State Bd. of Tax Com'rs v. Town of St. John

• Citation: 751 N.E.2d 657
• Decision Date: 18 July 2001
• Docket Number: No. 49S10-0009-TA-541.,49S10-0009-TA-541.
• Parties: STATE BOARD OF TAX COMMISSIONERS, Appellant (Respondent Below), v. TOWN OF ST. JOHN, et al., Appellees (Petitioners Below).
• Court: Indiana Supreme Court

751 N.E.2d 657

STATE BOARD OF TAX COMMISSIONERS, Appellant (Respondent Below), v. TOWN OF ST. JOHN, et al., Appellees (Petitioners Below).

No. 49S10-0009-TA-541.

Supreme Court of Indiana.

July 18, 2001.

Karen M. Freeman-Wilson, Attorney General of Indiana, Jon Laramore, Deputy Attorney General, Indianapolis, IN, Attorneys for Appellant.

Thomas M. Atherton, Katz and Korin, James K. Gilday, Wood, Tuohy, Gleason, Mercer & Herrin, Kenneth J. Falk, Indiana Civil Liberties Union, Richard A. Waples, Waples and Hanger, Peter H. Donahoe, Hill, Fulwider, McDowell, Funk & Matthews, P.C., Indianapolis, IN, Attorneys for Appellees.

SHEPARD, Chief Justice.

We return to the ongoing case in which taxpayers proved Indiana's real property assessment scheme unconstitutional. They now ask us to adopt and apply a common law exception to the American rule and award them their legal fees as private attorneys general. We decline.

Facts & Procedural History

In 1993, the Town of St. John and various taxpayers ("Taxpayers") challenged Indiana's real property assessment procedure, asserting that it did not provide "a uniform and equal rate of property assessment and taxation...." Ind. Const. art. X, § 1(a); Town of St. John v. State Bd. of Tax Comm'rs, 665 N.E.2d 965 (Ind.Tax 1996). Seven reported decisions later (two in this Court¹ and five in the Indiana Tax Court²), the Tax Court ordered the State Board of Tax Commissioners "to adopt new, constitutional regulations...." Town of St. John v. State Bd. of Tax Comm'rs, 729 N.E.2d 242, 251 (Ind.Tax 2000). That mandate is still pending.

Having prevailed on the merits, Taxpayers asked for an award of attorney fees under a private attorney general theory. Town of St. John v. State Bd. of Tax Comm'rs, 730 N.E.2d 240, 242 (Ind.Tax 2000). The Tax Court granted the request and ordered the Taxpayers to submit their proposed award. Id. at 265. The State Board sought review in this Court, and the Tax Court stayed the deadline for submission of Taxpayers' claim. Town of St. John v. State Bd. of Tax Comm'rs, No. 49T10-9309-TA-70 (Ind. Tax July 12, 2000) (order granting motion to extend time to file proposed fees).

I. The Private Attorney General Doctrine: An Overview

As a prelude to analyzing Indiana law, we note that there are two basic attorney fee schemes: the English rule ("loser pays") and the American rule ("every man for himself"). W. Kent Davis, The International View of Attorney Fees in Civil Suits: Why Is the United States the "Odd Man Out" in How It Pays Its Lawyers?, 16 Ariz. J. Int'l & Comp. L. 361, 399, 403 (1999). Both schemes are grounded in statute. Id. at 400, 404.

Some view the English rule as more fair, arguing that a legal victory is not complete if one is out of pocket for attorney fees. Id. at 405. Proponents of the American rule respond:

[S]ince litigation is at best uncertain one should not be penalized for merely defending or prosecuting a lawsuit, and [ ] the poor might be unjustly discouraged from instituting actions to vindicate their rights if the penalty for losing included the fees of their opponents' counsel. Also, the time, expense, and difficulties of proof inherent in litigating the question of what constitutes reasonable attorney's fees would pose substantial burdens for judicial administration.

Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967) (citations omitted).

Courts in various American jurisdictions have sought a middle ground by using their inherent equitable powers to carve out exceptions to the American rule. See Saint Joseph's College v. Morrison, Inc., 158 Ind.App. 272, 279, 302 N.E.2d 865, 870 (1973)

. The most common exceptions are:

1) The "obdurate behavior" exception, in which courts impose costs upon defendants as a punishment for bringing frivolous actions or otherwise acting in bad faith. Andrew W. Hull, Attorney's Fees for Frivolous, Unreasonable or Groundless Litigation, 20 Ind. L.Rev. 151, 152-53 (1987).

2) The "common fund" exception, in which an award benefits members of an ascertainable class, and the court reimburses the prevailing litigant's attorney fees out of that pool of money to prevent the unjust enrichment of free riders. Id. at n. 11.³ 3) The "private attorney general" exception, where courts award fees to litigants who bring actions to protect important social policies or rights. Id.

