Opinion
No. 96 C 6025.
March 30, 2001.
ORDER RELATING TO ATTORNEYS' FEES AND COSTS
Ruling on Class Counsel's Petition for an Award of Attorneys' Fees and Costs
This case began on September 18, 1996 with the filing by plaintiffs of their class action complaint. The introductory paragraph of the complaint describes the gravamen of plaintiffs' action:
This action arises out of a classic self-dealing transaction, namely the sale of four related limited partnerships by the General Partner to an affiliated entity for an amount that is significantly below fair market value. By abusing their control positions, the Defendant General Partners have failed and refused to adequately solicit or consider alternative proposals for the sale of the Partnerships' assets to a third party in an arm's-length transaction. Instead, they have agreed to sell the Partnerships to, or effect a merger with, Brauvin Real Estate Funds, LLC, a Delaware limited liability company which was recently formed by the Defendants for the specific purpose of acquiring the assets of the limited partnerships. These transactions would result in the limited partners receiving a grossly inadequate price per unit. By so doing, the Defendants have breached their fiduciary duty which they owe to the Limited Partners by virtue of their position as General Partners.
The limited partnerships in this case involved portfolios of predominantly triple-net leases. The assets of such portfolios, to maximize return to the investors consistent with the investment goals of the limited partnerships, should be sold or liquidated by within approximately six to ten years, before the expiration of most of the leases. The challenged transaction, scheduled to take place in the late 1996 time frame, would have occurred toward the end of the expected holding period of three of the limited partnerships and somewhat earlier than the expected holding period of the fourth, explained by the general partners as desireable because of the bankruptcy of one of that partnership's primary lessees. The transaction proposed by the general partners would have sold the assets of the partnerships for a price of approximately $86,000,000.
The wrongs claimed by the plaintiffs were the following: (1) in seeking the approval of the limited partners of the proposed transaction in a proxy statement, defendants informed the limited partners that the transaction represented fair market value, which statement was alleged to be false and misleading; (2) the proposed transaction was a self-dealing transaction on the part of the general partners, representing a conflict of interest, and defendants "made no effort either to solicit bids from third parties unaffiliated with themselves or to determine what the partnerships would bring on the open market if offered for sale;" (3) in violation of the partnership agreement, defendants refused to make available to the named plaintiffs names and addresses of the limited partners, despite a demand for the lists; (4) defendants had engaged a firm of proxy speicialists to contact limited partners to attempt to influence them to cast their votes in favor of the proposed transaction; (5) the proxy materials sent to the limited partners to gain their approval of the proposed transaction did not conform to the partnership agreements' provisions respecting voting. Plaintiffs sought the appointment of a receiver to take control of the partnerships for the purpose of selling the partnership assets on the open market as well as other relief.
Within a week of filing the complaint, plaintiffs moved for a preliminary injunction to postpone the date of the limited partners' meeting announced in the proxy materials and prevent the tallying of the vote until defendants were ordered to produce, and did produce, the names and addresses of the limited partners so that the plaintiffs could communicate with them. Plaintiffs successfully obtained the relief they requested since the partnership agreement plainly provided them with the right to the lists they requested. However, the plaintiffs' request that the court permanently enjoin the meeting, on the ground that proxy voting was impermissible under the partnership agreements, was denied on the ground of lack of irreparable injury. Subsequently, the court determined that the communications sent by plaintiffs' counsel to the limited partners suggesting that they revoke their proxies were themselves false and misleading and in violation of the securities laws. This provoked complex, expensive and distracting litigation involving the effect of the improper solicitation and the proxy revocations which followed it on the vote tally.
On October 8, 1996, plaintiffs filed their First Amended Complaint. This pleading provided more examples of allegedly false and misleading statements in the proxy materials, specifically, that the limited partners were not advised that by voting in favor of the proposal they would automatically be agreeing to amend the limited partnership agreement (which prohibited the general partners and their affiliates from acquiring partnership assets) and that Jerome J. Brault did not, as represented, own a minority interest in the acquiring entity but owned it fully through shell corporations.
