Burke v. Arizona State Retirement System

• Decision Date: 06 October 2003
• Docket Number: No. 2 CA-CV 2002-0035.,2 CA-CV 2002-0035.
• Citation: 77 P.3d 444,206 Ariz. 269
• Parties: James J. BURKE, Plaintiff/Appellee, v. ARIZONA STATE RETIREMENT SYSTEM, an agency of the State of Arizona; the State of Arizona; and the Arizona Board of Regents, an agency of the State of Arizona, Defendants/Appellants.
• Court: Arizona Court of Appeals

77 P.3d 444

206 Ariz. 269

James J. BURKE, Plaintiff/Appellee, v. ARIZONA STATE RETIREMENT SYSTEM, an agency of the State of Arizona; the State of Arizona; and the Arizona Board of Regents, an agency of the State of Arizona, Defendants/Appellants.

No. -0035.

Court of Appeals of Arizona, Division 2, Department B.

October 6, 2003.

Leonard Felker Altfeld Greenberg & Battaile, P.C., By John F. Battaile III, Anne-Marie Brady, and Clifford B. Altfeld, Tucson, for Plaintiff/Appellee.

Terry Goddard, Arizona Attorney General, By Daniel P. Schaack, Catherine M. Stewart, Paul E. Carter, and Fred W. Stork, Phoenix, for Defendants/Appellants.

OPINION

ESPINOSA, Chief Judge.

¶ 1 The Arizona State Retirement System, the Arizona Board of Regents, and the State of Arizona (collectively, "ASRS") previously appealed from a post-settlement award of attorney fees to counsel representing state employee James Burke and a class of similarly situated state employees. ASRS argued the fee award was unreasonably high because the trial court erroneously applied the "common fund doctrine" rather than the hourly "lodestar" method of calculating fees. In an opinion filed April 29, 2003, we agreed with ASRS because we found the common fund doctrine inapplicable to the parties' settlement agreement and further determined that application of the common fund doctrine is precluded when a fee award is authorized under A.R.S. § 12-341.01. Burke v. Ariz. State Ret. Sys., 205 Ariz. 116, 67 P.3d 712 (App.2003).

¶ 2 Class counsel moved for reconsideration, arguing, inter alia, that our analysis was flawed because the operative contract was solely the parties' settlement agreement rather than the class's underlying employment contracts. After considering class counsel's motion and the response filed by ASRS, we find class counsel's point well taken and conclude it obviates our statutory discussion in the opinion. However, because we conclude, as before, that the common fund method of awarding attorney fees remains fundamentally inapplicable on the facts of this case, the outcome remains the same. Accordingly, we grant the motion to the extent that we withdraw the earlier opinion and substitute this one in its stead. For the reasons set forth below, we vacate the fee award and remand the matter to the trial court for further proceedings consistent with this decision.

Facts and Procedural Background

¶ 3 Burke filed a complaint against ASRS on behalf of himself and similarly situated state employees in 1996, seeking judicial review of ASRS's administrative decision that their retirement compensation rights were not adversely affected when ASRS transferred the employees from a defined contribution plan to a defined benefit plan. The complaint alleged causes of action for breach of contract, impairment of contract, promissory estoppel, breach of fiduciary duty, violation of 42 U.S.C. § 1983, and related theories. In addition to monetary damages, Burke requested "reasonable attorneys' fees" without specifying a basis for that request. The trial court certified the class as those state employees whom ASRS had transferred from the defined contribution program to the defined benefit program. See Ariz. R. Civ. P. 23, 16 A.R.S., Pt. 1. Shortly thereafter, the court ruled in Burke's favor on his administrative review claim and entered a judgment ordering ASRS to recalculate his retirement benefits and containing language pursuant to Rule 54(b), Ariz. R. Civ. P., 16 A.R.S., Pt. 2. The court awarded Burke his attorney fees and costs, presumably under A.R.S. § 12-341.01, which authorizes a discretionary fee award to the prevailing party in an action arising out of a contract.¹ ASRS appealed.

¶ 4 Meanwhile, the class had moved for partial summary judgment on the ground the court's ruling on Burke's administrative claim constituted the law of the case on the class's impairment-of-contract cause of action, arguing the same analysis also applied to the class. ASRS opposed the motion and filed a cross-motion for summary judgment, arguing that most of the class members had waived their claims by accepting modified pension benefits or had failed to exhaust their administrative remedies and that the claims of unretired class members were not ripe. While the motions were pending, the parties agreed to several stays while conducting settlement negotiations.² Eventually, the parties entered into a settlement agreement that provided ASRS would pay each class member the greater amount of benefits to which he or she would be entitled under either the defined contribution program or the defined benefit program. ASRS also agreed to pay "reasonable attorneys' fees for representation of the Class" but reserved the right to challenge class counsel's fee application.³

