Feliciano v. San Juan Dupont
Case Date: 07/07/1995
Court: United States Court of Appeals
Docket No: none
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July 7, 1995 UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT _________________________ Nos. 94-1156, 94-1164, 94-1409, 94-1414, 94-1422, 94-1423, 94-1426, 94-1427, 94-1430, 94-1438, 94-1439, 94-1440, 94-1442 IN RE: THIRTEEN APPEALS ARISING OUT OF THE SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION. _________________________ ERRATA SHEET The opinion of this Court issued May 31, 1995, is ammended as follows: Delete cases #94-1430 and #94-1442 from the Court's opinion and judgement of May 31, 1995. UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT _________________________ Nos. 94-1156, 94-1164, 94-1409, 94-1414, 94-1422, 94-1423, 94-1426, 94-1427, 94-1438, 94-1439, 94-1440 IN RE: THIRTEEN APPEALS ARISING OUT OF THE SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION. _________________________ APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. Raymond L. Acosta, U.S. District Judge] ___________________ _________________________ Before Selya, Circuit Judge, _____________ Bownes, Senior Circuit Judge, ____________________ and Cyr, Circuit Judge. _____________ _________________________ Judith Resnik, with whom Dennis E. Curtis, Richard A. ______________ _________________ ___________ Bieder, and Koskoff, Koskoff & Bieder, P.C., were on brief, for ______ ________________________________ appellants Bieder, et al. Jose E. Fernandez-Sein on brief for appellant Nachman. ______________________ Steven C. Lausell, with whom Jimenez, Graffam & Lausell was _________________ __________________________ on brief, for appellee Jimenez, Graffam & Lausell. Will Kemp, with whom Stanley Chesley, Wendell Gauthier, John _________ _______________ ________________ ____ Cummings, David Indiano and Harrison, Kemp & Jones, Chtd. were on ________ _____________ _____________________________ brief, for remaining appellees. _________________________ May 31, 1995 _________________________ SELYA, Circuit Judge. These appeals require us to SELYA, Circuit Judge. _____________ revisit the war zone where two groups of plaintiffs' lawyers have struggled over the proposed allocation of roughly $68,000,000 in attorneys' fees. One camp, dissatisfied with the district court's latest formula for distributing the fees, attacks the court's order on three fronts. The disgruntled lawyers contend that the district court (1) violated their due process rights, (2) used an improper method to determine the awards, and (3) divided the available monies in an arbitrary and unreasonable manner. We find appellants' first two plaints to be without merit, but we agree with them that allocating 70% of the fees to the appellees constituted an abuse of the trial court's discretion. And, because we are reluctant to prolong a matter that, like the proverbial cat, seems to have nine lives, we take matters into our own hands and reconfigure the fee awards. I. BACKGROUND I. BACKGROUND The lay of the land is familiar. We explored much the same terrain in an earlier encounter, see In re Nineteen Appeals ___ ______________________ Arising Out of San Juan Dupont Plaza Hotel Fire Litig., 982 F.2d _______________________________________________________ 603 (1st Cir. 1992), and a plethora of opinions describing the details of the underlying litigation pockmark the pages of the Federal Reports, see, e.g., id. at 605 n.1 (offering partial ___ ____ ___ listing). Thus, a brief overview of the litigation will suffice. In 1987, the Judicial Panel on Multidistrict Litigation consolidated over 270 cases arising out of the calamitous conflagration that had ravaged the San Juan Dupont Plaza Hotel on 3 the evening of December 31, 1986. See In re Fire Disaster at ___ ________________________ Dupont Plaza Hotel, 660 F. Supp. 982 (J.P.M.L. 1987) (per ____________________ curiam). The designated trial judge, Hon. Raymond L. Acosta, handpicked certain attorneys, denominated collectively as the Plaintiffs' Steering Committee (PSC), to act as lead and liaison counsel for the plaintiffs. In Nineteen Appeals, we summarized ________________ the roles played by the PSC and the individually retained plaintiffs' attorneys (IRPAs), respectively: The PSC members looked after the big picture: mapping the overarching discovery, trial, and settlement strategies and coordinating the implementation of those strategies. The IRPAs handled individual client communication and other case-specific tasks such as answering interrogatories addressed to particular plaintiffs, preparing and attending the depositions of their clients, and taking depositions which bore on damages. The IRPAs also worked with Judge Bechtle [the "settlement judge"] on a case-by-case basis in his efforts to identify and/or negotiate appropriate settlement values for individual claims. When Judge Acosta determined that the plaintiffs should try twelve representative claims as a means of facilitating settlement, a collaborative composed of three PSC members and four IRPAs bent their backs to