-
USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 95-2285
IN RE SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION
PASQUALE MASSARO, ET AL.,
Appellants,
v.
STANLEY CHESLEY, ET AL.,
Appellees.
____________________
No. 96-1142
IN RE SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION
RICHARD BIEDER, ET AL.,
Appellants,
v.
STANLEY CHESLEY, ET AL.,
Appellees.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Raymond L. Acosta, Senior U.S. District Judge] __________________________
____________________
Before
Selya, Cyr and Lynch,
Circuit Judges. ______________
____________________
Judith Resnik, with whom Dennis E. Curtis, Richard A. Bieder, _____________ _________________ __________________
Koskoff, Koskoff & Bieder and Jos E. Fernandez-Sein were on brief for _________________________ ______________________
appellants.
Will Kemp, with whom Harrison, Kemp & Jones, CHTD was on brief _________ _____________________________
for appellees.
____________________
April 22, 1997
____________________
2
CYR, Circuit Judge. Plaintiffs and their counsel CYR, Circuit Judge. ______________
appeal from a district court order awarding the Plaintiffs'
Steering Committee ("the PSC") approximately $10,670,000 for
costs incurred in representing plaintiffs in this mass-tort
litigation. We affirm the district court order in substantial
part and direct appellees to remit $1,023,903 ($913,503 in PSC
"expert" fees, and $110,400 in photocopying charges).
I I
BACKGROUND1 BACKGROUND __________
Ninety-seven people perished in a tragic New Year's Eve
fire at the San Juan Dupont Plaza Hotel on December 31, 1986, and
many others sustained serious personal injuries and property
losses. After thousands of individual plaintiffs filed hundreds
of claims against a host of defendants in many different juris-
dictions ("multidistrict litigation" or "MDL"), the Judicial
Panel on Multidistrict Litigation consolidated all cases for
trial in the United States District Court for the District of
____________________
1We relate only the record facts directly material on 1
appeal. The following cases offer the hardy reader a more
complete history of these marathon proceedings at the appellate
level. See In re Three Additional Appeals Arising Out of the San ___ _____________________________________________________
Juan Dupont Plaza Hotel Fire Litig., 93 F.3d 1 (1st Cir. 1996); ____________________________________
In re Thirteen Appeals Arising Out of the San Juan Dupont Plaza _________________________________________________________________
Hotel Fire Litig., 56 F.3d 295 (1st Cir. 1995); In re San Juan __________________ _______________
Dupont Plaza Hotel Fire Litig., 45 F.3d 569 (1st Cir. 1995); In _______________________________ __
re San Juan Dupont Plaza Hotel Fire Litig., 45 F.3d 564 (1st Cir. __________________________________________
1995); In re Two Appeals Arising Out of the San Juan Dupont Plaza __________________________________________________________
Hotel Fire Litig., 994 F.2d 569 (1st Cir. 1993); In re San Juan __________________ ______________
Dupont Plaza Hotel Fire Litig., 989 F.2d 36 (1st Cir. 1993); In _______________________________ __
re Nineteen Appeals Arising Out of the San Juan Dupont Plaza _________________________________________________________________
Hotel Fire Litig., 982 F.2d 603 (1st Cir. 1992); In re San Juan __________________ ______________
Dupont Plaza Hotel Fire Litig., 907 F.2d 4 (1st Cir. 1990); In re ______________________________ _____
San Juan Dupont Plaza Hotel Fire Litig., 888 F.2d 940 (1st Cir. ________________________________________
1989).
3
Puerto Rico (Acosta, J.), see 28 U.S.C. 1407. ___
As most plaintiffs had already retained their own
counsel (hereinafter: "individually retained plaintiffs' attor-
neys" or "IRPAs"), the district court recognized the need to
coordinate their representation through the PSC. Eventually
comprised of eleven attorneys with expertise in mass-tort litiga-
tion, the PSC served as plaintiffs' lead counsel, responsible for
coordinating discovery, settlement negotiations and, if neces-
sary, trial matters common to all plaintiffs. The eleven PSC
members nonetheless retained their respective roles as IRPAs,
directly representing approximately seventy percent of the
individual plaintiffs. The IRPAs, on the other hand, were to
focus their efforts on litigation tasks idiosyncratic to their
respective clients' cases.
A. Pretrial Case-Management Orders A. Pretrial Case-Management Orders _______________________________
In two pretrial orders, the district court directed
plaintiffs, who would derive common benefit from PSC services, to
pay PSC attorney fees and costs from the common fund ultimately
recovered in the litigation. See Pretrial Order No. 127 (Dec. 2, ___
1988); Pretrial Order No. 2 (Mar. 23, 1987). At the time, the
district court tentatively proposed to limit the PSC to a com-
bined attorney fee/cost award not exceeding ten percent of the
eventual common fund, see Pretrial Order No. 127, at 48, which ___
ultimately approximated $220 million. The district court estab-
lished the following cost-submission and reimbursement guide-
4
lines:
[A]ssessments2 will be deposited in a
fund that will defray the reasonable expenses
of the PSC in the performance of its duties.
The PSC shall maintain a careful statement of
account on the fund, that is, prepare and
keep accurate, contemporaneous, detailed ________ _______________ ________
records of the receipts, deposits, accumu- _______ ________
lated interest and subsequent disbursements.
The fund shall be used only to make disburse-
ments (whether directly to creditors or to
reimburse the PSC) for expenses incurred for
the benefit of all plaintiffs. Any disburse-
ments made for the benefit of a particular
plaintiff represented by a member of the PSC
shall be the sole responsibility of the
plaintiff in question. The PSC shall be
authorized to periodically expend monies from
the fund as needed to defray the necessary _________
"hard" costs of its work, such as office
overhead, staff salaries, warehousing, dupli-
cation, expert fees, deposition costs, etc.
The members of the PSC shall be reimbursed
from time to time for the "hard" expenses of
the PSC-related work incurred by them or
their employees/appointees, provided they
submit to the PSC careful, contemporaneous, _______ _______________
detailed records of their expenditures. ________ _______
"Soft" costs such as travel, meals,
transportation, lodging, etc., shall be borne
by the individual PSC members who shall be
reimbursed at the conclusion of this litiga-
tion or as otherwise provided by the Court.
All persons interested in reimbursement,
particularly members of the PSC, must keep
careful, contemporaneous, detailed records of _______ _______________ ________ _______
individual expenses. Only reasonable and __________
necessary expenses will be reimbursed. For _________
example, airplane/transportation expenses
should be at economical rates, not first
class; and hotel accommodations/meals should
be moderate, not deluxe, etc. Reimbursements ________ ___ ______
are conditioned, of course, on the proper ______
____________________
2As commonly occurs in mass-tort MDLs, plaintiffs' attor-
neys, inter alios, were required to advance and pool the monies _____ _____
needed to fund their clients' litigation, including the interim-
cost petitions filed by the PSC and its members. See Pretrial ___
Order No. 127, at 37-43. Reimbursement for their advances were
contingent upon their recoveries from defendants.
5
verification of expenses. ____________
The PSC and/or its members, as perti-
nent, shall submit to the Court for its ap- ___ ___ ___
proval a statement for reimbursable "hard" ______
expenses and another for "soft" expenses as
well as statements of account beginning on
August 1, 1987 and every sixty (60) days _____ _____ ____
thereafter.
Id. at 44-45 (emphasis added). See also Pretrial Order No. 2, at ___ ___ ____
14.
B. The PSC-Office Cost Regimen B. The PSC-Office Cost Regimen ___________________________
Although individual PSC members performed some PSC
litigation tasks through their individual law firms, the district
court also authorized the PSC to recover its direct costs in
establishing, staffing, and operating a centralized PSC Office
(hereinafter: "PSC-Office costs"). Further, the PSC bylaws
required prior approval, by five PSC members, for any PSC-office
cost reimbursement above $500, as well as payment of such costs
by PSC check.
In March 1987, certified public accountant ("CPA")
Donald Kevane was retained to review and submit to the PSC
monthly reports summarizing PSC-office costs. In February 1991,
the PSC submitted its final report to the district court, claim-
ing $6,956,368 in PSC-office costs attributable to Phases I and
II of the litigation.3
____________________
3Phase I involved liability claims against the hotel and its
affiliates, whereas Phase II involved claims against the suppli-
ers of goods and services to the hotel. The district court has
yet to rule on attorney fees and costs attributable to Phase III,
which allocated liability among defendants' various insurers.
See In re Nineteen Appeals, 982 F.2d at 608-10 (determining that ___ ______________________
Phase I and II cost awards were final, appealable orders).
6
C. The PSC-Member Cost Regimen C. The PSC-Member Cost Regimen ___________________________
Similarly, the district court authorized reimbursements
of costs incurred by the eleven individual PSC members in per-
forming PSC litigation tasks (hereinafter: "PSC-member costs"),
as distinguished from their respective duties as IRPAs. Every
sixty days, the PSC submitted, under seal and "for [court] ap- ___ ___
proval," a consolidated report summarizing each PSC member's ______
individual "hard" and "soft" costs. (Emphasis added.)4
In September 1989, the district court appointed C.