Plaintiffs twice unsuccessfully sought a preliminary injunction enjoining the proposed transaction. However, despite the court's refusal to enjoin the transaction, it was never consummated. The reasons for its failure are disputed. Plaintiffs claim that they learned in discovery that defendants were unable to obtain financing for the transaction because defendants were unwilling to invest enough of their own money in the deal to satisfy potential lenders. The evidence indicates that this was one reason given by some potential lenders but the litigation itself was cited as another reason. The evidence indicates that the reason cited as most significant by those who considered financing the transaction related to the lease arrangements of certain properties in the portfolios. The litigation and the failure of defendants to invest more of their own capital were secondary reasons.
In any event, the assets of the partnerships were never sold until, as part of the settlement of this case, the court appointed a special master to liquidate the four partnerships. After a long and difficult marketing process, the special master recommended the sale of the four partnerships to entities affiliated with the defendants for $63,775,645, which was approximately $23,000,000 less than the proposal that spawned the lawsuit. Despite the efforts of the special master and the firm appointed to assist him in marketing the partnerships, no adequate offer was ever received from anyone other than the defendants and/or their affiliates, and the purchase price was significantly less than what defendants had originally proposed. The statement of class counsel in plaintiffs' Petition for an Award of Attorneys' Fees and Expenses, that "[t]he settlement achieves the principal goal of the litigation — the sale of the partnership assets on the open market at the highest possible price under the auspices of a neutral third party," rings hollow: the fact that the process was conducted in an open and fair manner is surely small consolation to investors who ended up with a significantly inferior deal. Moreover, when the limited partners invested in the Brauvin partnerships, they were betting on the expertise of the general partners to maximize their investment (albeit not in a self-dealing transaction), not the neutrality of the court's special master.
In this court's view, there were two very significant problems with this litigation from the outset. First, as the court indicated in denying plaintiffs' requests to enjoin the transaction, any injury to the limited partners from a below-market self-dealing transaction was entirely compensable in damages. Had the proposed transaction been consummated and had plaintiffs been able to show that it yielded less than market value, a conventional securities class action would have made up the difference to the limited partners. It has never been adequately explained to the court why it was viewed by plaintiffs as necessary or even desireable to attempt to block the transaction.
Second, it is clear to the court that plaintiffs' counsel filed this suit without direct evidence that the $86,015,000 sale price proposed by defendants was "grossly inadequate," as stated in the complaint. Events have proven that plaintiffs' allegations to this effect were without foundation. Not only was the special master's open market sales process unable to approach this figure, but the fact that the defendants had difficulty obtaining financing for the proposed transaction may itself constitute some indication that the deal was no pot of gold. Moreover, years into this litigation, the best expert opinion plaintiffs could produce in support of their undervaluation theory was an opinion that Cushman Wakefield undervalued the partnership assets by $7,000,000, approximately 8%; even if the trier of fact were ultimately to conclude that plaintiffs' expert was right on every penny, one would still doubt that this litigation served the economic interests of the limited partners. The court views the conduct of plaintiffs' counsel, in filing suit in the hope of blocking the transaction, irresponsible in the absence of better evidence than they appeared to have that the open market would yield a substantially better deal.
Plaintiffs seek to deflect attention from the $23,000,000 gap between what the general partners initially offered and what the special master was able to obtain by arguing that the proposed deal could never have been consummated anyway because of a lack of funding, but this argument assumes without adequate basis that the defendants, undistracted by this litigation, could not have put the deal together. Moreover, there is no way to quantify the negative impact of the litigation on potential funding sources. That said, the plaintiffs surely had a basis for believing that there was something seriously wrong with the proposed transaction. First, it was obviously a self-dealing transaction and required an amendment of the partnership agreements, which prohibited self-dealing transactions, to allow it to go forward. Not only did the partnership agreements explicitly prohibit self-dealing transactions, but the conflict of interest apparent in the proposed transaction could justifiably have led plaintiffs to suspect that such a non-arms'-length transaction was favorable to the general partners and unfavorable to the limited partners. Plaintiffs had a reasonable case on their claim that the proxy materials were in some respects misleading. Remarkably, because defendants' conduct was contrary to the explicit provisions of the partnership agreement, defendants refused to give plaintiffs partnership lists so that they could communicate with the other limited partners concerning their view of the merits of the transaction.
