The opinion of the court was delivered by: LASKER
This derivative action was brought by shareholders of InterCapital Liquid Asset Fund Inc. ("the Fund") against Dean Witter Reynolds InterCapital Inc. ("the Manager") and its parent Dean Witter Reynolds Organization Inc. ("Dean Witter") claiming that the management fees charged to the Fund by the Manager were excessive and disproportionate to the services rendered and thereby violated the Investment Company Act of 1940 as amended, 15 U.S.C. § 80a-1 et seq. ("the Act"). The action has heretofore been settled with approval of the Court.
Plaintiffs' counsel now move, on proper notice to all concerned, for allowance of attorneys' fees of $300,000, payable by the Manager (not the Fund or its share holders) in accordance with the settlement agreement in two equal annual installments, together with disbursements of $2,889.71 payable with the first installment.
There are approximately 640,000 shareholders of the Fund, 12 of whom have filed objections to the requested allowance.
The settlement which has been approved provides that the Manager will submit to the Board of Directors of the Fund no later than the next annual meeting a proposed new management contract including a reduced schedule of fees to be paid to the Manager. At the present size of the Fund -- approximately $9.5 billion -- the reduction in annual Manager's fees would be $312,000. The settlement agreement provides that the savings in fees charged to the Fund shall be guaranteed to be no less than $300,000 per annum for five years, so that the total minimum gained by the Fund as a result of this suit will be $1,500,000. This analysis of the propriety of the fee application is based on the assumption that such a saving, and no more, will be achieved, although the savings over a period of time may in fact turn out to be significantly greater than $1.5 million.
The settlement also provides that the Manager shall pay plaintiffs' attorneys' fees and expenses to the extent that those charges are approved by the Court. In other words, the Fund's gain of $1.5 million or more resulting from this litigation will not be reduced by any amount on account of an award of attorneys' fees and expenses.
In judging the reasonableness of the fee application, the services rendered by counsel, and the hours spent by them, are the starting points.
A. Counsel's services included preliminary legal research, drafting the complaint, opposition to defendants' motion to strike plaintiffs' jury demand and, considerably more important, opposition (successful) to defendants' motion to dismiss for plaintiffs' failure to comply with the requirements of Federal Rule of Civil Procedure 23.1.
As to the latter motion it is worth note that plaintiffs' arguments a) that the requirements of Rule 23.1 were not applicable to a case, such as this, brought under § 36(b) of the Act, and b) that, in any event, § 36(b) gives shareholders of Funds subject to the Act the right to sue without regard to the action (or nonaction) of the Fund's directors were successful in this court, and were vindicated in the Court of Appeal's decision in Fox v. Reich & Tang, Inc., 692 F.2d 250 (2d Cir. 1982), cert. granted, 460 U.S. 1021, 103 S. Ct. 1271, 75 L. Ed. 2d 493 (1983), although the law was far from clear at the time and other courts had taken the contrary position.
In addition to motion practice, the usual considerable discovery was undertaken (including document discovery and numerous deposition and the review of accounting studies performed by Coopers & Lybrand who had been retained by defendants to determine the costs and benefits of the Fund to the Dean Witter organization).
The final services of plaintiffs' counsel of course consisted in negotiating the settlement agreement, drafting it in written form and preparing memoranda for the court to justify its approval.
B. In affidavits submitted in support of the application, Stephen P. Hoffman of the firm of Pomerantz, Levy, Haudek & Block, attorneys for the plaintiffs, states, on the basis of daily time records kept by his firm, that he and his partners and associates have spent a total of 869.95 hours on the case. Charged for at their normal respective billing rates, as shown in a schedule attached to Hoffman's affidavit, this expenditure of time produces a "lodestar" figure (see City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974)) of $117,755. A second affidavit establishes that Harry W. Jacobs, co-counsel for the plaintiffs, spent 47.9 hours which, at his regular billing rate of $125 per hour, is compiled to result in an additional lodestar figure of $5,987.50 for a total (including all plaintiffs' counsel) of $123,742.50.
In relation to the significance of time spent by attorneys, however, as counsel for plaintiffs point out, and as Judge ...