Montalvo v. Chang, s. 7289

• Citation: 64 Haw. 345,641 P.2d 1321
• Decision Date: 25 February 1982
• Docket Number: Nos. 7289,7696 and 7697,s. 7289
• Parties: Roxanne MONTALVO, on behalf of herself and all other persons similarly situated, Plaintiffs-Appellees, v. Andrew CHANG, in his capacity as Director, Department of Social Services and Housing, State of Hawaii; Department of Social Services and Housing, State of Hawaii; State of Hawaii, Defendants-Appellants. Violet ARBAS and Sharleen Lee, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellees, v. Andrew CHANG, in his capacity as Director, Department of Social Services and Housing, State of Hawaii; Department of Social Services and Housing, State of Hawaii; State of Hawaii, Defendants-Appellants. Danielle VON HIRAM and Violet Arbas, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellees, v. Andrew CHANG, in his capacity as Director, Department of Social Services and Housing, State of Hawaii; Department of Social Services and Housing, State of Hawaii; State of Hawaii, Defendants-Appellants.
• Court: Supreme Court of Hawai'i

Page 1321

641 P.2d 1321

64 Haw. 345

Roxanne MONTALVO, on behalf of herself and all other persons

similarly situated, Plaintiffs-Appellees, v. Andrew CHANG, in his capacity as Director, Department of

Social Services and Housing, State of Hawaii; Department of

Social Services and Housing, State of Hawaii; State of

Hawaii, Defendants-Appellants.

Violet ARBAS and Sharleen Lee, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellees, v. Andrew CHANG, in his capacity as Director, Department of

Social Services and Housing, State of Hawaii; Department of

Social Services and Housing, State of Hawaii; State of

Hawaii, Defendants-Appellants.

Danielle VON HIRAM and Violet Arbas, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellees, v. Andrew CHANG, in his capacity as Director, Department of

Social Services and Housing, State of Hawaii; Department of

Social Services and Housing, State of Hawaii; State of

Hawaii, Defendants-Appellants.

Nos. 7289, 7696 and 7697.

Supreme Court of Hawai'i.

Feb. 25, 1982.

Syllabus by the Court

1. The policy of the Supreme Court of Hawaii has always been to permit litigants,

where possible, to appeal and to hear a case on its merits.

2. A party bringing an appeal must have been aggrieved by the trial court's final order, and an aggrieved party is one who is affected or prejudiced by the appealable order.

3. When federal money is spent to promote the general welfare, the concept of welfare or the opposite is shaped by Congress, not the states. And disputes on whether federal funds allocated to the states are being expended consistently with the conditions that Congress has attached to their use are definitively settled by the United States Supreme Court.

4. Litigants for whom legal services have been rendered are generally expected to assume the burden of paying for them, and prevailing parties ordinarily are not awarded attorneys' fees in the absence of a statute, agreement, or stipulation authorizing their allowance. But courts have recognized exceptions to this general rule.

5. A recognized exception to the general rule, the common fund doctrine, provides that a private plaintiff, or his attorney, whose efforts create, discover, increase or preserve a fund to which others also have a claim is entitled to recover from the fund the costs of his litigation, including attorneys' fees.

6. The purpose of HRS § 346-33 is to prevent a diminution, disposal, or divestiture of public assistance payments prior to their receipt by intended recipients.

7. The policy as well as the letter of the law is a guide to decision. Where the letter of the law has produced a harsh result contrary to its intent, resort to policy is permissible to ameliorate harshness or qualify apparent absolutes.

8. Fairness to the class should be watchwords in the award of attorneys' fees in class suits because the class action's capacity to promote justice is attended with equally great potential of unreasonable charges of attorneys' fees and expenses and improper solicitation of legal representation.

9. Rule 23, H.R.C.P., compels the circuit court to assume the role of a protector of the rights of absent class members and demands stringent standards in the determination of attorneys' fees.

10. In awarding attorneys' fees in class actions under the common fund doctrine, the trial court should follow the "Lindy" guidelines established by the Court of Appeals for the Third Circuit. Thus the trial court should first determine how many hours were spent in what manner by which attorneys, then arrive at a reasonable hourly rate for the attorneys' time. It should then derive a preliminary fee award by applying the foregoing hourly rate to the time spent. This serves as the "lodestar" for the ultimate award.

11. The "lodestar" is subject to adjustment upon consideration of two additional factors, "the contingent nature of success" and "the quality of an attorney's work."

12. Under the rubric of "the contingent nature of success," the trial court should examine the plaintiff's burden, the risks assumed in developing the case, and the delay in receipt of payment for services rendered.

13. The "quality of an attorney's work" is not a reference to the attorney's experience, knowledge and legal talent. " This aspect of quality is reflected in the "lodestar" and should not be utilized to augment or diminish the basic fee award.