¶ 5 Class counsel subsequently submitted a fee application requesting $9,549,824.37 or twenty percent of the aggregated increased retirement benefits created by the settlement,⁴ arguing that fees paid by a settling defendant are properly included as part of the common fund of increased retirement benefits for the class members created by the settlement and are properly calculated as a percentage of that fund. ASRS objected on the grounds that this was not a common fund, fee-sharing case but a fee-shifting case and that fees should be calculated using an hourly lodestar method. The trial court found that fees were "payable pursuant to the negotiated agreement of the parties embodied in the Stipulation of Settlement, which require[d] a discretionary decision by th[e] Court" and that there was no statutory basis for the award. Pursuant to its findings, the court granted the application and awarded fees of $7,416,893.60, or 16.61 percent of the amount of total increased retirement benefits. ASRS moved for a new trial, reasserting its contention that this is a fee-shifting, lodestar situation and arguing that it had not agreed to assume the class's obligation to its counsel, that the amount of the fee award was not reasonable, and that the record contained no factual basis to support the award. The court ruled that its use of the common fund method was proper, but nonetheless reduced the fee award to about $3.7 million. This appeal followed.

Standard of Review

¶ 6 In granting class counsel's fee application, the trial court concluded that fees were not awardable under any fee-shifting statutes and that the common fund doctrine was the appropriate basis for awarding fees in this case. ASRS argues that the court erred in both respects. Whether a fee statute applies is a question of law. See Motel 6 Operating Ltd. P'ship v. City of Flagstaff, 195 Ariz. 569, 991 P.2d 272 (App. 1999); Phoenix Newspapers, Inc. v. Dep't of Corr., 188 Ariz. 237, 934 P.2d 801 (App.1997). Similarly, although attorney fee awards are generally subject to an abuse of discretion standard of review, see ABC Supply, Inc. v. Edwards, 191 Ariz. 48, 952 P.2d 286 (App. 1996),

whether the common fund doctrine applies is also a question of law. In re Miniscribe Corp., 309 F.3d 1234 (10th Cir. 2002); Brytus v. Spang & Co., 203 F.3d 238 (3d Cir.2000); Edwards v. Alaska Pulp Corp., 920 P.2d 751 (Alaska 1996). Furthermore, as class counsel points out in its answering brief, interpretation of a settlement agreement is likewise a question of law. State ex rel. Goddard v. R.J. Reynolds Tobacco Co., 206 Ariz. 117, 75 P.3d 1075 (App. 2003); Citibank (Ariz.) v. Bhandhusavee, 188 Ariz. 434, 937 P.2d 356 (App.1996). Accordingly, and contrary to class counsel's assertion in its motion for reconsideration, this award is subject to our de novo review.

Discussion

¶ 7 It is well established that a court in Arizona may award attorney fees only when expressly authorized by contract or statute. DVM Co. v. Stag Tobacconist, Ltd., 137 Ariz. 466, 671 P.2d 907 (1983); Sellinger v. Freeway Mobile Home Sales, Inc., 110 Ariz. 573, 521 P.2d 1119 (1974). The common fund doctrine is an equitable exception "to the general rule that, in the absence of statute or contract, each side in a litigated case must bear its own attorneys' fees," allowing a court to award attorney fees "to counsel for the prevailing side whose efforts in litigation create or preserve a common fund from which others who have undertaken no risk or cost will nevertheless benefit." Kerr v. Killian, 197 Ariz. 213, ¶ 19, 3 P.3d 1133, ¶ 19 (App.2000); see LaBombard v. Samaritan Health Sys., 195 Ariz. 543, 991 P.2d 246 (App.1998). The common fund doctrine serves the twofold purpose of compensating counsel for producing benefits for a class and preventing the unjust enrichment of the class members who receive them. Kerr; LaBombard. Under this doctrine, a fee award may be calculated as a percentage of the fund created or by using the hourly lodestar method.⁵ See In re Wash. Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291 (9th Cir.1994); Florida v. Dunne, 915 F.2d 542 (9th Cir.1990).

¶ 8 In Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975), the Supreme Court held that the common fund doctrine may be appropriately applied when (1) the class is sufficiently identifiable, (2) the benefits can be accurately traced, and (3) the fee can be apportioned with some exactitude among those receiving the benefits. See also Boeing Co. v. Van Gemert, 444 U.S. 472, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980)

. The parties generally agree the present case meets the first two prongs of the test. First, as reflected in the settlement agreement, the class members were specifically identified and notified. Second, the benefits to the class members were accurately traced on their individual account statements. The parties disagree only on the third prong, whether application of the common fund doctrine actually apportions the fee obligation among the class beneficiaries. ASRS argues that shifting the class's fees to it, the losing party, does not apportion them among the class members and...