New Hartford v. Ct. Resources Auth.

• Citation: 291 Conn. 511,970 A.2d 583
• Decision Date: 19 May 2009
• Docket Number: No. 18110.,18110.
• Court: Connecticut Supreme Court
• Parties: TOWN OF NEW HARTFORD et al. v. CONNECTICUT RESOURCES RECOVERY AUTHORITY et al.

970 A.2d 583

291 Conn. 511

TOWN OF NEW HARTFORD et al. v. CONNECTICUT RESOURCES RECOVERY AUTHORITY et al.

No. 18110.

Supreme Court of Connecticut.

Argued October 16, 2008.

Decided May 19, 2009.

Louis R. Pepe, with whom were Richard F. Wareing, Richard H. Goldstein, Daniel J. Klau, Joseph J. Chambers and, on the brief, David W. Case, Hartford, for the appellant (named defendant).

David S. Golub, with whom were Jonathan M. Levine, Stamford, Joseph V. Meaney, Jr., Hartford, and, on the brief, Marilyn J. Ramos and Craig N. Yankwitt, Stamford, for the appellees (plaintiffs).

ROGERS, C.J., and DiPENTIMA, McLACHLAN, GRUENDEL and ROBINSON, Js.^*

DiPENTIMA, J.

The dispositive issue in this appeal is whether the named defendant, Connecticut Resources Recovery Authority,¹ has standing to challenge the amount of the attorney's fees awarded to the counsel for the plaintiffs, a certified class of seventy municipalities.² The plaintiffs commenced an action following the defendant's ill-fated loan of $220 million to Enron Power Marketing, Inc., a subsidiary of Enron Corporation (collectively Enron). The court rendered judgment in favor of the plaintiffs on its breach of contract and unjust enrichment claims, awarding a constructive trust in the amount of $35,873,732.³ From that sum, the plaintiffs' counsel filed a motion for attorney's fees of approximately $8.9 million, or 23.5 percent of the total amount obtained in the litigation related to Enron, as well as expenses of approximately $174,000. The defendant filed an objection, arguing that the fees sought were unreasonable. The court determined that the defendant lacked standing to challenge the award and granted the motion for attorney's fees and expenses in the amount requested. We conclude that the court properly determined that the defendant was not aggrieved and therefore lacked standing to challenge this award. Accordingly, we affirm the judgment of the trial court.

The trial court's memorandum of decision sets forth the following facts, which generally are not disputed by the parties. The action began in December, 2003, and was certified as a class action on March 21, 2006. On June 19, 2007, the court issued a memorandum of decision rendering judgment in favor of the plaintiffs. Specifically, it enjoined the defendant from imposing costs related to the Enron transaction on the plaintiffs and established a constructive trust in the amount of $35,873,732 over settlement proceeds that the defendant had recovered in litigation stemming from the Enron transaction to provide restitution to the plaintiffs.

On November 16, 2007, the plaintiffs filed a motion for order of distribution of the funds in the constructive trust and the award of attorney's fees and expenses. Three days later, with the agreement of the parties, the court ordered counsel to provide the plaintiffs with notice that a hearing on the motion would be held on November 30, 2007. This notice apprised the plaintiffs of the orders being sought at the hearing, including the proposed plan of allocation. The notice further advised each plaintiff of its right to opt out of the class, to reject the benefits of the June 19, 2007 decision, and to object or otherwise be heard. Notice was sent by electronic and regular mail to the plaintiffs on or before November 21, 2007.

The November 16, 2007 motion requested an award of attorney's fees based on "the common-fund percentage of recovery methodology, in the amount of $8,982,602, equal to approximately 23.5 [percent] of the total monetary benefit obtained for the [plaintiffs] to date in this litigation."⁴ The motion also sought reimbursement for litigation expenses in the amount of $174,427.02. Attached to the motion was an affidavit from Attorney David S. Golub, lead counsel for the plaintiffs, and a memorandum of law.

The defendant filed an objection on November 30, 2007, the date of the hearing on the motion for distribution of the funds in the constructive trust and award of attorney's fees.⁵ The defendant's motion argued that the attorney's fees requested by the plaintiffs' counsel were not reasonable. At the hearing, representatives from the plaintiffs Hartford, West Hartford and Waterbury, the largest municipalities in the class, spoke in favor of both the motion for distribution and the motion for attorney's fees. The court observed that none of the plaintiffs elected to "opt out" from participating in the distribution or filed an objection to the distribution or the attorney's fees. The defendant voiced its objection to both the proposed distribution and the award of attorney's fees.

