Opinion ID: 3010851
Heading Depth: 1
Heading Rank: 3

Heading: The Common Benefit Doctrine

Text: We now turn to the merits of this appeal. By way of background, it is well established that the traditional American rule disfavors the award of attorney's fees in the absence of statutory or contractual authorization. Summit Valley Indus., Inc. v. Local 112, United Bhd. of Carpenters and Joiners, 456 U.S. 717, 721 (1982). Under the exercise of its equitable powers, however, a federal court may fashion an attorney's fees award to successful litigants who confer a common benefit upon a class of individuals not participating in the litigation. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 391-92 (1970). At the heart of this exception is a concern for fairness and unjust enrichment; the law will not reward those who reap the substantial benefits of litigation without participating in its costs. As explained by the Supreme Court, [t]o allow the others to obtain full benefit from the plaintiff's efforts without contributing equally to the litigation expenses would be to enrich the others unjustly at the plaintiff's expense. Id. at 392. The origins of this doctrine can be traced to the common fund rule whereby those who share in a fund must participate in paying attorney's fees when a prevailing plaintiff 's litigation redounds to the benefit of the common fund. See Hall v. Cole, 412 U.S. 1, 5 n.7 (1972); 1 Dan B. Dobbs, Law of Remedies S 3.10(2) (2d ed. 1993). Under the common benefit doctrine, an award of attorney's fees is appropriate where the plaintiff's successful litigation confers `a substantial benefit on the members of an ascertainable class, and where the court's jurisdiction over the subject matter of the suit makes possible an award that will operate to spread the costs proportionately among them.'  Hall, 412 U.S. at 5 (quoting 8 Mills, 396 U.S. at 393-94). This test entails satisfying three distinct elements: (1) the plaintiff must confer a substantial benefit; (2) to members of an ascertainable class; and (3) the court must ensure that the costs are proportionally spread among that class. Because this test may be read literally to include every lawsuit against any institutional defendant, we have refined this language further. In Marshall v. United Steelworkers, 666 F.2d 845, 848 (3d Cir. 1981), this court inquired: (1) whether the benefits may be traced with some accuracy; (2) whether the class of beneficiaries are readily identifiable; and, (3) whether there is a reasonable basis for confidence that the costs may be shifted with some precision to those benefitting.
In examining the applicability of the common benefit doctrine, the district court recounted the Mills test of substantial benefit, commonality, and apportionment. The court stated without comment that the plaintiffs satisfied the last two elements of commonality and apportionment. As to substantial benefit, the court reasoned that the plaintiffs, through their lawsuit, taught the Union a generalized lesson that it should respect the finality of arbitration. Because all Union members would benefit from the Union's respect for the law, the district court concluded that there was indeed a common benefit which mandated fee shifting to achieve equity. The Union on appeal initially argues that the common benefit doctrine cannot apply to fair representation actions under the labor laws. The Union's argument here is that duty of fair representation cases are no different in conception from a lawsuit by a person injured in a motor vehicle accident. Br. at 18. In the Union's view, to award attorney's fees in these types of cases would constitute a derogation of the American rule because these actions, like negligence claims, are not well suited to vindicate public rights. In the alternative, the Union posits that none of the Mills common benefit elements are met in this case. There was no substantial benefit, the Union contends, because the 9 plaintiffs' litigation was not a general vindication of Union members' rights. Even if there were a benefit, the Union argues that it was not a common one because the plaintiffs benefitted by vindicating their own seniority rights, and the other Union members did not stand to share that benefit in common with the plaintiffs, as their seniority interests were in fact adverse to the plaintiffs. Finally, the Union notes that there would be no way to achieve true apportionment in this case because attorney's fees would come out of Union funds to which all members contribute pro rata, yet all Union members would not benefit equally from the litigation. The plaintiffs, on the other hand, argue that their litigation against the Union had established a violation of fair representation duties owed to them under the labor laws. From this, they assert that a substantial benefit has been rendered to all Union members through the vindication of this legal right. They consequently conclude that fee-shifting under the common benefit doctrine is appropriate in this case.
