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Winston & Strawn LLP v. Federal Deposit Insurance Corp.

July 13, 2007

WINSTON & STRAWN LLP, ET AL., PLAINTIFFS,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Emmet G. Sullivan United States District Judge

MEMORANDUM OPINION

In this consolidated case, plaintiffs Winston & Strawn, LLP ("Winston & Strawn"), Don S. Willner and Associates P.C. ("Willner"), Blackwell Sanders Peper Martin ("Blackwell"), and Ernest Fleischer bring suit against the Federal Deposit Insurance Corporation ("FDIC") in its capacity as receiver for the Benjamin Franklin Savings & Loan Association ("Ben. Franklin"), in order to challenge the FDIC's decisions regarding attorney fee payments to plaintiffs. Currently pending before the Court are cross-motions for summary judgment filed by each of the parties. Upon consideration of the motions, the responses and replies thereto, the applicable law, and the entire record, the Court rejects plaintiffs' arguments for a percentage-based award of attorney fees, but concludes that the record does not contain enough information to fully evaluate the fees awarded by the FDIC, and thus all the motions for summary judgment are DENIED.

BACKGROUND*fn1

Ben. Franklin was placed in receivership in February 1990. The FDIC, created by Congress in 1933 as a body corporate and authorized by statute to act in several different capacities, currently serves as the receiver for Ben. Franklin. In September 1990, Willner and Winston & Strawn filed a shareholder derivative suit and class action on behalf of the Ben. Franklin shareholders in the U.S. Court of Federal Claims.

During their representation of the Ben. Franklin shareholders, Willner and Winston & Strawn learned that the IRS had asserted a claim against the Ben. Franklin receivership for approximately $1.2 billion in alleged taxes and penalties. The amount of this claim far exceeded the surplus of the receivership. The shareholders had an interest in the IRS's claim because any payment to the IRS would have been made out of the receivership's surplus, which would otherwise be distributed to the shareholders. On July 17, 2002, the Untied States filed suit in this Court against the FDIC, as the Ben. Franklin receiver, seeking more than $1 billion in damages based on this tax claim. Compl., United States v. FDIC, No. 02-1427-EGS (D.D.C.) (hereinafter the "Tax Case").

Willner and Winston & Strawn represented the Ben. Franklin shareholders with regard to the Tax Case. Willner also retained Ernest Fleischer, who worked at Blackwell, to assist on the Tax Case. In addition, the law firm Spriggs & Hollingsworth helped to represent the shareholders on the matter. Between 2002 and 2005, Willner, Winston & Strawn, Blackwell (including Fleisher), and Spriggs & Hollingsworth worked with the FDIC and the IRS to negotiate a settlement concerning the alleged tax liability of the Ben. Franklin receivership. During this negotiation process, the Tax Case was stayed by the Court. Order, No. 02-1427-EGS (D.D.C. Apr. 22, 2003). Several Ben. Franklin shareholders initially moved to intervene in the Tax Case, but the motion was denied without prejudice because the case had been stayed. Order, No. 02-1427-EGS (D.D.C. June 20, 2003).

After two years of settlement negotiations with the IRS, the matter was settled for $50 million. As part of the settlement, the FDIC agreed to pay attorneys' fees to the attorneys representing the shareholders in the settlement negotiations. This agreement was memorialized in the notice of proposed settlement that was distributed to the Ben. Franklin shareholders. This notice described the proposed settlement, informed the shareholders of a fairness hearing scheduled for May 2, 2006, stated why the parties as well as the shareholders' counsel recommended the settlement, and described other proposed distributions by the receivership in addition to the payment to the IRS. Notice to Ben. Franklin Shareholders, Def.'s Ex. 5, at 3-8. Specifically, the notice stated that after the $50 million tax payment was made, the FDIC would make additional distributions, including "an amount representing the reasonable fees and expenses of the shareholders' attorneys and consultants in connection with such persons' work to reduce the $1.2 billion tax liability alleged by the IRS down to the $50 million settlement amount." Id. at 7. These fees were to "compensate for the time, expense, and expertise that all shareholders' counsel and consultants brought to the Courtroom and to the settlement table in order to achieve a fair tax settlement." Id. It further stated that while "the FDIC has not yet determined the total amount of legal fees and expenses it will approve pursuant to its receivership claims procedures, the amount will likely be between $1 and $2 million." Id. at 7-8. This notice was mailed to shareholders after it was approved by the Court in 2006. See Order, No. 02-1427-EGS (D.D.C. Mar. 10, 2006).