the task. Nineteen Appeals, 982 F.2d at 605. ________________ The combined efforts of all concerned generated a settlement fund approximating $220,000,000. The district court computed the payments due under the various contingent fee agreements, deducted the total (roughly $68,000,000) from the overall settlement proceeds, and placed that sum in an attorneys' 4 fee fund (the Fund).1 In his initial attempt to disburse the Fund, Judge Acosta used an enhanced lodestar to compute the PSC's fees, and awarded some $36,000,000 (52% of the Fund) to PSC members in their capacity as such, leaving the balance to be distributed among the IRPAs. A group of lawyers (mostly, but not exclusively, "non-PSC" IRPAs)2 succeeded in vacating this award on the ground that the proceedings were procedurally flawed. See ___ id. at 610-16. ___ The victory proved to be illusory. On remand, the district court abandoned the lodestar approach, adopted the percentage of the fund (POF) method, and recalculated the fees based on what it termed "the relative significance of the labor expended by the IRPAs and PSC members in instituting, advancing, or augmenting the plaintiffs' settlement fund." Using this ____________________ 1In addition to attorneys' fees, the lawyers are seeking reimbursement of certain costs and expenses from the plaintiffs' share of the settlement proceeds. The district court has yet to make a final determination relative to costs, and we have not considered that aspect of the matter. Thus, our opinion is without prejudice to the parties' claims and objections in respect to costs. 2Since each PSC member is also an IRPA in the sense that he or she has been individually retained by one or more plaintiffs, the PSC members will receive payments in both capacities. Nevertheless, due to the wide disparity in the number of clients that each PSC member represents, a generous PSC award stands to benefit certain PSC members who have relatively few individual clients and to disadvantage those who represent many claimants. See Nineteen Appeals, 982 F.2d at 607. Similarly, an oversized ___ ________________ PSC award is even more detrimental to the interests of those IRPAs who are not members of the PSC, as each dollar that is paid to the PSC shrinks the pot that otherwise will be divided among the IRPAs. See id. Due to this phenomenon, some PSC members ___ ___ were among the lawyers who fought to overturn the original allocation. 5 methodology, the court awarded 70% of the Fund to PSC members in their capacity as such, thereby increasing their share of the __________ fees by some $11,000,000, while simultaneously reducing the ________ IRPAs' share of the Fund by the same amount. These appeals ensued. II. ADEQUACY OF THE PROCEEDINGS II. ADEQUACY OF THE PROCEEDINGS In a virtual echo of the claims advanced in Nineteen ________ Appeals, appellants (all of whom are IRPAs) characterize the _______ proceedings by which the district court determined the allocation of the Fund as unfair. Specifically, appellants assert that the revamped procedural framework violated their rights to due process, and that, in all events, the court abused its discretion in erecting the framework. We consider these assertions in sequence. A. Due Process. A. Due Process. ___________ In Nineteen Appeals, 982 F.2d at 610-16, we discussed _________________ the due process considerations implicated in the fee-setting aspect of this litigation. We again use the triangular construct of Mathews v. Eldridge, 424 U.S. 319 (1976), to determine whether _______ ________ the district court afforded the IRPAs "the opportunity to be heard `at a meaningful time and in a meaningful manner.'" Id. at ___ 333 (quoting Armstrong v. Manzo, 380 U.S. 545, 553 (1965)). _________ _____ The first Mathews factor involves a specification of _______ "the private interest that will be affected by the official action . . . ." Id. at 335. Rehashing this point would serve no ___ useful purpose. We conclude, for precisely the same reasons 6 articulated in our earlier opinion, that the IRPAs have a salient private interest in the fees due them for services rendered. See ___ Nineteen Appeals, 982 F.2d at 612. ________________ The second Mathews factor requires us to examine the _______ risk of error presented by the district court's procedures. See ___ Mathews, 424 U.S. at 335. The last time around we determined _______ that the hearing format invited error. See Nineteen Appeals, 982 ___ ________________ F.2d at 612-13. Appellants urge us to find that the proceedings on remand represented no real improvement and again presented an intolerable risk of error this time because the district court refused to hold an evidentiary hearing, to allow free-form discovery, or to permit cross-examination of PSC members. We conclude, for reasons described more fully in Part II(B), infra, _____ that the format revisions cured the infirmities that led us to invalidate the district court's earlier effort. The third Mathews factor necessitates an assessment of _______ the public interest, including "the fiscal and administrative burdens" that