William D. Stratton v. XTO Energy Inc., Bob R. Simpson, William H. Adams III, Lane G. Collins, Phillip R. Kevil, Jack P. Randall, Scott G. Sherman, Herbert D. Simons, Keith A. Hutton, Vaughn O. Vennerberg II, Louis G. Baldwin, Timothy L. Petrus, Gary D. Simpson

Citation: Not availableDocket: 02-10-00483-CV

Court: Court of Appeals of Texas; February 8, 2012; Texas; State Appellate Court

Original Court Document: View Document

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In the case before the Court of Appeals for the Second District of Texas, appellant William D. Stratton, representing a class of shareholders, challenges the trial court's order that awarded $3,972,367.75 in attorneys' fees in a shareholder class action related to the merger between ExxonMobil Corporation and XTO Energy, Inc. The plaintiffs alleged that XTO's Board of Directors breached their fiduciary duties by failing to fully disclose information and maximize shareholder value during the merger process. Following the announcement of the merger in late 2009, multiple putative class actions were filed. 

A settlement was reached in April 2010, wherein ExxonMobil agreed to pay up to $8,800,000 in attorneys' fees and expenses, pending court approval. Plaintiffs' counsel later requested $188,355.66 for expenses and a lodestar amount of $3,972,367.75, which included a multiplier of 2.17, leading to a total request of $8,611,644.34 for fees. The trial court ultimately approved the expense request but reduced the attorneys' fee award to $3,972,367.75, citing insufficient evidence of the reasonableness of hours worked and rates billed. The court also noted that applying a multiplier uniformly was inappropriate due to the varying characteristics of the law firms involved. The plaintiffs subsequently filed a motion to modify the judgment, presenting additional affidavits to support the reasonableness of their fee requests.

Plaintiffs presented testimony from Professor Geoffrey Miller and Craig Enoch, along with an exhibit comparing their counsel's rates to those of other firms, during a hearing on their motion to modify. The trial court took no action, resulting in the motion being denied by law without any findings or conclusions. Plaintiffs appealed the decision. In Texas class actions, courts have discretion in determining reasonable attorney fees, guided by established rules and principles. An appellate court assesses whether a trial court abused its discretion by evaluating if the court acted arbitrarily or unreasonably, primarily based on the evidence available. 

Plaintiffs argued that the trial court abused its discretion by not applying lodestar enhancement factors when assessing their attorney fee request. According to Texas Rule of Civil Procedure 42(i)(1), the court must first calculate a lodestar figure based on hours worked and reasonable hourly rates, which can then be adjusted between 25% and 400% based on specific factors outlined in Rule 1.04(b) of the Texas Disciplinary Rules, such as the complexity of the case, customary fees, and the results achieved. The trial court expressed concerns about the high hourly rates and indicated that the Johnson factors would need to be applied to justify the reasonableness of these rates. The trial court's award of attorney fees was based on the assumption that the Johnson factors had already been considered in determining the lodestar.

The Johnson factors, which determine the reasonableness of attorneys' fees, include: (1) time and labor required; (2) novelty and difficulty of questions; (3) skill required; (4) preclusion of other employment; (5) customary fee; (6) fixed or contingent fee; (7) time limitations; (8) amount involved and results obtained; (9) attorneys' experience, reputation, and ability; (10) case undesirability; (11) nature and length of client relationship; and (12) awards in similar cases. The trial court must execute two steps in awarding fees: first, calculating a lodestar by multiplying reasonable hours worked by a reasonable hourly rate, potentially using some Johnson factors; second, applying a multiplier based on any remaining Johnson factors. The trial court failed to properly follow these steps, assuming that the Johnson factors were considered in the lodestar calculation without evidence supporting this assumption. The trial court's decision did not align with the uncontradicted evidence showing the fee request was reasonable and warranted enhancement. Consequently, the court abused its discretion by not correctly calculating the lodestar and adjusting it accordingly, leading to an unjust award. Plaintiffs' challenge to the award is supported by evidence of its reasonableness, indicating grounds for reversal.

The court referenced case law, including Cobb v. Miller and Copper Liquor, to emphasize the necessity of carefully assessing a trial judge's discretion in awarding attorneys' fees. It found that the district court had abused its discretion by not adequately considering the relevant Johnson criteria and failing to provide sufficient rationale for its fee award. Although the dissent suggested remanding the case for further proceedings, the majority determined that remand was unnecessary due to the completeness of the existing record, which included uncontradicted affidavits and testimony supporting the fee request.