In order to determine the availability of attorney's fees under the common benefit doctrine, this court must apply the three part test announced in Mills and its progeny. We cannot accept the Union's argument that fair representation cases cannot form the basis for attorney's fees under this theory of fee-shifting. As we have previously stated, the common benefit doctrine stems from an inherent power to fashion equitable relief, and we have not hesitated to summon this authority where overriding considerations indicate the need for such a recovery. Brennan v. United Steelworkers, 554 F.2d 586, 600 (3d Cir. 1977) (quoting Mills, 396 U.S. at 391-92). Application of the doctrine is not predicated upon the type of action sustained, but depends instead on the equitable circumstances of each case. Indeed, the Supreme Court and lower federal courts have applied the doctrine in a myriad of circumstances without announcing absolutes regarding applicability. See 1 Mary F. Derfner & Arthur D. Wolf, Court Awarded Attorney Fees P 3.01[5] (1997) 10 (surveying cases). We will accordingly apply each of the Mills criteria to examine whether the district court possessed the legal authority in the present context to award attorney's fees under the common benefit doctrine. The first element to be analyzed is the existence of a substantial benefit common to all class members that may be traced with some accuracy. We have previously held that attorney's fees may be proper even though the benefit conferred is nonpecuniary in nature. Merola v. Atlantic Richfield Co., 515 F.2d 165, 169-70 (3d Cir. 1975). As Mills makes clear, [t]he fact that this suit has not yet produced, and may never produce, a monetary recovery from which the fees could be paid does not preclude an award based on this rationale. 396 U.S. at 392. What is of utmost importance here is the nature and quality of the common benefits attained from litigation rather than any particular quantification into dollar amounts. As a result, the fact that the plaintiffs did not procure damages in their action against the Union is inapposite to our analysis and would not, on its own, preclude fee-shifting under the common benefit doctrine. However, federal courts must scrutinize the benefits conferred from litigation carefully, lest the doctrine overwhelm the American rule that each party is to bear its own litigation costs. The general policy is that attorney's fees should be awarded in limited circumstances absent a fee-shifting statute or contract. Alyeska Pipeline, 421 U.S. at 257-58; see also Aguinaga v. United Food and Commercial Workers Int'l Union, 993 F.2d 1480, 1485 (10th Cir. 1993). In this regard, the mere vindication of a legal right by one class member is not necessarily a substantial benefit that would trigger the application of the doctrine. See, e.g., Crane Co. v. American Standard, Inc., 603 F.2d 244, 255 (2d Cir. 1979); Bailey v. Meister Brau, Inc., 535 F.2d 982, 995-96 (7th Cir. 1976). The Supreme Court illustrated this principle in exploring the substantial benefits gained from a shareholders derivative suit brought to challenge a violation of the securities laws: [A] substantial benefit must be something more than technical in its consequence and be one that accomplishes a result which corrects or prevents an 11 abuse which would be prejudicial to the rights and interests of the corporation or affect the enjoyment or protection of an essential right to the stockholder's interest. Mills, 396 U.S. at 396 (quoting Bosch v. Meeker Cooperative Light and Power Ass'n, 257 Minn. 362, 366, 101 N.W.2d 423, 427 (1960)). More specifically, a common benefit is substantial where, by vindicating the important statutory policy at issue, the plaintiff has rendered a substantial service to all members of the class. Id. This substantial service is typically one that not only corrects an abuse prejudicial to an essential right, but also impacts the future conduct of the defendant's affairs. Hall, 412 U.S. at 8 (quoting Yablonski v. United Mine Workers, 466 F.2d 424, 431 (D.C. App. 1972)). Were the rule otherwise, any legal victory over an institutional defendant by one of its members would lead to fee shifting through the common benefit doctrine. See 1 Dobbs, supra, S 3.10(2). Indeed, the narrowly tailored common benefit exception might provide an impermissible back door to the private attorney general framework that was rejected in Alyeska Pipeline. See Alyeska Pipeline, 421 U.S. at 264 n.39; Shimman v. International Union of Operating Eng'r, Local 18, 744 F.2d 1226, 1235 n.13 (6th Cir. 1984); Bailey, 535 F.2d at 99596; We take particular guidance from the Supreme Court's decision in Hall itself, which considered the common benefit doctrine in the context of a dispute between Union members and Union leadership. The plaintiff in Hall received reinstatement to the Union after he was discharged pursuant to a Union rule proscribing deliberate or malicious vilification with regard to the execution or the duties of any office or job. Hall, 412 U.S. at 3. In considering the same Mills factors pertinent to our discussion here, the Court identified the main purpose of the statute at issue and whether the plaintiff 's litigation, by