Opinion ID: 2620664
Heading Depth: 2
Heading Rank: 1

Heading: Attorneys Fees/Common-Fund Liability

Text: Missouri recognizes the equitable common-fund doctrine which holds that if one or more parties take on the risk and bear the expense of creating a common fund of recovery for additional parties to share, those additional parties must then compensate the original parties for a portion of those expenses before sharing in the 3 KCPL's fees resulted largely from a contingency fee agreement with its attorneys, and Travelers does not appear to challenge the factual basis of the KCPL attorney fees. National Union presented amounts based upon affidavits from counsel, and the affidavits purported to quote conservative or low estimates citing to billing records that counsel described as not encompassing all amounts billed. -9- common fund. See Keisker v. Farmer, 90 S.W.3d 71, 75 (Mo. 2002) (en banc). A common-law equitable doctrine, however, is not an option 'where it would be inconsistent with the terms of the contract.' Messner v. Am. Union Ins. Co., 119 S.W.3d 642, 649 (Mo. Ct. App. 2003) (quoting Anison v. Rice, 282 S.W.2d 497, 503–04 (Mo.1955)). Travelers, therefore, must share in at least a portion of the expense that the parties to the Allocation Agreement incurred in pursuit of subrogation claims unless Travelers's policy precludes application of the common-fund doctrine. The operative language of Travelers's policy is as follows: The Travelers shall be entitled to priority of recovery against any such third party (including interest) to the extent payment has been made to the Insured, plus attorney's fees, expenses or costs incurred by The Travelers. Based on this policy language, Travelers argues that a contractual right of priority over National Union extends not only to the $10 million Travelers paid to KCPL, but also excuses Travelers from having to pay any fees associated with the common fund. According to Travelers, this subrogation provision entitles Travelers to recover its own fees for the present contract dispute and defeats application of the common-fund doctrine. National Union argues the language is not sufficient to preclude application of the equitable common-fund doctrine. Travelers I held this language was unambiguous as to the two insurers' relative priority in the underlying recoveries. Travelers I did not address the insurers' relative rights as to fees and expenses nor did it resolve any outstanding questions regarding the common-fund doctrine. We now hold that the language of this subrogation provision reasonably can be interpreted as leaving the common-fund doctrine intact, and as such, the common-fund doctrine applies. -10- In general, subrogation provisions: (1) may be entirely silent as to fees and expenses; (2) may declare relative priority as to fees and expenses but not specifically reference the common-fund theory; or (3) may declare relative priority as to fees and expenses and also specifically address priority in the context of the common fund or related theories. Regarding the first possibility, a subrogation provision's silence as to fees and expenses generally does not provide grounds for rejecting the commonfund doctrine where it would otherwise apply. The common-fund doctrine is wellestablished in Missouri, and it serves as the default rule in the absence of evidence that parties have sought to preclude its application. See, e.g., Jourdan v. Gilmore, 638 S.W.2d 763, 769 (Mo. Ct. App. 1982) (The rule . . . is in harmony with the general rule that courts of equity have power to charge funds realized from, or preserved by, litigation with costs and expenses of litigation.) (citations and internal quotation marks omitted). Regarding the final possibility, courts have recognized that parties may, by specific reference, contract around application of the common-fund doctrine. See, e.g., Longaberger Co. v. Kolt, 586 F.3d 459, 472 (6th Cir. 2009) (rejecting an argument that an ERISA plan must share in the expenses of creating a subrogation fund where the plan language stated, The Plan's rights shall not be subject to reduction under any common fund or similar claims or theories.) (emphasis added). Regarding the second possibility, any number of additional details may be present in the language of a policy to expand or limit the scope of priority in fees in a way that may impact the common-fund analysis. Such is the case with the policy language at issue in the present case. The language of the present subrogation provision is not an unadorned reference to fees and expenses. Moreover, we are not called upon to determine whether a bare reference to fees and expenses might in some contexts be sufficient to defeat application of Missouri's common-fund doctrine. Here, the language is inherently limited in scope, and as such, we find it appropriate to interpret that language as being non-expansive and insufficient to defeat application of the default equitable rule. -11- The language of the quoted provision applies to fees . . . incurred by The Travelers. (Emphasis added). It is reasonable to interpret this language as limiting priority over fees and expenses to only those fees and expenses actually incurred through Travelers's own acceptance of risk and participation in subrogation litigation. Use of the phrase incurred by The Travelers suggests an outlay of funds and expenditure of effort. While this contractual provision reasonably might be interpreted as extending to common-fund fees, such an interpretation is not sufficiently clear to defeat the equitable obligation imposed by the common-fund doctrine. In Leggett v. Missouri State Life Insurance Company, the Missouri Supreme Court described and applied the common-fund doctrine, stating, [W]here one goes into a court of equity and takes the risk of litigation on himself to create a common fund, others will not be allowed to lie back and share the results of the successful labors without contributing their proportionate part of counsel fees. 342 S.W.2d 833, 936 (Mo. 1961) (en banc) (emphasis added). The purpose of the doctrine, then, is to defeat the inequitable result of putting expense and risk on the party who incurs fees but to allow another party to share in recovery without sharing such risk. The fees, expense and risk associated in the subrogation litigation in this matter were born entirely by KCPL and National Union. No such expense or risk was incurred by Travelers. This interpretation, therefore, is fully consistent with the purposes behind the common-fund doctrine. Further, to the extent the language at issue is ambiguous, we follow Missouri law in this instance and construe the language against the drafter. See Mendenhall v. Prop. and Cas. Ins. Co. of Hartford, 375 S.W.3d 90, 92 (Mo. 2012) (en banc). Here, the doctrine is sufficiently well-established that a party seeking to contract around its application reasonably may be expected to specifically address the doctrine. Cf. Longaberger, 586 F.3d at 472. The failure to do so resulted in an ambiguity, and we will not construe it in the drafter's favor to defeat application of the common-fund -12- doctrine.4 The common-fund doctrine applies, and Travelers must share in the expense of the common fund.