On December 7, 2007, the court issued its memorandum of decision, approving the proposed method of distribution and awarding attorney's fees. The court determined that the defendant lacked standing to object to the award of attorney's fees. Guided by the United States Court of Appeals for the Second Circuit; see Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 50 (2d Cir.2000); the trial court conducted a comprehensive analysis to determine whether the attorney's fees in the present case were reasonable.⁶ It concluded that the fees were reasonable, and granted the motion for the award of attorney's fees and reimbursement of expenses.

On December 10, 2007, the defendant filed in this court a motion for a temporary stay of the order authorizing the distribution of the funds to the plaintiffs and the plaintiffs' counsel, and a motion for review of the order of distribution and attorney's fees. The plaintiffs filed a consolidated objection on December 12, 2007. On December 17, 2007, this court granted the defendant's motion, awarding the relief sought in part. Specifically, we stayed the disbursement of the attorney's fees and reimbursement of all expenses until further order. Additionally, we ordered the trial court to articulate the basis for denying the stay as to the portion of the judgment representing attorney's fees and accrued interest thereon together with costs. We further ordered that the balance of the common fund be distributed in accordance with the trial court's December 7, 2007 memorandum of decision.

The trial court issued its articulation on December 18, 2007, stating: "Pursuant to Practice Book § 61-11(c), the trial court is of the opinion that both (1) the appeal is taken only for delay, and (2) the due administration of justice requires that the stay be terminated." The court further observed that the plaintiffs did not object to the award of attorney's fees. On December 21, 2007, the defendant filed the present appeal.⁷ On January 11, 2008, we granted the defendant's motion for review and granted the relief sought as to the issue of attorney's fees. Specifically, we stayed the disbursement of attorney's fees and reimbursement of all expenses out of the common fund.

On appeal, the defendant argues that the court improperly awarded attorney's fees despite the fact that there is zero actual economic benefit to the plaintiffs. Second, the defendant claims that the court improperly "rewarded [the counsel for the plaintiffs] for their perverse, yet strategic, decision to prevent [the defendant] from executing a ... plan [approved by its board of directors] to rebate $14.8 million directly to the plaintiffs and to use an additional $9 million to pay down [the defendant's] debt, which also would have benefited the plaintiffs." (Emphasis in original.) The plaintiffs respond first that the defendant lacked standing to challenge the award of attorney's fees on the ground that the award "did not affect the amount of [the defendant's] liability or change in any way the amount of restitution [the defendant] was ordered to provide." The plaintiffs further contend that the court's award of attorney's fees did not constitute an abuse of discretion.

A brief discussion regarding the percentage award in common fund class action cases will facilitate our analysis. "The general rule of law known as the American rule is that attorney's fees and ordinary expenses and burdens of litigation are not allowed to the successful party absent a contractual or statutory exception. See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975); Fleischmann Distilling Corporation v. Maier Brewing Co., 386 U.S. 714, 717, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967). This rule is generally followed throughout the country. See 20 Am.Jur.2d, Costs § 72 [1965]. Connecticut adheres to the American rule." (Internal quotation marks omitted.) Rizzo Pool Co. v. Del Grosso, 240 Conn. 58, 72-73, 689 A.2d 1097 (1997).

Common fund fee awards, however, present a recognized exception to the American rule.⁸ See Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980); see also Federal Judicial Center, Manual for Complex Litigation (Fourth), § 14.121 (2004); 1 A. Conte, Attorney Fee Awards (3d Ed.1993) § 1:3, p. 8; 4 A. Conte & H. Newberg, Newberg on Class Actions (4th Ed.2002) § 14:1, p. 505. Under the common fund fee doctrine, attorneys whose efforts create the fund are entitled to a reasonable fee to be taken from the fund. Goldberger v. Integrated Resources, Inc., supra, 209 F.3d at 47. The doctrine "rests on the perception that persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant's expense." Boeing Co. v. Van Gemert, supra at 478, 100 S.Ct. 745; see also Goldberger v. Integrated Resources, Inc., supra, at 47. With this background in mind, we now turn to the specifics of the present appeal.

We first address the issue raised by the plaintiffs that the defendant is not aggrieved, and therefore lacks standing to challenge the award of attorney's fees. The issue of standing implicates the trial court's subject matter jurisdiction and therefore presents a threshold issue for our determination. West Farms Mall, LLC v. West Hartford, 279 Conn. 1, 11 n....