Terry Raben, a CPA, to "review the [PSC-member cost] information
supplied to . . . date to ensure it is complete, accurate and ________ ________
contemporaneous[,] as well as to organize the reports before the _______________
sheer number of them unduly complicates any reasonable accounting
procedures." Order No. 222 (docket No. 12671, entered under seal
Sept. 15, 1989). Raben previously had performed comparable cost
oversight responsibilities in another mass-tort litigation. See ___
generally In re MGM Grand Hotel Fire Litig., 660 F. Supp. 522 (D. _________ _________________________________
____________________
4On July 2, 1987, the district court approved PSC bylaws.
Article XI, entitled "Accounting and Expense Management," provid-
ed, inter alia, that: (1) all PSC members were to "insure the _____ ____
exact and efficient management of plaintiffs' resources by
strictly complying with proper accounting and expense management
principles . . . [as] set forth in the Orders of the Court, in
the Manual for Complex Litigation, and herein," id. 11.01 _______________________________ ___
(emphasis added); (2) PSC members were to submit to the PSC
secretary every 60 days a standardized form listing their total
costs, broken down into ten broadly enumerated categories (e.g., ____
"air travel," "hotels and meals"), id. 11.02, 11.03 & 11.05; ___
(3) the PSC Secretary was to consolidate these member reports for
submission to the district court, with the individual members'
summary reports attached, id. 11.04; and (4) the PSC Secretary ___
would nominate an auditor for appointment by the court, id. ___
11.07.
7
Nev. 1987) (or "the MGM case"). The district court directed ___
Raben to scrutinize the PSC files for compliance with the crite-
ria in Pretrial Order No. 127, supra, to obtain any additional _____
documentation deemed appropriate, and submit findings to the
court.
In November 1990, almost four years into these proceed-
ings, the PSC became concerned that outside accountants like
Raben, who were not attorneys and lacked intimate knowledge of
the PSC's litigation responsibilities and inner workings, might
not adequately appreciate whether PSC-member cost claims met the
compliance criteria prescribed in Pretrial Order No. 127.
Accordingly, the PSC directed Monita Sterling, a paralegal for a
PSC-member law firm with prior exposure to PSC litigation tasks,
to review each PSC-member cost claim independently to determine
whether the expenditures were "necessary" to legitimate PSC
litigation tasks, "reasonable" in amount, and not duplicative of
other PSC-member cost claims. Sterling thereafter reviewed
"every receipt or other piece of documentation submitted," noting
each questionable claim.5 Sterling submitted her reports and
____________________
5Sterling, who had acquired extensive prior experience in
the MGM case, established eleven criteria for determining whether ___
PSC-member costs were reimbursable: (1) major expenditures only
if documented by receipts; (2) minor expenditures (e.g., tips, ____
pay-phone charges), for which the use of receipts was impractica-
ble, only if supported by affidavit; (3) coach air fare only; (4)
federal express charges if documented by airbills designating
origin and destination; (5) long distance phone charges if
documented according to date, number, duration, and cost; (6)
photocopying expenditures at 25 cents per page and postage
charges at actual cost if the member indicated compliance with
normal in-house procedure at the member's law firm for tracking
these costs; (7) telefax charges at actual cost, not at a page
8
supporting documentation to Adamina Soto, a CPA who reviewed the
Sterling report and randomly checked its underlying documenta-
tion, then contacted PSC members about problem items and request-
ed further documentation. Soto eventually disallowed $207,475 in
costs and submitted her reports to Raben.
Raben submitted three final reports to the district
court, covering PSC-member cost claims through January 31, 1991.6
He disallowed an additional $138,569 of the total $3,847,233 in
claimed expenditures. The district court approved each Raben
report as submitted. See In re San Juan Dupont Plaza Hotel Fire ___ _______________________________________
Litig., 768 F. Supp. 912, 934 (D.P.R. 1991), vacated on other ______ _______ __ _____
grounds, 982 F.2d 603 (1st Cir. 1992). PSC members ultimately _______
recovered $3,708,665. Id. ___
D. Attorney Fee/Cost Rulings D. Attorney Fee/Cost Rulings _________________________
In February 1991, the PSC submitted its final applica-
tion for cost reimbursements, attaching the report previously
prepared by Donald Kevane and requesting $6,956,368 in PSC-office
costs attributable to Phases I and II. See supra p. 6. Three ___ _____
months later, the district court abandoned its earlier tentative
____________________
rate; (8) secretarial expense if specifically authorized by the
PSC; (9) costs relating to equipment placed at the PSC Office for
use by PSC staff; (10) no reimbursement for court-ordered mone-
tary sanctions imposed on the PSC; and (11) duly authorized
miscellaneous costs only if "reasonable and necessary in the
prosecution of the case, . . . for the benefit of the PSC and the
plaintiffs as a whole, and not for individual clients."
6These reports were dated: March 13, 1990 (costs from
January 1987 to September 1989); October 12, 1990 (costs from
October 1989 to March 1990); and February 20, 1991 (costs from
April 1990 to January 1991).
9
proposal, see supra p. 4, to limit the PSC's combined attorney ___ _____
fee/cost award to ten percent of the common fund. Thereafter,
the court approved the entire PSC fee/cost application. See ___
Order No. 346 (June 21, 1991).
10
On appeal, we vacated the fee/cost award for failure to
afford the plaintiffs and IRPAs a meaningful opportunity to chal-
lenge the PSC attorney fee application on the merits. According-
ly, we remanded for further proceedings. See In re Nineteen ___ _______________
Appeals Arising Out of the San Juan Dupont Plaza Hotel Fire _________________________________________________________________
Litig., 982 F.2d 603, 608, 615-16 (1st Cir. 1992) [hereinafter ______
"Nineteen Appeals"]. Following the remand and a second appeal, ________________
the PSC and IRPAs were directed to share the available attorney-
fee fund ($68 million) equally. See In re Thirteen Appeals Aris- ___ ____________________________
ing Out of the San Juan Dupont Plaza Hotel Fire Litig., 56 F.3d ________________________________________________________
295, 312 (1st Cir. 1995) [hereinafter "Thirteen Appeals"]. ________________
Following the remand in Nineteen Appeals, the district ________________
court separately reconsidered the PSC application for costs,
fixing March 12, 1993, as the deadline for the plaintiffs and
IRPAs to submit "specific/detailed written objections" to all
PSC-cost submissions through January 31, 1991. See Order No. 478 ___
(Jan. 15, 1993). The court further directed three categories of
documents to be filed in the joint document depository ("JDD")
for review by the plaintiffs and IRPAs: (1) the three Raben
reports analyzing PSC-member costs; (2) the Kevane monthly
reports summarizing PSC-office costs; and (3) the PSC-member cost
documentation. See Order No. 479 (Jan. 20, 1993). Although the ___
court rejected a request by the plaintiffs and IRPAs for addi-
tional formal discovery, see Thirteen Appeals, 56 F.3d at 303 ___ _________________
(noting that mandated exchanges of documentation, rather than
"searching discovery," are appropriate where only attorney fees
11
and expenses are at issue), it ordered both Raben and Kevane to
submit descriptions of their auditing procedures and directed
Kevane to produce his working papers, correspondence, and docu-
mentation. See Order No. 485 (Mar. 3, 1993). ___
Within the extended deadline for further objections to
costs, the plaintiffs and IRPAs submitted a report and affidavit
by William Torres, a CPA newly retained to audit the PSC-cost
submissions, attesting that he had requested the PSC to "provide
[him] with access to all of the records documenting the costs
incurred in this case, . . . including but not limited to,
original bills or statements kept by the PSC staff or any PSC
member, and any summaries or supporting documentation (including
charge account bills) of the same." Even though necessary to a
"meaningful analysis," Torres attested, the PSC failed to provide
the requested documents, including the Raben working papers; and,
until March 10, 1993, the "critical" Kevane working papers were
not made available; many documents made available were unread-
able; the PSC did not allow access to the PSC-member-cost-reim-
bursement policies or the PSC-policy meeting minutes relating to
cost reimbursements; and, finally, the PSC refused to permit him
to depose Raben, Kevane or any PSC member regarding questionable
cost submissions or documentation.
On November 24, 1993, the district court overruled most
major objections to the PSC-cost submissions. See Order No. 510- ___
A. For example, as regards hotel charges, the court rejected the
contention that the maximum per diem rate should be $116, the
12
rate considered "reasonable" by the IRS for tax-deduction purpos-
es. It ruled that reasonableness must be assessed case by case,
to reflect such variants as locale, seasonal fluctuations, room
availability, the number of persons sharing a room, accessibility
of equipment and facilities essential to the litigation task at
hand, as well as other exigencies. Id. at 7-8. The court ruled ___
that, like the IRPAs, PSC members were entitled to "reasonable"
reimbursement for photocopying costs and had not "profit[ed]"
from the authorized twenty-five-cents-per-copy rate. Id. at 9. ___
The district court further noted, inter alia, that the _____ ____
objections the plaintiffs and IRPAs made to the PSC-cost submis-
sions were so voluminous and entwined with issues relating to
attorney fees that it was difficult to determine the particular
costs to which the plaintiffs and IRPAs were objecting. It
directed the plaintiffs and IRPAs to "sort out this chaos," id. ___
at 12; Torres and Sterling to meet and consult at the JDD not
later than December 10; and the plaintiffs and IRPAs to file
particularized objections to the remaining expenditures not later
than January 12, 1994.