improved procedural requirements would entail. Mathews, 424 U.S. at 335. Here, too, past is prologue: we _______ studied this point in the course of the first appeal and remarked the "substantial governmental interest in conserving scarce judicial resources." Nineteen Appeals, 982 F.2d at 614. We also ________________ recognized the reasonableness of keeping tight controls on the fee dispute in light of the large number of lawyers involved, the lengthy shelf life of the litigation, and the Supreme Court's admonition that "[a] request for attorney's fees should not 7 result in a second major litigation." Hensley v. Eckerhart, 461 _______ _________ U.S. 424, 437 (1983). This important public interest remains intact. To sum up, the district court reformed its ways, significantly moderating the restrictions originally imposed on the IRPAs. The court levelled the playing field by permitting the IRPAs to present their case in precisely the same manner as their litigation adversaries. Moreover, the court gave both camps adequate notice and a meaningful opportunity to be heard. From a procedural standpoint, then, the adjudicative process employed on remand met the test of fundamental fairness and gave appellants the process that was due. B. Abuse of Discretion. B. Abuse of Discretion. ___________________ Appellants strive to convince us that Judge Acosta abused his discretion in authoring three procedural rulings, namely, (1) denying appellants' entreaty that an evidentiary hearing be held; (2) denying the bulk of their discovery requests; and (3) denying them the privilege of cross- examination. We are not persuaded. 1. Lack of an Evidentiary Hearing. We need not tarry 1. Lack of an Evidentiary Hearing. ______________________________ over the supposed error in refusing to hold an evidentiary hearing.3 A district court is not obliged to convene an ____________________ 3The lower court did not make this decision casually. After reminding the protagonists of his "detailed first hand knowledge of the proceedings," Judge Acosta observed that "any meticulous fact-finding regarding the contemporaneous time records of the PSC is unnecessary because the lodestar method has been abandoned; and both parties have been granted the opportunity to file extensive pleadings describing their contributions to the 8 evidentiary hearing as a means of resolving every attorneys' fee dispute. See Nineteen Appeals, 982 F.2d at 614; Weinberger v. ___ ________________ __________ Great N. Nekoosa Corp., 925 F.2d 518, 528 (1st Cir. 1991). ________________________ Because evidentiary hearings in fee disputes are not mandatory, the decision not to convene one is reviewed deferentially, using an abuse-of-discretion standard. See Weinberger, 925 F.2d at ___ __________ 527. In conducting that review, appellate tribunals cannot woodenly apply a preconceived matrix. Rather, flexibility is the watchword. Because a district court has available to it a "wide range of procedures" through which it can "bring a sense of fundamental fairness to the fee-determination hearing while at the same time husbanding the court's resources," Nineteen ________ Appeals, 982 F.2d at 614, flexibility implies substantial _______ discretion. Therefore, when the court chooses among the available options, it can mix and match. This emphasis on flexibility is heightened when an evidentiary hearing is requested. Even in situations far more inviting than fee disputes, we have been chary about mandating such hearings. See, e.g., Aoude v. Mobil Oil Corp., 862 F.2d ___ ____ _____ _______________ 890, 894 (1st Cir. 1988) (observing that matters often "can adequately be `heard' on the papers"). We favor a "pragmatic approach" to the question of whether, in a given situation, an evidentiary hearing is required. Id. at 893. The key ___ ____________________ litigation process." He also stated that, "for the most part," the fee controversy presented "no material factual disputes regarding the tasks undertaken by the PSC as contrasted to those undertaken by the IRPAs." 9 determinant is whether, "given the nature and circumstances of the case . . . the parties [had] a fair opportunity to present relevant facts and arguments to the court, and to counter the opponents' submissions." Id. at 894. Taking this approach in ___ Aoude, we upheld the issuance of a preliminary injunction without _____ an evidentiary hearing, noting, inter alia, that the judge was _____ ____ "obviously familiar" with the facts and had afforded the parties several opportunities to make written submissions. Id. ___ The Aoude model can readily be adapted to requests for _____ hearings anent attorneys' fees. Appellants' protest cannot survive the resultant comparison. Judge Acosta knew the case inside and out. He gave the protagonists ample opportunity to present both factual data and legal arguments. He set no page restrictions on written submissions, permitting the IRPAs to proffer thousands of pages of documents both in opposition to the PSC's requisitions and in support of their own fee requests.4 These filings allowed the IRPAs to go into painstaking