Bruno v. Bell

• Decision Date: 11 April 1979
• Parties: Russell BRUNO, Plaintiff and Respondent, v. Roy M. BELL and Kenneth Cory, Defendants and Appellants. Civ. 43677.
• Court: California Court of Appeals Court of Appeals

Page 435

154 Cal.Rptr. 435

91 Cal.App.3d 776

Russell BRUNO, Plaintiff and Respondent, v. Roy M. BELL and Kenneth Cory, Defendants and Appellants.

Civ. 43677.

Court of Appeal, First District, Division 4, California.

April 11, 1979.

As Modified April 17, 1979.

Rehearing Denied May 8, 1979.

Hearing Denied June 7, 1979.

Russell Bruno, Oakland, for plaintiff and respondent.

Evelle J. Younger, Atty. Gen., Ernest P. Goodman, Asst. Atty. Gen., Edward P. Hollingshead, Charles C. Kobayshi, Deputy Atty. Gen., Sacramento, for defendants and appellants.

DRUMMOND, ^* Associate Justice.

Defendants-appellants Roy M. Bell, as Director of Finance of the State of California and Kenneth Cory, as Controller of the State of California (defendants) appeal from that portion of a judgment which awards petitioner-appellant Russell Bruno (Bruno) $30,000 in attorney fees in conjunction with his successful prosecution of an action resulting in a declaration that Streets and Highways Code section 104.10 was invalid as in conflict with article XXVI of the California Constitution.

The primary issue is whether the trial court could have properly made an award of attorney fees upon any recognized exception to Code of Civil Procedure section 1021.

On April 29, 1975, Russell Bruno in pro per filed a petition for writ of mandate in superior court seeking, inter alia, a declaration that Streets and Highways Code section 104.10 ¹ was unconstitutional and and an order requiring Roy M. Bell, as State Finance Director, to institute proceedings on behalf of the state for recovery of funds disbursed to counties and local agencies pursuant to that section.

Section 104.10 was first enacted in 1959 (Stats.1959, ch. 2157, p. 5214, § 2), and dealt with the distribution of rental income received by the state as the result of acquisition of real property for highway purposes. The net effect of the statute was to help compensate counties for property tax revenue lost due to state acquisition of properties for future highway purposes, where the state is receiving income from those properties in the form of rental payments. ²

On November 13, 1975, Bruno substituted the law firm of Cross, Brandt & Hays from himself; and the same day Cross associated Bruno as an attorney of record in the matter.

A hearing on summary judgment motions by both parties was held on February 16, 1977. The trial court found in favor of Bruno and against the defendants; it ruled that section 104.10 was in violation of article XXVI (now art. XIX) of the California Constitution. The court made clear that its order enjoining further distribution of the funds would be made prospectively only, as Bruno had abandoned his claim for recoupment.

On June 21, 1977, a hearing was held on Bruno's motion for attorney fees. The trial court was unsure of its power to make such an award, but deemed it an open question in light of Knoff v. City etc. of San Francisco (1969) 1 Cal.App.3d 184, 81 Cal.Rptr. 683 and Mandel v. Hodges (1976) 54 Cal.App.3d 596, 127 Cal.Rptr. 244. However, the court awarded Bruno attorney fees in the amount of $30,000.

Defendants now appeal from only that portion of the judgment awarding attorney fees.

Was there any permissible basis for the trial court's award of attorney fees?

The general American rule, codified by California's Code of Civil Procedure section 1021, is that the prevailing litigant is not entitled to an award of attorney fees in the absence of statutory provision or contractual agreement.

At the time of trial in this case, neither a statutory provision nor express or implied contractual agreement authorizing attorney fees was present. However, California courts had recognized two exceptions to the rule against such an award, based upon the inherent equitable powers of the court: the "common fund doctrine" (Fletcher v. A. J. Industries, Inc. (1968) 266 Cal.App.2d 313, 322-323, 72 Cal.Rptr. 146) and the "substantial benefit rule" (Knoff v. City etc. of San Francisco, supra, 1 Cal.App.3d 184, 203-204, 81 Cal.Rptr. 683; Mandel v. Hodges, supra, 54 Cal.App.3d 596, 620-623, 127 Cal.Rptr. 244.) In Serrano v. Priest (1977) 20 Cal.3d 25, 141 Cal.Rptr. 315, 569 P.2d 1303 (hereafter referred to as Serrano III ) the California Supreme Court gave its imprimatur to these equitable theories (Id. at pp. 35-42, 141 Cal.Rptr. 315, 569 P.2d 1303) and recognized a third the "private attorney general" concept. (Id., at pp. 43-48, 141 Cal.Rptr. 315, 569 P.2d 1303) Serrano III was decided on October 4, 1977, almost two months following the instant judgment but during the pendency of this appeal. A short time later, the Legislature enacted Code of Civil Procedure section 1021.5, a loosely based codification of the "private attorney general" concept, to become effective January 1, 1978. Although both Serrano III and Code of Civil Procedure section 1021.5 were promulgated after trial below, they are nevertheless applicable to this case. (Kievlan v. Dahlberg Electronics (1978) 78 Cal.App.3d 951, 959, 144 Cal.Rptr. 585 (hg. den. June 15, 1978).) ³