The district court conducted an evidentiary hearing in
December 1993, to determine whether to allow the PSC to recover
its final cost installment for retaining Thomas Foulds, Esquire,
as an expert. The PSC maintained that Foulds, who had worked for
many years in the insurance industry before attending law school,
had been retained as an insurance expert, to interpret insurance _________ ______
contracts, rather than as an attorney, and that his fee therefore
13
was fully reimbursable as a PSC-office cost. See Pretrial Order ___
No. 127, at 48. Although the plaintiffs and IRPAs objected that
Foulds had performed many litigation tasks, including legal
research and conducting depositions, normally performed by attor-
neys and not by insurance experts, the district court allowed the
Foulds fee reimbursement as a PSC-office cost after concluding
that Foulds "was not contracted merely as an attorney" but
primarily for his insurance expertise. See Order No. 520, at 3-4 ___
(Jan. 28, 1994). The final installment brought the total Foulds-
fee reimbursement to $913,503.7
The plaintiffs and IRPAs filed their final objections
to PSC-member costs in January 1995, essentially reiterating that
the cost review and verification process had proven hopelessly
inadequate to document either the necessariness or reasonableness
of the claimed costs, and that it was unfair to require them to
sort through the chaotic documentation created by the PSC and its
members. Alternatively, the plaintiffs and IRPAs asserted
specific objections to a sampling of allegedly inappropriate PSC-
member costs (e.g., phone calls, tips, charges for "drinks," ____
etc.) and urged an across-the-board reduction of all PSC-cost
claims by a fixed percentage (25-33%) to reflect the sampling-
based estimate of alleged PSC overcharges. Finally, the plain-
____________________
7The district court had approved two prior PSC reimburse-
ments relating to Foulds, totaling $850,000. See Margin Order ___
No. 755 (filed under seal Dec. 27, 1990); Order No. 398 (filed
under seal Oct. 15, 1991). The final PSC installment of $84,107
was disallowed in part, due to deficiencies in contemporaneous
documentation.
14
tiffs and IRPAs complained that Monita Sterling had refused to
allow CPA Torres to inspect the documentation pertaining to PSC-
office costs at the joint meeting required by Order No. 510-A.
The district court once again overruled the bulk of the
objections. See Order No. 584 (Aug. 29, 1995). First, it found ___
the PSC review process adequate, noting that it had resulted in
disallowance of several questionable expenditures based on the
independent review conducted by Raben, Sterling, and Soto under
objective criteria. Second, except for a handful of de minimis __ _______
mischarges totaling less than $2,000, the court rejected the
specific challenges asserted by the plaintiffs and IRPAs based on
their samplings of alleged overcharges. Finally, the court ruled
that its Pretrial Order No. 510-A, see supra pp. 11-12, had envi- ___ _____
sioned only that Sterling and Torres inspect documentation
relating to "outstanding issues" those involving PSC-member
costs, not PSC-office-cost issues.
In due course, the plaintiffs and IRPAs [hereinafter:
"appellants"] appealed from the various orders approving PSC-cost
reimbursements (Order Nos. 478, 485, 510-A, 520, and 584).
II II
DISCUSSION DISCUSSION __________
A. The PSC-Cost Reimbursement Regimen A. The PSC-Cost Reimbursement Regimen __________________________________
1. Appellants' Position 1. Appellants' Position ____________________
Appellants aim their main broadside at the regimen
established for documenting, monitoring, submitting, and approv-
ing PSC costs. Although the PSC, IRPAs, and plaintiffs in mass-
15
tort MDLs share the same litigation goal (viz., an optimum common ____
fund), internecine differences as to subsidiary matters
particularly the appropriate allocations from the common fund for
their respective attorney fees and costs are commonplace. The
greater the attorney fees and costs awarded the PSC, of course,
the less available for the IRPAs and their individual clients.
Appellants maintain that these conflicting self-interests neces-
sarily entail heightened oversight responsibilities on the part
of the district courts in mass-tort MDLs to ensure stringent
monitoring and review procedures adequate to protect the individ-
ual plaintiffs and IRPAs from overreaching by the PSC.
Appellants fault the district court for adopting
reimbursement procedures which delegate important judicial
oversight responsibilities to auditors appointed either by the
court or the PSC. It is the PSC, they say, rather than the
appellants, which must bear the ultimate burden in establishing
entitlement to reimbursement, see Grendel's Den, Inc. v. Larkin, ___ ___________________ ______
749 F.2d 945, 956-57 (1st Cir. 1984), which in turn necessitates
three distinct showings by the PSC for each claimed reimburse-
ment; viz., that it document: (i) the actual expenditure; (ii) ____ ______ ___________
its necessariness to the assigned litigation task; and (iii) its _____________
reasonableness, see, e.g., In re Agent Orange Prod. Liab. Litig., ______________ ___ ____ _____________________________________
611 F. Supp. 1296, 1314 (E.D.N.Y. 1985) ("Expenses must be both
reasonable in amount and reasonably related to the interests of
the class."), aff'd in pertinent part, 818 F.2d 226, 238 (2d Cir. _____ __ _________ ____
1987).
16
Appellants contend that the Raben and Kevane "audits"
did not inform the district court adequately regarding potential
PSC excesses. Raben and Kevane were accountants, neither trained
in the law nor familiar with the litigation tasks assigned to the
PSC. At best they could verify that the PSC and its members
actually made the claimed expenditures, but in many instances PSC
members maintained no detailed records relating to their reason-
ableness and necessariness. Moreover, appellants argue, though
Monita Sterling and others similarly designated by the PSC
undoubtedly were more familiar than Kevane and Raben with the
nature and demands of the PSC's litigation responsibilities,
their assessments of claimed expenses were inherently biased
because their employment with the PSC gave them a vested interest
in justifying PSC reimbursements.
Appellants contend that the district court erred in
suggesting that it was incumbent upon them, rather than the PSC,
to demonstrate that particular PSC expenditures were not reim-
bursable. See, e.g., Order No. 520, at 1 n.1 ("Parties question- ___ ____
ing payments previously approved carried the burden of setting
them aside whereas the PSC/Mr. Foulds were required to justify
the pending request."). The court based its ruling on the ground
that most PSC cost-reimbursement claims during earlier stages in
the litigation had been approved, without opposition, as submit-
ted.
Appellants complain not only that the district court
thereby subverted the well-established burden of proof incumbent
17
upon the PSC, see Grendel's Den, 749 F.2d at 956-57, but foisted ___ _____________
on the plaintiffs and IRPAs the impracticable task of rummaging
through mountainous PSC documentation to determine within very
restrictive court-ordered deadlines which PSC-cost submissions
were either inadequately documented or otherwise nonreimbursable.
Appellants therefore urge that all otherwise allowable PSC-cost
reimbursements be reduced by a fixed (if somewhat arbitrary)
discount (25% to 33%), see, e.g., Mokover v. Neco Enters., Inc., ___ ____ _______ __________________
785 F. Supp. 1083, 1093-94 (D.R.I. 1992), to reflect the likely
extent to which the PSC inferably overcharged due to its failure
to maintain "appropriate" documentation.
2. Standard of Review 2. Standard of Review __________________
District court orders awarding costs normally are
reviewed only for abuse of discretion. See Grendel's Den, 749 ___ _____________
F.2d at 950; see also Anderson v. Secretary of Health & Human ___ ____ ________ _____________________________
Servs., 80 F.3d 1500, 1507 (10th Cir. 1996); National Info. ______ ______________
Servs., Inc. v. TRW, Inc., 51 F.3d 1470, 1471 (9th Cir. 1995); ____________ _________
Estate of Borst v. O'Brien, 979 F.2d 511, 517 (7th Cir. 1992) ________________ _______
("The award of costs 'is the type of discretionary ruling to
which appellate courts should give "virtually complete" defer-
ence.'") (citations omitted).
3. "Burdens of Proof" 3. "Burdens of Proof" ________________
The PSC and its members undoubtedly must establish
their entitlement to reimbursement. See Grendel's Den, 749 F.2d ___ _____________
at 956-57. Furthermore, there can be no quarrel that the respec-
tive self-interests of the plaintiffs, the IRPAs, and the PSC in
18
mass-tort MDLs often diverge, nor for that matter that the cost-
containment regimen initiated at the outset in this case (without
benefit of hindsight) ultimately proved inadequate and even
chaotic, see supra Section I.D, as the district court itself ___ _____
acknowledged several years later.
We nevertheless part company with appellants' conten-
tion that the belatedly perceived shortcomings in the adopted
safeguards against PSC overreaching proximately caused the ______
unsatisfactory regimen in this case, or that the PSC and its
members must therefore be required to bear the entire brunt of
its failure to function as envisioned by the district court.
