The opinion of the court was delivered by: WEINFELD
EDWARD WEINFELD, District Judge.
This class action was settled pursuant to the terms of an agreement, notice of which was given to all interested shareholders, and which was approved by this court after a hearing. Familiarity is assumed with the court's opinion approving the proposed settlement.
Under its terms, in the event 100% of the shareholders entitled to participate therein filed claims, the maximum sum the contributing defendants
would be required to pay would be $14,088,062, consisting of cash, notes and warrants. However, upon the expiration of the deadline for filing of proofs of claim by shareholders, claims representing 1,637,866 shares out of an eligible 2,194,968 -- 74.6% of the eligible shares -- had been filed. Thus, if all filed claims are allowed, participating shareholders will receive $10,509,694 in cash, notes and warrants. The agreement provides that fees, disbursements and expenses shall be deducted "off the top," i.e., pro rata from each shareholder's distributive share, but if less than all participate, then the defendants are required to pay the portion of fees and disbursements allocable to such nonparticipating shares.
The matter now before the court is the joint application by two law firms, Austrian, Lance and Stewart (P.C.) (hereafter "Austrian firm") and Cowan, Liebowtiz and Latman (P.C.) (hereafter "Cowan firm"), who represented the class action plaintiffs, for allowance of fees in the sum of $3,055,000 and reimbursement of expenses of $76,558.56. Seven shareholders, owning 2,200 shares, filed written objections on the ground that the requested fee was excessive; opposition was also expressed by the principal defendant, Talley Industries (hereafter "Industries"). Thereafter the court conducted a two-day evidentiary hearing
at which the lead attorneys of each law firm seeking fees testified and were cross-examined principally by the attorney representing Industries.
In the consideration of this application we are of course guided by the ruling of our Court of Appeals in City of Detroit v. Grinnell Corp.
Under its doctrine, in evaluating the services performed by attorneys whose activities have conferred a benefit upon a class or group, the starting point is an evaluation of the attorneys' services in terms of time expended on the matter -- an item deemed capable of objective determination based upon contemporaneous time records maintained by the attorneys. The time factor encompasses two important elements: (1) who performed the services, whether senior partner, junior partner or associate; and (2) the nature of the services, whether rendered in pretrial discovery, drafting of pleadings, motions and briefs, or settlement negotiations. After the time evaluation is made, then qualitative factors may be considered in deciding whether the compensation to be awarded should be increased or decreased. These factors include the risk of litigation and of non-reimbursement of expenses in the event of non-recovery; the probability of success; the magnitude and complexity of the litigation; the responsibility undertaken; the expertise and standing of the attorneys who brought about the result; the strength of the opposition; the amount recovered; other results achieved and other factors.
The total time spent by both firms of plaintiffs' attorneys, according to a schedule filed in support of their application, was 12,127.15 hours, of which 8,548.7 hours reflected partners' services and 3,578.45 associates' services. Of this total, the Austrian partners spent 7,001 hours on matters and their associates 1,061.75; the Cowan firm partners spent 1,547.7 hours and their associates 2,516.7. The application is accompanied by detailed information as to the nature of the services and by whom they were performed.
The two law firms are of moderate size. Accordingly their functional structure encompassed principally the activities of partners and associates, some of whom performed services similar in nature to those performed by partners.
Despite the repeated and unmistakable admonitions by our Court of Appeals on the importance of keeping accurate and current records of time spent on matters, the nature of services and by whom performed where attorneys seek allowances from courts,
two of the partners in the Austrian firm failed to keep such records.
Lawyers in the Cowan firm kept daily time records but failed at times to delineate the nature of services performed.
The Austrian applicants presented a reconstructed estimate of time, by whom spent and the nature of the services rendered, abstracted from contemporaneous diary entries made by one partner and a combing of the voluminous files accumulated as the litigation progressed. The accuracy of this reconstructed record was challenged upon the hearing. In any event, the failure to keep proper records is a factor to be considered in accepting the reliability of estimates made long after the rendition of services to support a fee application.
Apart from this shortcoming, this court is satisfied, and so expressed itself during the evidentiary hearing, that an excess of time was spent and excess personnel engaged on various matters of a routine or ministerial nature which required no special skill. A court is presumed to be knowledgeable as to fees generally charged by attorneys and the quality of services rendered in the matter;
equally it may be presumed to be knowledgeable as to the reasonable time and the number of attorneys required to perform services competently and effectively in furthering the success of a litigation. Some of the estimates appear to exceed the time reasonably required to perform the particular services described. In a number of instances, several lawyers were assigned to tasks or to back stop another in matters of simple procedure, which presented no unusual problems. In other instances, as the record glaringly reveals,
partners rendered services for which compensation is sought at partners' time rates, when such services readily could have been performed by junior associates. As this court stated in a somewhat related context involving fees and costs in a litigation: "[undoubtedly], parties to a litigation may fashion it according to their purse and indulge themselves and their attorneys, but they may not foist their extravagances upon their unsuccessful adversaries."
Turning again to the time allegedly spent by the applicants, Industries, the principal defendant, contends that 3,116 hours of the 8,063 hours claimed by the Austrian firm were arrived at by recent estimates, and challenges the reliability of the reconstructed record. The applicants respond that the estimates are conservative and do not include approximately 2,000 hours spent by two Austrian partners who failed to record their activities. Upon this record there is no method for precise and definitive determination of the time actually spent by the applicants or the alleged overrun of time; it is difficult to determine these matters with exactitude. Applying an empirical judgment based upon knowledge of various aspects of this litigation, the court is of the view that scaling down the claimed hours of both partners and associates by ten (10) percent represents a realisitic view of the time ordinarily and reasonably required by competent attorneys to prosecute plaintiffs' claim and achieve the settlement. Thus, the court finds that partners' time to be compensated totals 7,694 hours (8,549 hours less 10%) and associates' time, 3,220 hours (3,578 hours less 10%).
The next element to be considered is the valuation of this time. Needless to say there is a difference of opinion between the applicants and the objectors. Indeed, the two petitioning partners have different rates for the services of partners and associates in non-contingent matters; they also differ as to the basis upon which the request for an allowance of $3,055,000 was predicated.
The Cowan partner, in testimony that was somewhat confusing, testified that he arrived at the figure of $3,055,000 by analogizing the instant situation to that of a private client, taking into account the contingent nature of the action, the results achieved and other factors. On this basis he acknowledged that the time charges for the approximately 12,000 hours claimed by the applicants averaged $250 per hour for both partners and associates. He testified that for non-contingent services his firm would charge a client $85 to $100 per hour for partners' time, $65 per hour for senior associates' and $45 per hour for junior associates'.
The Austrian partner testified that his firm generally bills clients in non-contingent matters at $100 for partners' time, but that for specialty work, such as this type of action, it frequently charges $125 per hour or more for partners' time. Associates' time in the Austrian firm is billed at $60 per hour. The Austrian partner calculated the requested fee by several methods, including a percentage basis. He evaluated the total settlement at approximately $15,000,000 and was of the view that 20%, or approximately $3,000,000, was fair and reasonable.
Industries counsel, who as opposing counsel was familiar with the nature and extent of the petitioners' services, was of the view that, based on all factors, including time, contingency and results achieved, a fair and reasonable fee would be $1,000,000. This estimate was based on across the board compensation for partners and associates at $100 per hour for 10,000 hours of services.
In the circumstances of this case, it is feasible to evaluate the time spent by partners and associates by applying average rates to all types of services.
The court is of the view that a fair and reasonable fee for the time factor, without consideration of other elements, is $100 per hour for partners' time (7,694 hours), ...