In accordance with Texas Rule of Appellate Procedure 43.3, the court opted to render the judgment that the trial court should have issued, citing judicial economy. It explained the lodestar calculation method, which involves multiplying the reasonable hours worked by an appropriate hourly rate. Plaintiffs submitted approximately 7,370 hours at rates ranging from $200 to $845 per hour, totaling a lodestar of $3,972,367.75. However, the initial application lacked evidence supporting the reasonableness of the hours and rates claimed.

Subsequently, twenty additional affidavits were provided with the motion to modify, where most attorneys asserted the reasonableness of the hours worked. Affidavits outlined specific tasks performed, including research, drafting, discovery responses, depositions, and settlement negotiations. Expert witness Geoffrey P. Miller supported the reasonableness of the billed hours, stating that the time spent aligned with what is typically required to litigate a case of this size and complexity.

The Plaintiffs' firms demonstrated expertise that enhanced efficiency, allowing work to be distributed among associates, paralegals, and law clerks, with the majority of the tasks assigned to attorneys possessing appropriate seniority. A review of submitted affidavits indicates that the Plaintiffs' counsel dedicated the necessary time to achieve a successful outcome efficiently. Out of 7,369.9 total hours submitted, only 386.35 hours (5.2%) lacked direct testimony to support their reasonableness and necessity. Expert witness Arthur R. Miller did not specifically opine on the reasonableness of billed hours but testified at trial that they were reasonable given the litigation's intensity. Additionally, Enoch testified similarly regarding the hours billed. Texas courts have established that itemized bills are not required for attorney fee awards; testimony from attorneys and experts can suffice to demonstrate the reasonableness of billed hours. The Plaintiffs' total hours were stated as 7,369.55, but the actual total calculated from affidavits was 7,369.9, with minor discrepancies noted in hours claimed and fees requested by two attorneys. This led to a determination that 7,355.3 hours were reasonably expended. The twenty-one affidavits submitted indicated that the requested rates were the firms' standard rates, with most attorneys testifying that these rates were reasonable compared to similar work in their communities.

Customary fees within the local legal community serve as a guideline for assessing the reasonableness of requested attorney fees but are not mandatory for an attorney's fee application. A trial court is not obligated to gather evidence on all factors influencing fee reasonableness. The rates from six law firms involved are consistent with those charged by similarly experienced attorneys, with some rates previously approved by Texas courts. A 2007-2009 survey from The National Law Journal indicated that the requested rates align with state averages. Plaintiffs referred to various cases demonstrating that rates from New York firms were within regional norms, with hourly rates ranging from $125 to $880. Testimonies from Enoch and Geoffrey Miller supported the reasonableness of the rates, emphasizing no bonuses or premiums were included, and suggesting that the average hourly rate of $539 was significantly lower than historical averages of $1,370 in securities cases.

The court determined a reasonable number of hours spent on the case to be 7,355.3, leading to a lodestar calculation of $3,968,277.25. Following Texas Rule of Civil Procedure 42(i)(1), which allows for a multiplier of 25% to 400% of the lodestar, Plaintiffs sought a 217% award. The court must evaluate this request against factors outlined in Texas Disciplinary Rule of Professional Conduct 1.04(b), considering the complexity and novelty of the legal issues which warranted the proposed multiplier, as supported by testimonies regarding the significant time and effort required.

Miller testified about the challenges and risks associated with class action lawsuits, particularly the difficulty of obtaining class certification. His research indicates that multipliers in securities class actions are typically higher than those in simpler statutory fee-shifting cases, reflecting the complexity and resource-intensive nature of class litigation, often countered by sophisticated defense law firms. He emphasized the commitment required from lawyers, as the fast-paced litigation necessitates substantial resource allocation, potentially hindering other employment opportunities.

He evaluated the customary fees in the locality, noting that the rates charged by the attorneys in this case align with local standards, although higher rates exist in larger markets like New York. Miller highlighted the positive outcomes achieved by Plaintiffs' counsel, particularly the critical supplemental disclosures resulting from the litigation that informed shareholders about the fairness of a significant merger valued at $41 billion. He compared this case's results to a similar New York case involving a $9 billion merger, which resulted in an $8.5 million fee award. 

The evidence gleaned from the litigation was deemed vital, as the financial advisors had not received complete information necessary for an informed valuation. Enoch underscored the value of ensuring accurate information for shareholders, enhancing the merger's transparency. Additionally, Kelly Puls’s affidavit noted an overwhelmingly positive response from class members regarding the settlement, with only about 0.002 percent objecting. The expedited discovery process was necessitated by a temporary injunction aimed at pausing a shareholder vote, leading to an intensive review of extensive documentation within four months.