Quite apart from formal burdens of proof, all litigants must
share in their mutual obligation to collaborate with the district
court ab initio in fashioning adequate case management and trial __ ______
procedures, or bear the reasonably foreseeable consequences for
their failure to do so. See, e.g., Reilly v. United States, 863 ___ ____ ______ _____________
F.2d 149, 160 (1st Cir. 1988) (noting that district court reason-
ably may presume affected parties, which take no exception to an
announced course of action, have no objection); see also Clemente ___ ____ ________
v. Carnicon-Puerto Rico Mgt. Assocs., 52 F.3d 383, 387 (1st Cir. _________________________________
1995); K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 913 ____________ _____________________
(1st Cir. 1989); Austin v. Unarco Indus., Inc., 705 F.2d 1, 15 ______ ____________________
(1st Cir.), cert. dismissed, 463 U.S. 1247 (1983). _____ _________
As the lawbooks bear out, in many respects this has
been a groundbreaking mass-tort MDL from its onset in 1987. See, ___
e.g., supra n.1. The district court was confronted not only with ____ _____
19
the daunting task of devising (sometimes from "whole cloth")
mechanisms for streamlining case administration (e.g., the JDD), ____
but with establishing auxiliary administrative entities, includ-
ing the PSC itself, which would permit adequate ongoing judicial
oversight to be reserved for the most pressing and essential
litigation. The PSC, IRPAs, and plaintiffs were indispensable
partners in this important endeavor. Spurred by their respective
self-interests, these broadly allied litigants were far better
positioned than the trial judge to propose the prophylactic
procedures believed necessary to protect their respective inter-
ests from undue encroachment by potential adversaries, including
one another.
These complex and unwieldy "mass tort cases are a breed
apart," Thirteen Appeals, 56 F.3d at 311, to the point that ________________
efficient, and often innovative, administrative arrangements
become absolutely essential to enable the "court[] [to] run [a]
tight ship[] to ensure that [the] litigation stays on course."
Nineteen Appeals, 982 F.2d at 614. See In re Reticel Foam Corp. ________________ ___ _________________________
(In re San Juan Dupont Plaza Hotel Fire Litig.), 859 F.2d 1000, ______________________________________________
1004 (1st Cir. 1988) ("In multi-party, multi-case litigation, the
district court's success is largely dependent upon its ability to
uncomplicate matters."). Trial judges newly immersed in mass-
tort MDLs simply cannot reasonably be expected to anticipate,
from the inception, all potential flaws in their unopposed
procedural and administrative initiatives.
It is essential, therefore, that counsel collaborate
20
with the trial judge from the outset in fashioning workable
programmatic procedures, and thereafter alert the court in a
timely manner as operating experience points up infirmities
warranting further judicial attention. Absent this collaborative
administrative monitoring, there inevitably remains an unaccept-
able potential for internecine conflicts among the PSC, IRPAs and
plaintiffs over their respective dormant claims to the common
fund, which threaten to convert their cost-reimbursement disputes
into wasteful satellite litigations. See Hensley v. Eckerhart, ___ _______ _________
461 U.S. 424, 437 (1983) (cautioning that cost claims "should not
[be allowed to] result in a second major litigation").
Even at the outset, while their primary focus remained
on establishing defendants' liability, the PSC, IRPAs, and plain-
tiffs surely could anticipate that their respective financial
stakes in future PSC-cost reimbursement rulings would be substan-
tial (e.g., $10 million, or 4 1/2 percent of common fund), ____
especially since the district court had authorized the PSC not
only to take over certain IRPA litigation tasks but to establish
and finance its own ad hoc law firm at a centralized and inevita- __ ___
bly costly adjunct office. Confronted with this serious poten-
tial for conflicting self-interests, see Pretrial Order No. 2 ___
(cautioning counsel that "your working relationship will occa-
sionally be strained, communication hampered, and mutual trust
impeded"), and the virtually certain prospect that the massive
litigation would be protracted, see id. (cautioning that counsel ___ ___
would "probably be laboring together [in strained relationships]
21
for several years"), the PSC, IRPAs, and plaintiffs were on
reasonable notice from the outset that establishing adequate
prophylactic procedures was a priority matter.
Thus forewarned, the PSC, IRPAs, and plaintiffs all ___
were fairly alerted that the massive cost-submission documenta-
tion generated over the years ahead would become critically
important to them; viz., to satisfy the PSC's burden of proof ____
under Grendel's Den and enable both the IRPAs and plaintiffs to _____________
assert informed objections to inappropriate PSC cost-reimburse-
ment submissions. Clearly, then, their timely fashioning of
mutually satisfactory documentation and monitoring procedures
offered the most reasonable prospect for forfending this satel-
lite litigation. See Hensley, 461 U.S. at 437. ___ _______
As appellants acknowledge that there are no legal
precedents which provide detailed models for designing suitable
mass-tort cost-reimbursement procedures, they now urge, after the
fact, that we define the relevant responsibilities incumbent upon
the district court and the PSC in these matters. We decline
their request, however, in large part for the reason that the
guidance presently available plainly runs counter to their
premise that the primary responsibility for designing cost-
submission procedures, ab initio, rests with the district court. __ ______
Although the Manual for Complex Litigation ("the MCL") ___
itself includes no detailed provisions on the subject, opting
instead to encourage counsel for the principal parties to forge
22
ad hoc prophylactic procedures by mutual agreement from the __ ___
outset,8 it envisions that prescriptive procedural models will
emerge, and deserving ones gain currency, through the litigants'
own collaborative ad hoc initiatives, rather than originate in __ ___
appellate case law. See Pretrial Order No. 127, at 22 ("The ___
Manual for Complex Litigation . . . has been and will continue to
____________________
8The MCL provides, in relevant part:
Expenses incurred and fees earned by designated
counsel acting in that capacity should not be borne
solely by their clients, but rather shared equitably by
all benefiting from their services. If possible, the
terms and procedures for payment should be established _____ ___ __________
by agreement among counsel, but subject to judicial _________ _____ _______
approval and control (see infra section 24.214, compen- ___ _____
sation for designated counsel). Whether or not agree-
ment is reached, the judge has the authority to order
reimbursement and compensation and the obligation to
ensure that the amounts are reasonable. Terms and
procedures should be established before substantial __________ ______
services are rendered and should provide for, among
other things, the following: periodic billings during ________ ________
the litigation or creation of a fund through advance or
ongoing assessments of members of the group; appropri-
ate contributions from parties making partial settle-
ments with respect to services already rendered by
designated counsel; and contributions from parties in
later filed or assigned cases who benefit from the
earlier work of designated counsel.
Designated counsel should render services as
economically as possible under the circumstances,
avoiding unnecessary activity and limiting the number
of persons attending conferences and depositions and
working on briefs and other tasks. The court should
make clear at the first pretrial conference that com-
pensation will not be approved for unnecessary or
duplicative activities or services. The court should
also inform counsel what records should be kept and
when they should be submitted to the court to support
applications to recover fees and expenses from copar-
ties. See infra section 24.21, which discusses ground ___ _____
rules and record keeping where attorneys' fees are
awarded by the court.
MCL 20.223 (3d ed. 1995) (emphasis added). ___
23
be a primary reference text in this litigation. Counsel must
become familiar with the Manual."). Furthermore, ex post facto __ ____ _____
pronouncements detailing model procedures would be particularly
inappropriate in these circumstances as it is readily apparent
that the present dispute sprang inexorably from the flawed proce-
dural design in which appellants acquiesced from the outset, and
for six years thereafter, to the point that its deficiencies
became both systemic and irremediable. Appellants simply waited
too long before asking the district court to undo, with their
broad axe (viz., a 25% to 33% across-the-board cut), the documen- ____
tary muddle allowed to accumulate.
Moreover, pressed on many other fronts since 1987, it
was not practicable for the district court alone to scrutinize
all cost-related documentation maintained by the PSC for nearly
half a decade. See Grendel's Den, 749 F.2d at 950 (noting that ___ _____________
courts must strive for cost-setting processes which are "not
unnecessarily burdensome to the courts themselves"). Unlike less
attenuated and complex litigation, mass-tort MDLs by their very
nature predetermine that detailed monitoring of case-administra-
tion-related responsibilities be delegated. The early pretrial
orders entered by the district court, with appellants' acquies-
cence, accordingly established a cost-monitoring regime which
required the PSC to submit cost summaries every sixty days for
interim approval by the court. The PSC-cost summaries, which _______
merely reflected total expenses by general type and category,
represented the cumulative, edited product of the Raben and
24
Kevane "audits," without the underlying documentation. Thus, the
interim-approval regime was reasonably designed to ensure that
cost verification and containment by the parties not simply await
an end to the entire litigation, by which time the accompanying
avalanche of documentation would all but preclude cogent review.
