Court Opinion

ID: 9684341
Source: CourtListenerOpinion
Date Created: 2023-08-24 13:54:11.956355+00
Date Added: 2024-06-11T18:17:55.144367
License: Public Domain

Jim Hannah, Justice, concurring in part and dissenting in part. I concur with the majority that this case should be reversed and remanded; however, I disagree that the 3019 taxpayers should be dismissed, and I disagree that the improperly paid attorneys’ fees need not be disgorged. Motion to Dismiss Notice to the 3019 taxpayers was fatally deficient, and on that basis, these tax payers should not be dismissed. Haberman v. Lisle, 317 Ark. 600, 884 S.W.2d 262 (1994), was cited by the parties and quoted by the majority with respect to notice. Haberman is inapplicable. Arkansas Rule Civil Procedure 23 does not apply to illegal exaction cases. T&T Chem. Co. v. Priest, 351 Ark. 537, 95 S.W.3d 750. In T&T, we stated, “To the extent that City of Little Rock v. Cash, 277 Ark. 494, 644 S.W.2d 229 (1982), can be read to require the application of Rule 23 to an illegal-exaction case, we overrule it.” T&T, 351 Ark. at 541. Although Haberman is an illegal-exaction case, the court applied Pude 23, and under our holding in T&T, Rule 23 may not be applied to an illegal-exaction case. .Therefore any reference to Haberman in the present illegal exaction case is misplaced. In the present case, the class members received notice that: 1. The class was certified by court order; 2. Pursuant to the class-certification order, class representatives had been named; 3. The class has certain rights, including: a. The right to opt-out of the class; b. That class members will not be bound by the action if they opt-out; c. If class members opt-out they will not be represented by the class representatives; and, d. Class members may opt-out by making written request. This is the notice required under Rule 23. It does not meet the notice requirements of illegal exaction. Notice in illegal exaction should include: 1. That the illegal-exaction suit is pending and what it alleges; 2. That the class is established by the constitution and who it includes; 3. That a class member may not opt-out and will be bound by any judgment; 4. That class members may wish to become named parties if they want to have greater input with respect to the remedy sought; 5. That class members may wish to become named parties to assure there is no collusion or friendly lawsuits, and to have input in the amount of attorney’s fees granted; 6. That class members may declare any alleged illegal tax voluntarily paid so as to remove it from the illegal-exaction suit. See generally T&T, supra; Martin v. Couey Chrysler Plymouth, Co., 308 Ark. 325, 824 S.W.2d 832 (1992); Samples v. Grady, 207 Ark. 724, 182 S.W.2d 875 (1944); McCarroll v. Farrar, 199 Ark. 320, 134 S.W.2d 561 (1939); Laman v. Moore, 193 Ark. 446, 100 S.W.2d 971 (1937); Rigsby v. Ruraldale Consol. Sch. Dist. No. 64, 180 Ark. 122, 20 S.W.2d 624 (1929); Dreyfus v. Boone, 88 Ark. 353, 114 S.W. 718 (1908). In the present case, the 3019 class members never received adequate notice. On that basis, I would deny the motion to dismiss with respect to the 3019 taxpayers. Collusion The real parties in interest in this case are the taxpayers. This appeal is approached as if the taxpayers’ attorneys are a party. The appeal involves only the attorneys’ fees granted in this case, which might arguably be the most significant event in the case. The refunds in this case were not great when considering the possible amounts involved. The attorneys arguably received the greatest benefit. Each settlement agreement provided for a refund and attorneys’ fees. Ultimately, $8,629,634.67, was refunded to taxpayers. The trial court granted attorneys’ fees that amounted to $4,650,569, a figure substantially close to the figure received by taxpayers. The argument that there was a recovery of $18.6 million dollars is simply illusory. In an illegal-exaction case, whether the taxes were voluntarily paid is always an issue. Worth, supra. Here, the defendants just came up with what might be a top figure they might have to pay out. I find nothing to indicate any taxpayer was asked if the taxes were voluntarily paid. There is no evidence to show that $18.6 million ever represented the amount that might be refunded. From the amount actually refunded, it is obvious much of the taxes were voluntarily paid. Also, contrary to the argument of dissent, the fact any unclaimed funds escheat back to the governmental body does not imply that they were part of the amount recovered. To the contrary, the fact unclaimed funds would be returned to the defendants shows the $18.6 million dollar fund was inflated and did not reflect the actual recovering. It only adds support to the idea that the figure was not trustworthy. It must also be noted that an illegal-exaction case