Reynolds v. First Alabama Bank of Montgomery, N.A.

• Decision Date: 19 April 1985
• Citation: 471 So.2d 1238
• Parties: J. Donald REYNOLDS as Guardian Ad Litem (Charlotte Kyle Martin & Kathleen Gerson, et al.) v. FIRST ALABAMA BANK OF MONTGOMERY, N.A. Charlotte Kyle MARTIN, Kathleen Gerson, et al. v. FIRST ALABAMA BANK OF MONTGOMERY, N.A. FIRST ALABAMA BANK OF MONTGOMERY, N.A. v. Charlotte Kyle MARTIN & Kathleen Gerson, et al. 83-70, 83-72, 83-71.
• Court: Alabama Supreme Court

Page 1238

471 So.2d 1238

J. Donald REYNOLDS as Guardian Ad Litem (Charlotte Kyle Martin & Kathleen Gerson, et al.) v. FIRST ALABAMA BANK OF MONTGOMERY, N.A.

Charlotte Kyle MARTIN, Kathleen Gerson, et al. v. FIRST ALABAMA BANK OF MONTGOMERY, N.A.

FIRST ALABAMA BANK OF MONTGOMERY, N.A. v. Charlotte Kyle MARTIN & Kathleen Gerson, et al.

83-70, 83-72, 83-71.

Supreme Court of Alabama.

April 19, 1985.

Jack Crenshaw and Richard H. Gill of Copeland, Franco, Screws and Gill and J. Donald Reynolds, Montgomery, for appellants/cross-appellees.

M.R. Nachman, Jr. of Steiner, Crum & Baker, Montgomery, for appellee/cross-appellant.

ADAMS, Justice.

This is the third time beneficiaries of trusts held by First Alabama Bank of Montgomery, N.A., have come to us asking to be made whole, their claims being occasioned by the imprudent investments made by their paid trustee. ¹

On remand, the beneficiaries were able to obtain a judgment in the amount of $5,753,747.00 and the beneficiaries' attorneys were awarded a fee of one-third of that amount, or $1,795,200.00. The guardian ad litem was awarded a fee of $7,200.00. The beneficiaries' attorneys filed a motion to require the bank to pay these fees because trial judge Hooper's decree of August 19, 1981, ordered that "... the class plaintiffs be put in the same position they would have occupied except for the breaches of fiduciary duty ... [and] that the defendant perform such acts as are necessary to put the class plaintiffs in that position." Furthermore, they point to language in our opinion in Martin II which they claim further strengthens their argument that the bank should pay their counsel fees. We said in Martin II:

Where a trustee makes an investment that is improper, it is equitable for the court to put the parties in a position they would have occupied except for the breach of trust.

First Alabama Bank of Montgomery, N.A. v. Martin, 425 So.2d 415, 429 (Ala.1983).

Before this case could be heard on remand, the original trial judge, Judge Hooper, had retired from the bench, and Judge Charles Price had assumed responsibility for this litigation.

Judge Price took testimony concerning the reasonableness of an attorney's fee in this case, and considered the motion to assess fees against the bank. Although it does not appear that the parties had the benefit of our recent decision concerning attorney's fees, Peebles v. Miley, 439 So.2d 137 (Ala.1983), our review of the record indicates that testimony was directed to most, if not all, of the criteria mentioned in that opinion. Members of the class were properly notified of the proceedings, and those who testified stated that they thought that one-third of the amount of the recovery was reasonable, but were of the opinion that, inasmuch as their loss was occasioned by no fault of their own, the bank whose actions caused the loss should also pay the attorneys' fee if they were, indeed, to be made whole.

Judge Price rejected this argument and held that counsel were entitled to the fee he had set, but that it must come solely from the fund which the attorneys had created. In so doing, Judge Price was following the American rule, that a party must pay his own counsel fees and there can be no shifting of litigation costs.

At this juncture, let us assess the posture of the case as it is presented to us on appeal. As a result of procedures in the trial court, the beneficiaries have received the amount of their judgment, less $1,795,200.00, which has been paid directly to their counsel of record. Defendant bank has cross-appealed, claiming that it has overpaid in this case because the statute of limitations bars recovery to those beneficiaries whose trusts terminated more than one year before the filing of this law suit. The beneficiaries claim that this defense was raised in Martin II, and thus, that the issue is not before us because of the doctrine of res judicata.

The beneficiaries' attorneys are not seeking additional compensation for this appeal. They agree that they have been adequately compensated for their hours (approximately 2,600), and by all the other yardsticks used in determining attorney's fees, but they appear before us because they believe they have a professional responsibility to see that their clients are made whole as per the law of the case as expressed by Judge Hooper and by this Court. The sole purpose of the beneficiaries' appeal is to shift the responsibility of the fee from their shoulders to the bank. Of course, the bank claims that the fees for the beneficiaries, as well as for the guardian ad litem, are clearly excessive, are not in conformity with the criteria we set out in Peebles, supra, and, if allowed to stand, would bring the bench and the bar into great disrepute.

