HHS's ostrich-like opposition notwithstanding,*fn2
plaintiffs' counsel is entitled to a very substantial fee. The
only problem is to determine an appropriate amount.
Plaintiffs' counsel argues that the lodestar approach should
be abandoned and that the court should award fees on a common
fund basis, giving them a small percentage of the common fund.
HHS opposes this on a number of grounds. Initially, it argues
that no common fund has been created because the judgment
against it is not for a fixed amount and while there will be
thousands of recipients, each does not have a presently
ascertainable share in the total monetary recovery. We find
this rigid approach unrealistic. Common fund payments have
been authorized in cases against government agencies when
entitlement benefits have been wrongfully withheld. See, e.g.,
Puerto Rico v. Heckler, 745 F.2d 709 (D.C. Cir. 1984). But cf.
Holbrook v. Pitt, 748 F.2d 1168 (7th Cir. 1984) (no payments
when common fund has not been established). Moreover, it is not
unusual in private common fund cases to have the amount of the
fund fluid or unfixed, and in many instances unused portions of
the fund revert to the defendant contributors. HHS also argues
that the administrative difficulties involved in distributing
the burden of such fees over all benefitted individuals
ultimately will delay the payment of benefits. We do not see
such a problem here. If a common fund approach is used, an
appropriate fee can be calculated for attorneys' fees and costs
and, thereafter, a set percentage can be deducted from each
payment to satisfy this obligation. Thus, we find that the
appropriate method of payment here is from the common
The next and more difficult issue, however, is whether we
can simply award a percentage of the common fund in light of
the existing appellate authority in this circuit supporting
the lodestar approach. The lodestar had its origin in the
Third Circuit's decision in Lindy Brothers Builders, Inc. v.
American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d
Cir. 1973). It was adopted in this circuit in City of Detroit
v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974) ("Grinnell I").
See also City of Detroit v. Grinnell Corp., 560 F.2d 1093 (2d
Cir. 1977) ("Grinnell II"). While the advantages to a lodestar
approach are readily apparent, its defect has been gradually
revealed and it is today an anathema in many circles. See,
e.g., In re Union Carbide Corp., 724 F. Supp. 160 (S.D.N.Y.
1989) (Brieant, C.J.). Indeed, in the Third Circuit, the cradle
of the lodestar, Professor Arthur Miller of Harvard Law School
was appointed to evaluate the lodestar approach. He concluded
that any approach based on attorneys' hours expended did not
produce a fair result in common fund cases and recommended that
all fee awards in such cases be a percentage of the fund.
Report of the Third Circuit Task Force, Court Awarded Attorney
Fees, 108 F.R.D. 237 (1985).
While we are sympathetic to the defects in the lodestar
approach, we do not have the authority to abandon it
completely even in what is realistically a common fund case.
On the other hand, however, even the lodestar approach does
not stringently require a payment based solely on hours
expended. A contingency factor multiplier has always been
allowed. In re Agent
Orange Prod. Liab. Litig., 818 F.2d 226 (2d Cir. 1987).
Moreover, the result obtained in litigation has always been a
major consideration in the fee ultimately charged, even in
non-contingency cases. Finally, in a case decided by the Second
Circuit less than one year ago, the groundwork was laid for the
possible elimination of the lodestar approach. In County of
Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1326-28 (2d
Cir. 1990), the court determined that a fund had been created
and that attorneys' fees were mandated. While not explicitly
deciding the approach to be applied, the court emphatically
stated that the most important consideration in calculating the
fee was "the value to the class of the legal work performed."
Id. at 1328. Thus, even if the lodestar approach remains the
law of this circuit, the fund plaintiffs' counsel has created
cannot be ignored.
When a small law firm successfully battles a huge
bureaucracy to obtain justice for a class, with a result that
confers enormous benefits on the class, such services should
be appropriately rewarded. If they are not, there will simply
be no incentive for public interest law firms to undertake
such difficult assignments. In addition, since we believe that
the payment should come out of the common fund (subject only
to court approval), rather than from defendant HHS, the
suggestion of HHS that this approach involves impermissible
fee shifting does not appear relevant.
It is true that the theoretical amount of benefits payable
cannot be accurately ascertained. HHS puts this potential
amount as $400,000,000.00. Even more difficult to estimate is
the percentage of the class which will learn of its rights and
make application for payments.*fn4 It does appear reasonably
certain that the payments will exceed $100,000,000.00.*fn5
Under these circumstances, we set the prevailing counsel's fee
at $1,000,000.00, said sum to be paid by deducting 1% from all
benefit payments made by HHS. If the total sums so obtained
exceed $1,000,000.00, HHS is directed to segregate those
additional funds in a separate account, subject to further
order of the court.*fn6 In addition, plaintiffs' counsel are
entitled to their disbursements in the amount of $6,078.14,
with interest from the date of this award.
We turn now to the application for the appointment of a
Special Master to oversee the payments in this case. This
action was commenced nearly six years ago. Over four years
ago, this court found in favor of the plaintiffs. See 649
F. Supp. at 1439; 668 F. Supp. 163 (motion to reargue). Many
years have passed since then. While a substantial portion of
the delay was due to the refusal of the Second Circuit to
accept an interlocutory appeal, and its taking over a year to
decide the appeal when ultimately filed from final judgment
(which was entered on November 16, 1988), a substantial portion
of the delay has been due to the tactics of HHS. Indeed, it has
been more than a year since the affirmance of the district
court's decision and HHS is still blathering about its
administrative difficulties in determining who should receive
the payments. It complains about the administrative
difficulties in recomputing benefits because there are some 48
private organizations administering Medicare for it
(organizations such as Blue Cross).
Under the circumstances, the appointment of a Special Master
to prod the HHS out of its present reluctant snail's pace is
certainly a matter to be considered. HHS objects to the
appointment of a Special Master as interference with the
administrative functions of the executive branch. Yet, it is
not the executive branch which has the administrative problems
— it is the private agencies administering Medicare. The only
aspect of HHS operations with which the Special Master would be
involved is the making of payments to the class, which are
matters already being handled by private agencies.
Consequently, Sierra Club v. United States Army Corps of
Engineers, 701 F.2d 1011, 1042-49 (2d Cir. 1983), is clearly
Defendant argues that the court lacks power to appoint a
Special Master except under Federal Rule of Civil Procedure
53. This is a "matter[ ] of account and of difficult
computation of damages" and, therefore, is within the rule.
For that matter, the position that we envisage is not
necessarily that of a Special Master, but rather, a court
monitor. The court has equitable powers in this regard.
Feliciano v. Barcelo, 672 F. Supp. 591, 622-623 (D.P.R. 1986).
The only argument offered by defendant which seems to have
any weight is its claim that a Special Master or monitor could
not do anything more than HHS is already doing to move the
private organizations along. If this is so, we anticipate
seeing some prompt action with respect to recomputation and
payments. If the pace does not pick up, such a monitor will be
appointed. For the time being, we will reserve decision.