recount here. The Court thus presumes familiarity with the facts presented in previous Opinions relating to this matter, and recites here only the essential facts relevant to this application.
TCC was formed in 1979 for the purpose of operating as a Minority Enterprise Small Business Investment Company and is licensed under the Small Business Investment Act of 1958. TCC is regulated and financed in part by the United States Small Business Administration ("SBA").
The events leading to the commencement of suit by Original Plaintiffs were initially triggered by an audit report and subsequent letter of January 3, 1991, issued by the SBA, charging TCC with serious violations of SBA regulations. The violations included findings of excessive compensation and impermissible legal fees paid to Melvin Hirsch and members of his family. At the time of the SBA letter, Melvin Hirsch was Chief Executive Officer, President and a director of TCC. His wife Dorothy Hirsch was Chief Financial Officer, Secretary, Treasurer and a director of TCC. Their son Jonathan Hirsch was Vice-President and a director of TCC. The SBA letter suggested that the violations might be remedied by direct reimbursement or by a reduction in TCC's private capital.
In response to the SBA letter, Irvin Mautner, a director and stockholder of TCC, and Lester Tanner, corporate counsel to TCC, attempted various actions within the corporate structure to address the problems highlighted by the SBA. These efforts, for the most part, were unsuccessful. Rather than reimbursing the excess compensation, Melvin Hirsch unilaterally opted to reduce private capital as suggested by the SBA; TCC's Board of Directors could not muster the majority needed to overturn this position, despite the persistence of Tanner and Mautner in arguing for return of the excess payments.
While a three-member audit committee was appointed by the Board,
the committee was apparently denied access to records sought in relation to the Melvin L. Hirsch Special Account (the "Special Account").
On June 18, 1991, five of the eight directors voted to adjourn summarily the Board meeting scheduled to receive the audit committee's report;
at the following meeting on June 26, four directors voted to add all the directors as members of the audit committee,
thereby eliminating, according to applicants, the "majority of independent directors" on the audit committee. See Ex. GGG; App. Post-Hearing Reply Memo. at 6.
Applicants claim that, as result of these obstacles, by June 20, 1991, plaintiffs became convinced that only independent action could achieve the relief desired for TCC and maintain that it was on that date that independent counsel was engaged for this purpose. App. Post-Hearing Memo. at 3. On June 20, Tanner invited each TCC director to attend a meeting arranged with the SEC in Washington, D.C. for June 24, 1991, to discuss, among other things, TCC's financial statements and the directors' obligation of disclosure. On that same day, Melvin Hirsch dismissed Tanner as corporate counsel to TCC and counsel to its audit committee
and, on June 24, 1991, replaced Tanner's firm with Butler, Fitzgerald & Potter ("BFP"). Tr. 11/10/92 at 29.
On June 26, 1991, Melvin and Dorothy Hirsch resigned as officers of TCC, but remained as directors and shareholders. On July 17, 1991, TCC's Board elected two additional directors, James Jordan and Paul Borden, both representatives of Leucadia, to fill vacancies created in February of that year.
On July 19, 1991, Original Plaintiffs commenced this action, seeking to recover, on behalf of TCC, funds improperly appropriated by the Hirsches, to remove the Hirsches as directors and Jonathan Hirsch as an officer of TCC, and to invalidate the election of Borden and Jordan. The derivative claims alleged, inter alia, that the Hirsches were liable to TCC because they allegedly received excessive compensation and unauthorized payments from TCC, and caused TCC to make wrongful payments to third parties and to incur losses due to improper loans.
On July 19, 1991, Original Plaintiffs moved for a preliminary injunction enjoining the Hirsch defendants, Borden and Jordan from acting as directors of TCC, and also enjoining Jonathan Hirsch from acting as an officer of TCC, until trial on the merits. After a two-day hearing held September 3 and 4, 1991, the Court denied Original Plaintiffs' motion for a preliminary injunction in an opinion and order dated November 15, 1991.
On October 4, 1991, plaintiff Tanner & Gilbert P.C. Retirement Plan Trust ("Tanner Firm Trust") moved for a partial summary judgment. In an opinion and order dated November 22, 1991, the Court denied Tanner Firm Trust's motion for partial summary judgment with one exception: the Court determined that Melvin Hirsch must pay pre-judgment interest at 9% per-annum on his borrowings from the Special Account.
