Steer v. Eggleston

• Decision Date: 20 June 2002
• Docket Number: No. 1 CA-CV 01-0392.,1 CA-CV 01-0392.
• Citation: 47 P.3d 1161,202 Ariz. 523
• Parties: Rita STEER, a single woman, individually and derivatively on behalf of K & K Cable, Inc., an Arizona corporation, Plaintiff-Appellee, v. Kim EGGLESTON and Kathy Eggleston, husband and wife; and Park Management, Inc., an Arizona corporation, Defendants-Appellants.
• Court: Arizona Court of Appeals

47 P.3d 1161

202 Ariz. 523

Rita STEER, a single woman, individually and derivatively on behalf of K & K Cable, Inc., an Arizona corporation, Plaintiff-Appellee, v. Kim EGGLESTON and Kathy Eggleston, husband and wife; and Park Management, Inc., an Arizona corporation, Defendants-Appellants.

No. -0392.

Court of Appeals of Arizona, Division 1, Department D.

June 20, 2002.

Fennemore Craig, P.C. By John D. Everroad, Theresa Dwyer, Jennifer Prendiville, Phoenix, Attorneys for Plaintiff-Appellee.

Law Offices of Gary E. Shoffner By Gary E. Shoffner, Pro Hac Vice, Santa Ana, and Gust Rosenfeld P.L.C. By Timothy W. Barton, Phoenix, Attorneys for Defendants-Appellants.

OPINION

WEISBERG, Judge.

¶ 1 Kim Eggleston, Kathy Eggleston, and Park Management, Inc. (collectively, "Appellants") appeal from the trial court's distribution of an arbitration award. Appellants contend that the trial court erred by reimbursing Rita Steer ("Appellee") for attorneys' fees and expenses from the corpus of the arbitration award. For the reasons that follow, we affirm.

FACTS AND RELEVANT PROCEEDINGS

¶ 2 Appellee sued Appellants for breach of fiduciary duty, diversion of partnership funds, accounting, and racketeering. The claims were brought by Appellee individually and derivatively on behalf of two corporations and two limited partnerships. The complaint sought attorneys' fees with respect to all derivative claims.

¶ 3 Appellant Kim Eggleston was a general partner of both limited partnerships. Each limited partnership agreement provided for arbitration of disputes to which a general partner is a party, at the election of the general partner. Appellants moved to compel arbitration and the trial court stayed further superior court proceedings on the derivative claims involving the limited partnerships pending arbitration. The trial court then trifurcated the action. The dispute involving one of the limited partnerships was dispatched to arbitration in California, as provided in its limited partnership agreement. The Rancho San Manuel Limited Partnership ("Rancho") dispute, out of which this appeal arises, was sent to arbitration in Arizona before the American Arbitration Association, in conformity with the Rancho limited partnership agreement. Appellee's individual claims remained for disposition in the superior court action.

¶ 4 The Rancho arbitration resulted in an award of damages in the amount of $836,897.00 plus interest against Appellants and in favor of Appellee derivatively, on behalf of Rancho. Counsel for Appellee requested that the arbitrator clarify the award and grant attorneys' fees and expenses to Appellee. The arbitrator instead issued a "disposition" stating he had "concluded that attorneys' fees should not be awarded." Appellants applied to the trial court for entry of judgment on the award, submitting a proposed judgment in favor of Rancho and against themselves for the total amount of the award, with interest, but "without an award of attorneys fees to any party."

¶ 5 Appellee objected to this proposed judgment and submitted a motion for order regarding distribution of award proceeds. She asked the trial court to order (1) the sum of $155,537.46 be paid to her out of the award to reimburse her for attorneys' fees and expenses incurred in obtaining the recovery, and (2) the balance of the award be paid to all Rancho limited partners pro rata in accordance with their interests.¹ Appellee contended that she was entitled to reimbursement from the amount recovered for Rancho because the award constituted a fund that her efforts had created and from which all partners benefitted.²

¶ 6 Appellants objected to any payment of fees to Appellee, arguing that because the arbitrator had no power to award them, the court was precluded from doing so. The trial court referred the issue to the arbitrator to determine the basis upon which he had declined to award fees. The arbitrator informed the court that, although he would have liked to have granted fees, he had not done so because he believed he lacked jurisdiction. The trial court ultimately ordered that Appellee be allowed to recover her fees.

¶ 7 On June 1, 2001, the trial court entered a final judgment in favor of Appellee for $155,536.46,³ representing Appellee's fees, with the balance of the award to be distributed to the Rancho limited partners pro rata. Appellants filed a timely notice of appeal on June 6, 2001. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(B) (1994).

DISCUSSION

¶ 8 Appellants argue that the arbitrator has exclusive jurisdiction to decide whether to award fees. Appellants also contend that the award of attorneys' fees to Appellee violates the principles of Canon School District No. 50 v. W.E.S. Construction Company, 180 Ariz. 148, 151-52, 882 P.2d 1274, 1277-78 (1994), which prohibited a trial court from awarding fees when they were not provided for in the arbitration agreement.