gives rise to a justified concern that the lawsuit may be friendly. The governmental defendants are not the typical Rule 23 tort class action defendants. In tort, the defendants would simply lose money. In illegal exaction, the real losers are the taxpayers who will likely have to make up any shortfall resulting from the suit. The Rule 23 tort class-action defendant has greater reason to fight and reduce the recovery. Excessive Fees While Mr. Butt intervened to be heard on the issue of fees, there were many taxpayers who did not. Mr. Butt is an experienced attorney who believed the matter of attorneys’ fees needed attention. The average taxpayer would not enjoy his level of understanding, but if the notice had been adequate, other taxpayers might have sought to be named as parties. Then they could have asserted their views on the fees and had a say in what they might have argued was a friendly lawsuit. I also must note that standing alone, the amount of the fees is troubling. As the appellant notes, this court long ago in Bradshaw & Helm v. Bank of Little Rock, 76 Ark. 501, 89 S.W. 316 (1905), stated that an award of fees from a common fund was intended to shift the burden of the fees from the attorneys’ client to the defendant, and was not intended to produce a larger fee than they might have expected from their own client. I agree that the fee should be based on the actual refund amount because that more accurately reflects the result obtained in this case. Crockett & Brown, P.A. v. Courson, 312 Ark. 363, 368, 849 S.W.2d 938 (1993).. The $18.6 million is the amount of possible recovery alleged to in the settlement agreements, which may well lack the proper adversary proceedings required to be trustworthy. The actual amount refunded appears to more accurately reflect the benefit salvaged for the taxpayers. Millsap v. Lane, 288 Ark. 439, 706 S.W.2d 378 (1986). In any event, the critical analysis is whether the fee is reasonable as required under Ark. Code Ann. § 26-35-902 (Repl. 1997). I am not convinced that it is. Contrary to the majority, I disagree that the issue of the fees is moot. The majority treats the fees as if they were a judgment paid and then appealed. As the law cited by the majority states, a party who pays a judgment may not pay and then appeal it. It is obvious why he or she may not appeal. The judgment was voluntarily paid. The law on voluntary payment of judgments is not applicable in this case. The parties objecting to payment of the fees did not pay the fees. The fees were paid by the defendants who wanted the matter to go away. The defendants paid the fees at their peril, and the attorneys for the class accepted them at their peril. Both the defendants and the attorneys knew the issue was contested. Therefore, presumably the attorneys would be prepared to disgorge the fees. Because notice was inadequate, the class members were nevpr put in a position to understand that the issue of the fees was something about which they should be concerned. They never knew that the fees could consume much of the actual recovery of past overpaid taxes. I would reverse the case on this point and require the attorneys to disgorge the funds pending provision of proper notice and further hearings. Guardian Ad Litem In this case, experienced counsel was involved in the intervention on the issue of attorneys fees, which is why this appeal is before us today. Because of the involvement of counsel on behalf of appellees, the issue of fees has been addressed. That may not always be the case in illegal exaction suits. If not, as noted in Haas v. Pittsburgh National Bank, 11 F.R.D. 382 (W.D. Penn. 1977), a problem arises because class counsel and the defendants agree on a remedy. The defendant, having agreed to a sum in settlement, is indifferent to the amount of the fee that may come from that sum. Also, the interest of the class members is specifically adverse to that of their lawyers. The judge is left to provide the opposition required in our adversarial system. It would be better to appoint a guardian ad litem in such an instance. See Miller v. Mackey Int’l, Inc., 70 F.R.D. 533 (S.D. Fla. 1976). In Rule 23 class actions, the more common approach is for the trial judge to act as a fiduciary for the beneficiaries of a common fund. Gottlieb v. Barry, 43 F.3d 474 (10th Cir. 1994). As noted by the Tenth Circuit in Gottlieb, the need may be compelling in some cases. In the case of illegal exaction, where remedies vary greatly and common fund is only part of the analysis, use of a guardian ad litem may be the better approach, especially in light of the fact that public funds are at issue. I would reverse and remand the case for disgorgement of the attorneys’ fees, provision of adequate notice, further hearings on attorneys’ fees, and for consideration of the other issues noted above.