On or about October 10, 1991, TCC and the Hirsches entered into a written settlement agreement (the "Superseded Settlement Agreement") in which they compromised the derivative claims against the Hirsches. Pursuant to the Superseded Settlement Agreement, the Hirsches agreed to deliver to TCC 333,333 shares of TCC common stock in full settlement of all derivative claims. The Hirsches also agreed to give limited releases to TCC. In addition, it was agreed that Jonathan Hirsch would enter into an employment contract pursuant to which he would be employed as a Senior Loan officer and Vice-President of TCC through October 10, 1992.
On November 18, 1991, the Court held an evidentiary hearing on the advisability of approving the Superseded Settlement Agreement. Original Plaintiffs opposed approval at the hearing. On the following day, Original Plaintiffs, TCC and the Hirsches discussed a possible resolution of the entire action and the hearing was suspended to permit the parties to continue negotiations.
On or about February 24, 1992, prior to the resumption of the hearing, TCC and the Hirsches entered into a modified Settlement Agreement (the "Settlement Agreement"), which differed from the superseded settlement Agreement only to the extent that, instead of receiving 333,333 shares of common stock, TCC received $ 676,666 in cash, plus an amount equal to one-third of any legal fees, up to a maximum of $ 66,000, awarded to Original Plaintiffs.
On March 16, 1992, TCC and the Hirsches allocated the $ 676,666 to be paid in settlement as follows: (i) $ 95,000 to the claim for interest due and owing on Melvin Hirsch's borrowings from the Special Account; (ii) $ 112,500 to the claim for recovery of TCC's contribution to the Harvard Law School, including interest; (iii) $ 130,000 to the claims against the Hirsches for loan losses suffered by TCC and interest thereon; (iv) $ 339,166 to the balance of such claims, including claims for excessive compensation and legal fees. In an Opinion and Order dated May 1, 1992, the Court approved the proposed settlement as fair, reasonable and adequate.
Subsequently, the parties briefed the attorneys' fees issue, the stockholders of the corporation were given notice of the fee applications of plaintiffs' attorneys and the Court ultimately held a six-day hearing on the application of Tanner, Fernbach and Eisenberg for an order and judgment directing TCC to pay legal fees and disbursements.
The determination of proper legal fees involves a two-step process. First, the Court begins with a "lodestar" figure computed by multiplying the number of hours expended by the normal hourly rate charged. City of Detroit v. Grinnell, 495 F.2d 448, 468-74 (2d Cir. 1974); Schwartz v. Novo Industri A/S, 119 F.R.D. 359, 364 (S.D.N.Y. 1988); Weissman v. Alliance Capital Management Corp., 650 F. Supp. 101, 103 (S.D.N.Y. 1986). Second, the Court may exercise its discretion to adjust the lodestar figure "on the basis of frankly subjective factors." In re "Agent Orange" Prod. Liab. Lit., 611 F. Supp. 1296, 1310 (E.D.N.Y. 1985), modified on other grounds, 818 F.2d 216 (2d Cir. 1987).
In Hensley v. Eckerhart, 461 U.S. 424, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983), the Supreme Court, in discussing the procedure for fixing legal fees to be awarded the prevailing plaintiff in a civil rights litigation under 42 U.S.C. § 1988, emphasized that the lodestar figure is merely the starting point of analysis, and that the "crucial factor" is the extent of the plaintiff's success. Thus the lodestar figure may be increased in appropriate circumstances, see Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 371, 15 L. Ed. 2d 807, 86 S. Ct. 845 (1966), and may be reduced or even disallowed altogether. See, e.g., New York State Assoc. for Retarded Children. Inc. v. Carey, 711 F.2d 1136, 1146 (2d Cir. 1983); Brown v. Stackler, 612 F.2d 1057 (7th Cir. 1980); Barnett v. Pritzker, 73 F.R.D. 430, 433 (S.D.N.Y. 1977).
Applicants present the following lodestar figures for which they request a fee award:
Tanner: $ 431,440
Fernbach: $ 130,500
Eisenberg: $ 49,992
Total: $ 611,932
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