Opinion ID: 597516
Heading Depth: 2
Heading Rank: 3

Heading: Common Fund Attorney Fees Claim

Text: 30 Plaintiffs made a claim for attorneys fees under the common fund doctrine of liability recognized in Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1882). The common fund theory does not impose additional liability on the losing defendant. Rather, as explained in City of Klawock v. Gustafson, 585 F.2d 428, 431 (9th Cir.1978), the principal authority on which plaintiffs rely: 31 [Where] one party has created or preserved a fund for the benefit of others, the others should contribute to the active party's costs. The payment comes from the fund itself, as a prior charge before the beneficiaries receive it. The classic example is a class action, but it is not necessary for the beneficiaries to be parties to the proceeding at all. 32 Common fund claims have been successfully asserted by a winning litigant in what is essentially a suit for contribution from third party beneficiaries for expenses actually incurred. Model cases would include litigation which enhances or preserves the assets of a trust, Greenough, supra, or shareholder derivative litigation which increases the assets of a corporation. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970). In such cases, nonparty beneficiaries or shareholders directly benefit from the augmentation of trust or corporate assets. The cost of litigation may be conveniently and equitably spread to all of these parties, by assessing a charge for attorney fees directly against the recovered assets. See Mills, 396 U.S. at 396-97, 90 S.Ct. at 627-28; Greenough, 105 U.S. at 532; Sprague v. Ticonic Nat'l Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939). Here, however, we are not presented with a cost sharing type of common fund case. Knight does not seek contribution from fellow employees for the fees, in the amount of one fourth of his back pay, which he owes Foster Pepper. 33 A suit by an attorney for fees which thereby reduced nonparties' shares of the common fund has also been recognized. See Central RR & Banking Co., v. Pettus, 113 U.S. 116, 5 S.Ct. 387, 28 L.Ed. 915 (1885). The rationale in the latter type of case rests on unjust enrichment--that the lawyers are entitled to reasonable compensation for their professional services from those who accepted the fruits of [their] labors. Pettus, 113 U.S. at 127, 5 S.Ct. at 392; see also Petition of Crum, 196 S.C. 528, 533, 14 S.E.2d 21, 24 (1941) (dictum, It is repugnant to fundamental principles of equity ... that they should reap where they have not sown.). 34 Thus, Foster Pepper presents a claim in its own right for additional fees to be paid from back pay of Interior employees it did not represent. This claim is for compensation beyond what was contracted for with its clients. Per Foster Pepper, its work conferred a benefit on all Interior employees to the extent of the amount of COLA back pay each received, with the appropriate measure of compensation for this benefit being the same as that specified in the fee agreements with its clients. Further, per Foster Pepper, the government was obligated to withhold one fourth of the amount due for COLA back pay and remit the sum directly to Foster Pepper because its claim created an equitable lien. Finally, it argues that the United States cannot escape from payment to Foster Pepper by reason of having injudiciously paid out the total amount of back pay to its employees. 35 As an initial matter, one argument can be disposed of summarily. Contrary to Foster Pepper's view, the government itself was in no position to recognize Foster Pepper's claim for fees from other Interior employees thereby reducing the amount of back pay to which each was entitled. 11 Absent a court order recognizing the validity of Foster Pepper's claim for fees against the back pay of non-client employees, the government was obligated to pay its employees the entirety of the amount it owed to each one. The government could not unilaterally surrender their rights to a portion of their back pay. Thus, Foster Pepper's argument that the government was obligated to pay Foster Pepper one quarter of the back pay of nonclients simply upon its demand is wholly unsupportable. 36 Recovery under the common fund doctrine stems from the equitable power of a court to create the obligation for attorney fees against benefits some received as a result of the advocacy of another. The obligation of the party holding the common fund to pay the attorneys flows from the court order not from the common fund theory. The common fund doctrine may provide the justification for a court order but, in and of itself, the doctrine imposes no obligation or liability on the common fund or on the party holding that fund. Thus, Foster Pepper's argument that the common fund doctrine and its demand imposed an equitable lien against the COLA back pay due Interior employees is sheer sophistry. Only a court order, not Foster Pepper's demand, could impose such a duty and there has never been a court order in this case sanctioning Foster Pepper's claim for fees from a common fund. 37 The district court ruled that it was precluded from recognizing the existence of a common fund consisting of the COLA back pay due Interior employees because the issue of back pay awards was never before the court. We understand the court to be saying there was no res under the control of the court against which attorney fees could be assessed. 