Strunk v. Public Employees Retirement Bd.

• Decision Date: 20 July 2006
• Docket Number: SC S50593 (Control).,S50686.,S50645.,S50647.
• Citation: 139 P.3d 956,341 Or. 175
• Parties: Richard STRUNK, Donald Reed, Carol Booker, Larry Blumenstein, Alan Lively, Merlene Martin, William Smee, Denise Jacobsen, and Susanna Rhodes, Petitioners, v. PUBLIC EMPLOYEES RETIREMENT BOARD, State of Oregon, State of Oregon by and through the State Board of Higher Education, North Douglas School District, Deschutes County, Portland School District, City Of Salem, South Lane School District, Oregon Health Sciences University, Respondents. Pamela Burt, Nori J. McCann-Cross, Gerald Frost, Nancy B. Miller, Bradd A. Swank, Linda Zuckerman, Vicky J. Johnson, Stephen D. Krohn, and Claudia L. Howells, Petitioners, v. Public Employees Retirement Board, Marion County, Oregon Department of Justice, Oregon Department of Transportation, Oregon Judicial Department, and State of Oregon, Respondents. Dave Dahlin, Petitioner, v. Public Employees Retirement Board (Dawn Morgan, Janice Deringer, Mark Gardiner, Jeanne Garst, Glenn Harrison, Todd Schwartz, George Russell, Steven Bjerke), Theodore Kulongoski, Governor, State of Oregon, Respondents, and League of Oregon Cities and Oregon School Boards Association, Intervenors. Martha Sartain, Petitioner, v. Public Employees Retirement Board, State of Oregon, and State Of Oregon, by and through the Oregon Department of Transportation, Respondents, and League of Oregon Cities and Oregon School Boards Association, Intervenors.
• Court: Oregon Supreme Court

139 P.3d 956

341 Or. 175

Richard STRUNK, Donald Reed, Carol Booker, Larry Blumenstein, Alan Lively, Merlene Martin, William Smee, Denise Jacobsen, and Susanna Rhodes, Petitioners, v. PUBLIC EMPLOYEES RETIREMENT BOARD, State of Oregon, State of Oregon by and through the State Board of Higher Education, North Douglas School District, Deschutes County, Portland School District, City Of Salem, South Lane School District, Oregon Health Sciences University, Respondents.

Pamela Burt, Nori J. McCann-Cross, Gerald Frost, Nancy B. Miller, Bradd A. Swank, Linda Zuckerman, Vicky J. Johnson, Stephen D. Krohn, and Claudia L. Howells, Petitioners, v. Public Employees Retirement Board, Marion County, Oregon Department of Justice, Oregon Department of Transportation, Oregon Judicial Department, and State of Oregon, Respondents.

Dave Dahlin, Petitioner, v. Public Employees Retirement Board (Dawn Morgan, Janice Deringer, Mark Gardiner, Jeanne Garst, Glenn Harrison, Todd Schwartz, George Russell, Steven Bjerke), Theodore Kulongoski, Governor, State of Oregon, Respondents, and League of Oregon Cities and Oregon School Boards Association, Intervenors.

Martha Sartain, Petitioner, v. Public Employees Retirement Board, State of Oregon, and State Of Oregon, by and through the Oregon Department of Transportation, Respondents, and League of Oregon Cities and Oregon School Boards Association, Intervenors.

SC S50593 (Control).

S50647.

S50645.

S50686.

Supreme Court of Oregon, En Banc.

July 20, 2006.

Gregory A. Hartman and Aruna A. Maish, Bennett, Hartman, Morris & Kaplan, LLP, Portland, filed the petition and reply for petitioners Richard Strunk, Donald Reed, Carol Booker, Larry Blumenstein, Alan Lively, Merelene Martin, William Smee, Denise Jacobsen, and Susanna Rhodes.

J. Michael Alexander, Swanson, Lathen, Alexander & McCann, PC, Salem, filed the petitions and reply for petitioners Pamela Burt, Nori J. McCann-Cross, Gerald Frost, Nancy B. Miller, Bradd A Swank, Linda Zuckerman, Vicky J. Johnson, Stephen D. Krohn, and Claudia L. Howells.

Richard J. Birmingham, Birmingham, Thorson & Barnett, PC, Seattle, Washington, argued the cause and filed the petition and reply for petitioner Dave Dahlin.

Brian R. Talcott, Scott A. Jonsson, and James M. Hillas, Dunn, Carney, Allen, Higgins

& Tongue, LLP, Portland, filed the petition and reply for petitioner Martha Sartain.

Emily R. Epstien, pro hac vice, and Joseph M. Malkin, pro hac vice, of Orrick, Herrington & Sutcliffe, LLP, San Francisco, California, filed the objection to attorney fees and costs for respondent Public Employees Retirement Board.

Stephen S. Walters, Special Counsel, State of Oregon and Charles F. Hinkle, Jeremy D. Sacks, and Amy E. Edwards of Stoel Rives, LLP, Portland, filed the objections to petitions for attorney fees and costs for respondents State of Oregon, State Board of Higher Education, Marion County, Oregon Department of Justice, Oregon Department of Transportation, Oregon Judicial Department, Theodore Kulongoski.

William F. Gary, Sharon A. Rudnick, and Karla Alderman, Harrang Long Gary Rudnick, PC, Eugene, filed the objections to petitions for attorney fees and costs for respondents North Douglas School District, Deschutes County, Portland School District, City of Salem, South Lane School District, Oregon Health Sciences University, League of Oregon Cities, Oregon School Boards Association.

