BTZ v. Great

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                                     
                                 ____________________

        Nos. 92-2219
             92-2274

                                      BTZ, INC.,

                                Plaintiff, Appellant,

                                          v.

                        GREAT NORTHERN NEKOOSA CORP., ET AL.,

                                Defendants, Appellees.
                                                     
                                 ____________________

APPEALS FROM THE UNITED STATES DISTRICT COURT

                              FOR THE DISTRICT OF MAINE

                       [Hon. Gene Carter, U.S. District Judge]
                                          ___________________

                                                     
                                 ____________________

                              Torruella, Selya and Cyr,

                                   Circuit Judges.
                                   ______________

                                                     
                                 ____________________

David L. Lee, with whom Law Offices of Frederic F. Brace, Jr. was
             ____________            _____________________________________
        on brief for appellant.
             Peter J.  Brann, Assistant Attorney General, with whom Michael E.
             _______________                                        __________
        Carpenter,   Attorney  General,   and  Thomas  D.   Warren,  Director,
        _________                              ___________________
        Litigation Unit, were on brief for State of Maine, Amicus.
             Tami L. Brown for appellee Great Northern Nekoosa Corp. 
             _____________

                                                     
                                 ____________________

                                  February 16, 1995
                                                     
                                 ____________________



CYR, Circuit Judge.  BTZ, Inc., a former shareholder in
                    CYR, Circuit Judge.
                         _____________

          Great Northern Nekoosa Corporation  ("Great Northern"), appeals a

          district court order disallowing its application for an  award of

          attorney fees against  Great Northern.   The fee application  was

          predicated  on the theory  that the  lawsuit BTZ  brought against

          Great  Northern  in  the United  States  District  Court  for the

          District  of  Maine  caused Great  Northern  to  capitulate to  a

          hostile  takeover by  Georgia Pacific  Corporation ("GPC")  which

          resulted in  substantial benefit  to other Great  Northern share-

          holders.  We affirm.

I
                                          I

                                     BACKGROUND1
                                     BACKGROUND
                                     __________

In  October 1989,  GPC  made an  unsolicited tender  to

          acquire Great Northern.  The Board of Directors of Great Northern

          ("Board")  balked.  GPC commenced suit  in Maine federal district

          court,  seeking a  judicial  declaration that  the Board's  anti-

          takeover  defenses violated state and federal law, as well as the

          Board's fiduciary  duty to Great Northern  shareholders.  Several

          Great Northern shareholders [hereinafter:  "plaintiffs"], includ-

          ing  appellant  BTZ,  brought  derivative  "class  action"  suits
                              
          ____________________

               1We set  forth  only the  facts  essential to  our  holding.
          Greater factual  detail is provided in  other reported decisions.
          See Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518 (1st
          ___ __________    ___________________________
          Cir. 1991);  Weinberger v. Great  Northern Nekoosa Corp.,  801 F.
                       __________    ____________________________
          Supp. 804 (D. Me. 1992); Georgia-Pacific  Corp. v. Great Northern
                                   _____________________     ______________
          Nekoosa Corp.,  731 F. Supp.  38 (D.  Me. 1990);  Georgia-Pacific
          ____________                                      _______________
          Corp.  v. Great Northern Nekoosa  Corp., 727 F.  Supp. 31 (D. Me.
          ____      ____________________________
          1989).

                                          2



against the Board  in Maine  federal district court.   The  class

          action suits were consolidated and  the State of Maine intervened

          to  defend  its anti-takeover  statute from  constitutional chal-

          lenge.

                    The Board concurrently opened  a second line of defense

          by  instituting an  antitrust action  against GPC  in Connecticut

          federal  district court.  Plaintiffs' counsel took no part in the
                                                             __ ____

          Connecticut  action.   On February  12,  1990, GPC  announced its

          divestiture of  all paper  company holdings,  thereby effectively

          mooting  the Board's antitrust action.  One week later, the Board
                                                  ___ ____ _____

          capitulated and accepted  GPC's tender offer.   See Weinberger v.
                                                          ___ __________

          Great Northern Nekoosa Corp., 925 F.2d 518, 521 (1991).
          ___________________________