Nevertheless, two serious deficiencies made their way
into these interim-approval procedures with appellants' acquies-
cence: (1) the failure to include defined criteria for assessing
"reasonableness" and "necessariness"; and (2) the failure explic-
itly to authorize or require appellants to monitor the underlying
documentation as interim PSC-cost summaries were submitted to the
district court.9 Thus, appellants settled from the outset simply
for the broad, undefined general criteria that claimed-PSC costs
be "necessary" and "reasonable," thereby implicitly foregoing
such ongoing prophylactic measures as particularized monetary
guidelines and/or ceilings on major cost categories; for example,
maximum per diem rates for hotels and page-rates for photocopy-
ing.10
____________________
9The record discloses no indication that appellants either
objected to these deficiencies or proposed alternative proce-
dures. See Silva v. Witschen, 19 F.3d 725, 729 n.4 (1st Cir. ___ _____ ________
1994) (appellant bears brunt of failure to include pertinent
material in record).
10The MCL notes:
Rules and practices vary widely with
respect to reimbursement of expenses incurred
by lawyers in the course of the case out of a
fee award. Charges for paralegals and law
clerks at market rates and the fees of neces-
sary experts are generally reimbursable. Sec-
retarial assistance, on the other hand, is a
25
Yet more fundamentally, the pretrial procedural orders
did not identify a minimum level of detail in the documentation
required to substantiate that a particular PSC-member cost was
"necessary" to a PSC litigation task and "reasonable" in amount.
Rather, the orders simply directed the PSC to keep "careful,
contemporaneous, detailed records" and provide "proper verifica-
tion" of its expenditures. Although Grendel's Den makes clear _____________
that an entity requesting reimbursement must document its actual ______
expenditures, normally by itemized receipt, see 749 F.2d at 956- ____________ ___
57, the more amorphous and subjective criteria for substantiating
that a given expenditure was "necessary" and "reasonable" may not
be so readily documented. For example, in some instances courts
do not require exacting documentation even for major cost reim-
bursements, such as overhead expenses incurred in connection with
the PSC office, relying instead on their intimate knowledge of
the litigation for determining whether entire categories of costs
pass the reasonableness test; viz., whether the nature of the ____
expenditure strikes the court as clearly superfluous or its
amount transcends the broad bounds of reasonableness in the
____________________
normal part of overhead, but courts have
differed over whether overtime is reimburs-
able. Similarly, rulings vary on such items
as copy and printing costs, certain meals and
travel, and fax, telephone, and delivery
charges. The determination of these kinds of
claims should not be left to costly and
time-consuming adversary adjudication at the
end of the litigation; ground rules on reim-
bursement should be established at the out- __ ___ ____
set. ___
MCL 24.215 (emphasis added). ___
26
circumstances.11
Furthermore, the early pretrial orders afforded both an
obvious and ready opportunity for appellants, inter alios, to _____ _____
propose, with somewhat greater particularity at least, more
definite contours for monitoring, testing, and verifying PSC
compliance with the amorphous "necessariness" and "reasonable-
ness" criteria laid down by the district court. As this litiga-
____________________
11The district courts differ quite sharply regarding the
detail needed in cost-reimbursement submissions:
The defendants next object that the plaintiffs' attor-
neys have not documented their request for expenses
with receipts. It is not necessary or desirable for
federal courts to review receipts for every five dollar
expenditure. Judges, being former practicing attor-
neys, are quite capable of determining the reasonable-
ness of expenses incurred during litigation. Neither
is it necessary to itemize expenses in great detail.
For example, it is sufficient that copying costs were
submitted without listing how many pages of which docu-
ments were copied during the three years of litigation.
Law firms generally do not keep such records and little
would be served by requiring them except to make liti-
gation more expensive. The amount of the expenses
submitted is certainly reasonable given the length and
complexity of this case.
Duke v. Uniroyal Inc., 743 F. Supp. 1218, 1227 (E.D.N.C. 1990), ____ _____________
aff'd, 928 F.2d 1413 (4th Cir.), cert. denied, 502 U.S. 963 _____ _____ ______
(1991). See Laffey v. Northwest Airlines, Inc., 572 F. Supp. ___ ______ ________________________
354, 383 (D.D.C. 1983) ("It is not necessary for plaintiffs to
explain the purpose of every photocopy that is produced and every
expenditure that is made in connection with the litigation. For
most out-of-pocket costs, it is enough for the plaintiffs to
identify the expenses by category, with a general description of
the types of charges included in each category. In the case of
particularly large or unusual expenditures, some additional
explanation of the purpose of the expense may be necessary, but
it is not the norm."), aff'd in pertinent part, 746 F.2d 4, 30 _____ __ _________ ____
(D.C. Cir. 1984), cert. denied, 472 U.S. 1021 (1985). But cf., _____ ______ ___ ___
e.g., Starnes v. Hill, 635 F. Supp. 1270, 1273 (W.D.N.C. 1986) ____ _______ ____
(requiring exquisite detail).
27
tion demonstrates all too well, the terms "detailed records" and
"proper verification" though perhaps perfectly adequate
benchmarks in a smaller, non-MDL litigation simply were not up
to the task in this mass-tort MDL. See MCL 20.223 ("The court ___ ___
should also inform counsel what records should be kept . . . .").
For example, even though early pretrial orders forewarned that
the litigation would be prolonged and that it would be impracti-
cable for the PSC to submit all its underlying documentation ___
directly to the district court for interim-approval review, the
PSC, IRPAs, and plaintiffs nonetheless refrained from proposing
any further definition of the required level of documentary
particularity. Thus, these matters were left unattended until
the end of the litigation at their peril. __ _____ _____
Moreover, appellants exacerbated the documentary muddle
from the start by opting to forego ongoing monitoring of the PSC
documentation. Unlike less prolonged and complex litigation,
wherein interim-cost reimbursement claims may be deferable until
the litigation nears completion, the hands-off approach taken by
appellants is utterly impracticable in these large and enduring
mass-tort proceedings.
Given the potential for serious, long-term overreaching
by the PSC under the relaxed regime envisioned by these pretrial
orders, we discern no sound justification for appellants' failure
to propose in 1987 that one of their own number be designated to __ ____ ___ __ _____ ___ ______
conduct closer review of the underlying PSC-cost documentation on
28
an ongoing basis.12 See Francis Bacon, Of Suspicion ("There is ___ __ _________
nothing makes a man suspect much, more than to know little.").
Alternatively, the IRPAs could have sought district court autho-
rization to retain an auditor to monitor these interim-cost
reports on an ongoing basis for "necessariness" and "reasonable-
ness." Thus, appellants' failure even to attempt interim moni-
toring directly contributed to the serious and otherwise avoid-
able consequences ultimately brought to the district court's
attention at a time when corrective action could no longer be
considered practicable.
Nor are appellants absolved of their primary responsi- _______ _________
bility for protecting their own interests based on the mere fact ______ ___ __________ _____ ___ _________
that the pretrial orders did not explicitly direct interim
monitoring. Rather, the record is clear that appellants were
____________________
12The PSC submitted its interim-cost claims under seal,
presumably to preclude their perusal by "adverse" litigants
(i.e., the defendants). In some attorney fee and cost shifting ____ __________
disputes, the requesting party may not wish to disclose its
documentation to a party-opponent during the litigation, out of
fear that its litigation strategies may be divulged, even though
the party-opponent eventually may be liable for the fees or
costs. See, e.g., Ring v. Commercial Union Ins. Co., 159 F.R.D. ___ ____ ____ _________________________
653, 659-60 (M.D.N.C. 1995) (party-opponent barred from obtaining
fee statements in circumstances where it could "examine the bill
to find out the nature of the services in order to discover what
advice the attorney was providing defendants and to learn other
details about defendants' investigation of her claim"); Colonial ________
Gas Co. v. Aetna Cas. & Sur. Co., 144 F.R.D. 600, 607-08 (D. ________ ______________________
Mass. 1992) ("To the extent that time records and statements
reveal the nature of the services provided, however, such docu-
ments are privileged.").
Of course, these IRPAs and plaintiffs were not opposing
parties in the underlying litigation. Thus, there was no privacy
impediment to allowing them access to the PSC's interim materials
and supporting documentation simply on request. In fact, the
appellees note that their cost documentation was always accessi-
ble to the IRPAs and plaintiffs on request.
29
neither precluded nor incapacitated from taking appropriate and
timely precautions. First and foremost, fundamental deficiencies
in the interim PSC-cost submissions to the court, especially
their lack of particularity, readily could have been addressed
and corrected ab initio, rather than at the end of the litiga- __ ______
tion. Second, appellants placed too much reliance upon non-MDL ___
case authority, see, e.g., Grendel's Den, supra, in failing to ___ ____ _____________ _____
conduct interim monitoring, based on their ill-advised assumption
that the PSC's ultimate burden of proving its entitlement to
reimbursement relieved appellants of their independent responsi- ________ __________ __ _____ ___________ _________
bility to collaborate with the district court and other parties ______
to develop and monitor appropriate cost-containment procedures.