Enoch testified about the stress and time demands of intensive document review in complex cases with tight deadlines, characterizing them as requiring full team efforts. Geoffrey Miller indicated that such compressed timelines justify a significant lodestar enhancement. The case involved a contingency fee arrangement, representing a large class of shareholders holding 584 million shares of XTO stock, with 179,618 notices mailed to potential class members. Miller noted that, unlike hourly billing attorneys, plaintiffs' counsel in class actions typically do not retain clients on an hourly basis, diminishing the relevance of loss leader strategies.

The experience and reputation of the legal team varied, with ninety attorneys involved, including senior partners with decades of experience and younger associates. Enoch emphasized the importance of attorney quality in substantial litigation, which Miller supported by citing the favorable settlement as evidence of the attorneys' superior work quality.

Miller highlighted the contingent nature of the fee as a crucial factor in the lodestar/multiplier analysis, noting that all firms worked on a fully contingent basis and that this arrangement carries inherent risks of non-recovery. He asserted that the standard lodestar calculation does not adequately reflect the risk lawyers undertake when accepting contingent work. Testimonies confirmed that the hourly rates submitted were standard for both hourly and contingent clients. Texas courts generally accept multipliers based on the contingent nature of fees, as shown in several cases. Miller proposed that plaintiffs' counsel deserved a substantial risk multiplier, asserting that a multiplier of 2.17 was fair and reasonable under Texas law and the circumstances of the case, with even higher multipliers being justifiable.

A multiplier of 2.17 is deemed appropriate in complex and expedited cases, as established in previous rulings like Dillard Dep’t Stores and Flores, which recognized the need for multipliers based on factors such as the difficulty of the issues, contingent fee nature, time constraints, and the challenges in litigation. The trial court initially awarded attorneys' fees based on an unenhanced lodestar, which failed to account for the exceptional results achieved by the plaintiffs' counsel, the undesirability and risks of the case, and the comparability to awards in similar class actions. The court found that it was an abuse of discretion to neglect these factors and ultimately determined that the requested multiplier of 2.17 was justified, resulting in a total award of $8,611,161.63. The court modified the trial court's award accordingly and affirmed the judgment as modified. A dissenting opinion argued that the trial court had properly considered the relevant factors and did not warrant an adjustment to the lodestar. The dissent emphasized adherence to procedural requirements for class action lawsuits as outlined in Texas Rules of Civil Procedure.

Rule 42 aligns with Federal Rule of Civil Procedure 23, making federal interpretations of class action requirements persuasive. Under Fed. R. Civ. P. 23(h)(3), trial courts can hold hearings on attorneys’ fees but must provide factual findings and legal conclusions as per Rule 52(a). The Fifth Circuit mandates that district courts explain how each of the Johnson factors impacts their fee awards to ensure proper review of the court’s discretion. A trial court's letter from October 8, 2010, intended to clarify its ruling, admits to its own incompleteness regarding the Motion for Final Certification. The appellate court cannot accept this incomplete letter as a substitute for the detailed findings required under rule 42(h)(3), which are necessary for adequate appellate review. Without these findings, inconsistent fee awards could arise, influenced by subjective views of the judge. The trial court's letter fails to meet the standards set by the Supreme Court and the Fifth Circuit for fee award explanations. Consequently, the appellate court suggests either remanding for proper findings or reversing the fee award. Nonetheless, if the letter's content is deemed sufficient, the trial court did not abuse its discretion in awarding $3,972,367.75 in fees. The lodestar is a presumptively reasonable basis for fees, but the Johnson factors also play a role in assessing and adjusting the award. Many of these factors are generally included in the lodestar calculation, indicating that some factors may not need separate consideration.

The referenced legal document examines the calculation of attorney's fees through the lodestar method, which incorporates various factors, including time, labor, and customary fees. While these factors can influence the lodestar calculation, they cannot be adjusted based on Johnson factors if those factors were already considered in the lodestar, to avoid double counting. The document critiques the majority opinion's interpretation of the trial court's findings, asserting that the trial court demonstrated concerns regarding the reasonableness of the attorneys' rates and hours worked. It clarifies that the trial court did not simply assume the Johnson factors were accounted for but actively considered them in determining the lodestar, ultimately refusing to double count them when considering a multiplier. The trial court held an extensive hearing and maintained the original award amount, suggesting that it applied the relevant Johnson factors in determining the lodestar and deemed certain factors irrelevant for an upward adjustment. The dissenting opinion concludes that there was no abuse of discretion and affirms the trial court's judgment.