                    Concerned that the  plaintiffs in the  Maine anti-take-

          over  suits might  impede the  GPC-Great Northern  settlement and

          merger, GPC  entered into a "clear sailing" agreement with plain-

          tiffs: plaintiffs  would dismiss  their federal actions  in Maine

          and  "take no steps to attach any part of the funds to be paid to

          [Great Northern]  shareholders  pursuant to  the upcoming  tender

          offer"; GPC-Great  Northern, in turn, would  "pay the plaintiffs'

          attorneys'  fees and  expenses [up  to $2  million,] as  shall be

          awarded by the United  States District Court for the  District of

          Maine."  Id. at 518 n.1, 521. 
                   ___

                    The federal  district court in Maine  ultimately denied

          plaintiffs' fee applications,  however, ruling that their  attor-

          neys' services  were not  a significant precipitating  "cause" of

          the  GPC-Great Northern  merger.   Rather,  their legal  services

3



merely mimicked GPC's  legal efforts in  the Maine lawsuits,  and

          played no role  whatever in the truly  decisive takeover skirmish
                 __ ____

              the Connecticut  antitrust litigation.   Weinberger  v. Great
                                                       __________     _____

          Northern  Nekoosa Corp., 801 F.Supp. 804, 811 (D. Me. 1992).  BTZ
          ______________________

          appeals.2

II
                                          II

                                      DISCUSSION
                                      DISCUSSION
                                      __________

A.  The American Rule
          A.  The American Rule
              _________________

                    Under the  American Rule,  absent a specific  statutory

          authorization or contractual agreement to the contrary, litigants

          are responsible for their own  attorney fees. See In re  San Juan
                                                        ___ _______________

          Dupont  Plaza  Hotel Fire  Litig., 982  F.2d  603, 606  (1st Cir.
          _________________________________

          1992).  One notable exception to the American Rule obtains in so-

                              
          ____________________

               2The  State of Maine, as amicus curiae, suggests that we may
          lack appellate jurisdiction because the "clear sailing" agreement
          obligates  GPC-Great  Northern, not  BTZ,  to pay  fees  to BTZ's
                     ___________________
          attorneys.  Thus, it says, BTZ    the only appellant named in the
                                                ____
          notice of appeal    lacks either standing to appeal from a denial
          of the fee  application, see United States v. AVX,  962 F.2d 108,
                                   ___ _____________    ___
          112-13 (1st Cir. 1993), or a demonstrable stake in the outcome of
          the appeal.
               Although   dismissal  on  jurisdictional  grounds  might  be
          warranted, the matter is  not without difficulty and there  is no
          circuit precedent directly  in point.  BTZ signed  no enforceable
          fee agreement with  its attorneys, but the "clear sailing" agree-
          ment, qua contract, might arguably  afford BTZ a status analogous
                ___
          to  a "prevailing party" in  a statutory fee-shifting  case.  Cf.
                                                                        ___
          Pontarelli v. Stone,  978 F.2d  773, 775 (1st  Cir. 1992)  (since
          __________    _____
          statute  specifically  authorizes  fees  to  "prevailing  party,"
          prevailing party's attorney has no independent standing to appeal
                             ________
          from grant or denial  of fee award); Benitez  v. Collazo-Collazo,
                                               _______     _______________
          888 F.2d 930,  933 (1st Cir.  1989) (same).  We  therefore bypass
          the  jurisdictional issue and turn to the merits. See FDIC v. Bay
                                                            ___ ____    ___
          Street Dev. Corp., 32 F.3d 636, 639 n.4 (1st Cir. 1994).  
          _________________

                                          4



called  "common  benefit"  cases,  where a  plaintiff's  suit  is

          prematurely  mooted but  nonetheless  results  in a  "substantial

          [pecuniary or nonpecuniary] benefit" to a larger class [hereinaf-

          ter: "beneficiaries"].   In these common  benefit cases, a  court

          may  invoke its  equitable jurisdiction  to assess  attorney fees

          against  beneficiaries  of the  legal  services;  and, where  the

          beneficiaries are corporate shareholders, their assessment may be

          imposed upon the corporate  defendant.  See, e.g., Reiser  v. Del
                                                  ___  ____  ______     ___

          Monte  Properties Co.,  605 F.2d  1135, 1137-38  (9th Cir.  1979)
          _____________________

          (citing cases).

                    BTZ insists that its legal services fit squarely within

          the "common  benefit" exception to  the American Rule,  since the

          GPC  takeover  enhanced  the  pecuniary interests  of  all  Great

          Northern  shareholders.   The threshold  question, of  course, is

          whether the  BTZ lawsuit in Maine federal district court actually

          caused  the  Board to  capitulate  to the  GPC  takeover, thereby
          ______

          contributing  substantially  to the  per-share price  increase in

          Great Northern shares.   The district court  rejected BTZ's claim

          on two fronts. 