detail both as to their own contribution to the litigation and as to the reasons why the PSC members deserved a relatively modest slice of ____________________ 4To give the reader a taste of what transpired, we note that, on remand, the IRPAs' initial submission, filed June 10, 1993, included a memorandum of law regarding attorneys' fees and expenses (110 pages, with a 40-page appendix), an affidavit by the IRPAs' accountant, William Torres, detailing the results of his analysis of the PSC's claims (approximately 650 pages), a memorandum giving an overview of the efforts and contributions made by the IRPAs (33 pages), and individual IRPA assessments of efforts and contributions made on behalf of clients (approximately 2700 pages). The IRPAs also filed a reply to the PSC's main submission, again unhampered by page restrictions, that totalled approximately 430 pages. 10 the pie for their services in that capacity. To be sure, this is a high-stakes dispute, but that fact, in and of itself, does not warrant handcuffing the trial court. Matters of great consequence are often decided without live testimony. See, e.g., id. at 893-94 (holding that an ___ ____ ___ evidentiary hearing is not obligatory in respect to an application for preliminary injunction); United States v. ______________ DeCologero, 821 F.2d 39, 44 (1st Cir. 1987) (same, regarding __________ criminal defendant's motion to reduce his sentence); Amanullah v. _________ Nelson, 811 F.2d 1, 16-17 (1st Cir. 1987) (same, regarding habeas ______ review of asylum applicant's detention during exclusion proceedings). In the last analysis, what counts is not the prize at stake, but whether particular parties received "a fundamentally fair chance to present [their] side of the story." Nineteen Appeals, 982 F.2d at 611. ________________ The controlling legal principle, then, is that parties to a fee dispute do not have the right to an evidentiary hearing on demand. When the written record affords an adequate basis for a reasoned determination of the fee dispute, the court in its discretion may forgo an evidentiary hearing. Here, it is pellucid that the litigants' extensive written submissions comprised an effective substitute for such a hearing particularly since the judge had lived with the litigation from the start and had an encyclopedic knowledge of it. Under these circumstances, the court did not err in refusing to hold yet another hearing. See, e.g., Norman v. Housing Auth., 836 F.2d ___ ____ ______ ______________ 11 1292, 1303 (11th Cir. 1988) (upholding propriety of awarding attorneys' fees without an evidentiary hearing "based solely on affidavits in the record"); Bailey v. Heckler, 777 F.2d 1167, ______ _______ 1171 (6th Cir. 1985) (explaining that an evidentiary hearing is not required so long as the record is sufficient to permit meaningful review); National Ass'n of Concerned Veterans v. ________________________________________ Secretary of Defense, 675 F.2d 1319, 1330 (D.C. Cir. 1982) ______________________ (holding that district court may in its discretion decline to convene a fee hearing where information generated by "documentation accompanying the fee application and through appropriate discovery . . . provides an adequate factual basis for an award"); Konczak v. Tyrrell, 603 F.2d 13, 19 (7th Cir. _______ _______ 1979) (indicating that "depth of the briefing" can render a hearing on fees unnecessary), cert. denied, 444 U.S. 1016 (1980); _____ ______ see also ___ ____ DeJesus v. Banco Popular de P.R., 951 F.2d 3, 7 (1st Cir. 1992) _______ _____________________ (finding no error in lack of an evidentiary hearing regarding counsel fees absent some "special issue as to which the court needed the assistance of counsel or witnesses"). 2. Restrictions on Discovery. Apart from the refusal 2. Restrictions on Discovery. _________________________ to convene a full-scale hearing, appellants also complain that the court demonstrated too great an aversion to discovery initiatives. But unlimited adversarial discovery is not a necessary or even a usual concomitant of fee disputes, see ___ National Ass'n of Concerned Veterans, 675 F.2d at 1329 (noting _____________________________________ that, in general, fee contests should not involve "the type of 12 searching discovery that is typical where issues on the merits are presented"), and, in the circumstances of this case, we think that the court acted well within the province of its discretion in refusing to allow more elaborate discovery. The Due Process Clause does not require freewheeling adversarial discovery as standard equipment in fee contests. See ___ Nineteen Appeals, 982 F.2d at 614. This case exemplifies the ________________ wisdom of the rule. The district court did not shut off all discovery, and the procedures that the court employed especially the compelled exchange of documentation minimized the need for additional discovery by giving the IRPAs the raw material that they needed to sift through the particulars of the PSC's fee application. In other words, the court ensured that the IRPAs had access to all the data reasonably