vindicating the relevant statutory policies, rendered a substantial service to an ascertainable class. Hall, 412 U.S. at 8. The Court reasoned that the lawsuit had vindicated an important free speech right, which necessarily rendered a substantial service to [the] Union as an institution and to 12 all of its members. Id. In particular, the successful plaintiff had dispelled a chill cast upon the free speech rights of all Union members by invalidating a Union rule that was found repugnant to the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA). Thus, fee shifting in that case was appropriate under the common benefit doctrine. In Brennan v. United Steelworkers, 554 F.2d 586 (3d Cir. 1977), this court extended that principle to voting rights violations under the LMRDA. We initially noted that the LMRDA was intended to provide union members with protection from the type of attempts to thwart the wishes of union members and impair union democracy. Id. at 601. Given the facts before us in Brennan, we had little doubt that the types of voting violations evident in that case would spread to other Union districts and ultimately render union democracy nothing more than a hollow promise. Id. at 605. Because the plaintiff's lawsuit in Brennan contributed to the vindication of the entire democratic process and necessarily redounded to the benefit of the whole union, we held that fee-shifting was particularly applicable. Applying these principles, we find that the district court erred in its legal conclusion that all Union members derived a substantial benefit from the Union's receiving a generalized lesson that an arbitrator may not reconsider the merits of a final arbitration award. Simple generalized lessons of well-established law are not substantial benefits that form the basis of fee shifting. Otherwise, whenever a defendant violates a right common to all its membership, fee shifting would be appropriate without any inquiry into the nature of the substantial service rendered to those who will ultimately pay for the litigation. This has never been the analysis and equity will not hinge on a result that is merely technical in nature. Mills, 396 U.S. at 396. There is little doubt that plaintiffs' litigation conferred a substantial benefit among some of those involved in the internal seniority dispute between Union factions. The Arcuri group of Union members directly benefited from the outcome in that it prevented the Union from attempting to reopen a favorable arbitration award and procured a judgment that it was not being treated fairly as required 13 under the duty of fair representation. But this alone cannot be the basis of fee shifting under the common benefit doctrine because the plaintiffs seek to collect fees from the Union treasury, which necessarily implies that all Union members must have benefitted from the litigation. Here, we cannot see what substantial benefits redounded to the benefit of all the Union members. This is not a case where the plaintiffs' litigation corrected a deceit practiced on the stockholders as a group, as was evident in Mills itself. 396 U.S. at 392 (quoting J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964)). Nor did the successful litigants realistically dispel any chill associated with a Union abuse prejudicial to the enjoyment of essential rights by the entire Union membership. This dispute between Union factions can hardly be analogized to Hall and its progeny, where violations of first amendment or voting rights necessarily resulted in an immediate harm to the promise of Union democracy or the freedom of expression. Similarly, the lawsuit did not establish[ ] significant new principles of law beneficial to all Union members. Marshall v. United Steelworkers, 666 F.2d 845, 853 (3d Cir. 1981). In the end, nothing in the present litigation indicates a substantial service rendered to the entire Union membership such as would justify an equitable award of attorney's fees. All the facts before us indicate that the internal seniority grievances among Union members directly at odds with each other had no broader implications to those completely divorced from the context of the dispute. The record cannot fairly support a legal conclusion that the Union's attempt to reopen arbitration was a practice that threatened the enjoyment or protection of an essential right to the entire Union's interest. Mills, 396 U.S. at 396. Nor can we see how fee shifting in the present case would establish a policy that would encourage unions to more zealously represent employees' interests. Cruz v. Local Union No. 3 Of the Int'l Brotherhood of Elec. Workers, 34 F.3d 1148, 1159 (2d Cir. 1994). It is important to emphasize that the logic underlying the common benefit doctrine is restitutionary in nature, not punitive or limited to labor policy. Hall, 412 U.S. at 6-7. Union members here would not be unjustly enriched at the plaintiffs' expense. 14 Accordingly, we will reverse the district court's attorney's fee award under the common benefit doctrine. Because we hold that the district court did not possess the authority to shift fees, we need not reach the validity of the precise amount recommended by the magistrate judge and adopted by the district court.