Plaintiffs easily won an injunction requiring defendants to make the lists of names and addresses available to them. Defendants' failure to give plaintiffs that to which they were clearly entitled was further circumstantial evidence that defendants were trying to get away with something. The proxy materials sent out by the general partners indicated that Cushman Wakefield had issued a fairness opinion, but the opinion, even as described in the proxy materials, was qualified in significant ways. And the proxy procedure itself did not appear authorized by the partnership agreements, which contained explicit requirements for voting by ballot. Plaintiffs' belief, with which the court ultimately agreed, that proxy voting was inconsistent with the partnership agreements, could justifiably have led plaintiffs to conclude that defendants were acting in an ultra vires manner. Plaintiffs apparently inferred from the many serious legal irregularities which plagued the proposal that the transaction would have been damaging to the limited partners. It appears that they were wrong.
Because plaintiffs' counsel are skilled lawyers, they identified a number of illegalities in defendants' conduct and were successful with respect to many of the legal issues they raised. Among the victories achieved by plaintiffs in this litigation were the following:
(1) As described above, class counsel was successful in establishing that defendants were wrongfully withholding the lists of limited partners' names and addresses, to which plaintiffs were clearly entitled under the partnership agreements.
(2) In a decision issued on December 3, 1997, the court upheld the argument of class counsel that defendants were improperly advancing partnership funds to pay for their defense of this litigation. Christman v. Brauvin Realty Advisors, Inc., 1997 WL 797685 (Dec. 3, 1997).
(3) The most significant and difficult issue presented to the court was the issue of whether the proxy solicitation procedure used by defendants to obtain the limited partners' approval of the proposed transaction was or was not valid. The proxy solicitation not only sought the limited partners' approval of the transaction, but because each of the partnership agreements prohibited self-dealing by the general partners, sought the limited partners' approval of an amendment to the partnership agreements to allow this self-dealing transaction. The court ruled, as plaintiffs argued, that Delaware law at the time of the proxy solicitation prohibited proxy voting unless the partnership agreement authorized it. Since the Brauvin partnership agreements provided a specific procedure for ballot voting but no procedure for proxy voting, the court held the proxy solicitation to have been unauthorized.
(4) Plaintiffs successfully defeated attempts to remove the named plaintiffs as class representatives and the named plaintiffs' counsel as class counsel. Plaintiffs also successfully defeated a number of attempts by defendants to appeal various orders of this court.
Plaintiffs' victories, however, with the exception of the first described above, did not unambiguously confer benefits on the class sufficient to justify the litigation. For instance, while plaintiffs succeeded in their argument that the defendants were improperly advancing partnership funds to pay for their defense, the funds never would have been advanced absent the litigation. More significantly, under the settlement agreement, the general partners were not required to pay back previously-advanced funds and were to be indemnified for all other fees and costs incurred as long as they cooperated with the special master in the sales process. The advancement of funds victory undoubtedly gave the named plaintiffs bargaining leverage, but it ultimately yielded no pecuniary benefit to the limited partners.
In the instance of the partnership lists, defendants' conduct was wrongful and plaintiffs achieved a quick and decisive victory. Obtaining an injunction compelling the general partners to provide the limited partners with something to which they were clearly entitled under the partnership agreements is something that should have been, and the court suspects in this case was, achieved with relatively little expenditure of time or money.
Had the partnership agreements provided for the advancement of funds, the advancement would have been permissible; it is likely that the real problem here was in the drafting of the partnership agreements.