necessary to formulate their objections,5 including all the PSC members' time-and-expense submissions, summaries thereof, detailed accounts of the procedures used by the PSC to gather, review, and audit time records, and the working papers, correspondence, and documentation generated by the PSC's accountants during the compilation process. With this banquet of information spread before them, appellants then partook of the court's liberality in allowing them to formulate extensive written submissions. Furthermore, the court below also had a right to ____________________ 5The proof of the pudding is in the record. The IRPAs' initial submission to the district court highlighted specific objections to the PSC's fee request, and, following the PSC's rejoinder, the IRPAs' reply took precise aim at the accuracy of the supporting materials. 13 consider the extent to which appellants' request for discovery threatened to multiply the proceedings and turn the fee dispute into a litigation of mammoth proportions. Judge Acosta characterized the IRPAs' discovery foray which encompassed, inter alia, production of tax returns for employees of all PSC _____ ____ members' firms and details anent fringe benefits (including vacations, maternity leaves, and the provision of training programs) as "a discovery scheme of needless and unreasonable proportions." It is surpassingly difficult to fault this characterization. The sweeping nature of appellants' request, coupled with the fact that the focus of the hearings had shifted away from the lodestar and toward a task-oriented assessment of the lawyers' participation in the litigation, give substance to the district court's fears that granting appellants' supplication would have started the parties on the road to a wasteful and time-consuming "satellite litigation." On this ramified record, appellants can demonstrate neither a high level of need for incremental discovery nor preponderant equities in favor of their request. Hence, we cannot say that the district court's denial of further discovery constituted an abuse of the court's considerable discretion. See, e.g., National Ass'n of Concerned ___ ____ ___________________________ Veterans, 675 F.2d at 1329 (holding that district court "retains ________ substantial discretion based on its view of the submissions as a whole" to limit further discovery). 3. Lack of Cross-Examination. As a subset of their 3. Lack of Cross-Examination. _________________________ 14 claims regarding the supposed necessity for both an evidentiary hearing and additional discovery, appellants contend that the district court should have allowed them to cross-examine the PSC members concerning the hours that they logged and their contribution to the creation of the Fund. This is merely a back- door attempt to rekindle an extinguished flame and satisfy appellants' thwarted desire for either an evidentiary hearing or extensive depositions. In Chongris v. Board of Appeals, 811 F.2d 36 (1st ________ _________________ Cir.), cert. denied, 483 U.S. 1021 (1987), we held that, in the _____ ______ context of an administrative hearing, lack of cross-examination did not work a violation of due process. See id. at 41-42. So ___ ___ it is here. Moreover, because the lower court could reasonably conclude that its liberal policy with regard to written submissions, in conjunction with the IRPAs' access to PSC documentation, obviated the need for further probing via cross- examination, pretermitting cross-questioning did not constitute an abuse of discretion. Cf. Copeland v. Marshall, 641 F.2d 880, ___ ________ ________ 905 n.57 (D.C. Cir. 1980) (en banc) (noting that a live hearing is not necessary if "the adversary papers filed by plaintiff and defendant . . . adequately illuminate the factual predicate for a reasonable fee"). Appellants' attempt to anchor their claimed right to cross-question PSC members on language excerpted from our earlier opinion, see, e.g., Nineteen Appeals, 982 F.2d at 615, leaves ___ ____ ________________ them adrift. We flatly reject the suggestion, noting that 15 appellants, to their discredit, have pieced the argument together by cutting words loose from their logical and contextual moorings, and ignoring limiting language that contradicts their interpretation. The bottom line is that the district court did not err in refusing to convene an evidentiary hearing, declining to permit more wide-ranging discovery, and barring cross- examination. Thus, whether the issue is cast in a constitutional mold or considered under an abuse-of-discretion rubric, appellants' challenge fails. Either way, the adjudicative process employed on remand passes muster. III. APPROPRIATENESS OF THE METHODOLOGY III. APPROPRIATENESS OF THE METHODOLOGY Appellants claim that the district court erred as a matter of law in embracing the POF method, rather than the lodestar method, during the fee-setting pavane. The issue of whether a district court may use a given methodology in structuring an award of attorneys' fees is one of law, and, thus, is subject to de novo review. See Liberty Mut. Ins. Co. v. __ ____ ___ _______________________ Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir. 1992). _________________________ A. Historical Perspective. A. Historical Perspective. ______________________ A few introductory comments may lend a sense of perspective. Traditionally, under what has come to be known as the "American Rule," litigants bear their own counsel fees. See ___ Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 245 __________________________ ________________ (1975). This rule is not without exceptions. Fee-shifting statutes comprise one category of exceptions. See, e.g., 42 ___ ____ 16 U.S.C. 1988, 2000e-5(k). So, too, certain equitable doctrines furnish a basis for departing from the American Rule. See ___ Nineteen Appeals, 982 F.2d at 606. ________________ When statutory exceptions pertain, we have directed district courts, for the most part, to compute fees by using the time-and-rate-based lodestar method. See, e.g., United States v. ___ ____ _____________ Metropolitan Dist. Comm'n, 847 F.2d 12, 15 (1st Cir. 1988); Segal _________________________ _____ v. Gilbert Color Sys., Inc., 746 F.2d 78, 85-86 (1st Cir. 1984); ________________________ see also City of Burlington v. Dague, 112 S. Ct. 2638, 2641 ___ ____ ___________________ _____ (1992) (acknowledging, in the statutory fee-shifting context, "a strong presumption that the lodestar represents the reasonable fee") (citation and internal quotation marks omitted). A court arrives at the lodestar by determining the number of hours productively spent on the litigation and multiplying those hours by reasonable hourly rates. See Blum v. Stenson, 465 U.S. 886, ___ ____ _______ 896-902 (1984); Hensley, 461 U.S. at 433; Lipsett v. Blanco, 975 _______ _______ ______ F.2d 934, 937 (1st Cir. 1992). Although the lodestar method is entrenched in the statutory fee-shifting context, a growing number of courts have looked elsewhere in "common fund" cases a category that encompasses cases in which "a litigant or lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney's fee from the fund as a whole." Boeing Co. v. Van Gemert, 444 U.S. 472, 478 __________ __________ 17 (1980).6 The POF method represents one such alternative approach to fee-setting. This method functions exactly as the name implies: the court shapes the counsel fee based on what it determines is a reasonable percentage of the fund recovered for those benefitted by the litigation. See, e.g., Camden I Condo. ___ ____ ________________ Ass'n, Inc. v. Dunkle, 946 F.2d 768, 771 (11th Cir. 1991). ___________ ______ Contrary to popular belief, it is the lodestar method, not the POF method, that breaks from precedent. Traditionally, counsel fees in common fund cases were computed as a percentage of the fund, subject, of course, to considerations of reasonableness. See, e.g., Central R.R. & Banking Co. v. Pettus, ___ ____ __________________________ ______ 113 U.S. 116, 127-28 (1885). It was not until the mid-1970s that judicial infatuation with the lodestar method started to spread. See Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1266 (D.C. Cir. ___ ___________________ _______ 1993) (chronicling history of the debate). Many courts embraced the new approach, and a wall of cases soon arose. See, e.g., ___ ____ Copeland, 641 F.2d at 890-91; Furtado v. Bishop, 635 F.2d 915, ________ _______ ______ 919-20 (1st Cir. 1980); City of Detroit v. Grinnell Corp., 560 ________________ ______________ F.2d 1093, 1098 (2d Cir. 1977); Grunin v. International House of ______ ______________________ Pancakes, 513 F.2d 114, 128 (8th Cir.), cert. denied, 423 U.S. ________ _____ ______ 864 (1975); Lindy Bros. Builders, Inc. v. American Radiator & ___________________________ ____________________ ____________________ 6The common fund doctrine is founded on the equitable principle that those who have profited from litigation should share its costs. While class actions furnish the most fertile ground for the doctrine, its reach is not limited to such cases. See Sprague v. Ticonic Nat'l Bank, 307 U.S. 161, 167 (1939) ___ _______ ___________________ (holding that "the absence of an avowed class suit . . . hardly touch[es] the power of equity in doing justice as between a party and the beneficiaries of his litigation"). 18 Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973). _______________________ A crack in the wall appeared in 1984 when the Supreme Court took pains to distinguish the calculation of counsel fees under fee-shifting statutes from the calculation of counsel fees under the common fund doctrine. The court described the latter group as comprising cases in which "a reasonable fee is based on a percentage of the fund bestowed on the class." Blum, 465 U.S. ____ at 900 n.16. Since Blum involved the application of the lodestar ____ under a fee-shifting statute, footnote 16 is dictum. Yet, it can hardly be dismissed as a slip of the pen, and considered dictum emanating from the High Court carries great persuasive force.7 See Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972 F.2d ___ ________________ _____________________________ 453, 459 (1st Cir. 1992) (stating general rule that courts should give "considerable weight" to dictum that appears "considered as opposed to casual"); McCoy v. Massachusetts Inst. of Technology, _____ _________________________________ 950 F.2d 13, 19 (1st Cir. 1991) (same), cert. denied, 112 S. Ct. _____ ______ 1939 (1992). Hard on the heels of footnote 16, the Third Circuit, which had been in the forefront of the movement toward the lodestar method, see, e.g., Lindy Bros., supra, sounded a note of ___ ____ ___________ _____ caution. Its blue-ribbon task force, although recommending continued use of the lodestar technique in statutory fee-shifting ____________________ 7For this reason, we find it unsurprising that other courts have cited footnote 16 as evidence that the Blum Court's ____ "approval of the lodestar method in the fee-shifting context was not intended to overrule prior common fund cases. . . ." Swedish _______ Hosp., 1 F.3d at 1268; see also Brown v. Phillips Petroleum Co., _____ ___ ____ _____ ______________________ 838 F.2d 451, 454 (10th Cir.), cert. denied, 488 U.S. 822 (1988). _____ ______ 19 cases, concluded that all fee awards in common fund cases should be structured as a percentage of the fund. See Report of the ___ Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. ___________________________ 237, 255 (1985) (hereinafter "Third Circuit Report"). Together, footnote 16 and the Third Circuit Report led to a thoroughgoing reexamination of the suitability of using the lodestar method in common fund cases. This reexamination, in turn, led to more frequent application of the POF method in such cases. See Federal Judicial Center, Awarding Attorneys' Fees and ___ ____________________________ Managing Fee Litigation 63-64 (1994) (hereinafter "FJC Report") _______________________ (canvassing case law). Today, the D.C. Circuit and the Eleventh Circuit require the use of the POF method in common fund cases, see Swedish Hosp., 1 F.3d at 1271; Camden I, 946 F.2d at 774, and ___ _____________ ________ four other circuits confer discretion upon the district court to choose between the lodestar and POF methods in common fund cases, see In re Washington Pub. Power Supply Sys. Sec. Litig., 19 F.3d ___ ____________________________________________________ 1291, 1295 (9th Cir. 1994); Rawlings v. Prudential-Bache Props., ________ ________________________ Inc., 9 F.3d 513, 516 (6th Cir. 1993); Harman v. Lymphomed, Inc., ____ ______ _______________ 945 F.2d 969, 975 (7th Cir. 1991); Brown v. Phillips Petroleum _____ __________________ Co., 838 F.2d 451, 454 (10th Cir.), cert. denied, 488 U.S. 822 ___ _____ ______ (1988). We have yet to pass upon the legitimacy of the POF method in common fund cases.8 ____________________ 8Of course, we alluded to the trend in Weinberger, stating: __________ We are aware of the tendency exhibited by some courts, particularly in common fund cases, to jettison the lodestar in favor of a `reasonable percent of the fund' approach. Because the absence of any true common fund 20 B. Computing Fees in Common Fund Cases. B. Computing Fees in Common Fund Cases. ___________________________________ We have previously classified this as a common fund case.9 Appellants do not dispute this taxonomy, but, rather, they insist that Judge Acosta erred in using the POF method because the lodestar technique should hold sway in all attorneys' ___ fee determinations.10 Though appellants concede that this ____________________ renders the percentage approach inapposite here, we cannot fault the district court's implied premise that the lodestar is the soundest available alternative. Weinberger, 925 F.2d at 526 n.10 (citations omitted). This __________ statement has been interpreted as conferring discretion upon district courts to use the POF method in common fund cases, see, ___ e.g., Wells v. Dartmouth Bancorp, Inc., 813 F. Supp. 126, 129 ____ _____ ________________________ (D.N.H. 1993), and, in some quarters, as indicating a preference for the use of that method, see, e.g., FJC Report, supra, at 64 & ___ ____ _____ n.305. 9We reached this conclusion because the Fund emanates from "the disproportionate strivings of a few (the PSC members) to the benefit of a much larger number (the plaintiffs and, derivatively, the IRPAs)," Nineteen Appeals, 982 F.2d at 610, and ________________ possesses each of the three distinguishing characteristics identified by the Boeing Court: ______ First, the . . . beneficiaries can be determined with complete assurance. Second, while the extent to which each individual plaintiff and each IRPA benefitted from the PSC's efforts cannot be quantified with mathematical precision, it is possible to study the PSC's contribution to the overall success of the litigation and approximate the incremental benefits with some accuracy. Finally, the district court controls [the Fund], and, therefore, possesses the ready ability to prorate the cost of achieving the incremental benefits in an equitable manner. Id. (citing Boeing, 444 U.S. at 478-79). ___ ______ 10In a sermon that is difficult to reconcile with this display of