Judge Jerome Frank coined the phrase "private attorney general" in 1943, to describe a private person acting to "vindicate the public interest." Associated Indus. v. Ickes, 134 F.2d 694, 704 (2d Cir.1943). In 1975, the U.S. Supreme Court resolved a federal circuit split by declining to reallocate by judicial decree the burdens of federal litigation under the private attorney general doctrine. Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 270 n. 46, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). The Court expressed concern that without statutory authorization, authority to make fee awards would leave courts free to "pick and choose among plaintiffs and the statutes under which they sue and to award fees in some cases but not in others, depending upon the courts' assessment of the importance of the public policies involved in particular cases." Id. at 269, 95 S.Ct. 1612. The Court recently reaffirmed its commitment to the American rule, citing Alyeska, in Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep't of Health & Human Res., 532 U.S. 598, 602, 121 S.Ct. 1835, 1839 (Rehnquist, C.J., for majority), 1856 (Ginsburg, J., dissenting), 149 L.Ed.2d 855 (2001).

II. What Indiana Courts Have Said

Supreme Court. In 1944 (around the time the private attorney general doctrine was born), this Court implicitly acknowledged its common-law authority to create exceptions to the American rule, and stated Indiana's baseline fee rule. Said Justice Shake, "The right to recover attorneys' fees from one's opponent does not exist in the absence of a statute or some agreement, though a court of equity may, under some circumstances, allow attorneys' fees to be paid out of a fund brought under its control." Gavin v. Miller, 222 Ind. 459, 465, 54 N.E.2d 277, 280 (1944) (citations omitted)(estate administration case). See also Trotcky v. Van Sickle, 227 Ind. 441, 85 N.E.2d 638 (1949)(denying fees in a nuisance case). In City of Hammond v. Darlington, 241 Ind. 536, 542, 162 N.E.2d 619, 621 (1959), we applied this "common fund" concept flexibly to award fees to an attorney whose lawsuit prevented the City from paying judgments totaling $950,000.

In Kikkert v. Krumm, 474 N.E.2d 503, 505 (Ind.1985), we discussed the obdurate behavior exception to the American rule, but found it inapplicable under the facts presented. The following year, the Indiana legislature codified this exception in what is now Ind.Code Ann. § 34-52-1-1 (West 2001). The "General Recovery Rule" allows prevailing parties to recover attorney fees if the court finds the other party brought or pursued a frivolous, unreasonable or groundless claim or defense, or acted in bad faith. Id. at § 34-52-1-1(b).

Court of Appeals. In a number of cases, our Court of Appeals has referred to the three American rule exceptions listed above, in order to provide context for a case holding.⁴ In City of Marion v. Antrobus, 448 N.E.2d 325, 332 (Ind.Ct.App. 1983), the court went so far as to say that Indiana recognized all three exceptions. See also City of E. Chicago v. Broomes, 468 N.E.2d 231, 234 (Ind.Ct.App.1984)

; Dotlich v. Dotlich, 475 N.E.2d 331, 347 (Ind.Ct.App.1985).

In Downing v. City of Columbus, 505 N.E.2d 841, 845 (Ind.Ct.App.1987), however, the court correctly observed that the private attorney general exception had been discussed only in dicta, and never applied in Indiana to award a prevailing party its fees. More recently, in Morgan County v. Ferguson, 712 N.E.2d 1038, 1044 (Ind.Ct.App.1999), the court reversed an award of attorney fees to a plaintiff who had purchased a tax deed that the county issued in error, stating that the private attorney general exception only applies if supported by statutory authority. Id.⁵

III. Other Jurisdictions Have Mixed Views

States Adopting the Exception. A number of state high courts have adopted the private attorney general exception.⁶ One widely-cited case is Serrano v. Priest, 20 Cal.3d 25, 141 Cal.Rptr. 315, 569 P.2d 1303 (1977), in which the California Supreme Court recognized the exception because:

In the complex society in which we live it frequently occurs that citizens in great numbers and across a broad spectrum have interests in common. These, while of enormous significance to the society as a whole, do not involve the fortunes of a single individual to the extent necessary to encourage their private vindication in the courts. Although there are within the executive branch of the government offices and institutions (exemplified by the Attorney General) whose function it is to represent the general public in such matters and to ensure proper enforcement, for various reasons the burden of enforcement is not always adequately carried by those offices and institutions, rendering some sort of private action imperative. Because the issues involved in such litigation are often extremely complex and their presentation time-consuming and costly, the availability of representation of such public interests by private attorneys acting pro bono publico is limited.

Id., 141 Cal.Rptr. 315, 569 P.2d at 1313.⁷

New Hampshire was among the most recent to adopt the private attorney general doctrine, in Claremont School District v. Governor, 144 N.H. 590, 761 A.2d 389 (1999)(fees sought following declaratory judgment that the state public education funding system was unconstitutional). The New Hampshire Supreme Court observed that "proportional and reasonable taxation is one of the core constitutional foundations of this State" and held that "[t]he public interest in preserving constitutional...