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HOUSLER v. FIRST NATL. BANK OF EAST ISLIP

October 14, 1981

Charles HOUSLER, et al., suing on behalf of themselves, etc., Plaintiffs,
v.
The FIRST NATIONAL BANK OF EAST ISLIP, et al., Defendants and Third-Party Plaintiffs, v. Walter F. LANG, Jr., et al., Third-Party Defendants. Charles H. WOLPERT, et al., suing on behalf of themselves, etc., Plaintiffs, v. FIRST NATIONAL BANK OF EAST ISLIP, et al., Defendants



The opinion of the court was delivered by: NEAHER

MEMORANDUM AND ORDER

After pending some seven years, these consolidated stockholders derivative actions, brought on behalf of the defendant First National Bank of East Islip ("the Bank") located in Suffolk County, were terminated in a settlement agreement approved by the Court in a judgment entered on January 7, 1981. The judgment also granted leave to plaintiffs' counsel to apply for an award of attorneys fees and such applications are now before the Court. The nominal defendant Bank has challenged the applications as deficient because of the attorneys' asserted failure to satisfy the "general standards" applied in considering an award of fees. The Bank's principal objection, however, appears to be that plaintiffs' attorneys are seeking an aggregate award which totals 50% of the amount recovered. The total monetary recovery was $ 250,000, a sum accepted in settlement of the action on the eve of trial. The Court finds the affidavits and time schedules submitted by the attorneys sufficiently detailed to render unnecessary an evidentiary hearing in view of the Court's familiarity with the proceedings since their inception.

 This litigation was commenced on July 27, 1973 by the filing of the complaint in the Housler action by Michael F. Dennis, Esq. and Robert M. Stein, Esq., as counsel for a group of Bank stockholders who joined in that action. In substance the complaint charged the officers and directors of the Bank with violating their fiduciary duties and various acts of misfeasance which caused loss to the Bank. The allegations of wrongdoing on the part of the directors and officers were broadened with the filing of the separate Wolpert action on February 27, 1974, on behalf of two other stockholders, Charles and Martha Wolpert, represented by the firm of Donner, Fagelson, Hariton & Berka, P.C., who are also applying for attorneys fees. The two cases were eventually consolidated by stipulation in 1977, with the attorneys for the respective stockholder groups then agreeing that any fees realized from their efforts would be shared equally by the two firms. In May 1980, however, the Donner firm decided that their prior representation of Walter F. Lang, Jr., a former director and legal counsel to the Bank, who had provided information leading to the litigation and was a third-party defendant, might compromise the plaintiffs' position in the approaching trial. By consent of their cocounsel, an approved order of self-substitution resulted in the replacement of the Donner firm by Franklin D. Ormsten, Esq., who has also submitted an application for attorneys fees.

 We now turn to a consideration of the several applications in light of the Bank's objections and the guiding principle that:

 
"In its simplest terms, the purpose of the fee award is to "compensate the attorney for the reasonable value of services benefiting the ... claimant.' Lindy Brothers Builders, Inc. v. American Radiator and Standard Sanitary Corporation, ... (3rd Cir.) 487 F.2d (161), at 167."

 City of Detroit v. Grinnell Corporation ("Grinnell I"), 495 F.2d 448, 470 (2d Cir. 1974).

 Dennis and Stein

 These attorneys have applied for a fee of $ 100,000 and out-of-pocket disbursements of $ 1,921.36, pointing out that they were retained by another attorney, Joseph Lite, Esq., pursuant to a written agreement that he would receive 25% of any fee awarded them. The agreement recites that "(t)his fee division is intended to reflect the division of work load and responsibility in the future conduct of this litigation." An affidavit of Mr. Lite is attached detailing services he claims to have performed, which extend over the period from August 1972 through July 1973. These are included in the Dennis and Stein "Time Sheet" as accounting for 112.50 hours of the total 750.50 hours claimed by them to have been expended in prosecuting the litigation. Mr. Lite, in fact, never appeared in any proceedings before the Court until a conference regarding fee applications was held on April 15, 1981, and his role as disclosed in the time sheet is clearly consistent with his pecuniary interest as a stockholder plaintiff.