newfound religion, appellants preach intermittently that Judge Acosta's initial suggestion that the PSC's fees 21 court has not yet decided what method(s) of fee allocation appropriately may be invoked in common fund cases, they assert that the lodestar is a far better alternative and that its use should be mandated in this circuit. We think that a more malleable approach is indicated. Thus, we hold that in a common fund case the district court, in the exercise of its informed discretion, may calculate counsel fees either on a percentage of the fund basis or by fashioning a lodestar. Our decision is driven both by our recognition that use of the POF method in common fund cases is the prevailing praxis and by the distinct advantages that the POF method can bring to bear in such cases. In complex litigation and common fund cases, by and large, tend to be complex the POF approach is often less burdensome to administer than the lodestar method. See Swedish ___ _______ Hosp., 1 F.3d at 1269 (finding POF approach "less demanding of _____ scarce judicial resources"). Rather than forcing the judge to review the time records of a multitude of attorneys in order to determine the necessity and reasonableness of every hour expended, the POF method permits the judge to focus on "a showing that the fund conferring a benefit on the class resulted from" the lawyers' efforts. Camden I, 946 F.2d at 774. While the time ________ ____________________ would probably be computed using the POF method and would probably aggregate "less than 10%" should be enshrined and enforced by us. We have already ruled that this suggestion "did not bind the district court to a ten percent cap," Nineteen ________ Appeals, 982 F.2d at 612, and appellants have proffered nothing _______ that prompts us to revisit this ruling. 22 logged is still relevant to the court's inquiry even under the POF method, time records tend to illuminate the attorneys' role in the creation of the fund, and, thus, inform the court's inquiry into the reasonableness of a particular percentage11 the shift in focus lessens the possibility of collateral disputes that might transform the fee proceeding into a second major litigation. For another thing, using the POF method in a common fund case enhances efficiency, or, put in the reverse, using the lodestar method in such a case encourages inefficiency. Under the latter approach, attorneys not only have a monetary incentive to spend as many hours as possible (and bill for them) but also face a strong disincentive to early settlement. See Third ___ Circuit Report, 108 F.R.D. at 247-48 (finding that, in common fund cases, the lodestar method "encourag[es] lawyers to expend excessive hours" and "creates a disincentive for the early settlement of cases"); see also FJC Report, supra, at 310. If ___ ____ _____ the POF method is utilized, a lawyer is still free to be inefficient or to drag her feet in pursuing settlement options but, rather than being rewarded for this unproductive behavior, she will likely reduce her own return on hours expended. Another point is worth making: because the POF technique is result-oriented rather than process-oriented, it ____________________ 11For this reason, and because the district court in any given case may eschew the POF method in favor of the lodestar method, we urge attorneys to keep detailed, contemporaneous time records in common fund cases. 23 better approximates the workings of the marketplace. We think that Judge Posner captured the essence of this point when he wrote that "the market in fact pays not for the individual hours but for the ensemble of services rendered in a case of this character." In re Continental Ill. Sec. Litig., 962 F.2d 566, ___________________________________ 572 (7th Cir. 1992). In fine, the market pays for the result achieved. Let us be perfectly clear. We do not pretend that the POF approach is foolproof, or that it suffers from no disadvantages. For example, it may result in the overcompensation of lawyers in situations where actions are resolved before counsel has invested significant time or resources. See Six Mexican Workers v. Arizona Citrus Growers, ___ ___________________ _______________________ 904 F.2d 1301, 1311 (9th Cir. 1990) (counselling use of the lodestar method rather than the POF method when "the percentage recovery would be either too small or too large in light of the hours devoted to the case or other relevant factors"); see also ___ ____ Third Circuit Report, 108 F.R.D. at 242 (noting "criticism from within the profession" that fees under the POF method sometimes are "disproportionate to actual efforts expended by the attorneys"). The converse is also true; law firms may be less willing to commit needed resources to common fund cases, even those for the public benefit, if the likely recovery is relatively small. It can also be argued that the percentage method may lend itself to arbitrary fee awards by some courts. See generally Washington Pub. Power, 19 F.3d at 1294 n.2 ___ _________ _______________________ 24 (counselling that, to avoid arbitrary fee awards, neither the |