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IN RE MCDONNELL DOUGLAS EQUIP. LEASING SECS. LITIG

January 21, 1994

IN RE McDONNELL DOUGLAS EQUIPMENT LEASING SECURITIES LITIGATION; FRANK CARPI, as custodian for STEPHEN CARPI, Plaintiff,
v.
McDONNELL DOUGLAS CAPITAL INCOME FUND-I, McDONNELL DOUGLAS CAPITAL INCOME IA, L.P., McDONNELL DOUGLAS CAPITAL INCOME IB, L.P., McDONNELL DOUGLAS CAPITAL INCOME IC, L.P., McDONNELL DOUGLAS CAPITAL INCOME ID, L.P., McDONNELL DOUGLAS CAPITAL INCOME IE, L.P., McDONNELL DOUGLAS CAPITAL SERVICES, INC., McDONNELL DOUGLAS CAPITAL CORPORATION, McDONNELL DOUGLAS FINANCE CORPORATION, McDONNELL DOUGLAS CAPITAL LEASING CORPORATION, McDONNELL DOUGLAS CORPORATION, ALAN M. FORRESTER, THOMAS F. HUSBAND, JOHN R. CHASTEEN, JAMES T. McMILLAN, THOMAS J. LAWLOR, JR., GEORGE M. ROSEN, DONALD V. BLACK, DANIEL O. ANDERSON, and GRUNTAL & CO., INC., Defendants. MICHAEL R. EDELMAN, Plaintiff, v. TROY LEASE INCOME FUND, TROY CAPITAL SERVICES, INC., McDONNELL DOUGLAS CAPITAL CORPORATION, McDONNELL DOUGLAS FINANCE CORPORATION, McDONNELL DOUGLAS CAPITAL LEASING CORPORATION, MDCC SECURITIES CORPORATION, McDONNELL DOUGLAS CORPORATION, ALAN M. FORRESTER, JOHN R. CHASTEEN, JAMES T. McMILLAN, THOMAS J. LAWLOR, JR., GEORGE M. ROSEN, DONALD V. BLACK, and DANIEL O. ANDERSON, Defendants. RICHARD WALDMAN, on his own behalf and on behalf of all others similarly situated, Plaintiff, v. TROY CAPITAL SERVICES, INC., McDONNELL DOUGLAS CAPITAL CORPORATION, McDONNELL DOUGLAS FINANCE CORPORATION, McDONNELL DOUGLAS CORPORATION, and MDCC SECURITIES CORPORATION, Defendants.



The opinion of the court was delivered by: JOHN M. CANNELLA

 CANNELLA, D.J.:

 Before this Court is a joint petition for an award of attorney's fees and litigation expenses to be paid out of a $ 14,750,000 settlement fund that was established through this Court's Memorandum and Order dated October 26, 1993 (the "Settlement Order"). This Settlement Order approved a proposed settlement of a consolidated-multidistrict action, consisting of three separate class actions, in which the plaintiffs had alleged that the defendants violated the federal securities laws, and the common law, in connection with their public offerings of units in certain limited partnerships. The Settlement Order further held counsel's joint fee petition in abeyance pending the submission of contemporaneous time records and expense reports, accompanied by additional affidavits, so as to allow this Court to compute a fair and equitable fee award under the lodestar method of fee computation.

 Plaintiffs' lead counsel has since submitted the requested information and has re-explicated its joint petition for a fee award in the amount of $ 4,000,000, and for the reimbursement of litigation expenses in the amount of $ 68,604.42. The requested $ 4,000,000 fee award thus represents approximately 27.12% of the $ 14,750,000 settlement fund, and approximately 24.71% of the $ 16,187,019.56 aggregate economic benefits to be received by the plaintiffs as a result of the settlement.

