Chun v. Bd. of Trustees of ERS

• Citation: 92 Haw. 432,992 P.2d 127
• Decision Date: 02 February 2000
• Docket Number: No. 22012.,22012.
• Parties: Michael A.S. CHUN, Gladys Farm, Herbert T. Imanaka, Jimmy T. Izu, Samuel Y. Kakazu, Billy G. Southwood, Eishin Tengan, and Thomas Y. Yano, Appellants-Appellants, v. BOARD OF TRUSTEES OF THE EMPLOYEES' RETIREMENT SYSTEM OF the STATE OF HAWAI`I; and Administrator of the Employees' Retirement System of the State of Hawai`i, Appellees-Appellees Valerie Yamada Southwood and Barbara Jane Luke, Appellants-Appellants, v. Board of Trustees of the Employees' Retirement System of the State of Hawai`i; and Administrator of the Employees' Retirement System of the State of Hawai`i, Appellees-Appellees
• Court: Supreme Court of Hawai'i

992 P.2d 127

92 Haw. 432

Michael A.S. CHUN, Gladys Farm, Herbert T. Imanaka, Jimmy T. Izu, Samuel Y. Kakazu, Billy G. Southwood, Eishin Tengan, and Thomas Y. Yano, Appellants-Appellants, v. BOARD OF TRUSTEES OF THE EMPLOYEES' RETIREMENT SYSTEM OF the STATE OF HAWAI`I; and Administrator of the Employees' Retirement System of the State of Hawai`i, Appellees-Appellees Valerie Yamada Southwood and Barbara Jane Luke, Appellants-Appellants, v. Board of Trustees of the Employees' Retirement System of the State of Hawai`i; and Administrator of the Employees' Retirement System of the State of Hawai`i, Appellees-Appellees

No. 22012.

Supreme Court of Hawai`i.

February 2, 2000.

Charles K.Y. Khim for the appellants-appellants Michael A.S. Chun, et al. and Valerie Yamada Southwood, et al.

Mark J. Bennett (of McCorriston Miho Miller Mukai) for the appellees-appellees Board of Trustees of the Employees' Retirement System of the State of Hawaii and Employees' Associate Justice Retirement System of the State of Hawaii.

MOON, C.J., LEVINSON, NAKAYAMA, RAMIL, JJ., and Circuit Court Judge CRANDALL, in place of KLEIN, J., recused.

Opinion of the Court by LEVINSON, J.

In the present appeal, we are asked to reconsider Montalvo v. Chang, 64 Haw. 345, 641 P.2d 1321 (1982). In Montalvo, we adopted the "lodestar" method of awarding attorney's fees to plaintiffs' counsel in class action litigation where the recovery has resulted in the creation of a common fund from which the attorney's fees are drawn.¹ Montalvo, 64 Haw. at 361-62, 641 P.2d at 1332. The central question presented herein is whether the circuit court possessed and should have exercised the discretion to award attorney's fees based on a percentage of the common fund recovered in the class action suit.

The appellants-appellants Michael A.S. Chun, Gladys Farm, Herbert T. Imanaka, Jimmy T. Izu, Samuel Y. Kakazu, Billy G. Southwood, Eishin Tengan, Thomas Y. Yano, Valerie Yamada Southwood, and Barbara Jane Luke (collectively, the Retirees) appeal from the order of the first circuit court, entered on October 21, 1998, awarding attorney's fees in the amount of $1,027,625.50 to the Retirees' attorney, Charles K.Y. Khim.² The Retirees raise the following points of error on appeal: (1) the circuit court violated the "law of the case" doctrine when it reversed its own decision regarding the standing of the appellees-appellees Board of Trustees of the Employees' Retirement System of the State of Hawai`i (the Board) and the Employees' Retirement System of the State of Hawai`i (the ERS) to challenge the amount of attorney's fees being sought by the Retirees; (2) the circuit court erred in ruling that the ERS had standing to challenge the amount of attorney's fees being sought by the Retirees; (3) the circuit court abused its discretion by declining to consider calculating Khim's attorney's fees as a pure percentage of the "common fund" recovered by the Retirees; (4) the circuit court's statement that it was "personally offended" by Khim's behavior rendered its ruling invalid; (5) the circuit court erred in rejecting the doctrine of comity as relevant to the present case; and (6) the circuit court erred in finding that the ERS's attorney had been lawfully retained. The Retirees' third point on appeal has merit. Accordingly, we vacate the order of the circuit court, entered on October 21, 1998, and remand the matter to the circuit court for further proceedings regarding the method of awarding attorney's fees to Khim. Although our holding with respect to the foregoing point is outcomedispositive of the present appeal, we address the Retirees' remaining arguments in order to provide guidance to the parties and the circuit court on remand. Cf. State v. Staley, 91 Hawai`i 275, 277, 982 P.2d 904, 906 (1999).