With respect to the issue of the legality of proxy voting, the situation is not considerably different. The court ruled, as plaintiffs' counsel had argued, that the proxy voting procedure utilized by the general partners was illegal. But the court did not find that proxy voting actually disadvantaged the limited partners in terms of their rights of corporate suffrage. Delaware law, at the time of the proxy solicitation in this case, permitted proxy voting if the partnership agreement provided for it, and the partnership agreements at issue in this case did not. The court never saw the issue as having much to do with corporate democracy: whether proxy voting or ballot voting is utilized, limited partners who wish to take a position can do so without having to attend a meeting in person. Indeed, in recognition of the usefulness of proxy voting, Delaware law was changed during the pendency of this litigation to permit proxy voting as long as the partnership agreement did not prohibit it. Had the proxy solicitation occurred one year later, it would have been permissible under Delaware law. While the issue presented some legal difficulty and plaintiffs' position was upheld, the court was never persuaded that proxy voting was inconsistent with the best interests of the limited partners; indeed, because proxy voting could render decisionmaking more efficient, a prohibition on proxy voting was potentially injurious to the limited partners. In any event, the settlement agreement provided that the transaction recommended by the special master could be approved without a vote of the limited partners, as is indeed what happened. To the extent this lawsuit was about corporate democracy, it was resolved with considerably less corporate democracy than the general partners offered the limited partners in utilizing proxy voting.
The issue of the plaintiffs' success in defeating efforts to remove the named plaintiffs as class representatives (and with them class counsel) was similarly, in the court's view, of debatable value to the class. The attempt to unseat plaintiffs came from the parties referred to in this litigation as the "Individual Plaintiffs," a group of large stakeholders, including a pension fund, in the Brauvin partnerships. Under the Private Securities Litigation Reform Act ("PSLRA"), the financial interests of the Individual Plaintiffs would almost certainly have dictated that they would have been the class representatives had they responded in a timely manner to the PSLRA notice sent out at the beginning of the case. 77 U.S.C.A. § 77z-1(a)(3)(B)(iii). The Individual Plaintiffs were clearly less concerned about the technical legalities of the general partners' action than were the named plaintiffs and were more focused on maximizing the limited partners' investment, a point of view which the court found helpful. The court has seen nothing to suggest that, had they appeared in a timely manner, the presumption that they would have been the best representatives of the class could have been successfully rebutted. However, because the named plaintiffs had been appointed class representatives pursuant to the procedures set forth in the PSLRA in August, 1997, and the Individual Plaintiffs did not attempt to appear in the litigation until December, 1997, the court concluded that it would have been unfair and inappropriate to unseat the named plaintiffs and their counsel simply because a class representative with a greater financial stake had at that late date appeared on the scene. Instead, the court permitted the Individual Plaintiffs to intervene. The impact of a substitution of the Individual Plaintiffs for the named plaintiffs as class representatives would most likely have been a deemphasis on or perhaps even relinquishment of the issues relating to the procedural irregularities surrounding the proposed transaction. Whether a change in class representatives would ultimately have affected the valuation of the limited partners' interests is something the court has no way of assessing.
Class counsel argue that it is inappropriate to charge the plaintiffs with the approximately $23,000,000 reduction in the actual sales price compared to the challenged proposed transaction because financing was never available to permit the consummation of the proposed transaction. But if financing was not available, then the lawsuit was unnecessary; the transaction alleged to be at "a grossly inadequate price" would not have occurred. Regardless, the evidence cited by class counsel in support of the petition for fees does not establish that the proposed transaction was an impossibility. It establishes that potential funding sources were wary of the transaction for the reason class counsel cites, that the Brauvin buyers were not putting much equity into the proposed deal, but also for a reason that class counsel understandably does not cite: that the litigation made potential suitors leery. Moreover, the deposition excerpts provided to the court suggest that these two reasons were secondary at best: the principal concerns cited by the funding sources related to the value of the lease assets, particularly the Ponderosa leases. This was precisely the reason given by the general partners for trying to get a sale quickly. This all suggests that if the transaction ultimately failed to be consummated, it was most likely because the properties were not viewed by the market as worth $86,000,000. Had the litigation not distracted and obstructed the general partners at the time that they thought best for disposing of the partnership properties, it is at least theoretically possible that some deal more advantageous for the limited partners than the one they got four years later would have been put together. In any event, while the deal may never have been consummated for $86,000,000, it is impossible to say that it could not have been consummated, if the general partners had been able to act more quickly and without the cloud of litigation hanging over the partnerships, for something more than what the special master, years later, was able to obtain. No one will ever know.