 The Dennis-Stein application to the extent that it provides for a fee award to Joseph Lite cannot be approved. It is regrettable that the fee-sharing arrangement was not brought to the Court's attention at the outset in view of Lite's role as both stockholder and a named plaintiff in the Housler action, since it would have been promptly disapproved. As the Supreme Court long ago pointed out:

 
"(A) stockholder who brings suit on a cause of action derived from the corporation assumes a position ... of a fiduciary character. He sues, not for himself alone, but as a representative of a class comprising all who are similarly situated." Cohen v. Beneficial Loan Corp., 337 U.S. 541, 549, 69 S. Ct. 1221, 1227, 93 L. Ed. 1528 (1949).

 Consequently, Lite, as a plaintiff, could not place himself in the conflicting position of acting as an attorney in this derivative litigation simply by adding his name at the foot of the complaint in the expectation of sharing ultimately in an award of fees, either directly or indirectly. The mere possibility of such a conflict of interest is sufficient to disqualify an attorney from participating both as a plaintiff representative and an attorney in the action. See Kramer v. Scientific Control Corp., 534 F.2d 1085 (3d Cir. 1976), cert. denied, 429 U.S. 830, 97 S. Ct. 90, 50 L. Ed. 2d 94 (1976), and Susman v. Lincoln American Corp., 561 F.2d 86 (7th Cir. 1977). And in a case such as this, where a distinct public interest in sound banking practices was involved, the recognition of a division of fees based on percentage without regard to work performed is all the more inappropriate. See Prandini v. National Tea Co., 557 F.2d 1015, 1019 (3d Cir. 1977).

 In addition to the disallowance of 112.50 hours claimed for Lite, there are two other items on the Dennis-Stein time sheet which are not compensable in terms of contributing to the settlement achieved in this litigation. The 57.75 hours expended between June and August 1980 in conferences with co-counsel Fagelson and the latter's proposed substitute, Ormsten, relate entirely to the Donner, Fagelson firm's decision to withdraw and have Mr. Ormsten substituted in their place in the Wolpert action. This last-minute rearrangement of attorneys to avoid possible problems at trial can hardly be viewed as contributing to the creation of the fund eventually realized by settlement. The other item, 21.75 hours on December 30, 1980, is not allowable, since the preparation of an application for attorneys fees cannot be said to benefit the fund. City of Detroit v. Grinnell Corp. ("Grinnell II"), 560 F.2d 1093, 1102 (2d Cir. 1977).

 Subtracting the foregoing disallowed items, the net compensable time claimed in the Dennis-Stein application amounts to 558.50 hours. The Court rejects the defendant Bank's objection that the details provided on the accompanying time sheet are merely "raw approximations" derived from "recent reconstruction." The subject matter of this litigation concerned the affairs of a small country bank in eastern Long Island. The Court's familiarity with the course of proceedings obviated the necessity for any "Wall Street" elaboration of the services performed by these attorneys. The information furnished on the time sheet submitted conforms to the Court's knowledge of events and is adequate for the task at hand. The Court accepts the adjusted time specified as reasonable and compensable in the circumstances. The value to be assigned to that time is the perplexing question.

 Despite the difficulty of the task, as stressed by the Bank, the Court is charged with the responsibility of determining a reasonable value for the attorneys' services in light of the results achieved. Obviously, "there are no absolutes which permit determination of a fee with mathematical precision." Voege v. Ackerman, 70 F.R.D. 693, 695 (S.D.N.Y.1976). There are, however, recognized factors which may guide the exercise of discretion. They are (1) amount recovered, (2) time fairly required to be spent, (3) skill required and employed, (4) difficulty encountered in unearthing the facts, (5) skill and resourcefulness of opposing counsel, (6) prevailing rate of compensation for those with the skill, experience, and standing ...


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