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KENNEDY v. NICASTRO

August 19, 1982

EILEEN KENNEDY, ET AL., ETC., PLAINTIFFS,
v.
LOUIS J. NICASTRO, ET AL., DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

This action, like the world in T.S. Eliot's The Hollow Man, has ended "not with a bang but a whimper." Plaintiffs have never generated a complaint that has survived a motion to dismiss. Under the agreed-upon settlement, which this Court approved at the scheduled hearing August 9, 1982, plaintiffs' counsel have the right to seek an attorneys' fee award for services rendered not only in this action but in a group of related actions*fn1 —not one of which has been successful on the merits.

Nonetheless plaintiffs' counsel argue plaintiffs are "prevailing parties" in the sense necessary for an allowance of fees. In that respect they have pointed to three things (P1. Mem. 14):*fn2

      1. Settlement has produced a $150,000 cash fund to
    "satisfy all of petitioners' fee requests which
    might otherwise be taxable to Xcor."
      2. Louis Nicastro ("Nicastro"), James Hughes
    ("Hughes") and William O'Brien ("O'Brien"), who were
    respectively Xcor's Chief Executive Officer, Chief
    Operating Officer and Chief Financial Officer when
    this action was filed, have been "removed and
    replaced as Xcor's chief officers."
      3. Xcor has created an independent Special
    Committee that "can now review the entire situation
    and take any action it finds appropriate, including
    continuation of these actions by Xcor itself."

Xcor and the Cash Fund

It is true that the $150,000 cash fund, available for payment of fees if and to the extent this Court awards them, is being put up by officer-director defendants and not by Xcor. That does not however make plaintiffs "prevailing parties" except through an impermissible kind of bootstrapping.

Lawsuits can hardly be viewed as successful from the plaintiffs' perspective if their principal result is to generate not any recovery for plaintiffs, but rather funds out of which plaintiffs' lawyers get paid. Xcor itself laid no claim to the fund under the settlement agreement. It was only in response to this Court's direct inquiry that the parties acknowledged that if the Court so determined, the unawarded portion of the $150,000 fund could (as in this Court's view it most logically should) go into the corporate coffers. And even on that score we are confronted with the anomaly that the more that factor is viewed as making plaintiffs "prevailing parties," the more could presumably be awarded as attorneys' fees, and the less would remain for Xcor's shareholders—thus making plaintiffs less viewable as "prevailing parties."

In the determination of "prevailing parties," then, generation of the cash fund is not really a factor unless other significant factors are also present that independently make plaintiffs prevailing parties. At most the fund provides a sort of self-fulfilling self-justification that, unless plaintiffs' counsel are successful on their other arguments, cannot be given real weight.*fn3

                        "Removal" of the Challenged
                               Xcor Officers

Defendants' response to plaintiffs' fee application is very brief, addressing not all what defendants term "at best [plaintiffs'] exercise in revisionist history" (Def. Mem. 1)*fn4 They do however challenge the contention that Messrs. Nicastro, Hughes and O'Brien were "removed" from their offices. Instead defendants say (id. at 2-3):

    None of these executives was "removed" from their
    Xcor positions. None of these executives was
    "removed" or terminated by Xcor as a result of this
    litigation or otherwise. Messrs. Hughes and O'Brien
    voluntarily resigned as Xcor's President and Chief
    Operating Officer and Executive Vice
    President-Finance respectively, and thereafter
    accepted other positions with Xcor; both continue as
    directors of Xcor. Mr. Nicastro voluntarily resigned
    as an officer and director of Xcor, to enable him to
    undertake the position as President, Chief Executive
    Officer and Chairman of the Board of another public
    company. None of these executive resignations was
    stimulated or caused by the instant litigation.

At the Court's request during the hearing on the settlement, defendants agreed to elaborate on that assertion. Appendix 1 to this opinion is the letter counsel then filed for that purpose. Plaintiffs' counsel responded at the hearing that rather than committing time and expense to further hearings, they desired the Court to make its own ...


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