Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

IN RE SECURITY AMERICA CORP. SECS. LITIG.

November 13, 1990

IN re SECURITY AMERICA CORPORATION SECURITIES LITIGATION

James H. Alesia, United States District Judge.


The opinion of the court was delivered by: ALESIA

JAMES H. ALESIA, UNITED STATES DISTRICT JUDGE

 The plaintiff class' attorneys' motion for the award of final counsel fees and expenses is before the court. Before addressing the merits of the motion, the court will provide a brief summary of the history of this litigation and the related litigation in the Illinois state courts.

 I. FACTS

 This class action arose out of a public offering of stock of Security America Corporation ("Security America") in 1980. Security Mutual Casualty Company ("Security Mutual"), an Illinois mutual insurance company, was notified in 1980 by the Illinois Department of Insurance that it must increase its capital prior to the end of the year. Security Mutual planned to demutualize and convert to stock ownership in order to meet the increased capital requirement. Accordingly, Security Mutual changed its name to Security Casualty Company ("Security Casualty") and formed a holding company called Security America Corporation ("Security America") to acquire all of the stock of Security Casualty. The public offering resulted in the sale of approximately 2.75 million shares of stock at a price of $ 6.00 per share and the realization of $ 16.5 million dollars. The net proceeds of the offering were approximately 14.2 million dollars, which Security America transferred to Security Casualty in exchange for all of the shares of Security Casualty.

 Apparently, the infusion of capital resulting from the public offering was too little, too late. The Director of the Illinois Department of Insurance ("Director") filed a complaint in the Circuit Court of Cook County alleging that Security Casualty was insolvent and seeking the company's liquidation or rehabilitation. Security Casualty voluntarily agreed to rehabilitation proceedings and the Director was appointed as rehabilitator of the company. Subsequently, the Director filed an amended complaint which sought a declaration of insolvency and an order of liquidation. The Circuit Court entered an order finding insolvency and directing liquidation in December of 1981. The order also set a deadline of July 31, 1982 for the submission of claims against Security Casualty.

 In the meantime, also in 1981, four separate lawsuits were filed in this court by shareholders against Security America, its subsidiary Security America Casualty Company, Security America officers and directors, and the accountants and underwriters for the 1980 offering. Those lawsuits were consolidated in this action and Judge Getzendanner certified the plaintiff class. F.R.Civ.P. 23. The complaint in this action alleged that the public offering registration statement and prospectus contained materially false and misleading information about the business and financial condition of Security America. The plaintiff class and the accountants, Coopers & Lybrand, entered into a settlement agreement, which Judge Getzendanner approved in 1984 and, at the same time, awarded interim attorneys' fees in the amount of $ 939,291.80 and expenses in the amount of $ 225,000.00. The plaintiff class also achieved a settlement with some of the underwriter and director defendants, which was approved in July of 1986, along with an interim award of attorneys' fees in the amount of $ 401,410.40 and expenses in the amount of $ 37,724.87. In the same July 15, 1986 order, Judge Getzendanner granted plaintiffs' motion for summary judgment against Security Casualty and Security America in the amount of $ 15,184,950.66.

 The class then filed suit in the Circuit Court of Cook County and sought the imposition of a constructive trust on the stock offering proceeds in the possession of the Liquidator of Security Casualty, in the amount of the judgment entered in this action. The Circuit Court granted the plaintiffs' petition in February of 1988 and entered judgment in the amount of $ 7,799,950.66 ($ 15,184,950.66 offset by the settlements). The Liquidator and the guaranty funds appealed the decision directly to the Illinois Supreme Court, which reversed the decision of the Circuit Court and held that the Illinois Insurance Code distribution statute determined the appropriate distribution of funds. In re the Matter of the Liquidation of Security Casualty Company, 127 Ill. 2d 434, 537 N.E.2d 775, 130 Ill. Dec. 446 (1989). The plaintiff class' claim was a "category 6" claim under the statute. *fn1" The attorneys for the plaintiff class inform the court that there will be no recovery of funds by the class from the liquidator because there are so many claims with priority ahead of the class. Therefore, the attorneys' fees from July of 1986 until now were incurred in unsuccessfully pursuing funds for the class in the state court proceedings.

 The plaintiff class' attorneys' current petition for fees requests $ 376,644.25 in fees, $ 12,020.22 for expenses and a multiplier of 1.25 or 25% to be applied against all of the attorneys' fees, which would result in an additional award of $ 429,336.62, for a current award of approximately $ 825,000.00.