Class counsel argue that their efforts resulted in several significant financial victories for the class. These will be examined in turn.
First, class counsel argue that they caused the defendants to resume paying dividends to the limited partners at the end of March, 1997. Under the merger/sale agreement governing the proposed transaction, all earnings of the partnerships received after July 31, 1996, were to become the property of the purchaser, Brauvin LLC, and no dividends were to be paid out of such earnings. It is plaintiffs' theory that because of this provision, defendants had every incentive to delay the sale of the assets of the partnerships since after July, 1996, the distributions flowed to them. On February 20 and March 14, 1997, class counsel demanded an explanation from the general partners as to why earnings distributions to the limited partners had ceased. On March 28, 1997, plaintiffs served their Second Amended and Supplemental Complaint, adding a "Twelfth Claim for Relief" asserting that defendants had violated the partnership agreements by not distributing operating cash flow since May 15, 1996.
On March 31, 1997, defendants resumed earnings distributions retroactive to January 1, 1997. Subsequent distributions to the limited partners totalled approximately $24,300,000. The defendants dispute that class counsel was responsible for the resumption of distributions, but their response to plaintiffs' argument is unconvincing. Defendants state, "When it became apparent that, as a result of this lawsuit, the partnerships could not promptly close the Brauvin LLC transaction, the General Partners modified the terms of the merger agreements so that the earnings could be distributed while the close of the transaction was delayed as a result of this lawsuit. The distribution of earnings resumed before The Mills Firm even alleged that any earnings were wrongfully withheld." (General Partners' Objection to Class Counsel's Attorneys' Fee Petition at 7.) No evidentiary support is cited for this proposition and it is belied by the chronological sequence of events., which strongly suggest that the efforts of class counsel caused the resumption of dividends. On the other hand, since it appears that merely filing the complaint provoked the defendants to resume the distributions, it is hardly a victory that justifies millions of dollars in attorneys' fees.
A second monetary victory claimed by class counsel was defendants' agreement, as part of the settlement agreement, to waive a breakup fee of $850,000, to which Brauvin LLC was entitled under the terms of the merger/sale agreements. Defendants do not dispute that the waiver of the breakup fee was a benefit for the class. However, the Individual Plaintiffs have produced evidence that the waiver of the breakup fee was negotiated not by class counsel but by counsel for the Individual Plaintiffs (see Exhibit C to Individual Plaintiffs' Memorandum in Opposition to Class Counsel's Petition for Attorneys' Fees and Costs). Further, had the challenged transaction been consummated, there would have been no breakup fee; it is at least possible (although disputed by the plaintiffs) that the breakup of the transaction was due in some part to the litigation.
A third monetary victory claimed by class counsel was the waiver by the general partners of their right to brokerage fees under the terms of the partnership agreements. The parties have not informed the court of their view of the value of this waiver. Under the partnership agreements, the general partners would have been entitled to, at most, 3% of sales proceeds, amounting to approximately $19,200, given the price ultimately obtained for the partnership assets.
It must be borne in mind, however, that the sales process established by the terms of the settlement agreement was very expensive for the limited partners. The fees of the special master and the special master's advisor totalled $1,435,357. The indemnification of the general partners, provided as part of the settlement, totalled $1,062,933. Thus, the costs of disposing of the partnership assets by virtue of the settlement agreement was approximately $2,500,000, a figure that dwarfs the breakup fee and brokerage fees waivers, the costs saved the limited partners by virtue of the settlement agreement. Did this litigation achieve any benefit for the class? In the view of the court, it achieved some benefits. It gave the plaintiffs access to the partnership lists, something to which they were plainly entitled and which defendants wrongfully withheld. It appears that plaintiffs forced the resumption of distributions, worth in total $24,3000,000. It is, of course, impossible to tell whether the plaintiffs did more than expedite the resumption of dividends. It is difficult to believe that defendants would have indefinitely refused to make distributions if their transaction was never consummated.