DE MUNIZ, C.J.

This matter is before this court on petitions for an award of attorney fees. Attorneys for petitioners—the public employees who challenged various statutory enactments revising the terms of their employee pension plans—request fees and costs related to the litigation that culminated in this court's opinion in Strunk v. PERB, 338 Or. 145, 108 P.3d 1058 (2005). We hold that petitioners are entitled to an award of attorney fees under the common fund doctrine. As a result, we now refer this matter to a special master with instructions to make findings and recommendations with respect to the fees to be awarded.

In 2003, the Oregon Legislative Assembly modified the statutes that govern the Public Employees Retirement System (PERS). As relevant to petitioners' claims for relief, the amendments (collectively, the "2003 PERS legislation") altered the PERS statutes in several ways. Specifically, the 2003 PERS legislation (1) directed all employee-member salary contributions made after January 1, 2004, to an Individual Account Program, rather than to members' regular PERS accounts; (2) altered how PERS credited earnings to the accounts of members who joined PERS before January 1, 1996 ("Tier One" members); (3) prohibited, as of December 31, 2003, members from making further contributions to a variable annuity account program; (4) temporarily suspended cost-of-living adjustments (COLAs) for certain retired Tier One members; (5) permitted erroneously paid and payable benefits to be recouped from future PERS fund earnings as an administrative expense; and (6) provided for the application of updated actuarial equivalency factors used to convert members' account balances at retirement to monthly payments.

Petitioners, some active and some retired Tier One members, challenged the 2003 PERS legislation directly in this court pursuant to the legislature's grant of original jurisdiction to hear the matter. 338 Or. at 151, 108 P.3d 1058 (citing Or. Laws 2003, ch. 625, § 17(1)). That grant of jurisdiction permitted this court to determine whether the 2003 PERS legislation breached any provision of the PERS statutory contract or violated the state or federal constitutions. For the most part, petitioners argued that each amendment set out above either breached or impaired an obligation of the PERS contract.

Petitioners succeeded in two of their claims when this court identified two areas in which the 2003 PERS legislation had violated state law by depriving some PERS members of monies lawfully due them:

"We conclude that, in two respects, petitioners have prevailed on their claims for relief. First, petitioners in each of the cases correctly have argued that the provisions of the 2003 PERS legislation that alter the manner in which earnings are credited to the regular accounts of Tier One members impair an obligation of the statutory PERS contract in violation of Article I, section 21, of the Oregon Constitution. As such, those provisions are void and of no effect. Second, Strunk and Sartain petitioners are correct in their assertion that the provision of the 2003 PERS legislation that directs PERB to not apply annual COLAs to certain retired members' `fixed' service retirement allowances breaches the contrary obligation of the PERS contract to do so; that provision also is declared void and of no effect. In all other respects, we conclude that petitioners' claims for relief are not well taken."

338 Or. at 238, 108 P.3d 1058. Our decision in that regard effectively restored two aspects of the PERS benefit plan that the 2003 PERS legislation had removed: (1) the guarantee of an annual eight percent earnings allocation to all Tier One PERS members; and (2) COLA adjustments for members who had retired between April 1, 2000 and March 31, 2004.¹

In its decision, this court designated petitioners as the prevailing parties but denied an award of costs. Four of the petitioners—Strunk, Burt, Dahlin, and Sartain—now individually seek attorney fees. Although attorney fee awards generally must have a basis in contract or statute, Domingo v. Anderson, 325 Or. 385, 388, 938 P.2d 206 (1997), several equitable theories can support such fee awards without statutory authorization. Petitioners seek attorney fees under two of those theories. First, petitioners Sartain and Dahlin advance one basis for fees by invoking the fee rationale used by this court in Deras v. Myers, 272 Or. 47, 535 P.2d 541 (1975). After considering petitioners' arguments in that regard and reviewing this court's equitable attorney fees jurisprudence, we reject petitioner Sartain's and petitioner Dahlin's petition for equitable attorney fees based on Deras. We turn next to the argument that all four petitioners individually rely on, i.e., an award of attorney fees is appropriate in this case under the equitable "common fund" doctrine.

Under the common fund doctrine, plaintiffs whose legal efforts create, discover, increase, or preserve a fund of money to which others also have a claim, may recover the costs of their litigation, including their attorneys fees, from the created or preserved fund. As commentators have noted, the doctrine is primarily "employed to realize the broadly defined purpose of recapturing unjust enrichment." John P. Dawson, Lawyers and Involuntary Clients: Attorney Fees from Funds, 87 Harv. L. Rev. 1597, 1597 (1974). In other words, the doctrine is used to spread litigation expenses among all beneficiaries of a preserved fund so that litigant-beneficiaries are not required to bear the entire financial burden of the litigation while inactive beneficiaries receive the benefits at no cost.

The doctrine itself was first recognized by the United States Supreme Court in Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1881). In Greenough, the plaintiff had held, along with various other investors, bonds of the Florida Railroad Company. A fund consisting of approximately 11 million acres of state-owned land had been pledged to pay the interest accruing on the bonds, as well as installments into a fund meant to cover the principal. The fund's trustees, however, had, as the result of various fraudulent land conveyances, not only wasted a large portion of the fund, but also had failed to make the necessary interest payments on the bonds or to pay into the fund designated to cover principal. The plaintiff, then, "with great vigor and at much expense," id. at 529, initiated litigation that ultimately saved a large part of the fund, from which a considerable amount of money and dividends ultimately were...