In re Continental Illinois Sec. Litigation

In re Continental Illinois Sec. Litigation

Opinion

 [*568]  POSNER, Circuit Judge. These are consolidated appeals from an order by Judge Grady cutting by roughly one-half the attorneys' fees requested by the plaintiffs' counsel in a class action. The principal defendant, the Continental Bank, had purchased more than a billion dollars in oil and gas loans from the Penn Square Bank, an Oklahoma bank whose collapse in 1982 made the loans that Continental Bank had bought from Penn Square largely uncollectable. Caught thus in the undertow of the Penn Square disaster, Continental itself became insolvent and was taken over by the Federal Deposit Insurance Corporation. Several class actions were brought against Continental and its officers in 1982 under the federal securities laws on behalf of investors who had bought stock in the bank before the crash and who claimed that Continental had made misleading statements about its financial condition. These suits were consolidated before Judge Grady. Extensive discovery and collateral litigation ensued. Between 1986 and 1988 the suits were settled for a total (including interest to the end of 1989) of $ 45 million.

] Having employed their professional skills to create a cornucopia for the class,  [**8]  the lawyers for the class were entitled under the principles of restitution to suitable compensation for their efforts. Boeing Co. v. Van Gemert, 444 U.S. 472, 62 L. Ed. 2d 676, 100 S. Ct. 745 (1980). They had agreed at the outset that they would not seek an award of attorneys' fees in excess of 20 percent of the amount of recovery. That capped their request at $ 9 million. But proceeding under the so-called "lodestar" method, by which the fee award is built up from the number of hours spent by the lawyers on the case, Blanchard v. Bergeron , 489 U.S. 87, 94, 103 L. Ed. 2d 67, 109 S. Ct. 939 (1989), they managed to justify (to their own satisfaction anyway) an award that, but for the ceiling, would have been even higher. So they requested the entire $ 9 million, which Judge Grady, in a meticulous 81-page order, reduced as we have said by roughly a half. We respect the care with which he reviewed the lawyers' submissions, despite the absence of an adversary presentation. (The class was notified of the fee request, but no member of the class objected. There is no appellee.) And we review his decision under a deferential standard. Hensley v. Eckerhart, 461 U.S. 424, 437, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983); Rivera v. Benefit Trust Life Ins. Co., 921 F.2d 692, 698 (7th Cir. 1991); [**9]  Ustrak v. Fairman, 851 F.2d 983, 987 (7th Cir. 1988). Even so, we are unable to accept most of his rulings.

1. The judge placed a ceiling of $ 175 on the hourly rates of all lawyers for the class, including lawyers whose regular billing rates were almost twice as high. He did this on the theory that the most demanding work on the case had been done by a rather junior lawyer whose billing rate is only $ 175. The more experienced, higher-paid lawyers simply were not, in the judge's view, needed for this case. This is highly implausible, when one considers that the defendants hired a crowd of pricey lawyers to defend the case and that the FDIC, in a parallel suit, hired one of the class counsel and paid him the same market rate that the district judge refused to authorize--even though the class action was contingent, and the FDIC suit was not. Nor were the lawyers who defended Continental and its officers against the class, at rates similar to the normal billing rates of the lawyers for the class, at risk of not being paid.

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