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IN RE CONTINENTAL ILLINOIS SECURITIES LITIGATION

June 21, 1983

IN RE CONTINENTAL ILLINOIS SECURITIES LITIGATION.


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

ORDER

This consolidated case is brought by various shareholders of Continental Illinois Corporation on behalf of themselves and other shareholders and derivatively on behalf of the corporation. The defendants are Continental Illinois Corporation, nineteen of its officers and directors, Continental Illinois Bank and Trust Company of Chicago, and Ernst & Whinney, an auditing firm. The complaint concerns a large number of allegedly improvident loans made by Continental Illinois National Bank & Trust Company of Chicago, a subsidiary of Continental Illinois Corporation. The loans are in default. The class action, brought under the federal securities laws, alleges that the plaintiffs, as purchasers of shares in Continental Illinois Corporation, were damaged by the defendants' concealment of the losses caused by the bad loans. The derivative action alleges that the defendants violated their duties to the corporation in approving the loans and in failing to adopt and enforce prudent loan practices.

The motion for class certification is pending. The propriety of the derivative action is also the subject of a pending motion.

What concerns me at this point is the question of the organization and management of plaintiffs' counsel. The reason for that concern is that if plaintiffs prevail, I will be asked to determine their reasonable attorneys' fees. At the present time, there are more lawyers on the plaintiffs' side of the case than I or anyone else could possibly keep track of. This came about because four separate complaints were filed by different law firms, each alleging essentially the same cause of action, and the judge to whom this case was initially assigned entered an order consolidating the cases and appointing three of the law firms as "lead counsel" in the consolidated case. Two of the lead firms were also designated "liaison counsel". The order authorized lead counsel to perform specified kinds of work "either personally or through counsel whom they designate," and in addition, to "perform such other duties as they deem necessary."

The order designated a committee consisting of all plaintiffs' counsel, including counsel in subsequently filed cases, as a labor force to be called upon by lead counsel to perform whatever duties lead counsel might assign.

Twelve attorneys from the three lead firms have filed individual appearances in the case, and I assume it is contemplated that other attorneys from those firms will also participate. There are six additional law firms representing various plaintiffs, and thirteen individual members of those firms have filed appearances.

The order establishing this table of organization was submitted by plaintiffs' counsel. It was entered just a little over two months after the first of the consolidated cases was filed and before anything else of substance had been done in the case. The order appears to be premised on the notion that this is a "complex" case requiring the combined efforts of a large number of lawyers. From what I have learned of the case since its reassignment to me, I do not believe it is "complex" enough to require this treatment. While the factual material is probably extensive, it is not unusually difficult. The primary question is whether the defendant officers and directors should have known there was inadequate security for the numerous loans that have defaulted. Generally, the legal issues do not appear to be particularly complex.

The number of lawyers who have been authorized to render services on behalf of the plaintiffs in this case, and the broad authority given lead counsel, make it almost inevitable that I will encounter the kinds of problems confronted by Judge Joseph L. McGlynn, Jr. of the Eastern District of Pennsylvania in the case of In Re: Fine Paper Antitrust Litigation, 98 F.R.D. 48 (E.D.Pa. 1983). The plaintiffs' attorneys in that class action petitioned for approximately $21 million in fees and expenses out of a total of $50,650,000.00 in settlement proceeds. Finding that there was extensive duplication of effort, performance of unnecessary services and incurring of unnecessary expenses, as well as virtually uniform exaggeration of the value of the services which were rendered, Judge McGlynn allowed fees and expenses of $5,464,123.00 — about 25 per cent of the amount claimed. The organization of plaintiffs' counsel in that case was strikingly similar to the organization set up by the prior order in this case. It is apparent from Judge McGlynn's opinion that the distribution of work among various counsel in the hierarchical structure presided over by "lead counsel" was, in large part, responsible for the chaos which existed among plaintiffs' counsel in that case. Judge McGlynn's 468 page opinion is well worth the time it takes to read, but at least his analysis of the organizational structure (at 70-76), is essential reading for anyone who wants to know why there is a cost explosion in federal litigation.

By a separate order entered this date, I have vacated that portion of the earlier pretrial order which established the organization of plaintiffs' counsel. I will attempt in the instant order to advise plaintiffs' counsel of the rules which will govern the allowance of fees in this case, should plaintiffs become entitled to fees. These rules will, I believe, suggest to counsel what the revised table of organization should be.

Any fees and expenses for which court approval is sought in this case will be evaluated in accordance with the following guidelines:

1. Individual responsibility. Generally, attorneys should work independently, without the incessant "conferring" that so often forms a major part of the fee petition in all but the tiniest cases. Counsel who are not able to work independently should not seek to represent the class. Examples of the kind of work for which only one attorney will be compensated are:

  (a) Court appearances. When it is necessary for the
  plaintiffs to be represented in court on a motion or
  argument, or for a conference, no more than one
  lawyer should appear for them.
  (b) Depositions. No more than one lawyer should
  appear for the plaintiffs at a deposition of a
  witness.

2. Rates of compensation. Senior partner rates will be paid only for work that warrants the attention of a senior partner. If a senior partner spends his time reviewing documents or doing research a beginning associate could ...


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