63 P.3d 1089 (Ariz.Tax 2003), 1997-000075, Ladewig v. Arizona Dept. of Revenue

Docket Nº:TX 1997-000075.
Citation:63 P.3d 1089, 204 Ariz. 352
Case Date:January 21, 2003
Court:Tax Court of Arizona

Page 1089

63 P.3d 1089 (Ariz.Tax 2003)

204 Ariz. 352




No. TX 1997-000075.

Tax Court of Arizona

Jan. 21, 2003

Page 1090

[204 Ariz. 353] Randall Wilkins, Paul Bonn, D. Michael Hall of Bonn & Wilkins Chartered, and Eugene O. Duffy of O'Neil, Cannon & Hollman, SC. for Plainiff.

Michael Kempner and Lisa Neuville, Assistant Attorneys General, for Defendant.



Nature of the Case

In 1991, taxpayer Helen H. Ladewig ("Ladewig") filed an administrative refund claim with the Arizona Department of Revenue ("ADOR"), claiming that its denial of analogous deductions for dividends received from corporations not doing more than half their business in Arizona, i.e. former A.R.S. § 43-1052 (1992) (current version at A.R.S. § 43-1128 (1998)) was unconstitutional as a violation of the Commerce Clause. This Court will not reiterate the entire factual history of this case which is well stated by our Arizona Supreme Court in the special action taken in this matter, captioned Arizona Department of Revenue v. Dougherty, 200 Ariz. 515, 29 P.3d 862 (2001).

The remaining issue for this Court's determination is the reasonable amount of attorneys' fees and costs to be awarded to class counsel, Bonn & Wilkins, Chartered and O'Neil, Cannon & Hollman, S.C. (collectively "Class Counsel") from the $350 million common fund which was created by the efforts of Class Counsel in successfully litigating and settling the immediate case. Lead counsel from the Bonn & Wilkins firm, Paul Bonn, testified on December 19, 2002, that as of that date Class Counsel had invested approximately 11,564 hours of time in the litigation of this matter and had out-of-pocket costs in the amount of $1,053,448.00. This figure includes the approximate $800,000.00 that Class Counsel anticipates having to expend in the administration, processing and payment of claims. In reviewing the voluminous billing records of Class Counsel which were filed with this Court under seal, this Court concludes that they are somewhat duplicative. The records delineate work, particularly by the O'Neil firm, in which they assisted counsel in other state and United States Supreme Court matters. Although those other cases paved the way for the result in the immediate litigation, the work performed in those cases is not compensable hereunder. For the purpose of computing the reasonable attorneys' fees amount in this matter, this Court will allow 10,000 hours of Class Counsel's time as one of the bases upon which attorneys' fees will be calculated. The Court will accept the avowals and affidavits of counsel with respect to the costs incurred herein and reasonably anticipated to be incurred in the closure of this litigation.

As a final factual note, the Court observes that the parties have entered into a settlement agreement that has created a $350 million common fund from which the estimated 650,000 class members as well as attorneys' fees and costs will be paid. As part of the stipulated to settlement, the parties agree that they would not appeal an award of attorneys' fees between 9% and 12% of the common fund, the amount recommended by the mediator hired by the parties, Bruce E. Meyerson. Mr. Meyerson's recommendations are attached to Class Counsel's Motion for a Common Fund Attorneys' Fee Award

Page 1091

[204 Ariz. 354] and Request for Hearing which was filed with this Court on September 20, 2002.

Legal Discussion

This Court recognizes that it owes several duties when considering an award for attorneys' fees. The Court has a duty to ensure that fees stemming from common funds are reasonable under the circumstances of the particular case. In re Washington Pub. Power. Supply Sys. Sec. Litig., 19 F.3d 1291, 1296 (9th Cir.1994). The Court owes a duty to the attorneys to ensure they receive appropriate compensation for the reasonable value of their services performed for the benefit of the class members. City of Detroit v. Grinnell Corp., 560 F.2d 1093 (2nd Cir.1977). Lastly, the Court owes a duty to class members or beneficiaries to protect them from potential exploitation by attorneys seeking large fees at the expense of the class. Id. Courts have held that because the attorneys' relationship with their clients turns adversarial at the fee-setting stage, courts must assume the role of fiduciary for the class members. In re Washington, 19 F.3d at 1302. With these principles and duties in mind, this Court makes the following legal analysis.

The common fund doctrine is appropriate for application in this case. See, Kerr v. Killian, 197 Ariz. 213, 3 P.3d 1133 (App.2000). Under this exception to the American Rule, the attorney who recovers a fund for the benefit of others is entitled to a reasonable fee to be paid from the fund as a whole. E.g., Boeing Co. v. Van Gemert, 444 U.S. 472, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980). There is nothing in the common fund doctrine as adopted in Arizona, however, that suggests the application of this doctrine is to be without regard to the ultimate determination of a reasonable attorneys' fees to be awarded from the common fund.

The United States Court of Appeals for the Third Circuit, and many other courts have analyzed two basic methods for calculating attorneys' fees in this type of case. In In Re Prudential Ins. Co. America Sales Practices Litigation, 148 F.3d 283, 333 (3rd Cir.1998), the court said,

There are two basic methods for calculating attorneys' fees--the percentage-of-recovery method and the lodestar method. [E]ach method has distinct advantages for certain kinds of actions which will make one of the methods more appropriate as a primary basis for determining the fee.... The percentage-of-recovery method is generally favored in cases involving a common fund, and is designed to allow courts to award fees from the fund 'in a manner that rewards counsel for success and penalizes it for failure'.... The lodestar method is more commonly applied in the statutory fee-shifting cases, and is designed to reward counsel for undertaking socially beneficial litigation in cases where the expected relief has small enough monetary value that a percentage-of-recovery method would provide inadequate compensation. It may also be applied in cases where the nature of the recovery does not allow the determination of the settlement's value necessary for application of the percentage-of-recovery method. Although each of these methods is generally applied to certain types of cases, we have noted previously that "it is sensible for a court to use the second method of fee...

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