30
Appellants were well aware, throughout the proceedings,
that the PSC had not been directed to submit its voluminous cost
documentation to the district court together with the interim
summaries. Thus, appellants knowingly failed to assume their
rightful responsibilities for safeguarding their own interests by
monitoring interim PSC-cost submissions as required to ensure
that the evolving documentation practices actually utilized by
the PSC were equal to the task and, if not, to broach the matter
first with the PSC and, as need be, with the court, in time to
permit effective preventive and corrective measures before
matters became completely unmanageable.13
We underscore the central administrative necessity in
mass-tort MDLs, that the PSC, IRPAs, and plaintiffs attempt very
early on to work out mutually acceptable procedures for document-
ing and monitoring costs for which reimbursement is to be sought.
No less importantly, both at the outset and thereafter, where
cooperative efforts fail to produce agreement, or cost-benefit
considerations independently warrant, judicial intervention
____________________
13For example, in 1993 Torres and Sterling were at logger-
heads over whether the PSC cost-documentation records were
adequate. Torres considered them an incomprehensible muddle.
Sterling countered that the records were thoroughly organized at
the outset but that Torres had "disorganized" them with his
haphazard rummaging. The district court, after crediting
Sterling's account, attempted to resolve the impasse by directing
Torres and Sterling to meet and consult at the JDD. By then, ____ ___ _______
however, the damage had been done and the resultant adminis-
trative "chaos" alluded to by the district court made it impossi-
ble even to ascertain whether the PSC had maintained suitable
documentation for the vast majority of its cost claims. With
prudent ongoing monitoring by appellants from the outset, of
course, the administrative confusion need never have gotten out
of hand.
31
should be promptly sought before matters worsen or become irreme-
diable. See Jaquette v. Black Hawk County, Iowa, 710 F.2d 455, ___ ________ ________________________
463 (8th Cir. 1983) ("[T]he key to avoiding excessive costs . . .
is early and stringent judicial management of the case.") (empha- _____
sis added).
The individual plaintiffs and IRPAs have enough at
stake in these matters to prompt their early intervention. For
example, if overly particularized PSC-cost documentation on
"reasonableness" and "necessariness" were to be required without
regard to sound cost-benefit considerations, its unnecessary
procedural costs ultimately would be borne by the individual
plaintiffs. See Laffey v. Northwest Airlines, Inc., 572 F. Supp. ___ ______ ________________________
354, 383 (D.D.C. 1983) ("Indeed, the amount of time that would be
required to document each item of expense in the detail apparent-
ly suggested by Defendant would be prohibitive; the compensable
time required to generate the detail would exceed the expenses
claimed."). Conversely, if appellants were to designate an IRPA,
or retain an independent auditor, to monitor PSC-cost submis-
sions, the expense conceivably could exceed whatever direct
savings might be derived through any resulting cost-reimbursement
disallowances. Thus, as the ultimate payors the individual
plaintiffs and IRPAs have enough at stake to warrant reasonable
efforts at ensuring that adequate documentation and cost-monitor-
ing procedures also make cost-benefit sense.
An adequate cost containment and monitoring system in a
mass-tort litigation cannot be economically and efficiently
32
designed and implemented from the outset absent a series of
tradeoffs among the PSC, IRPAs, and plaintiffs, all of whom are
under a mutual obligation to engage in an earnest effort to
resolve their differences early on. These appellants, on the
other hand, elected to acquiesce for four years in the flawed
cost containment and monitoring system first set in place in
1987, awaiting an end to the principal litigation before coming
forward with their objections. See Reilly, 863 F.2d at 160 ___ ______
(litigants share mutual burden to collaborate with district court
in fashioning workable litigation procedures).
4. Evidence of PSC Overreaching 4. Evidence of PSC Overreaching ____________________________
Next we consider whether the PSC-cost reimbursements
should be subjected to the across-the-board cuts (25% to 33%)
urged by appellants notwithstanding their own failure to take
appropriate preventive or corrective action. In our view, their
crude cuts ought not be imposed in these circumstances absent
evidence that the PSC acted in bad faith or took unfair advantage
of the procedural deficiencies. Not only have we found no such
evidence, but we can discern no appreciable PSC overreaching from
the record.
First, there should be no ready presumption that
counsel appointed to the PSC expended its funds in bad faith;
that is, with intent to inflate PSC-cost reimbursement submis-
sions. This is especially true in the present circumstances,
since the PSC members repeatedly attested that their cost submis-
sions were bona fide. See, e.g., Alabama Power Co. v. Gorsuch, ___ ____ __________________ _______
33
672 F.2d 1, 5 (D.C. Cir. 1982) ("[I]n most cases, the court
should be content to rely upon the integrity of counsel, and
allow the[] expenses [claimed]."); Greenspan v. Automobile Club _________ ________________
of Mich., 536 F. Supp. 411, 413-14 (E.D. Mich. 1992) (refusing to ________
"second-guess" necessariness of costs and relying in part on
affidavits filed by requesting parties and their attorneys); cf. ___
also, e.g., In re Agent Orange Prod. Liab. Litig., 611 F. Supp. ____ ____ ______________________________________
at 1322 ("If there was doubt about the reason for a[n]
[attorney's phone] call, it was allowed."); 28 U.S.C. 1924
(permitting attorneys to vouch for necessariness of costs).
Whether or not there is a direct or formal attorney-client
relationship between plaintiffs and the PSC, the PSC and its IRPA
members necessarily owed a fiduciary obligation to the plain-
tiffs. Cf. In re Agent Orange Prod. Liab. Litig., 818 F.2d at 223 ___ _____________________________________
(noting that lead counsel owes fiduciary duty to class plain-
tiffs); see also MCL 20.22 (counseling court to remind PSC ___ ____ ___
members of "their responsibility to the court and their obliga-
tion to act fairly, efficiently, and economically in the inter-
ests of all parties and their counsel"). Furthermore, these PSC
members simultaneously were acting in their respective roles as
IRPAs, with direct professional responsibility for representing
approximately seventy percent of the plaintiff class. In these
circumstances especially, given their professional obligations to
the court and their individual clients, we would be highly
reluctant to suppose that the PSC members promoted overreaching
by the PSC.
34
Second, the PSC "auditing" which did occur, whether or
not adequate, cannot be dismissed as perfunctory, since it did
screen out some significant cost excesses. For example, Adamina
Soto attested that she contacted PSC members concerning problem
expenses and followed up with requests for further documentation.
Indeed, the Raben and Soto audits resulted in cost reductions
exceeding $346,000. Although appellants object that some PSC
auditing was conducted at random, particularly that performed by
Kevane and Soto, as it did not purport to verify each expense
claim, the reviews conducted by Raben and Sterling were not
random. Finally, even the random "audit" procedures were not
conducted under PSC control. Thus, we are not persuaded that the _____ ___ _______
random review procedures were flawed to the point that they could
provide no effective deterrent to substantial PSC overreaching.
Third, appellants emphasize that Kevane and Raben were
accountants, with little personal knowledge regarding the precise
litigation tasks assigned to the PSC. Both were professional
CPAs, however, and Raben in particular was no neophyte, having
been responsible for comparable cost oversight in the MGM case,
itself a hotel fire litigation. It does not seem unreasonable,
therefore, absent evidence to the contrary, to expect that Raben
was reasonably qualified for the professional task assigned to
him.
Fourth, as there is no indication in the appellate
record that the PSC ever attempted to prevent appellants from
examining its underlying cost documentation prior to 1991, the
35
reasonably foreseeable prospect that appellants might well
(indeed should) have requested interim access to the documenta-
tion presumably had some deterrent effect upon PSC overreaching.
Not only did the pretrial orders not preclude ongoing access by
appellants to the PSC documentation, but there would appear to
have been no conflict of interest or "work product" privilege
which would have prevented the individual plaintiffs or IRPAs
from inspecting the PSC documentation at any time during the
litigation. See supra note 12.14 ___ _____
Finally, and most importantly, the district court
initially proposed to limit PSC attorney fees and costs, com- ____
bined, to ten percent of the eventual common fund, thus providing _____
PSC members a substantial inducement to exert reasonable efforts
to minimize PSC costs with a view to preserving a larger balance
with which to fund their attorney fees as PSC members. See In re ___ _____
Wells Fargo Sec. Litig., 157 F.R.D. 467, 470 (N.D. Cal. 1994) ________________________
("[A]n attorney generally has no incentive to minimize litigation
expenses unless his fee award is inversely related to such
expenses."). Appellants respond that the ten percent ceiling did
not deter inflated costs, however, because the district court
____________________
14Appellants point out that the PSC refused Torres access to
certain "derivative" documents after 1991, such as the Raben work
papers. Nevertheless, Torres had access to the raw materials
examined by Raben (viz., actual PSC receipts and other documenta- ____
tion). Moreover, appellants were not necessarily entitled to
full-fledged discovery, at least absent district court authori-
zation. See Thirteen Appeals, 56 F.3d at 303 (noting that ___ _________________
normally it is sufficient, for purposes of a fee and expense
application, to order exchange of the "raw materials" or "all the
data reasonably necessary to formulate . . . objections") (cita-
tion omitted).