B.  Causation
          B.  Causation
              _________

                    First, the court found insufficient evidence that BTZ's

          legal  services caused the Board  to capitulate to  the GPC take-

          over.  As we have  noted, "causation questions are grist  for the

          factfinder's mill .  . . ," Dedham Water Co.  v. Cumberland Farms
                                      _______________      ________________

          Dairy, Inc., 972 F.2d 453, 457 (1st Cir. 1992) (citing Peckham v.
          __________                                             _______

          Continental  Cas. Ins. Co., 895  F.2d 830, 837  (1st Cir. 1990)),
          _________________________

                                          5



which  we review  under the  "clear error"  standard, see  ICC v.
                                                                ___  ___

          Holmes Transp., Inc., 983 F.2d 1122, 1129 (1st Cir. 1993) (noting
          ____________________

          that "clear error" leaves reviewing court with the  "definite and

          firm conviction that a mistake has been committed").  Cf. Lipsett
                                                                __  _______

          v.  Blanco, 975  F.2d 934,  937, 941  (1st Cir.  1992) (according
              ______

          deference to trial court's  "front row seat" determination as  to

          whether  legal  services  contributed  to  favorable  outcome  in

          underlying litigation) (citation omitted).

                    The district  court finding  that the efforts  of BTZ's

          counsel were neither a substantial nor a material factor in GPC's

          "decision  to increase its bid or in Great Northern's decision to

          auction itself,"  Weinberger,  801  F.  Supp. at  809,  is  amply
                            __________

          supported  by  the record.    The withdrawal  of  the Connecticut

          antitrust action and the defeat of Great Northern's anti-takeover

          mechanisms  in the  Maine  litigation were  the decisive  factors

          contributing to the GPC takeover.  See id. at 811 &  n.11.  BTZ's
                                             ___ ___

          counsel  took no part in the pivotal Connecticut litigation.  Id.
                        __             _______                          ___

          at 809.  And to the limited extent that BTZ's counsel participat-

          ed in the Maine litigation, they did little more than track GPC's

          filings and audit depositions conducted by GPC.  Id. at 808-811.
                                                           __

                    The district  court's robust skepticism of the benefits

          contributed by BTZ's counsel  is especially appropriate given the

          increasing concerns  that redundant or peripheral  legal services

          may  parasitize  the  litigation  efforts of  lead  counsel,  yet

          command a substantial  fee.  Insofar  as lead counsel  reasonably

          perceive a consequent dilution of the limited resources available

6



for legal  services, allowances for phantom  legal services frus-

          trate  the  adversary  process and  undermine  the  congressional

          policy favoring private enforcement of the securities laws.3  

          C.  Burden of Proof
          C.  Burden of Proof
              _______________

                    The district court also rejected BTZ's fallback attempt

          to realign  the burden of  proof on the  issue of causation.   We

          review its  legal ruling  de  novo.   Liberty  Mut. Ins.  Co.  v.
                                    __  ____    ______________________

          Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir. 1992). 
          ________________________

                    Under Delaware law,  a fee  award will be  denied in  a

          common benefit case only if the party opposing it proves that the
                                          _____ ________

          applicant's legal  services did  not contribute to  the favorable
                                           ___

          outcome in  the underlying  takeover litigation.   Compare Allied
                                                             _______ ______

          Artists Pictures  Corp.  v.  Baron, 413  A.2d  876  (Del.  1980);
          ______________________       _____

          Rosenthal v. Burry Biscuit  Co., 209 A.2d 459 (Del.  Chan. 1949)4
          _________    _________________

          with Hensley v. Eckerhart,  461 U.S. 424, 437 (1983)  ("[T]he fee
          ____ _______    _________

                              
          ____________________

               3See  generally  John  C. Coffee, Jr.,  Rescuing the Private
                ___  _________                         ____________________
          Attorney General: Why the Model of the Lawyer as Bounty Hunter is
          _________________________________________________________________
          Not Working, 42 Md. L. Rev. 215, 249 (1983); John C. Coffee, Jr.,
          ___________
          Understanding  the  Plaintiff's  Attorney:  The  Implications  of
          _________________________________________________________________
          Economic Theory for Private Enforcement of Law Through Class  and
          _________________________________________________________________
          Derivative  Actions, 86  Colum. L.  Rev. 669 (1986);  Jonathan R.
          ___________________
          Macey &  Geoffrey P. Miller,  The Plaintiffs' Attorney's  Role in
                                        ___________________________________
          Class  Action  and Derivative  Litigation: Economic  Analysis and
          _________________________________________________________________
          Recommendations for Reform, 58 U. Chi. L. Rev. 1, 68 (1991). 
          __________________________

