
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