 II. DISCUSSION

 A. State Court Litigation Attorneys' Fees

 Alternatively, counsel argue that if the court denies the request for fees and expenses in the state court litigation, then the court should allow counsel to amend the fee petition to request a multiplier of 1.6, rather than the multiplier of 1.25 originally requested. Counsel state that a multiplier of 1.6 "is well within the range of those sanctioned by other courts." (Supplemental Memorandum, p. 13) The court is asked to apply the amended multiplier even though counsel previously acknowledged, before the court raised the issue of compensation for fees incurred in the unsuccessful state court litigation, that the Seventh Circuit does not follow the "percentage of the fund" approach to class action attorneys' fee awards. (Memorandum in Support of Application of Attorneys, pp.6-7) Conveniently, if the class' attorneys were awarded the amounts requested in the original petition, the total amount recovered for attorneys' fees would be $ 2,146,683.07, whereas, in the event the court denied the state court fees, but applied the new multiplier, the total award would be $ 2,145,123.50. The difference between the amount requested in the petition and the amount requested in the proposed amended petition is approximately $ 1,500.00. Yet, counsel informs the court that "[they are] not attempting to engage in a numbers game." (Supplemental Memorandum, p. 14) The court summarily rejects counsel's alternative request. Accordingly, only the first two arguments set forth above will be addressed.

 1. The Court's Order

 The plaintiff class' attorneys claim that Judge Getzendanner's July 15, 1986 final order pursuant to Rule 54(b), which dismissed this action with prejudice, ordered the plaintiff class to pursue the enforcement of the judgment in the liquidation proceedings. The following language is relied upon from the order: "It is understood the Plaintiff Class shall proceed in the liquidation proceedings" . . . (July 15, 1986 Order, para. 8, p.3) *fn2" Not only is that language not mandatory, but also counsel's claim in this regard strains the imagination. Counsel offers no explanation or support for Judge Getzendanner's alleged interest in the plaintiff class' enforcement of a judgment in a different forum. Litigants may or may not seek to enforce judgments for a variety of reasons, not the least of which is that fairly often judgments are uncollectible, but that determination is not normally the result of a court order. The court is not persuaded that this case is different from any other case in that regard. Moreover, it appears from counsel's billing records that counsel presented a draft order to Judge Getzendanner, which counsel does not indicate was revised by the court. Accordingly, the court rejects counsel's argument that the attorneys' fees incurred in the liquidation proceedings are compensable because Judge Getzendanner "ordered" plaintiffs to participate in that litigation. The class' attorneys' related "equitable" argument, that the overall benefit to the class justifies the award of fees for the state court litigation, is addressed below.

 Counsel's next argument is that the Coopers & Lybrand settlement agreement obligated plaintiffs to proceed in the liquidation proceedings and therefore, the settlement achieved with Coopers & Lybrand should be considered by the court as a benefit resulting from the plaintiff class' participation in those proceedings. Counsel cites the following provision of the Coopers & Lybrand settlement agreement in support of this argument:

 
At such time as the court determines, in a Final order or Final judgment, that any and all proceedings pertaining to this litigation and all Actions-Over and Related Actions have terminated, whether by judgment, Court-approved or otherwise, and that all existing and potential obligations of Plaintiffs and the Class under Section 8 and 10(a) hereof have been satisfied, all sums remaining in escrow hereunder shall be distributed to the Plaintiffs and the Class as directed by a Final order of the court, after payment from such escrowed funds of all attorneys fees and expenses and all other expenses incurred by the Plaintiffs and the Classes they represent, and all expenses incurred by Coopers & Lybrand, in connection with such litigations and satisfaction of such obligations under Section 10 hereof. Payment of all fees and expenses to Plaintiffs' attorneys and accountants, whether for services rendered directly for the benefit of the Class or with respect to claims against Coopers & Lybrand, shall be made only after Court approval. (Settlement Agreement, para. 11(b), pp. 23-24)

 "Related Actions" are defined as including the liquidation proceedings in the Circuit Court of Cook County in paragraph 1(c) of the settlement agreement. Counsel also filed the affidavit of Roger P. Fendrich, an attorney who participated in the representation of Coopers & Lybrand in this action, which provides that:

 
The Plaintiff Class' agreement to pursue the constructive trust theory in the Liquidation Proceedings and Coopers & Lybrand's concommitant (sic) right to share in any recovery were material considerations in Coopers & Lybrand's final decision to pay $ 5,000,000 pursuant to the Settlement Agreement. (Fendrich Affidavit, para. 5, p.3)

 The court is troubled, however, that this argument is too tenuous to weigh heavily in the court's consideration.

 Counsel is aware of the court's concern that the liquidation litigation attorneys' fees of approximately $ 375,000.00 resulted in no benefit to the class. This argument, attributing the Coopers & Lybrand settlement to the class' agreement to pursue the state court litigation and the argument that Judge Getzendanner ordered the plaintiffs to pursue their claim in the liquidation proceedings appear to be nothing more than simple attempts to justify fruitless litigation. The reference to "related actions" in the Coopers & Lybrand settlement agreement appears to be no more than an item in a list of all potential actions in which Coopers & Lybrand might incur expense.

 Moreover, while the court does not doubt the accuracy of Mr. Fendrich's affidavit, at most the affidavit demonstrates that Coopers & Lybrand hoped the class would achieve some recovery in the state court litigation. Also, class' counsel were previously awarded attorneys' fees in an amount just under $ 1,000,000.00 for the period during which the settlement agreement was negotiated. Finally, the prospect of settlement agreements which include as a condition the pursuit of litigation in another forum and the "equitable" award of attorneys' fees in the original forum, whether the other litigation is successful or not, raises a whole host of issues. The class' attorneys' failure to address any of those ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.