38 Foster Pepper asserts that this conclusion was error because there was specific property, earmarked for distribution to a finite, readily ascertainable benefited class--namely, the undisbursed back pay of Interior employees affected by the change of COLA policy and the court's jurisdiction over the government gave it power to charge that fund with its attorney fees without the non-client employees being brought into the case. 39 Contrary to Foster Pepper's view, a common fund is the creature of a court's inherent equitable power over funds under its control. A common fund does not crystallize at the moment a single plaintiff prevails on his claim. It is not created by the parties or their lawyers. A common fund is established by a court. Sprague, 307 U.S. at 166-67, 59 S.Ct. at 780; Alyeska Pipeline Serv. Co. v. Wilderness Soc., 421 U.S. 240, 257-8, 95 S.Ct. 1612, 1621-22, 44 L.Ed.2d 141 (1975); Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct. 745, 749, 62 L.Ed.2d 676 (1980). 40 Foster Pepper's reliance on City of Klawock v. Gustafson, supra, to support its position is misplaced. In Klawock, as a result of litigation by the city against the government as trustee of Klawock lands, the government deeded over certain trust lands to Klawock, adopted the same policy respecting deeding over other parcels of land held in trust for others, and actually transferred some of the trust land to the beneficiaries. The attorneys (again Foster Pepper) sought fees in that litigation (whether additional fees or sharing the fees incurred by Klawock is not clear), to be paid from the lands held by the government for these other trust beneficiaries who benefitted from the changed policy. The court concluded that such an award was appropriate under the narrow circumstances of that case, none of which are present here. 41 First, in Klawock, the res was trust property of other beneficiaries at the time of the court order in the hands of government, and plaintiffs sought fees only against those lands that remained in government hands. Here, the government is not a trustee of a common fund represented by claims against the federal treasury. National Council of Community Mental Health Ctrs. v. Matthews, 546 F.2d 1003, 1008 (D.C.Cir.1976), cert. denied sub nom. Wagshal v. Califano, 431 U.S. 954, 97 S.Ct. 2674, 53 L.Ed.2d 270 (1977) (The United States is more than a mere stakeholder in this instance. It is the owner of the unexpended grant funds.). Moreover, all the purported common fund had been paid to the employees before any court order. Second, the court held that the beneficiaries of the trust were not indispensable parties to the litigation, but only with respect to trust property not transferred to them. In this respect, the application of the common fund doctrine fit into the case law respecting claims against trust property. See, e.g., Greenough, supra. 42 The government in this litigation, as indicated, never stood in the relationship of a trustee who could represent the interests of its employees. Foster Pepper agrees the fee claim is not against the government and does not increase its liability but rather applies against the purported common fund of amounts due employees. Even if it were held that there was a common fund and that the fund was distributed to Interior employees in error, the government would be entitled to recoupment. Thus, the principle in Klawock respecting the beneficiaries not being indispensable parties because their trustee was before the court is inapplicable in this case. More appropriate authority is Matthews, supra, which held that it would violate due process to charge the attorney fees to members of a class whose interests respecting the fee were not adequately represented and who had not been informed that their benefits might be reduced by the attorney's claim for fees from their recovery. That appears to be the circumstance in this case. Matthews, 546 F.2d at 1008-09. 43 Although the United States may, under certain circumstances, be obligated to honor a common fund, such obligation can only arise from litigation before a court, adequate representation of all parties in interest, identification of a common fund as to which the government is merely a stakeholder, jurisdiction over the fund by the court directly or through a party representing those being assessed, and exercise of the judicial equity power to impose liability on the fund--none of which are here present. 44 Looked at realistically, Foster Pepper's claim against the government is not for common fund recovery, but for improper disbursement of back pay to employees without withholding attorney's fees. The viability of such a theory must be premised upon a breach of obligation to Foster Pepper to retain this portion of amounts due government employees, and the right to sue the government for such a breach. Foster Pepper has no contract with the government, no lien against the government, no claim against the government premised upon tort. No court has found the nonclient employees had an equitable obligation to pay Foster Pepper from their COLA back payments. Indeed, the employees have never had an opportunity to contest their purported obligation to pay Foster Pepper. Thus, the government cannot have breached any duty to retain this amount for Foster Pepper. 45 All of these circumstances lead us to conclude that the district court was correct in holding that there was never a common fund under the control of the court against which the court could under common law principles impose a charge for attorney fees on nonparties and we affirm the denial of attorney fees on Foster Pepper's common fund claim.