Opinion ID: 2508213
Heading Depth: 2
Heading Rank: 1

Heading: Chun I through Chun III

Text: As a preliminary matter, we note the following background, set forth in Chun v. Board of Trustees of Employees' Retirement Sys. of State of Hawaii, 92 Hawai'i 432, 992 P.2d 127 (2000) ( Chun III ): A. Chun I Prior to retiring, the Retirees (as public school principals, vice principals, or teachers) were all ten-month employees of the Department of Education (DOE). The present appeal arises out of two class action lawsuits-one ( Chun ) brought on behalf of retired principals and vice principals and the other ( Southwood ) on behalf of retired teachers-filed in the first circuit court. Each complaint sought relief based upon the allegation that the ERS had undercalculated the benefits to which the Retirees were entitled. The circuit court (1) entered summary judgment in favor of the retired principals and vice principals, (2) ruled that the lump sum payment of `earned summer salary,' paid upon retirement[,] was compensation attributable to the month in which the member of the class retired, and therefore (3) ordered the ERS to include those amounts in the recalculation of the principals' and vice principals' average final compensation. Chun v. Employees' Retirement Sys., 73 Haw. 9, 10, 828 P.2d 260, 261 (1992) ( Chun I ). The ERS appealed. In Chun I, this court vacated the circuit court's order and remanded the case with directions that the circuit court remand the matter to the ERS for a full administrative hearing before the Board. Id. at 11, 828 P.2d at 263. Based on Chun I, the circuit court likewise remanded the claims asserted in Southwood for an administrative hearing. B. Chun II Subsequent to the administrative hearing, on March 23, 1995, the Board issued a decision denying all of the Retirees' claims. Chun v. Employees' Retirement Sys., 87 Hawai`i 152, 158, 952 P.2d 1215, 1221 (1998) ( Chun II ). The Retirees appealed the Board's decision to the circuit court. Id. On March 4, 1996, the circuit court entered its final order reversing the Board's decision and directing that retirement pay be increased both retroactively and prospectively. The March 4, 1996 order provided in relevant part as follows: 2. [The ERS and the Board] shall recalculate the [average final compensation (AFC)] of all [Retirees] by including the earned salary paid in lump sum upon retirement in its calculation. However, [the ERS and the Board] should only include those mon[ie]s earned in the three years used to calculate [the AFC]. . . . 3. [The Retirees] are awarded attorney's fees only insofar as attorney[']s fees are to be paid by the [Retirees] from the funds they recover through the relief granted herein. In accordance with [the Retirees'] request, [the ERS and the Board] are ordered to deduct said reasonable attorney's fees from the additional payments that will be made to the [Retirees]. Following a final resolution of this case, . . . this court will make a final determination of the award of attorney's fees, both the amount and manner of calculation. 4. [The ERS and the Board] shall recalculate the monthly retirement and post retirement allowances of all members of the Chun class from two years prior to the filing of the complaint in Chun v. Employees' Retirement System in Civil No. 86-3904, and of the Southwood class from [two] years prior to the filing of the complaint in Southwood v. Employees' Retirement System in Civil No. 90-0510-02, in light of the recalculation of [the] AFC for all [Retirees]. 5. [The ERS and the Board] shall make a lump sum payment to each [Retiree,] which represents the difference between the newly recalculated monthly retirement benefit each [Retiree] would have received pursuant to the recalculations noted hereinabove, and the monthly retirement benefit each class member received, from two years [prior to the] filing [of] the relevant complaint[s]. . ., or the date of retirement to the date of this order. On March 11, 1996, the circuit court entered a final judgment, reversing the Board's decision dated March 23, 1995, in favor of the Retirees and against the Board and the ERS. The ERS and the Board appealed the judgment. Chun II, 87 Hawai'i at 155, 952 P.2d at 1218. In Chun II, this court held that the ERS (at the behest of its purported `administrator') and `the Board' (at the behest of the Attorney General) lacked the power to appeal the circuit court's final order and judgment. Id. at 157, 952 P.2d at 1220. Inasmuch as the Board and the ERS's appeal was dismissed, the circuit court's March 11, 1996 judgment remained the final judgment in the case. See id. at 177, 952 P.2d at 1240. . . . . D. The Retirees' And Khim's Motion For Attorney's Fees . . . . On July 15, 1998, the Retirees and Khim filed a Motion For Attorney's Fees. The Retirees and Khim moved to have Khim compensated in the amount of (1) one-third of all increases in retirement benefits retroactively calculated and paid to the Retirees and (2) a percentage of the future payments of the increase in retirement benefits to the Retirees. In the memorandum in support of their motion, the Retirees and Khim criticized this court's adoption of the lodestar approach in Montalvo [v. Chang], 64 Haw. 345, 641 P.2d 1321, as being overly narrow and out of date. . . . On September 1, 1998, the Board and the ERS filed a memorandum in response to the Retirees' and Khim's motion. The Board and the ERS contended that the Retirees were improperly requesting a percentage of the common fund. In this regard, the Board and the ERS suggested that Hawai'i law required the circuit court to award attorney's fees pursuant to the lodestar method