In the almost five years that this litigation has been pending, the court has never seen satisfactory evidence that the Brauvin LLC transaction would have provided the limited partners with grossly inadequate value. There does appear to be some evidence that the transaction would never have been consummated, but the court does not see how that possibility, standing alone, injured the limited partners in any way. It was the responsibility of the general partners to liquidate the assets at an appropriate time; had they failed in that duty and had the limited partners been injured, the limited partners would have had available to them all the remedies that the securities and other laws provide. What would have needed to be shown, to show injury to the limited partners by virtue of defendants' lack of financing for the proposed transaction, was that the reason the transaction could never have been consummated was a breach of fiduciary duty on the part of the general partners. Plaintiffs suggest this in their contentions that funding could not be obtained because the Braults would not put enough equity into the deal themselves and that the Braults stood to profit handsomely from the proposed transaction. All this has been suggested, but in the court's view, has never been shown with satisfactory evidence.
The pending fee petition presents a difficult situation. It is well-established that a fee award may be predicated on a benefit to the class which is non-monetary in nature. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 392-93 (1970); Kopet v. Esquire Realty Co., 523 F.2d 1005, 1007-08 (2d Cir. 1975). Yet the touchstone in a case such as this is the benefit, if any, conferred on the class. Mills, supra; see also Polonski v. Trump Taj Mahal Assocs., 137 F.3d 139, 145 (3d Cir. 1998). While plaintiffs manifestly achieved certain legal victories in this case, this lawsuit was ultimately about preventing financial injury to the limited partners. It is unclear that the suit attained this objective. It is possible that it achieved the opposite. Without having actually tried the merits of this case and taken evidence on the fair market value of the subject properties in 1996 and the likelihood that the general partners could have obtained financing for their proposed transaction, the court does not know whether the class did or did not benefit financially from this litigation. On the other hand, given that plaintiffs won a ruling invalidating the defendants' proxy solicitation, had they forced a re-vote rather than settling the case, they would have had a strong argument that they provided a benefit to the class, albeit not necessarily a pecuniary one. See generally Stahl v. Abbott Laboratories, No. 99 C 6584, 2000 WL 1170071, at *4 (N.D.Ill. Aug. 16, 2000). With respect to the partnership list issue, the proxy voting issue and the advancement of funds issue, plaintiffs were successful in forcing the general partners to abide by the provisions of the partnership agreements, and they thus protected the contract rights of the limited partners as a whole. In the case of the resumption of dividends, they provided a financial benefit for the limited partners. Under all these circumstances, despite its questions about whether this suit ought ever to have been brought, the court cannot say the plaintiffs and their counsel provided no benefit to the class.
The court can say without reservation that class counsel were diligent and committed, and the legal work they performed was of excellent quality. Where they failed the limited partners, in the court's view, was in their failure — perhaps at the stage of their prefiling inquiry — to investigate adequately the market realities of this case. Class counsel confronted conduct by the defendants which appeared, and in a number of ways was, troubling if not illegal, such as the use of proxy voting when it was not authorized by the partnership agreements, the fact that the proposed transaction involved a conflict of interest on the part of the general partners and the various qualifications in the Cushman Wakefield opinion. It appears that they took these circumstantial signs of impropriety as evidence that the deal had to be stopped. But the only thing that really mattered, as far as the interests of the limited partners were concerned, was whether the Brauvin LLC transaction was good or bad financially for the limited partners. It is apparent that class counsel filed this suit without actual knowledge that the transaction was economically contrary to the limited partners' best interest. Moreover, class counsel's claim that they should not be charged with the loss of an $86,000,000 transaction because that transaction could never have been consummated hardly justifies their fees, for if the transaction could never have been consummated, the entire litigation was unnecessary. And the fact that financing could not be arranged during the pendency of this litigation does not establish, in the court's mind, that the general partners could not and would not have put together a transaction favorable to the limited partners if the litigation had not been filed.