36
announced in January 1991 that it would not be enforced after
all. See Thirteen Appeals, 56 F.3d at 307 n.10 (holding that ___ ________________
tentative cap was not binding on district court); Nineteen ________
Appeals, 982 F.2d at 612 (same). Nevertheless, until January _______
1991, by which time the lion's share of its $10 million in costs ______ _____
had accrued, the PSC could not have known that the district court
would discard the ten percent ceiling.
We therefore conclude, based on the foregoing consider-
ations, particularly the absence of reliable evidence of over-
reaching or bad faith on the part of the PSC, that it would be
inequitable to resort to the crude cost-cutting bludgeon proposed
by appellants, who share at least equal responsibility for these
procedural lapses. Although the procedural deficiencies dis-
cussed above may have led to some unnecessary or unreasonable
expenditures, appellants clearly failed to alert the district
court until it had become impracticable either to prevent or
assess, let alone correct them in any reliable or cost-effective
manner.
B. Individualized Objections B. Individualized Objections _________________________
Next we consider appellants' objections to particular
categories of cost-reimbursement claims.15
____________________
15We see no need to catalog certain meritless challenges
appellants raise to various miscellaneous expenses, especially in
light of the deferential standard of review. See Order No. 584 ___
(Aug. 29, 1995). We note simply that our review has disclosed no
abuse of discretion in these regards.
37
1. PSC-Office Costs16 1. PSC-Office Costs ________________
Appellants contend that the $913,503 fee paid to
Attorney Thomas H. Foulds by the PSC for services rendered as a
putative "insurance expert" should not have been treated as a
PSC-office cost, see Order No. 520 (Jan. 28, 1994), but as an ___
attorney fee chargeable against the fifty percent share of the
attorney-fee fund already recovered by PSC members. The district
court determined that Foulds, who had worked for twenty years as
an insurance claims manager before attending law school, had been
hired not as an attorney, but primarily to consult with PSC
attorneys regarding the nuts-and-bolts interpretation of various
insurance policies. The PSC concedes that Foulds handled certain
litigation tasks normally performed by attorneys (e.g., deposi- ____
tions in the liability case against defendant Alexander and
Alexander), but nonetheless insists that this was the most cost-
efficient approach, especially given Foulds' intimate under-
standing of the pertinent insurance policies.17 Although the
parties cite no authority regarding the appropriate criteria for
____________________
16Appellants likewise attack the district court determina-
tion that they waived objection to any PSC-office costs other
than the Foulds fee. We need not resolve the issue, however,
since appellants' objections to these cost-reimbursement claims
are based on their contention that the PSC failed to meet its
burden of proof and verification under Grendel's Den, a position _____________
which we have already rejected. See supra Section II.A; see also ___ _____ ___ ____
In re Agent Orange Prod. Liab. Litig., 611 F. Supp. at 1331 _________________________________________
(allowing "[a]ll reasonable, verifiable expenses for running" the
PMC's centralized office).
17The PSC also protests that it came as no "surprise" to
appellants that Foulds was retained. But this is beside the
point. Appellants simply maintain that they were never informed
that Foulds would be used as an "attorney."
38
determining whether one in Foulds' position should be considered
an insurance expert or an attorney, we are persuaded that the
district court ruling constituted error in these particular
circumstances.18
As a general rule, a PSC member who serves simulta-
neously as an IRPA in a mass-tort MDL is entitled to recover
separate compensation from the common fund for the legal services
performed in each distinctive role. See Thirteen Appeals, 56 ____ ___ ________________
F.3d at 300 n.2. The prospect of more lucrative returns for
their services prompted many IRPAs to compete for these coveted
PSC appointments in 1987, respectively urging upon the district
court their particular experience and expertise in previous mass-
tort suits. See Nineteen Appeals, 982 F.2d at 605 ("[A]ppointment ___ ________________
to the PSC was much coveted . . . .").
On the other hand, all the unsuccessful IRPA candidates
for PSC appointment must nevertheless contribute toward defraying
PSC attorney fees/costs, since the district court's decision to
establish a PSC diverts a significant portion of their respective
____________________
18The applicable standard of review is not clear and we find
no controlling precedent. Nonetheless, the basic determination
as to what work Foulds performed would call for fact-finding,
reviewable only for clear error. See Damon v. Sun Co., Inc., 87 ___ _____ _____________
F.3d 1467, 1483 (1st Cir.1996). In this case, however, the
parties agree as to what work Foulds performed. On the other
hand, the determination as to which fund attorney fee or cost
should bear the expense incurred for a particular type of
service, would appear to be a legal question, or a mixed question
in which the legal component predominates, either of which
normally would be reviewed de novo. As we are persuaded that the __ ____
district court ruling cannot withstand review under either
standard, we need not determine the precise standard at this
juncture.
39
contingent fees toward funding the PSC. Cf. id. at 310 (noting ___ ___
that though the PSC may be "a necessary concomitant to skillful
case management of mass tort suits, it nevertheless significantly
interferes with [the respective IRPAs'] expectations regarding
the fees that his or her client has agreed to pay"). According-
ly, due regard should be had for these nonmember-IRPAs' dimin-
ished fee expectations, at least to the extent that "the judge .
. . attempt to avoid any perception of favoritism" in mediating
disputes between PSC members and nonmember IRPAs. See Nineteen ___ ________
Appeals, 982 F.2d at 605. _______
At the time the nine original PSC members were appoint-
ed, from among forty applicants, the district court expressly
directed, inter alia, that the PSC "shall neither be enlarged nor _____ ____
diminished in size or membership without Court approval," Pretri-
al Order No. 127, at 29, that the PSC "conduct all pretrial
liability and damage discovery," id. at 30, and that "only two ___
members of the PSC, or counsel duly authorized by them, may
question [] deponent[s]," id. Given the acknowledgement by the ___
appellees that Foulds, on occasion, served as a de facto PSC __ _____
attorney without prior district court authorization, his reten-
tion, to that extent at least, directly contravened the explicit
pretrial orders prohibiting any de facto expansion of PSC member- __ _____
ship. Thus, the district court's subsequent authorization of
reimbursement to the PSC for the Foulds fee as an insurance
expert cannot cure the PSC's unauthorized, unilateral expansion
of its attorney ranks, without inviting similar circumventions in
40
the future.
We therefore reject the suggestion that we remand to
permit the district court to apportion the $913,503 fee as
between the "insurance expert" and "attorney" services performed
by Foulds. We wish to make clear, however, that the PSC was not
precluded from retaining Foulds based on a reasonable belief that
he was the best qualified insurance expert available, simply
because he happened to be an attorney. Nonetheless, once the PSC
did retain Foulds, it owed nonmember IRPAs a duty of fair dealing
to ensure that he undertook no unauthorized "attorney" tasks
which might have been performed by some disappointed candidate
for PSC membership.
2. PSC-Member Costs 2. PSC-Member Costs ________________
a) Photocopying Costs a) Photocopying Costs __________________
Appellants oppose the twenty-five-cent page rate at
which the district court permitted reimbursement to PSC members
for photocopying; in all, amounting to $184,000. The district
court explained that it "fail[ed] to see the difference between
PSC members and any IRPA charging a client a reasonable amount
for copying charges." Order No. 510-A, at 8 (Nov. 24, 1993).
Appellants cite numerous decisions which hold the twenty-five-
cent rate unreasonable, and argue that the PSC provided no proof
that it actually incurred that cost to copy each page.
The PSC members offer three justifications for the
approved rate. First, most photocopying was done at the PSC
office and no reimbursement claim was made. Second, appellants
41
knew early on in the litigation that the PSC had voted to permit
its members to claim reimbursement at twenty-five cents per page.
Third, the twenty-five-cent rate, standard in many law offices,
had been allowed in the MGM case. Although the district court's
cost-allowance rulings are entitled to deferential review,
Grendel's Den, 749 F.2d at 950, we are persuaded that its ruling _____________
does not withstand scrutiny.