Prior to distribution of the notice to shareholders, on September 29, 2005, Don Willner and Rosemary Stewart, an attorney for Spriggs & Hollingsworth, met with Richard Gill, an attorney for the FDIC, and discussed, among other things, the issue of attorney's fees. Gill advised Willner and Stewart that the FDIC's receivership claims division had been negatively disposed to paying fees beyond regular hourly rates. The same day, Stewart sent an email to Tom Buchanan, counsel for Winston & Strawn, that recounted the meeting and specifically said that "it was clear that [Richard] is trying to prepare us for not getting the full amount of the claims as we filed them." Email to Tom Buchanan from Rosemary Stewart, Sept. 28, 2005, Def.'s Ex. 4. Pursuant to the agreement, Winston & Strawn submitted a claim for attorneys' fees to the FDIC in November 2005. Willner submitted a claim for attorneys' fees on behalf of itself and other retained individuals, including Mr. Fleischer. Willner's Ex. 3. It is unclear when Willner's claim was submitted to the FDIC.

On May 2, 2006, following the fairness hearing advertised to the Ben. Franklin shareholders, this Court approved the $50 million settlement of the alleged tax liability of the receivership and payment to the IRS, which left approximately $44 million surplus in the receivership. Subsequently, the FDIC made the additional distributions from the receivership that were contemplated by the settlement agreement. On May 17, 2006, the FDIC sent notice that Winston & Strawn's claims would be allowed in part. Specifically, the FDIC reimbursed Winston & Strawn at their standard hourly billing rate, minus fees already paid by the shareholders, for a total of $400,812.75. FDIC Notice, Winston & Strawn's Ex. 1, at 1. On May 19, 2006, the FDIC sent notice that Willner's claims would be allowed in part.

Specifically, the FDIC reimbursed Willner for 842.35 hours of work at a rate of $250 per hour, plus $13,984.84 in expenses, minus $101,793.90 already paid Willner by the shareholders, for a total of $122,731.44. FDIC Notice, Willner's Ex. 5, at 1. The FDIC allowed payment to Mr. Fleischer in the amount of $89,465.34, plus $13,937.84 in expenses. Id. The FDIC also approved reimbursement to Spriggs & Hollingsworth in the amount of $131,968.

Winston & Strawn filed suit in this Court on June 20, 2006, claiming that the FDIC should have paid an additional $574,937.99 in attorneys' fees. Compl., Winston & Strawn v. FDIC, No. 06-1120-EGS (D.D.C.). Willner filed suit in this Court on July 7, 2006, claiming that the FDIC should have paid it $780,000 in total for attorneys' fees, plus an additional $2700 for retained services and an additional $1204.14 for expenses. Compl., Willner v. FDIC, No. 06-1227-EGS (D.D.C.). Blackwell and Fleischer filed suit in this Court on July 18, 2006, claiming that the FDIC should have paid Fleischer an amount not less than 5% of the total fund retained by the receivership, i.e. at least $2 million. Compl., Blackwell v. FDIC, No. 06-1273-EGS (D.D.C.).*fn2 All three cases were consolidated by the Court. Order, Oct. 3, 2006. After a brief period of discovery, all parties filed motions for summary judgment.

STANDARD OF REVIEW

Pursuant to Federal Rule of Civil Procedure 56, summary judgment should be granted only if the moving party has shown that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); Waterhouse v. Dist. of Columbia, 298 F.3d 989, 991 (D.C. Cir. 2002). In determining whether a genuine issue of material fact exists, the court must view all facts in the light most favorable to the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The non-moving party's opposition, however, must consist of more than mere unsupported allegations or denials and must be supported by affidavits or other competent evidence setting forth specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e); see Celotex Corp., 477 U.S. at 324.

Likewise, in ruling on cross-motions for summary judgment, the court shall grant summary judgment only if one of the moving parties is entitled to judgment as a matter of law upon material facts that are not genuinely disputed. Shays v. FEC, 424 F. Supp. 2d 100, 109 (D.D.C. 2006). In addition, this Court reviews de novo claims filed with, and processed by, the FDIC under its ...


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