of calculating attorney's fees in class action lawsuits. . . . . On October 21, 1998, the circuit court entered its findings of fact (FOFs), conclusions of law (COLs), and order, which included, inter alia, the following FOF: 8. The amount of the common fund is estimated to be between $3,000,000 and $5,000,000. [The] ERS estimates, based on Mr. Khim's proposed manner of computation, the common fund to be between $4,000,000 [and] $5,000,000. Mr. Khim claims that the ERS['s] estimate is overstated by approximately 20%. The circuit court also entered, inter alia, the following COLs: 1. The court is bound to follow Montalvo v. Chang, 64 Haw. 345[, 641 P.2d 1321] (1982)[,] and its lodestar method for calculating reasonable attorney's fees. 2. Mr. Khim is entitled to 1,868.41 attorney hours[,] computed as follows: 2,266.75 Claimed attorney hours (300.00) Overstated hours through 2/90 1,966.75 Sub-total 5% adjustment based on Court's (98.34) estimate of overstated hours 1,868.41 TOTAL HOURS ALLOWED . . . . 5. As such, the lodestar amount is $373,682.00. 6. The lodestar is subject to adjustment upon consideration of two additional factors, the contingent nature of success and the quality of an attorney's work. . . . . 9. [T]he court concludes that the lodestar should be adjusted by a multiplier of 2.75 as requested by Mr. Khim. 10. The court hereby awards reasonable attorney's fees to Mr. Khim in the amount of $1,027,625.50 plus G[eneral] E[xcise] T[ax]. (Boldface in original.) Accordingly, in its October 21, 1998 order, the circuit court ordered that Khim be awarded attorney's fees in the amount of $1,027,625.50, plus general excise tax. The Retirees and Khim filed a timely notice of appeal on October 27, 1998. Chun III, 92 Hawai'i at 435-38, 992 P.2d at 130-33 (some brackets added and some in original) (footnotes omitted). In Chun III, the Retirees argued, inter alia, that the circuit court abused its discretion by declining to consider calculating Khim's attorney's fees as a pure percentage of the `common fund' recovered by the Retirees[.] Id. at 434, 992 P.2d at 129. On February 3, 2000, we issued our decision in Chun III, in which we disagreed with the Retirees' contentions that the lodestar method of awarding attorney's fees in class action lawsuits should be limited to statutory `fee shifting' [10] class actions and that the `percentage method' of awarding attorney's fees should be applied in common fund cases such as the one at hand and held that the approach to be applied in awarding attorney's fees in class action lawsuits generally [is] left to the discretion of the trial judge. [11] Id. at 441, 992 P.2d at 136. The Chun III court reasoned as follows: `[B]ecause each common fund case presents its own unique set of circumstances, trial courts must assess each request for fees and expenses on its own terms.' Id. at 445, 992 P.2d at 140 (quoting United States v. 8.0 Acres of Land, 197 F.3d 24, 33 (1st Cir.1999) (quoting In re Fidelity/Micron Securities Litig., 167 F.3d 735, 737 (1st Cir.1999))). Accordingly, we hold that, in common fund cases, the decision whether to employ the percentage method or the lodestar method be reposed within the discretion of the trial court. In so holding, we modify as follows the exclusive reliance on the lodestar method prescribed in Montalvo. To the extent that Montalvo dictates that the lodestar method alone may be used in calculating attorney's fees in common fund cases, we overrule it. However, we continue to adhere to Montalvo's explication of the mechanics of the lodestar method. In Brundidge [v. Glendale Fed. Bank, 168 Ill.2d 235, 213 Ill.Dec. 563, 659 N.E.2d 909 (1995)], the Illinois Supreme Court succinctly described the analysis to be undertaken by the trial court: Awarding attorney fees to plaintiffs' counsel based on a percentage of the fund held by the court is, overall, a fair and expeditious method that reflects the economics of legal practice and equitably compensates counsel for the time, effort, and risks associated with representing the plaintiff class. However, because percentage-of-the-fund recovery suffers from certain infirmities, there may be circumstances where the lodestar method will remain the more appropriate method of awarding fees. . . . As observed in Rawlings[v. Prudential-Bache Properties, Inc., 9 F.3d 513,] 516 [(6th Cir.1993)]: When awarding attorney's fees in a class action, a court must make sure that counsel is fairly compensated for the amount of work done as well as for the results achieved. . . . The lodestar method better accounts for the amount of work done, while the percentage of the fund method more accurately reflects the results achieved. For these reasons, it is necessary that the district courts be permitted to select the more appropriate method for calculating attorney's fees in light of the unique characteristics of class actions in general, and of the unique circumstances of the actual cases before them. Brundidge, 213 Ill.Dec. 563, 659 N.E.2d at 914. Thus, placing the decision whether to apply the percentage method or the lodestar method within the discretion of the trial court will allow the trial court to identify the fee award that most equitably compensates plaintiffs' counsel, while at the same time protecting the interests of the class members for whose benefit the common fund was created. Id. at 445, 992 P.2d at 140. Based on the foregoing, this court vacated the circuit court's order awarding attorney's fees and remanded the matter to the circuit court for further proceedings regarding the method of calculating the award of attorney's fees to Khim. Chun III, 92 Hawai'i at 446, 992 P.2d at 141.