Having weighed all these issues, the court does not feel that in good conscience it can take from the sales proceeds and give class counsel all they request. The court is well aware that at the early stages of this litigation, class counsel took the position that all they would seek in this case was some payment from the fund they created. Now, faced with the absence of a fund, they seek payment by the lodestar method. The court will use the lodestar method, but it will award fees and costs to class counsel only for those aspects of this litigation that actually benefitted the class, financially or otherwise, specifically, the fees and costs incurred in obtaining the partnership lists and forcing the resumption of distributions and in litigating the issues of advancement of litigation costs from partnership funds (including necessary discovery on this issue) and the impropriety of proxy voting under the partnership agreement. Class counsel is further, in the court's view, entitled to fees and costs incurred in rebuffing the Individual Plaintiffs' efforts to unseat the named plaintiffs as class representatives. However, with respect to the named plaintiffs' attack on the substantive merits of the proposed transaction, the claim that it failed to give the limited partners fair market value, the court sees no evidence that the named plaintiffs prevailed in any respect or provided any benefit to the limited partners.
The court cannot help but view this litigation as having been ill-advised from the start and believes (based on what it itself observed in settlement conferences) that by the time of settlement negotiations, class counsel themselves had sufficient exposure that they were negotiating as much on their own behalf as on behalf of the class. Accordingly, the court does not believe it can appropriately award class counsel fees spent in connection with settlement negotiations. To some extent, the interests of the limited partners were protected by the special master at that point, and the class is paying dearly for the special master's services. And, as has been previously stated, there is nothing in this record which suggests to the court that the named plaintiffs benefitted the class in any way on the subject of valuation. Their victories were victories primarily on issues of contract interpretation. While their legal victories presumably gave them bargaining leverage in settlement negotiations, the named plaintiffs have not succeeded in convincing the court that the settlement benefitted the class except to the extent of keeping the class from being further damaged by the lack of resolution. This is not to suggest that the litigation was solely responsible for putting the class at risk; the defendants bore a huge responsibility for not complying with the provisions of the partnership agreements. Nevertheless, the court looks to the enormous amount of discovery undertaken and the extraordinary amount of time spent in settlement negotiations, and fails to see how the class benefitted from these efforts. When all is said and done, it must be borne in mind that there was no monetary award to the class in this case. The class got sales proceeds, and there is no basis for a finding that the litigation contributed to greater sales proceeds for the class than would otherwise have been provided to them.
The billing rates requested by class counsel — generous though they may be — appear to be in line with those charged by lawyers doing comparable work with comparable levels of experience, and the fees awarded will be based on the billing rates requested. Counsel may submit a revised fee petition in conformity with this ruling within 30 days. Anyone wishing to oppose the application shall have 21 days to respond and class counsel shall have 14 days to reply.
Ruling on Individual Plaintiffs' Verified Petition for Attorneys' Fees and Costs The Individual Plaintiffs have also moved for an award of fees. Intervenors may be awarded attorneys' fees when their attorneys' efforts have contributed to a result that benefits the entire class. See Kargman v. Sullivan, 589 F.2d 63, 69, n. 13 (1st Cir. 1978); Virginia Hospital Ass'n v. Kenley, 74 F.R.D. 417, 420-21 (E.D.Va. 1977). Cf. Class Plaintiffs v. Jaffe Schlesinger, 19 F.3d 1306, 1309 (9th Cir. 1994). As in every other aspect of this case, the issues surrounding the participation of the Individual Plaintiffs are unusual. Nevertheless, three issues emerge as key to a decision on the Individual Plaintiffs' fee petition.
First, the court has never been given a satisfactory explanation for the failure of the Individual Plaintiffs to respond to the PSLRA notice sent out in mid-1997. Had the Individual Plaintiffs sought to represent the class in this action, the court has no doubt that they would have been appointed class representatives and their attorney, Mr. Cummins, would have been appointed counsel for the class.