14. Generally, class members should be assessed fees in amounts proportionate to their share of the common fund. And private arrangements individual members of the class may have with counsel are not relevant in determining the amount the attorneys are to receive from the common fund.

Charleen M. Aina, Deputy Atty. Gen., Honolulu (Dewey H. Kim, Jr., Deputy Atty. Gen., Honolulu, on opening and reply briefs in Nos. 7696 and 7697), for defendants-appellants. William S. Hunt, Honolulu (Paul Alston, Honolulu, on answering brief in Case No. 7289; Paul, Johnson & Alston, Honolulu, of counsel), for plaintiffs-appellees.

Before RICHARDSON, C. J., LUM and NAKAMURA, JJ., and OGATA and MENOR, Retired Justices, assigned by reason of vacancies.

NAKAMURA, Justice.

These consolidated appeals concern attorneys' fees awarded by the Circuit Court of the First Circuit after the entry of judgments against the State of Hawaii, its Department of Social Services and Housing, and the Director of the Department, Defendants-appellants (hereafter referred to collectively as the State), in three class actions brought by recipients of financial assistance under the Aid to Families with Dependent Children program (hereafter AFDC). The State asserts attorneys' fees should not have been awarded because HRS § 346-33 ¹ renders public assistance payments inalienable. Assuming arguendo that the awards of attorneys' fees are not statutorily precluded, the State maintains the circuit court nevertheless abused its discretion in determining the amounts. Plaintiffs-appellees counter with a proposition that the State lacks standing to appeal as it was not aggrieved by the circuit court's orders. We agree with the State that it has standing to appeal from the orders awarding fees and with Plaintiffs-appellees that HRS § 346-33 does not inhibit the circuit court's power to award fees in the situations involved. We conclude, however, that the circuit court erred in fixing the awarded amounts, and remand the cases for redeterminations of the fees.

I.

AFDC is a program established by Title IV of the Social Security Act, 42 U.S.C. §§ 601-613, and "designed to provide financial assistance to needy dependent children and the parents or relatives who live with and care for them," Shea v. Vialpando, 416 U.S. 251, 253, 94 S.Ct. 1746, 1750, 40 L.Ed.2d 120 (1974). It "is based on a scheme of cooperative federalism," King v. Smith, 392 U.S. 309, 316, 88 S.Ct. 2128, 2133, 20 L.Ed.2d 1118 (1968), "financed in large measure by the Federal Government on a matching-fund basis, ... (where) participating States must submit AFDC plans in conformity with the Act and the regulations promulgated thereunder." Shea v. Vialpando, supra, 416 U.S. at 253, 94 S.Ct. at 1750. Although the States are given broad discretion in administering the program, noncompliance with federal requirements can result in a cut-off of matching funds. Rosado v. Wyman, 397 U.S. 397, 420-23, 90 S.Ct. 1207, 1221-23, 25 L.Ed.2d 442 (1970). Each complaint here alleged the State was out of compliance in some respect with applicable provisions of the governing statutes and regulations.

The plaintiffs in Arbas v. Chang, Civil No. 49483, acting on their own behalf as well as for all other recipients of public assistance similarly situated, challenged the State's practice of regarding federal and state tax refunds as "income" for AFDC purposes, a procedure which afforded a recipient the unenviable choice of a forfeiture to the State of all or part of the refunds or a reduction, suspension, or termination of AFDC benefits. The circuit court certified the plaintiff class, ² and subsequently entered a partial summary judgment against the State. ³

The named plaintiffs in Von Hiram v. Chang, Civil No. 50943, another class action, ⁴ alleged the State was out of conformity with 42 U.S.C. § 602(a)(7) and related federal regulations because it did not permit recipients of assistance to deduct from income all expenses reasonably attributable to employment in determining eligibility for assistance payments under AFDC. They claimed Shea v. Vialpando, supra, had previously invalidated the State's practice of only allowing standardized deductions of $33 and $44 as work-related expenses. Thereafter, it was stipulated by the parties that the entry of a judgment in favor of the plaintiff class was appropriate, and the State was ordered to pay each member of the class the sum he or she would have received but for the State's adoption of the illegal procedure.

In Montalvo v. Chang, Civil No. 52895, also a class suit, ⁵ the representatives of the plaintiff class claimed that the State's refusal to consider child support payments payable to family units eligible for AFDC aid as unearned income for eligibility purposes and its further refusal to disregard the first $5 thereof in computing entitlement to assistance were in violation of 42 U.S.C. § 602(a)(28), related federal regulations, HRS Chapter 346, and related state regulations. Since a federal district court had previously ruled that the State had breached relevant federal statutory provisions and regulations in the foregoing respects, ⁶ a stipulated judgment in favor of the plaintiff class was deemed appropriate in this case too.

Subsequent to the entry of the judgments, the circuit court awarded attorneys' fees to the attorneys representing the plaintiff classes. In each case, the fees were made payable from the common fund created by the terms of the judgment. In Montalvo v. Chang, the...