I. BACKGROUND

A. Chun I

Prior to retiring, the Retirees (as public school principals, vice principals, or teachers) were all "ten-month" employees of the Department of Education (DOE). The present appeal arises out of two class action lawsuits—one (Chun) brought on behalf of retired principals and vice principals and the other (Southwood) on behalf of retired teachers—filed in the first circuit court. Each complaint sought relief based upon the allegation that the ERS had undercalculated the benefits to which the Retirees were entitled. The circuit court (1) entered summary judgment in favor of the retired principals and vice principals, (2) ruled that "the lump sum payment of `earned summer salary,' paid upon retirement[,] was compensation attributable to the month in which the member of the class retired," and therefore (3) ordered the ERS to include those amounts in the recalculation of the principals' and vice principals' "average final compensation." Chun v. Employees' Retirement Sys., 73 Haw. 9, 10, 828 P.2d 260, 261 (1992) (Chun I). The ERS appealed. In Chun I, this court vacated the circuit court's order and remanded the case with directions that the circuit court remand the matter to the ERS for a full administrative hearing before the Board. Id. at 11, 828 P.2d at 263. Based on Chun I, the circuit court likewise remanded the claims asserted in Southwood for an administrative hearing.

B. Chun II

Subsequent to the administrative hearing, on March 23, 1995, the Board issued a "decision" denying all of the Retirees' claims. Chun v. Employees' Retirement Sys., 87 Hawai`i 152, 158, 952 P.2d 1215, 1221 (1998) (Chun II). The Retirees appealed the Board's decision to the circuit court. Id. On March 4, 1996, the circuit court entered its "final order" reversing the Board's decision and directing that retirement pay be increased both retroactively and prospectively. The March 4, 1996 order provided in relevant part as follows:

2. [The ERS and the Board] shall recalculate the [average final compensation (]AFC[)] of all [Retirees] by including the earned salary paid in lump sum upon retirement in its calculation. However, [the ERS and the Board] should only include those mon[ie]s earned in the three years used to calculate [the AFC]....

3. [The Retirees] are awarded attorney's fees only insofar as attorney[']s fees are to be paid by the [Retirees] from the funds they recover through the relief granted herein. In accordance with [the Retirees'] request, [the ERS and the Board] are ordered to deduct said reasonable attorney's fees from the additional payments that will be made to the [Retirees]. Following a final resolution of this case, ... this court will make a final determination of the award of attorney's fees, both the amount and manner of calculation.

4. [The ERS and the Board] shall recalculate the monthly retirement and post retirement allowances of all members of the Chun class from two years prior to the filing of the complaint in Chun v. Employees' Retirement System in Civil No. 86-3904, and of the Southwood class from [two] years prior to the filing of the complaint in Southwood v. Employees' Retirement System in Civil No. 90-0510-02, in light of the recalculation of [the] AFC for all [Retirees].

5. [The ERS and the Board] shall make a lump sum payment to each [Retiree,] which represents the difference between the newly recalculated monthly retirement benefit each [Retiree] would have received pursuant to the recalculations noted hereinabove, and the monthly retirement benefit each class member received, from two years filing to the relevant complaint[s]..., or the date of retirement to the date of this order.

On March 11, 1996, the circuit court entered a final judgment, reversing the Board's decision dated March 23, 1995, in favor of the Retirees and against the Board and the ERS. The ERS and the Board appealed the judgment. Chun II, 87 Hawai`i at 155,952 P.2d at 1218.

In Chun II, this court held that "the ERS (at the behest of its purported `administrator') and `the Board' (at the behest of the Attorney General) lacked the power to appeal the circuit court's final order and judgment." Id. at 157, 952 P.2d at 1220. Inasmuch as the Board and the ERS's appeal was dismissed, the circuit court's March 11, 1996 judgment remained the final judgment in the case. See id. at 177, 952 P.2d at 1240.

In its opinion in Chun II, this court observed in footnote 18 that,

although the parties do not directly address the issue in their briefs, we note that it is unclear—given the provisions of HRS § 28-8.3 (Supp.1997),³ ... which took effect on July 1, 1995, see 1995 Haw. Sess. L. Act 178, §§ 1 and 18 at 295-96, 305—by what authority the ERS undertook to retain and compensate private counsel in connection with the present appeal.

Id. at 167 n. 18, 952 P.2d at 1230 n. 18.

C. Retention Of Mark J. Bennett

On February 28, 1994, the Board voted to retain Mark J. Bennett, Esq., to represent it in Chun II. On March 1, 1994, the ERS and Bennett entered into a "legal retention counsel agreement," which recited that Bennett would "serve as legal counsel for and render the necessary legal services to defend and represent the ERS in the administrative proceeding in the matter of the claim of Michael A.S. Chun, et al., against [the ERS], and in Southwood[.]" The agreement was amended three times—in 1995, 1997, and 1998—to provide for Bennett's continued representation.

At a hearing regarding attorney's fees conducted on June 12, 1998, the circuit court observed as follows:

THE COURT:.... [F]irst of all I will raise one of the first issues and that will be in conjunction with you, Mr. Bennett. And I will ask you by what authority or upon whose authority are you here because, as the Supreme Court decision makes clear, the existence, the legal existence of the ERS is through its board of directors, and they are already represented by the Attorney General's office.

. . . .

.... [T]he Supreme Court recognized the Attorney General as the attorney representing the proper entity. And so I mean basically the ERS cannot before me have two attorneys. I mean I will not allow pleadings from two

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