Case Title: Strunk v. PERB

Citation: 

Docket Number: 

State: oregon

Court: Oregon Supreme Court

Date: 2006-07-20T00:00:00Z

Document:
FILED: July 20, 2006
IN THE SUPREME COURT OF THE STATE OF OREGON
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,
and 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; S50532; S50686; S50685)
(Cases Consolidated) 
En Banc 
On petitions for attorney fees and costs and requests for
findings under ORAP 13.10(7). 
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, Public Utilities Commission
Office, and SAIF Corporation. 
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, City of Grants Pass, Josephine County,
Multnomah County, City of Eugene, and Salem-Keizer School
District.  
DE MUNIZ, C. J. 
Referred to Special Master for further proceedings. 
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 P3d 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 (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.  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 P2d 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 P2d 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 US 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 paid
to bondholders.   
When the plaintiff thereafter sought reimbursement for
his attorney fees, the Supreme Court permitted it, making the
fees a charge upon the fund itself.  In doing so, the Court
articulated several principles that remain today as benchmarks of
the common fund doctrine.  One is the proposition that a trust
must bear the cost of its own administration: 
"It is a general principle that a trust estate
must bear the expenses of its administration.  It is
also established by sufficient authority, that where
one of many parties having a common interest in a trust
fund, at his own expense takes proper proceedings to
save it from destruction and to restore it to the
purposes of the trust, he is entitled to reimbursement,
either out of the fund itself, or by proportional
contribution from those who accept the benefit of his
efforts."
Id. at 532-33.  The other principle is that, as a matter of
equity, it is unfair for the many to benefit at the expense of
the few.  With regard to the plaintiff in Greenough, the Court
wrote:  
"There is no doubt, from the evidence, that, besides
the bestowment of his time for years almost exclusively
to the pursuit of this object, he has expended a large
amount of money for which no allowance has been made,
nor can properly be made.  It would be very hard on him
to turn him away without any allowance except the
paltry sum which could be taxed under the fee-bill.  It
would not only be unjust to him, but it would give to
the other parties entitled to participate in the
benefits of the fund an unfair advantage.  He has
worked for them as well as for himself; and if he
cannot be reimbursed out of the fund itself, they ought
to contribute their due proportion of the expenses
which he has fairly incurred.  To make them a charge
upon the fund is the most equitable way of securing
such contribution." 
Id. at 532 (emphasis added). 
Since Greenough, the Supreme Court consistently has
recognized that "a litigant or a lawyer who recovers a common
fund for the benefit of persons other than himself or his client
is entitled to a reasonable attorney's fee from the fund as a
whole."  Boeing Co. v. Van Gemert, 444 US 472, 478, 100 S Ct 745,
62 L Ed 2d 676 (1980); see also Alyeska Pipeline Service Co. v.
Wilderness Society, 421 US 240, 257-58, 95 S Ct 1612, 44 L Ed 2d
141 (1975) (acknowledging principle).  That idea, the Court has
explained, rests on the notion that those who obtain the benefit
of a lawsuit without contributing to its cost are unjustly
enriched at the successful litigants's expense.  Boeing Co., 444
US at 478.  Courts, however, possess the equitable power to
prevent that result by assessing attorneys fees against the
recovered or preserved fund itself, thus spreading fees
proportionately among those benefitted by the legal action.  Id.
As to our own application of the common fund doctrine
in Oregon, this court is no stranger to Greenough.  In Wemme v.
First Church of Christ, etc., 110 Or 179, 219 P 618 (1923), for
example, the plaintiffs instigated an action to account for and
recover trust property administered by certain trustee churches
after the churches had abandoned the program for which the trust
had been established.  This court determined that the failure to
maintain the trust for its designated purpose required the court
to appoint new trustees to administer the trust according to its
donor's directions.  The court then recognized the propriety of
compensating the plaintiffs' lawyers from the funds that they
successfully had preserved: 
"It is a well-recognized principle of equity that
a trust estate must bear the necessary expenses of its
administration.  The attorneys representing the parties
opposed to the defendant churches have performed
services for which they are entitled to receive a
reasonable compensation." 
Id. at 212.  Quoting Greenough with approval, the court went on
to conclude that, having saved the trust fund from destruction at
their own expense, the plaintiffs were entitled -- much like the