This is so both because the Individual Plaintiffs had a much greater financial stake in this action than the named plaintiffs did, so the PSLRA would have made them the presumptive class representatives, and because it was clear from the initiation of this litigation that it risked injuring the class as much as benefitting it. For this reason, a class representative with a significant financial stake was particularly appropriate. Had the Individual Plaintiffs responded to the PSLRA notice and had they been appointed, the fees of class counsel would not have been incurred and, most likely, this litigation would have been brought to a rapid conclusion. Had the Individual Plaintiffs made a timely appearance in this lawsuit, the course of events would have been different and much of what the Individual Plaintiffs have complained about in the strategies and choices of class counsel would not have occurred. The court thus sees the Individual Plaintiffs as bearing significant responsibility for what they complain about in this lawsuit.
Counsel for the Individual Plaintiffs informed the court that the PSLRA notice did not come to the attention of the Individual Plaintiffs. While the court has no reason not to accept that representation, there was considerable evidence that the Individual Plaintiffs were in close communication with the general partners. It is inconceivable that they were unaware of this litigation.
That having been said, the second point of importance in this context is that the participation of the Individual Plaintiffs was indispensable, in the court's view, to the ultimate resolution of this lawsuit in the manner most favorable to the class. The named plaintiffs and the defendants, together with their counsel, saw this case so differently, so demonized each other, and appeared — lawyers and clients alike — to have such a personal stake in the outcome (and there were enough charges made against the lawyers for both sides that by the end, the lawyers did have a personal stake in the outcome) that, left to their own devices, the court views it as unlikely that anything reasonably good could have come out of this lawsuit. The Individual Plaintiffs came in to protect their substantial financial investment in the partnerships, possessing precisely the interest that Congress felt should be represented in a securities class action in enacting the PSLRA. And whatever one could say about the merits of that legislation as applied to a garden-variety securities class action aimed at collecting damages for some alleged fraud already accomplished, the need for a class representative with a real financial stake in the controversy cannot be disputed when a lawsuit seeks in medias res to disrupt the general partners' management of the limited partners' investment. Mr. Cummins and his clients brought a calm and rational perspective to litigation often characterized by rancor and distrust. The presence of the Individual Plaintiffs, particularly in the negotiation phases of this case, was indispensable.
The named plaintiffs suggest that the presence of the Individual Plaintiffs, allied as they often were with the defendants, made it difficult for the named plaintiffs and the class to maximize the class' recovery. The court cannot evaluate the extent, if any, to which this is true.
Third, much of the legal briefing of the Individual Plaintiffs was duplicative of the briefing of other parties. On most issues (on all issues that the court can recall) the named plaintiffs and the defendants did a fine job of arguing the legal issues. The involvement of the Individual Plaintiffs on these legal issues was unnecessary to protect the interests of the class. Nor will the court award fees to the Individual Plaintiffs for their efforts in seeking to unseat the named plaintiffs and their counsel. The Individual Plaintiffs came too late and, for this reason, were unsuccessful in achieving this goal. They are not entitled to fees for this unsuccessful effort.
The Individual Plaintiffs will be awarded their fees for time related to settlement, time relating to the special master and 1/2 their claimed costs. Time spent on discovery/motion practice will be allowed only to the limited extent of court appearances and participation in discovery, but the court will not award fees for legal research, motions or briefs. If the Individual Plaintiffs wish to seek these limited fees, they should file a supplemental petition within the time frame set forth for the named plaintiffs' petition, breaking down the amounts requested by task, consistent with this order. The supplemental petition may address costs or, if no further specification is provided, the court will award 1/2 the claimed costs as an approximation of the costs incurred in those aspects of the Individual Plaintiff's participation for which fees are being awarded. The hourly rates claimed are extremely reasonable and less than those the court normally awards. Accordingly, the court will award fees in the amount of $76,657.75 for the two categories of fees allowed, and, barring a supplemental petition providing more detail as to costs, costs in the amount of $3471.67.
CONCLUSION
Class Counsel's Petition for an Award of Attorneys' Fees and Expenses [609-1, 609-2] is granted in part and denied in part. Individual Plaintiffs' Verified Petition for Attorneys' Fees and Costs [600] is granted in part and denied in part. Revised and/or supplemental fee petitions in conformity with this Order may be submitted on or before 30 days from the date hereof. Responses may be filed 21 days thereafter and replies 14 days after that.