The amount of any [attorney fee] award 'rests within the sound discretion of the [district] court and we will not disturb [the district court's decision] absent a clear abuse of that discretion.' Wescott Agri–Prods., Inc. v. Sterling State Bank, Inc., 682 F.3d 1091, 1094 (8th Cir. 2012) (second and third alterations in original) (quoting Litton Microwave Cooking Prods. v. Leviton Mfg. Co., 15 F.3d 790, 796 (8th Cir. 1994)). In the context of common-fund cases, we have recognized an even greater degree of discretion and have stated that district courts may elect between a lodestartype analysis or a percent-of-recovery analysis. See Petrovic v. Amoco Oil Co., 200 F.3d 1140, 1157 (8th Cir. 1999) (It is well established in this circuit that a district court may use the percentage of the fund methodology to evaluate attorney fees in a common-fund settlement[.]) (citation omitted); Johnston v. Comerica Mortg. Corp., 83 F.3d 241, 246 (8th Cir. 1996) (applying the common-fund doctrine and stating, It is within the discretion of the district court to choose which method to apply.). Travelers's arguments against the district court's award range from challenges based upon National Union's and KCPL's relative recoveries and relative expenditures, on the one hand, to simple evidentiary challenges, on the other. Importantly, the present case involves additional factors not likely to be present in 4 Travelers also argues that, even if it otherwise might be responsible for fee expense, the moment it is forced to bear a share of the common-fund fee expense, it will have incurred, at that point in time, a fee expense and will be entitled to reimbursement. We reject this argument as a mere continuation of Travelers' underlying argument concerning the clarity of the contract language and its sufficiency to defeat application of the common-fund doctrine. -13- mine-run common-fund situations: Travelers specifically waived the right to control and participate in the underlying litigation, and National Union and KCPL both are entitled to the benefit of the bargain they struck with one another through the Allocation Agreement. Through that agreement, National Union and KCPL settled upon a manner to divide expenses and recoveries and agreed to characterize portions of the recoveries as insured or uninsured losses. Both parties then arranged their own fee structures with counsel. KCPL arranged for a contingency fee structure, and National Union did not. Further, the underlying litigation was technical in nature, and it is doubtful any particular efforts could be accurately and precisely segregated among different stages of the subrogation litigation. The district court was well aware of this complicated background when determining the method for calculating a common-fund offset. Given this background, we are in general agreement with the district court's fee decisions with one important exception: we believe it is necessary to view the common fund in this case as National Union's 55% share of the Rockwell judgment rather than the entire $97 million Rockwell judgment. Travelers I expressly limited Travelers's ability to recover subrogation proceeds to Travelers's claim against National Union. This claim was for subrogation proceeds that the Allocation Agreement characterized as insured losses. KCPL is not liable to Travelers for a reimbursement of subrogation proceeds because KCPL's subrogation proceeds represent only uninsured losses. Further, KCPL is not a party to the present appeal, and there is no argument presently before our court suggesting that National Union is seeking to collect fees for reimbursement to KCPL. We therefore find no basis for reducing National Union's liability to Travelers based upon KCPL's litigation expenses. The credit pursuant to the equitable common-fund doctrine in this case should reimburse the liable party, National Union, for a portion of its own expenses; it should not be a windfall indexed to KCPL's expenses and unrelated to fees and expenses National Union actually incurred. See supra note 3. -14- Defining the common fund as $53.35 million (National Union's 55% share of the $97 million Rockwell judgment), and refusing to grant National Union credit for fees that KCPL expended to secure the portion of the Rockwell judgment representing uninsured losses, we otherwise adopt the district court's methodology and adjust the fee calculations as follows. National Union asserted, and the district court found, that National Union's fees and expenses attributable to securing its 55% share of the Rockwell judgment were $2,641,987. Travelers's $10 million award is 18.74% of this $53.35 million common fund. National Union, therefore, is entitled to a credit of $495,108—18.74% of its fees and expenses—against its liability to Travelers. Regarding evidentiary challenges, the sums at issue are supported by affidavits from counsel sufficient to provide a factual foundation for a common-fund recovery. Here, because of the district court's substantial and uniquely broad authority, we find no abuse of discretion. The fee award is appropriate given the general equitable underpinnings of the common-fund doctrine, and it reasonably imposes upon Travelers's the same proportionate attorney fee expense as incurred by National Union. We are not called upon to review whether the present award or the process in determining that award would be sufficient for determination of fees in a normal feeshifting or contingent-fee case. Such cases do not involve the same degree of discretion afforded in the specific context of the equitable common-fund doctrine.