plaintiff in Greenough -- "to reimbursement, either out of the
fund itself, or by proportional contribution" from those who had
benefitted from their efforts.  Id. at 212-13.  Since then, even
without reference to Greenough, this court has adhered closely to the principle first expressed in Greenough:    
 "* * * '[I]t is proper for a court exercising Equitable
jurisdiction to make an allowance of a reasonable fee
out of the fund or property created or preserved, for
an attorney representing a party who, at his own
expense, has maintained a suit for the recovery,
preservation, protection, or increase of a common fund
or common property, or has created or brought into
court a fund which others are entitled to share.'" 
State Farm Mut. Auto. Ins. Co. v. Clinton, 267 Or 653, 657, 518
P2d 645 (1974) (quoting 107 ALR 750); see also Cloud v. U.S.
National Bank, 280 Or 83, 92, 570 P2d 350 (1977) (plaintiff was
entitled to reasonable attorney fees paid from corpus of trust
because action was for benefit of other beneficiaries of trust);
Ford v. Gilbert, 44 Or 259, 262, 75 P 138 (1904) ("When a fund is
brought into court through the service of an attorney, or where
his services have added to or preserved or increased the amount
being administered, the court of primary jurisdiction may
properly allow a reasonable compensation for his services to be
paid from the fund.").    
In this case, it is beyond dispute that the Public
Employees Retirement Fund at the center of this controversy is a
state-operated trust.  ORS 238.660(1) provides:   
"The Public Employees Retirement Fund is declared
to be a trust fund, separate and distinct from the
General Fund, for the uses and purposes set forth in
this chapter and ORS chapter 238A and ORS 237.950 to
237.980, and for no other use or purpose, except that
this provision shall not be deemed to amend or impair
the force or effect of any law of this state
specifically authorizing the investment of moneys from
the fund."  
(Emphasis added.)  Consequently, under our case law, the trust
ought, as a matter of equity, to bear the expenses of its
administration.  Here, it is clear that efforts to preserve the
fund and to assure that it is expended for the benefit of its
proper recipients is an administrative matter.  And it is equally
clear that the efforts of petitioners' attorneys accomplished
that purpose.  Therefore, it follows, we believe, that those
attorneys are entitled to an award of reasonable fees assessed to
the fund that their efforts helped preserve.   
The record that the special master developed in Strunk
shows that petitioners' legal efforts have preserved two funds
that directly benefit a substantial segment of PERS members and
retirees:  (1) the restored eight percent annual earnings
allocation for current Tier One PERS members; and (2) the
restored COLA adjustments for members who retired between April
1, 2000, and March 31, 2004.  Petitioners therefore are entitled
to an award of attorney fees under the common fund doctrine from
those two funds.  
However, a number of other factors remain to be
established before this court can, as a practical matter, finally 
set those fee awards.  First, given that petitioners' efforts
resulted in the creation of two funds in this case, we must
ascertain, in particular, whether the beneficiaries are the same
for both funds or if separate communities of beneficiaries
correspond to each fund.  Second, we must determine the proper
method for apportioning the litigation costs among all the
benefitted parties.  And, finally, we must determine the extent
of the benefits resulting from the legal services for which
reimbursement is being sought, i.e., the nexus between those
services and the benefits procured, together with evidence of the
services' reasonable value.  Implicit in that last requirement is
the understanding that (1) it is possible that some of the legal
services expended in a common fund case will not have 
contributed directly to creating the fund from which fees are
being sought; and (2) in cases with multiple parties and multiple
attorneys, an overlap of labor may exist.     
Consequently, we refer this case to a special master
with instructions to recommend to this court an award of
reasonable attorney fees for petitioners under the common fund
doctrine.  In determining that petitioners are eligible for an
award of attorney fees under that doctrine, this court has not
addressed other objections that respondents have raised
concerning the petitions for attorney fees.  The special master
should address those objections, and petitioners' replies to the
objections, in the recommendations which the special master shall
file in this court.  Within 14 days of the filing of the special
master's recommendations, any party may file objections to those
recommendations, along with citations to relevant authorities and
portions of the record.  This court thereafter shall proceed to
award reasonable attorney fees.   
Referred to special master for further proceedings.      
1. The suspension of COLA adjustments for the retirees in question was a
temporary measure designed by the legislature to recapture funds that were found to have been
erroneously credited to member accounts.