Unlike the PSC, the IRPAs are free to assess their own
clients for photocopying in accordance with their respective
contingent fee agreements and any applicable ethical-code provi-
sion. On the other hand, the PSC is a creature of the district
court, whose mission is to promote more efficient litigation, see ___
MCL 20.223 ("Designated counsel should render services as ___
economically as possible under the circumstances."). In a
"common benefit" case of this sort, therefore, the court must
ensure that PSC members recover only their actual costs, with no ______
"profit" margin. See Fogleman v. Aramco, 920 F.2d 278, 286 (5th ___ ________ ______
Cir. 1991) ("To the extent that counsel charges a party more than
actual cost for any service, be it reproduction of documents or
telephone calls, counsel is recovering additional fees."); Spicer ______
v. Chicago Bd. Options Exch., Inc., 844 F. Supp. 1226, 1260 (N.D. _______________________________
Ill. 1993); In re Washington Pub. Power Supply Sys. Sec. Litig., ___________________________________________________
779 F. Supp. 1063, 1111-12 (D. Ariz. 1990) (reducing in-house
photocopying costs claimed at twenty or twenty-five cents:
"[t]hat this amount may be charged to regular clients by the
firm, or that it is 'standard' in the firm's area of practice, is
42
not controlling, [and] Class members will not be assessed an
amount that produces a clear and unwarranted profit for the
firm"), rev'd on other grounds, 19 F.3d 1306 (9th Cir. 1994).19 _____ __ _____ _______
Unlike the PSC's alleged failure to document the
"necessariness" and "reasonableness" of other types of expenses
(e.g., hotel charges, air fares), see supra Section II.A, its ____ ___ _____
failure to document its own in-house photocopying costs presents
a fundamental problem. As in-house photocopying costs are not
incurred with "outside" providers (e.g., hotel, airline, or even ____
an outside photocopying service), there is no third-party receipt
to verify the expenditure and its amount.20
____________________
19See also ABA Comm. on Ethics and Professional Responsibil- ___ ____
ity, Formal Op. 379 (1993) (noting that counsel is "obliged to
charge the client no more than the direct cost associated with
the service (i.e., the actual cost of making a copy on the ____
photocopy machine) plus a reasonable allocation of overhead
expenses directly associated with the provision of the service
(e.g., the salary of a photocopy machine operator)"); id. ("[I]t ____ ___
is impermissible for a lawyer to create an additional source of
profit for the law firm beyond that which is contained in the
provision of professional services themselves. The lawyer's stock
in trade is the sale of legal services, not photocopy paper, tuna
fish sandwiches, computer time or messenger services."); cf. ___
Alpine Pharmacy, Inc. v. Chas. Pfizer & Co., Inc., 481 F.2d 1045, _____________________ ________________________
1050 (2d Cir. 1973) (counsel in class actions "serve[] in some-
thing of a position of public trust . . . [and] share[] with the
court the burden of protecting the class action device against
public apprehensions that it encourages . . . excessive
attorneys' fees).
20See In re Motor Freight Express, 80 B.R. 44 (Bankr. E.D. ___ ____________________________
Pa. 1987)) ("In the case of photocopying, counsel should inform
the Court of the number of copies, the cost of each copy, and
provide, if possible, a breakdown of the reasons why photocopying
of certain documents was necessary."); In re Old South Transp. ________________________
Co., 134 B.R. 660, 667 (Bankr. M.D. Ala. 1991) (same); cf. ___ ___
Berryman v. Hofbauer, 161 F.R.D. 341, 344 (E.D. Mich. 1995) ________ ________
(noting that, under 28 U.S.C. 1920, cost-reimbursement
claimant's conclusory statement that copying costs were necessary
is insufficient).
43
Even if only by reasoned approximation, therefore, the
PSC needed either to demonstrate the various components of its
in-house photocopying costs (e.g., the prorated cost of purchas- ____
ing or leasing the photocopier, the copy paper, and salaries
attributable to making the copies), or show the prevailing cost
of comparable outside copy services, see, e.g., Haroco, Inc. v. ___ ____ ____________
American Nat'l Bank and Trust Co. of Chicago, 38 F.3d 1429, 1441 _____________________________________________
(7th Cir. 1994) (holding that "charges for in-house reproduction
may not exceed the charges of an outside print shop"). See ___
Grendel's Den, 749 F.2d at 950 (noting that the district court's ______________
discretion "must, of course, be exercised within evidentiary
bounds," and the court must "provide a 'clear explanation of its
reasons for the fee award'").
44
The PSC does not pretend to have established that it
actually incurred a twenty-five-cent-per-page photocopying cost. ________ ________
As all three PSC justifications for the requested twenty-five-
cent rate, supra, are inapposite to this essential showing, we _____
vacate the district court ruling, and direct the PSC members to
reimburse appellants for all PSC in-house photocopying cost
claims calculated at a rate exceeding ten cents per page. Thus,
appellees are to remit $110,400 of the $184,000 disbursed to the
PSC.
b) Hotel Rates b) Hotel Rates ___________
Lastly, appellants contend that the district court
abused its discretion by allowing reimbursement to various PSC
members for hotel-room charges ranging from $180 to $450 per day,
notwithstanding its pretrial order cautioning that "hotel accom-
modations/meals should be moderate, not deluxe . . . ." Pretrial
Order No. 127, at 44-45. Appellants assert that any hotel-room
charge above the $116 per diem rate then deemed deductible by the
Internal Revenue Service, should not have been reimbursed, that
less expensive rooms were available in Puerto Rico, and that on
occasion PSC members obtained less expensive rates. There was no
abuse of discretion.
First, the district court correctly noted that substan-
tial leeway was due PSC members regarding their scheduling needs
during the frenetic early stages of the litigation, when most
investigation and discovery had to be conducted. See Order No. ___
584, at 9 (noting that the PSC conducted over 2300 depositions,
45
and retained twenty-nine expert witnesses); id. ("[The investi- ___
gative] stage was decisive in terms of immediately preserving
evidence and conducting valuable investigations regarding the
fire origin and spread. Time was of the essence and because of
this, the activity was feverish, leaving scant opportunity to
fine-tune the preparation and justification of expenses.").
Consequently, the appropriate inquiry here is not simply whether
an individual attorney might have booked a room at a lower rate
during a given time period. Rather, the PSC frequently was
required to coordinate lodging for many individuals and without
much advance notice.
Thus, the appropriate inquiry must be whether the rate
was reasonable in relation to the legitimate needs occasioned by
the litigation tasks at hand. Against this backdrop, appellants
have failed to demonstrate an abuse of discretion. None of the
hotel rates strike us as facially abusive in these particular
circumstances. Cf. Grendel's Den, 749 F.2d at 957 (finding abuse ___ _____________
of discretion where hotel bill of $917 could be considered
"unreasonable on its face").
Second, as with other PSC-costs, see supra Section ___ _____
II.A, appellants settled, from the outset and without protest,
for amorphous general standards, such as "moderate" and non-
"deluxe" hotel accommodations, whereas they were free from the
start to propose the $116 per-diem rate they now suggest. _______
Furthermore, there has been no showing that the hotel charges for
which reimbursement was sought were either "deluxe" or not
46
"moderate" in the circumstances.21 Finally, as concerns __ ___ _____________
appellants' contention that PSC members did not keep adequate
supporting documentation relating to the "necessariness" and
"reasonableness" of each hotel expense, their position is fore-
closed. See supra Section II.A. ___ _____
III III
CONCLUSION CONCLUSION __________
We acknowledge the rational force in appellants'
contention that inherent conflicts of interest exist between the
PSC and individual plaintiffs in mass-tort MDLs, yet serious
deficiencies in the cost-submission procedures nevertheless
persisted throughout this litigation. Nonetheless, despite
reasonable notice of the obvious peril to their own financial
interests, and their clear obligation to forfend against it from
the outset, appellants did not turn serious attention to the PSC-
cost reimbursement regime deficiencies until the Gordian knot
could no longer be undone. Consequently, we determine, as we
must, that the requested relief has been rendered impracticable,
through appellants' inaction, to the extent that further redress
at this point would extend this satellite litigation for no cost-
effective purpose. See Hensley, 461 U.S. at 437. ___ _______
Accordingly, within 30 days, appellees shall remit to Accordingly, within 30 days, appellees shall remit to
the Clerk of the United States District Court for the District of the Clerk of the United States District Court for the District of
____________________
21With respect to the $450 per diem rate, the district court
supportably made the specific finding that the room in question
was a suite, shared by several members and situated near facili-
ties necessary to the litigation tasks to be performed.
47
Puerto Rico $1,023,903 (consisting of the $913,503 previously Puerto Rico $1,023,903 (consisting of the $913,503 previously
received as reimbursement for PSC costs incurred for services received as reimbursement for PSC costs incurred for services
rendered by Mr. Foulds and the $110,400 for the PSC-Member rendered by Mr. Foulds and the $110,400 for the PSC-Member
photocopying costs), plus interest calculated at the legal rate photocopying costs), plus interest calculated at the legal rate
(6% per annum), P.R. Laws Ann. tit. 31, 3025, from the dates of (6% per annum), P.R. Laws Ann. tit. 31, 3025, from the dates of
the respective disbursements to the PSC from the litigation the respective disbursements to the PSC from the litigation
expense fund established in Pretrial Order No. 127. In due expense fund established in Pretrial Order No. 127. In due
course, the Clerk shall distribute the remitted funds to those course, the Clerk shall distribute the remitted funds to those
plaintiffs who prosecuted the instant appeal, in equal shares. plaintiffs who prosecuted the instant appeal, in equal shares.
In turn, these plaintiffs shall pay their respective IRPAs In turn, these plaintiffs shall pay their respective IRPAs
whatever share of the rebated funds (if any) may be due the IRPAs whatever share of the rebated funds (if any) may be due the IRPAs
under their respective contingent fee contracts for services under their respective contingent fee contracts for services
rendered in prosecuting this appeal. In all other respects, the rendered in prosecuting this appeal. In all other respects, the
district court order is affirmed. The parties shall bear their district court order is affirmed. The parties shall bear their
own costs on appeal. SO ORDERED. own costs on appeal. SO ORDERED. __ _______
48
Document Info
Docket Number： 95-2285
Filed Date： 4/22/1997
Precedential Status： Precedential
Modified Date： 9/21/2015