1. The Common Fund Doctrine

The oldest exception to the rule against attorney fees is the common fund doctrine. Under this theory, a litigant "who expends attorneys' fees in winning a suit which creates a fund from which others derive benefits, may require those passive beneficiaries to bear a fair share of the litigation costs." (Quinn v. State of California (1975) 15 Cal.3d 162, 167, 124 Cal.Rptr. 1, 4, 539 P.2d 761, 764.

This doctrine cannot be applied to the present case. As noted by Serrano III, all of the common fund cases have involved the creation, preservation or recovery of a certain or easily calculable sum of money out of which the fees could be paid. (20 Cal.3d at p. 35, 141 Cal.Rptr. 315, 569 P.2d 1303.) No such fund is present here. The outcome of this litigation will be that monies previously diverted from the State Transportation Fund to the Highway Rental Account for distribution to local entities will now remain within the State Transportation Fund. (See § 104.6.) No identifiable sum of money has been created, preserved or recovered rather, an unconstitutional diversion of funds has been enjoined.

The doctrine is also inapplicable because the successful party litigant has incurred no liability for attorney fees in winning the suit. Instead, Bruno has chosen to volunteer his own time and energy as counsel in pro per in pursuing his action. Thus the underlying rationale of the theory that class members who have monetarily benefitted from a representative's expenditure of attorney fees should be required to share the burden of this expense is eliminated.

2. The Substantial Benefit Rule

This exception, which had its genesis in California within the context of corporate shareholder litigation (Fletcher v. A. J. Industries, supra, 266 Cal.App.2d 313, 72 Cal.Rptr. 146) but which has since been applied successfully against public entities (Mandel v. Hodges, supra, 54 Cal.App.3d 596, 127 Cal.Rptr. 244; Card v. Community Redevelopment Agency (1976) 61 Cal.App.3d 570, 131 Cal.Rptr. 153) was the one upon which the trial court relied in making its award herein. The rule is actually an outgrowth of the "Common Fund" doctrine, but is based upon the theory that an attorney fee award is derived from the court's " 'power of equity in doing justice as between a party and the beneficiaries of his litigation' " rather than from the mere existence of a common fund. (Fletcher, supra, at p. 323, 72 Cal.Rptr. at p. 152, quoting from Sprague v. Ticonic Nat. Bank (1939) 307 U.S. 161, 166-167, 59 S.Ct. 777, 83 L.Ed. 1184.) Under the doctrine, an award of fees is appropriate where a litigant, proceeding in a representative capacity, obtains a decision which confers a "substantial benefit" of a pecuniary or non-pecuniary nature, upon the members of an ascertainable class. (Serrano III, supra, 20 Cal.3d at pp. 38-40, fn. 10, 141 Cal.Rptr. 315, 569 P.2d 1303.)

While we accept the proposition that the case at bar is one in which the court's equitable powers come into play and that the suit has been maintained as a representative action, we believe that the third requirement the conferral of substantial benefits upon an ascertainable class has not been met.

There is no doubt that the present action uncovered a constitutional flaw in section 104.10 and that the judgment below resulted in the cessation of the flow of money from the state's Highway Rental Account to the county governments. However, the Supreme Court has made it clear in Serrano III that benefits of a conceptual or doctrinal character are insufficient, "that to award fees on the 'substantial benefit' theory on the basis of considerations of this nature separate and apart from any consideration of actual and concrete benefits bestowed would be to extend that theory beyond its rational underpinnings." (20 Cal.3d at p. 42, fn. omitted, 141 Cal.Rptr. at p. 323, 569 P.2d at p. 1312.) It is difficult to perceive any Substantial or Concrete benefits that the instant ruling will bestow on California taxpayers. As the trial court itself observed, this is not a case where public funds have been preserved which might otherwise have gone elsewhere, but rather the net effect simply will be that "funds will be diverted from one public use to another." In this connection, the existence of an ascertainable benefitted class is illusory: While the court's injunction will add money to the coffers of the state treasury and thus indirectly benefit those who pay state taxes, it will do so at the expense of the counties and local agencies, thereby detrimentally affecting those who pay local taxes. Manifestly, both classes of taxpayers will be made up of almost precisely the same individuals.

The trial court's finding that the decision would save administrative expenses does not alter the foregoing conclusion. We cannot conclude that the mere saving of relatively minor administrative expenses...