaintiff's many unsuccessful with its one successful claim, viewed against the modest though not inconsequential benefits to Bally's stockholders derived from this litigation, must call to mind the familiar adage of the mountain in labor that brings forth a mouse.*fn5 This is not to depreciate the reasonableness of the ultimate settlement. But any objective observer has to regard defendants not plaintiff as the substantial victor both on the merits and in the settlement.

Accordingly plaintiff's counsel's argument that they are entitled to compensation for all time expended, including time on what was really a lawsuit they lost, is unsound. That is what this Court ruled orally at the March 16 hearing, and it is reaffirmed in this opinion.

In response to this Court's request for an appropriate allocation, counsel have filed affidavits and a memorandum estimating that the time necessitated by the successful claim (the "Klein claim") was 75-80% of the total. As a factual matter this Court does not credit that showing. It simply taxes credulity, and it is inconsistent with the matters known to the Court from its rulings in the litigation and from whatever objective facts (discovery, briefing and so on) are available.*fn6

Even if it were true however that so much of the time was in fact devoted to the Klein claim, that would have been a totally uneconomic decision — one that would never have been made by counsel and a client were they exercising a free market judgment. That is in essence the concept of a reasonable fee: what time and expense would have been incurred in light of the nature of the Klein claim and the reasonably potential recovery. Under that standard, there is no way in which as much as some 850 hours of lawyer time and 150 hours of law clerk and paralegal time, aggregating at least $115,000,*fn7 could reasonably have been devoted to that claim.

This conclusion poses three possible alternative solutions:

    (1) Plaintiff's counsel could be sent back to
  the drawing board to provide a more realistic
  portrayal (at least in the Court's perception) of
  the time allocable to the Klein claim. Because
  the Court assumes plaintiff's counsel have made
  their existing presentation in good faith,
  however, this possibility does not seem viable.
  It would require counsel to abandon their honest
  beliefs and reanalyze their time against a
  standard they do not share.

    (2) Plaintiff's counsel's most recently
  tendered bottom-line figure of $115,000 could be
  viewed as the "lodestar" figure. In that event it
  would have to be dimmed by a fractional, rather
  than enhanced by a whole-number, multiplier to
  produce a reasonable fee chargeable against Bally.

    (3) This Court could assess what appears to be
  a reasonable fee under all the circumstances
  known to it.

Essentially approaches (2) and (3) amount to the same thing in the world of reality.

This Court considers a multiplier of one-third under the second approach (producing the sum of $38,333) to be generous in light of the factors already discussed.*fn8 In addition, it will add a premium of $10,000 for the added marginal utility to stockholders represented by the formalization of the protective provisions in Bally's by-laws resulting from the settlement. Utilizing approach (3), it could not in good conscience find as much as a $50,000 benefit to Bally and its stockholders from plaintiff's counsel's services in this litigation, and the figure of $48,333 resulting from the approach stated earlier in that paragraph strains that upper limit of allowability.

Conclusion

Reasonable fees allowable to counsel for plaintiff are not in excess of $48,333, and Bally is therefore ordered to pay that amount to such counsel. Because plaintiff has submitted figures, but the parties have not really focused on allowability, of out-of-pocket expenses, this Court will await a prompt submission (either jointly or, in the case of any disagreement, separately) on that subject.


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