Seigal v. Merrick (619 F.2d 160, 1980)

FRIENDLY, Circuit Judge:

Twentieth Century Fox-Film Corporation (Fox) appeals and Norman. Annenberg, an attorney, cross-appeals from an order of the District Court for the Southern District of New York awarding fees to Annenberg and Colman Abbe, an expert employed by him, for their services in successfully objecting to an improvident settlement of derivative actions by stockholders of Fox. The district court, endeavoring to follow the teaching of City of Detroit v. Grinnell Corp., 495 F.2d 448 (2 Cir. 1974) (Grinnell I) and 560 F.2d 1093 (2 Cir. 1977) (Grinnell II), awarded Annenberg $256,436 in legal fees and $1,519.34 in disbursements, and Abbe $12,-225 for his services as an expert witness. See [Current]' Fed.Sec.L.Rep. (CCH) K 96,-867 (April 27, 1979). Fox appeals from the awards to Annenberg and Abbe; Annen-berg cross-appeals from the award to him, claiming it to be inadequate. The briefs stretch over 234 pages, Annenberg’s alone being 128 pages long; the appendix runs to 1,119 pages. We have considered affirming on the simple basis that fee awards in such litigation lie in the district court’s discretion, see Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 540 F.2d 102, 114 (3 Cir. 1976) (en banc) (Lindy II); that the district court’s decision should stand if it has applied the correct criteria even if we would have ruled differently in certain respects, id. at 116; and that, in any event, appeals from fee decisions are not to be encouraged. However, certain unusual characteristics of this case dictate a more extended analysis and a different result.

The stockholders’ complaints, filed in late May and early June, 1974, asserted that the defendants, directors of Fox, violated the federal securities laws and breached their common law fiduciary obligations in causing Fox to purchase 241,000 shares of its stock in March, 1974 on a public tender offer for 2,000,000 shares at an average price of $9.58 a share and then purchasing another 747,900 shares at approximately $9.02 per share from defendant David Merrick as part of a settlement of an action brought by Fox against Merrick for having interfered with its tender offer. On February 11, 1977, the parties to the actions, which had been consolidated, entered into a stipulation of settlement. This provided that Fox would receive from the directors (or in one instance from the director’s insurer) $1,138,500 in cash and also certain consideration furnished by Merrick which Fox valued at $200,000. However, in return for the cash payment, the directors were to receive rights to purchase 425,000 shares of unregistered Fox stock together with the power to compel registration under certain circumstances. The exercise price was $13.25 per share, as against a closing price of $11.375 on the New York Stock Exchange on the day preceding execution of the stipulation and an average closing price of $10.46 during the preceding 90 days. The rights could not be exercised until one year after initial court approval of the stipulation or the date when approval became final, whichever was later. Thereafter the rights would be exercisable for three years. The rights were subject to usual restrictions designed to insure compliance with the registration requirements of the Securities Act of 1933. The objecting stockholders and the parties to the settlement disagreed on the extent to which the stipulation also restricted the public sale of shares issued pursuant to the exercise of the rights.

On May 13, 1977, Annenberg as attorney for a Fox shareholder filed objections to the adequacy of the settlement and of the notice given to the stockholders. The gravamen of the objections was the issuance of the rights. Whereas the notice asserted that these were worth 80