               4The Delaware  Chancery Court explained that  "it is reason-
          able  to impose on the defendants  the burden of showing that the
          [benefit] was not  in any way occasioned by  the existence of the
          lawsuit," and that, even were the defendant corporation to  prove
          that  the fee  applicant's  suit in  no  way contributed  to  the
          benefit conferred, "the [fee applicant's] attorney would still be
          entitled to  a fee if  it is shown  that the cause of  action was
          meritorious."  Rosenthal, 209 A.2d at 461.   The Delaware Supreme
                         _________
          Court  later adopted the Rosenthal reasoning.  See Allied Artists
                                   _________             ___ ______________
          Pictures Corp., 413 A.2d 876. 
          ______________

                                          7



applicant bears the burden of establishing entitlement to a [fee]

          award."); Nadeau v. Helgemoe,  581 F.2d 275, 281 (1st  Cir. 1978)
                    ______    ________

          (fee applicant  has burden to  prove suit served  as "catalyst");

          Koppel  v. Wien, 743 F.2d 129, 135  (2d Cir. 1984) (same); 1 Mary
          ______     ____

          F.  Derfner &  Arthur  D. Wolf,  Court  Awarded Attorney  Fees   
                                           _____________________________

          9.02[4][c], at 9-24.6 (1991).  

                    The district court  correctly interpreted our  decision

          in Weinberger,  925 F.2d at 522 n.6, to indicate that the BTZ fee
             __________

          application  does  not fit  squarely  within  the common  benefit

          exception to the  American Rule, see  Weinberger, 801 F.Supp.  at
                                           ___  __________

          807,  since  "[BTZ] abjured  a claim  for  fees under  the common

          benefit doctrine[,]" Weinberger, 925 F.2d at 524, both by negoti-
                               __________                   ____

          ating  the  "clear sailing"  agreement,  which neutralized  Great

          Northern's capacity to challenge  a fee award, and by  relying on
                                                         ___

          the  "clear sailing" agreement as  the basis for  its alleged fee

          entitlement.   In contrast, neither Rosenthal  nor Allied Artists
                                              _________      ______________

          involved a "clear  sailing" agreement.  Their realignment  of the

          burden  of proof was premised  on the relative  capacities of fee
                                                          __________

          applicants and  fee opponents  to establish the  "causation" ele-

          ment.  

                    Aside from BTZ, three entities had cognizable interests

          in  the BTZ class action:  Great  Northern, GPC, and the State of

          Maine.  None  was better  positioned than BTZ  to establish  what

          caused Great Northern to succumb to the GPC takeover bid.  First,

          following its merger with  GPC, Great Northern no  longer existed

          as an independent  legal entity.   Second, immobilized  as a  fee

8



opponent by the terms of the "clear sailing agreement," GPC could

          not attempt to rebut a presumption of substantial benefit without

          breaching its  agreement.    Nor,  finally, has  there  been  any

          showing that the State  of Maine, intervenor below and  amicus on

          appeal    even  assuming it were able and inclined  to oppose the

          BTZ fee application on policy grounds    was better situated than

          BTZ  to  establish causation.   There  simply  is nothing  in the

          record to suggest  that the  State of Maine,  aligned by  happen-

          stance with Great Northern below, was privy to its inner workings

          or litigation strategy during the decisive stages of the takeover

          battle.  Thus,  the State of  Maine likewise  was not the  "well-

          informed" fee  opponent whose  presence would warrant  the burden

          shifting urged by BTZ.  

                    Contractual fee shifting in class action suits impinges

          on traditional  judicial protocols for  scrutinizing attorney-fee

          allowances, by  increasing the potential for  conflicts of inter-

          est.   See id. at 524-25.  Consequently, a rebuttable presumption
                 ___ ___

          should  not be  endorsed  in the  context  of a  "clear  sailing"

          agreement unless the court is well satisfied that "the advantages

          of  the adversary  process" are  not blunted  by undermining  the

          parties' incentives  to proffer  relevant evidence on  causation.

          Id.   The  district  court prudently  ruled  out  any  rebuttable
          ___

          presumption in the instant case. 

                    As  the  district court  findings  and  conclusions are

          fully supported, its disallowance of the  fee application must be

          affirmed.  

9



The district court order is affirmed.  Costs to  appel-
                    _______________________________________________________

          lees. 
          ____

10