Boeing Co. v. Van Gemert

Background

In 1966 Boeing called certain convertible debentures and set a March 29 deadline to convert. Many holders did not convert, and investors led by Van Gemert sued, claiming inadequate notice. After appeals and remands, a District Court fixed class damages at $3,289,359 plus interest, ordered that money into escrow, and appointed a Special Master to administer claims. The fund later grew to more than $7 million, class lawyers sought about $2 million in fees, and by mid-1979 claimants had presented claims for about $706,600 of the unconverted debentures.

Reasoning

The Court applied the long-standing common-fund doctrine. It explained that the suit produced a definite fund for the benefit of identifiable class members, and each absentee class member held a present, mathematically ascertainable share that could be claimed by proving identity. Because the benefit could be traced and costs shifted with precision, the Court held it was equitable to assess reasonable attorney’s fees proportionally against the entire judgment fund, including unclaimed portions. The Court also said this approach did not improperly shift fees to Boeing because the fees come from the fund rather than as a surcharge on the losing party.

Real world impact

The practical result is that every investor in the certified class must share in attorneys’ fees in proportion to their recoverable share, even if they do not file a claim. Class lawyers may be paid from unclaimed money in the escrowed judgment fund. The Court left unresolved how any remaining unclaimed money will ultimately be distributed (for example, whether it reverts to Boeing or escheats to the State).

Dissents or concurrances

Justice Rehnquist dissented, arguing the judgment lacked finality and that Boeing’s appeal should have been dismissed for being premature. He warned against piecemeal appeals and questioned Boeing’s standing to press the fee-allocation issue.