The issues spring from the cases so postured:

1. Did the trial court correctly refuse to assess the beneficiaries' attorneys' fees against the bank?

2. Was the amount of the award of the attorneys' fees to the beneficiaries' lawyers, as well as the amount of the award of attorneys' fees to the guardian ad litem, grossly and clearly excessive?

a. Does the bank have standing to claim excessiveness?

3. Did the trial court erroneously reject the bank's plan to exclude as participants from any distribution of principal and income, beneficiaries of trusts that had terminated more than one year prior to the commencement of this action?

American Rule

In order to properly analyze the interplay of the American rule in this case, we must first keep in mind the nature of the litigation vehicle. First and foremost, this is a class action filed by the beneficiaries of approximately 1,250 individual trusts against their paid trustee seeking a declaration as to the duty of the bank and its liability to account, a declaration that certain investments were imprudent, and affirmative relief requiring the bank to restore to the common trust fund the losses sustained because of the bank's improper investments. In other words, this is essentially an equitable proceeding.

We said in Martin II that "in Alabama, a court of equity is authorized to mold its decree so as to adjust the equities of the parties and meet the necessities of each situation, Coupounas v. Morad, 380 So.2d 800 (Ala.1980); BBC Investment Co. v. Ginsberg, 280 Ala. 148, 190 So.2d 702 (1966)." 425 So.2d at 429. Can this traditional function of equity coexist in a case where the plaintiff seeks to shift the burden of attorney's fees to the defendant trustee in face of a rule which provides that each party should pay his own attorney's fee? Just recently, our Court said in Eagerton v. Williams, 433 So.2d 436 (Ala.1983):

In Alabama, attorney's fees are recoverable only where authorized by statute, when provided in a contract, or by special equity, such as in a proceeding where the efforts of an attorney create a fund out of which fees may be made. Shelby County Commission v. Smith, 372 So.2d 1092 (Ala.1979); State ex rel. Payne v. Empire Life Ins. Co., 351 So.2d 538 (Ala.1977). We affirm the trial court's finding that the decree creates a common fund from which counsel fees may be made.

433 So.2d at 450.

We think these two doctrines can co-exist, but a better understanding of the rule is necessary to appreciate the basis of our decision. Strangely, although we borrowed our body of law called the common law from England when this country was established, we did not borrow the English method of handling attorney's fees. As early as 1278, the English courts allowed counsel fees to the successful plaintiffs in litigation. However, it took until 1607 for the English courts to authorize an award of counsel fees to the defendants in all actions where such awards might be made to plaintiffs. ^{2 2} In fact, our research has found no country in the world that does not allow the equitable allocation of attorney's fees except our own. ³

It is said that the rule arose out of our colonial experience where lawyers were looked upon with suspicion and were considered characters of disrepute. In those days, judges in most cases were laymen and, therefore, it was thought that counsel was unnecessary. This general feeling was evidenced by the fact that statutes forbade lawyers from receiving fees and denied them the use of the courts if they were paid. ⁴ As our country grew, more people obtained legal training and became judges and the process of recognizing the values of a lawyer's services began. Eventually, statutes were passed which allowed the losing party his costs. This was later expanded to include specified fees to be paid counsel.

Although the rule has been soundly criticized by the commentators, its vitality on the American scene has not seemed to weaken. ⁵ Furthermore, there seems to be no organized effort to mount an assault on the doctrine.

Nevertheless, the rule is usually expressed with exceptions encouched therein. One of the main exclusions is the equitable exception. In the United States Supreme Court case of Hall v. Cole, 412 U.S. 1, 93 S.Ct. 1943, 36 L.Ed.2d 702 (1973), the Court explained in no uncertain terms that the rule may be overridden if the equities justify it. Justice Brennan, speaking for the Court, said:

Although the traditional American rule ordinarily disfavors the allowance of attorneys' fees in the absence of statutory or contractual authorization, federal courts, in the exercise of their equitable powers, may award attorneys' fees when the interests of justice so require. Indeed, the power to award such fees "is part of the original authority of the chancellor to do equity in a particular situation," Sprague v. Ticonic National Bank, 307 U.S. 161, 166 [59 S.Ct. 777, 780, 83 L.Ed. 1184] (1939), and federal courts do not hesitate to exercise this inherent equitable power whenever "overriding considerations indicate the need for such a recovery." Mills v. Electric Auto-Lite Co., 396 U.S. 375, 391-392 [90 S.Ct. 616, 625-626, 24 L.Ed.2d 593] (1970). ...

Thus, it...