¶ 9 Appellee counters that the trial court's award of attorneys' fees from the corpus of the fund was not an impermissible modification of the award. Appellee reasons that such an award is expressly authorized by A.R.S. § 29-359 (1998) as well as being a legitimate exercise of the trial court's inherent equitable powers under the common fund doctrine.

Jurisdiction Over the Common Fund

¶ 10 Appellants first argue that the trial court lacked authority to grant Appellee attorneys' fees out of the common fund. We disagree.

¶ 11 The recovery of attorneys' fees for a derivative suit is an application of the equitable common fund doctrine. The common fund doctrine allows a plaintiff to recover attorneys' fees from a common fund that the plaintiff has created for the benefit of a discernable group. Boeing Co. v. Van Gemert, 444 U.S. 472, 478-79, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980). The purpose of this doctrine is to prevent unjust enrichment. Id. at 478, 100 S.Ct. 745. It does so by spreading those fees incurred by the plaintiff while creating the fund evenly among those who have benefitted thereby. Id. The common fund doctrine is "the creature of a court's inherent equitable power over funds under its control." Knight v. United States, 982 F.2d 1573, 1581 (Fed.Cir.1993) (emphasis omitted); see also Democratic Ctr. Comm. v. Wash. Metro. Area Transit Comm'n, 38 F.3d 603, 605 (D.C.Cir.1994).

¶ 12 Here, the trial court properly granted attorneys' fees out of the arbitration award under its control. A trial court confirming an arbitration award has jurisdiction to enforce the award as it would any other judgment. A.R.S. § 12-1514 (1994). A distribution of fees under the common fund doctrine can be made even after judgment is entered. James Moore, Moore's Federal Practice § 54.171[2][a][i] (3d ed.1997) (citing Fed. R.Civ.P. 54(d)); see also Kerr v. Killian, 197 Ariz. 213, 218, ¶ 20, 3 P.3d 1133, 1138 (App. 2000) (finding request for fees under common fund doctrine timely although requested after administrative process).

¶ 13 Appellants nevertheless contend that distributing a portion of the award as fees in accordance with A.R.S. § 29-359⁴ amounts to an overruling of the arbitration award. Of course, an arbitrator's decision on questions of fact and law is generally final. Smitty's Super-Valu, Inc. v. Pasqualetti, 22 Ariz.App. 178, 180, 525 P.2d 309, 311 (1974). Here, however, the arbitrator did not decide whether to direct a portion of the award to pay for Appellee's fees.⁵ The court did not change the award itself; the court merely determined for the first time how the award should be distributed. Thus, distributing a portion of the award in accordance with A.R.S. § 29-359 did not overrule the arbitrator's decision. Cf. Smitty's Super-Valu, Inc., 22 Ariz.App. at 182, 525 P.2d at 313 (finding that trial court erred in modifying arbitration award based on arbitrator's alleged error of law); Pawlicki III v. Farmers Ins. Co., 127 Ariz. 170, 173, 618 P.2d 1096, 1099 (App.1980) (finding that trial court erred in setting aside arbitration award based on arbitrator's incorrect findings of fact).

¶ 14 This position is bolstered by a Pennsylvania case involving a similar scenario. In Couy v. Nardei Enterprises, limited partners submitted to arbitration a claim of mismanagement of partnership funds. 402 Pa.Super. 468, 587 A.2d 345, 346 (1991). When the limited partners sought to confirm the arbitration award in the trial court, they also requested reimbursement of fees out of the arbitration award. Id. The trial court granted the request and the appellate court affirmed, holding that the trial court could order reimbursement because it had jurisdiction over the arbitration award during confirmation. Id. at 346-47.

¶ 15 We conclude that, pursuant to the common fund doctrine, the trial court had the necessary jurisdiction during its confirmation of the arbitration award to distribute a portion of the arbitration award to pay for fees in accordance with A.R.S. § 29-359.

The Relevant Statutes

¶ 16 Resolution of this dispute also requires us to consider and interpret A.R.S. §§ 12-1510 (1994) and 29-359. We review questions of statutory interpretation de novo. Lewis v. Ariz. Dep't of Econ. Sec., 186 Ariz. 610, 614, 925 P.2d 751, 755 (App.1996). When reconciling statutes in pari materia, we will construe them in a way that creates harmony and gives effect to all statutes involved. Pima County v. Maya Constr. Co., 158 Ariz. 151, 155, 761 P.2d 1055, 1059 (1988).

¶ 17 Section 12-1510 prohibits an arbitrator from adding fees to the award unless the parties' arbitration agreement provides otherwise. A.R.S. § 12-1510; Canon, 180 Ariz. at 152, 882 P.2d at 1278. In Canon, our supreme court noted that this rule serves the general purposes of arbitration: "to provide and encourage an expedited, efficient, relatively uncomplicated, alternative means of dispute resolution, with limited judicial intervention or participation, and without the primary expense of...