 The Court has thoroughly reviewed this petition and the applicable precedents and policies affecting the fee computation. For the reasons discussed herein, the Court has employed the lodestar method of fee computation, as adjusted by a uniform risk-enhancement factor of 1.44. Applying this approach to its review of the documentation and the affidavits that have been submitted, the Court hereby awards plaintiffs' joint counsel attorney's fees of $ 2,454,791.40 and litigation expenses of $ 55,427.80.

 Familiarity of the reader with this Court's Settlement Order is assumed. Nonetheless, for purposes of consolidation, a discussion of the nature of the instant action and the resulting settlement is provided below.

 BACKGROUND

 This fee petition comes before this Court in connection with the settlement of the instant consolidated-multidistrict action. This consolidated-multidistrict action consists of the following three actions: (1) a class action entitled Carpi v. McDonnell Douglas Capital Income Fund-I, 90 Civ. 3448 (JMC) (the "Carpi action"); (2) a class action entitled Edelman v. Troy Lease Income Fund, 90 Civ. 6968 (JMC) (the "Edelman action"); and (3) a purported class action entitled Waldman v. Troy Capital Services, Inc., No. 90-72905-DT (the "Waldman action").

 Each of the instant settled actions arose out of the initial public offerings of units of limited partnership interests in two related equipment-leasing limited partnerships--the McDonnell Douglas Capital Income Fund ("MDCIF-I") and the Troy Lease Income Fund ("TLIF"). These limited partnerships together sold a total of approximately $ 85 million worth of units to investors. The plaintiffs alleged that the prospectuses and offering materials disseminated in connection with the public offerings of units in these limited partnerships portrayed these investments as conservative, and further indicated that investors would likely receive specified monthly distributions, and the return of their capital, at the end of the stated seven-year investment period. The plaintiffs also alleged that, notwithstanding such statements within the offering materials, within the first two years of the limited partnerships' operations, the partnerships announced that investors would not be receiving any return on their investment, that investors were unlikely to recover their capital investments therein, and that substantial writedowns of assets would be made in the books and records of the defendant partnerships. The plaintiffs further alleged that the high-risk nature of these investments was known to the defendants, and that the limited partnerships, contrary to the representations contained in the offering materials, acquired obsolete and outdated computer and computer-related equipment for leasing at prices far above market value.

 The instant settled actions were brought on behalf of unitholders in the aforementioned limited partnerships under the federal securities laws, and the common law, alleging that the offering materials contained certain misrepresentations and omissions. The plaintiffs alleged violations of Sections 11, 12(2) and 15 of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and the common law. (The Waldman action also asserted a violation of the federal racketeering statute.)

 By Memorandum and Order dated October 26, 1993, following a hearing on notice at which no objections were stated, this Court approved the settlement of each of the instant actions as fair, reasonable, and beneficial to the settling classes.

 The Court noted within this Settlement Order that only two unitholders, owning 145 units in the aggregate, requested exclusion from the MDCIF-I Class, and that no persons opted out of the TLIF Class. Further, the Court now notes that as of the date of the instant Memorandum and Order, it has received seven letters, each dated subsequent to the date of the settlement hearing, expressing opposition to plaintiffs' counsel's joint application for attorney's fees.

 The settlement of the instant actions has two components: (1) the creation of a $ 14,750,000 settlement fund; and (2) the liquidation of the defendant limited partnerships. The $ 14,750,000 settlement fund is comprised of (a) a payment of $ 13,375,000 by or on behalf of all defendants other than Gruntal (the "McDonnell Douglas defendants") to settle the claims in all of the consolidated actions, and (b) a payment of $ 1,375,000 by Gruntal to settle the claims in the Carpi action alone. *fn1" The $ 13,375,000 payment by or on behalf of the McDonnell Douglas defendants is to be allocated among all the partnerships in accordance with a formula designed to equalize the overall recoveries (other than the Gruntal recovery) to investors who purchased their interests in the initial offerings of units and who held their units through the time of the liquidating distribution to each partnership. The $ 1,375,000 to be paid by Gruntal will be allocated pro rata solely among each of the MDCI Partnerships based on the number of units sold by the MDCI Partnerships.


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