Opinion
Nos. 56698-9-I; 56699-7-I.
March 26, 2007.
Appeals from judgments of the Superior Court for King County, Nos. 02-2-05774-8 and 05-2-07351-9, Sharon S. Armstrong, J., entered May 21, 2004 and July 19, 2005.
William Howard Patton, Seattle, WA.
Suzanne Lieberman Smith, Seattle, WA, Cousel for Appellant(s).
David Florian Jurca, Seattle, WA.
Richard Stephen White, Seattle, WA.
Connie K. Haslam Seattle, WA, Counsel for Respondent(s).
Remanded by unpublished opinion per Schindler, A.C.J., concurred in by Coleman and Grosse, JJ.
In this class action litigation, the trial court awarded attorney fees and costs based on the well-established common fund doctrine. After the City of Seattle rescinded its agreement to contribute $21.5 million in ratepayer utility funds to the Central Puget Sound Transit Authority (Sound Transit) and reinstated Sound Transit's obligation to pay utility relocation costs, the trial court dismissed the ratepayers' Sound Transit claim as moot. Because litigation of the Sound Transit claim preserved $21.5 million in ratepayers funds, the court awarded approximately $1.4 million in attorney fees, costs, and incentives under the common fund doctrine. On appeal, the City contends the court erred in awarding attorney fees and costs under the common fund doctrine. In the alternative, the City argues substantial evidence does not support the trial court's findings. On cross appeal, the ratepayers challenge the amount the court awarded and the court's failure to enter findings to support that amount. We affirm the trial court's decision to award attorney fees and costs based on the common fund doctrine and conclude substantial evidence supports the court's decision. But because the court did not state the reasons for deviating from the percentage typically used in awarding attorney fees, we remand.
FACTS
The City of Seattle (the City) is a municipal corporation that owns and operates Seattle City Light (City Light). Seattle Public Utilities (SPU) is a water, wastewater, and solid waste utility owned and operated by the City. The City operates City Light and SPU as a proprietary and business function of government for the benefit of their customers, the ratepayers, rather than the general public. City Light and SPU revenues and expenses are maintained separately from the City's general fund.
RCW 35.92.050; see also, Tacoma v. Taxpayers of Tacoma, 108 Wn.2d 679, 694, 743.
On February 14, 2002, Rud Okeson, Doris Burns, Walter L. Williams, and Arthur T. Lane (collectively "Okeson") filed a class action lawsuit against the City on behalf of City Light ratepayers. The lawsuit alleged the City did not have the authority to charge City Light for general fund expenses including streetlight costs, art, and technology. The court certified the class on behalf of City Light ratepayers. In 2003, the Washington Supreme Court held that the City improperly charged City Light ratepayers for streetlight costs, a general fund expense.
Okeson v. City of Seattle, 150 Wn.2d 540, 78 P.3d 1279 (2003).
In February 2004, Okeson filed an amended complaint alleging that a 2002 agreement between the City and Sound Transit also unlawfully diverted City Light revenues to the City. In the 2002 "Community Development Fund Agreement" (CDF Agreement), the City agreed to contribute $42.8 million to the Sound Transit "Transit Oriented Community Development Fund" (TOCDF). The $42.8 million included $21.3 million in direct monetary support from the City together with $17.5 million in unreimbursed utility support work from City Light and $4 million from SPU. The City also agreed to waive Sound Transit's obligation under a previous right-of-way agreement (ROW Agreement) to pay the City utilities for the relocation costs necessitated by the construction or operation of the Sound P.2d 793 (1987).
In 2000, the City agreed in the ROW Agreement to require all non-City owned utilities to relocate their facilities at their own expense to accommodate construction of Sound Transit's light rail project. Sound Transit agreed to pay the relocation costs for City-owned utilities.
At the City's request, the court stayed discovery on the Sound Transit allegations pending the already scheduled trial on Okeson's claim that the City improperly charged the City Light ratepayers for general fund expenses, including art and technology. At the conclusion of the trial, the court ruled that the City improperly used City Light ratepayer revenues for a number of art projects and some other expenditures. The court also ruled on the streetlight refund issues. The court awarded the ratepayers approximately $3.5 million in attorney fees, costs and incentives under the common fund doctrine.
The City appealed the court's decision that the City improperly used City Light funds from the City's art program. This court affirmed the trial court's decision in large part. Okeson v. City of Seattle, 130 Wn. App. 814, 125 P.3d 172 (2005).
The court also awarded incentive payments of $5000.
After the trial, Okeson filed a motion to lift the stay on discovery of the Sound Transit claim alleged in the amended complaint. In December 2004, the court granted Okeson's motion to amend the complaint and lift the stay on discovery of the Sound Transit claim.
On March 1, 2005, Arthur T. Lane, Kenneth Gorohoff and Walter L. Williams (collectively "Lane") filed a class action lawsuit against the City on behalf of the SPU ratepayers. In the complaint, Lane alleged the City improperly used SPU revenues for general fund purposes. Lane also alleged the 2002 CDF Agreement between the City and Sound Transit unlawfully diverted SPU revenues.
On March 28, 2005, the City and Sound Transit entered into a substitute CDF Agreement (Substitute CDF Agreement). Under the Substitute CDF Agreement, the City replaced the $21.5 million contribution from City Light and SPU with block grant funds and reinstated Sound Transit's obligation to reimburse the utilities for relocation costs. Section 4.1 of the Substitute CDF provides:
. . . Sound Transit's obligation to reimburse Seattle's utilities for costs related to Sound Transit construction is fully reinstated. Sound Transit therefore remains obligated under Subsections 3.5 of the Non-Exclusive Transit Way Agreement . . .
The City ordinance authorizing the Substitute CDF agreement also explains:
. . . [a]s a consequence of providing this more flexible fund source to the Fund, Seattle's utilities will be reimbursed for all costs created by the Sound Transit project, excluding betterments.
After adopting the Substitute CDF Agreement, the City filed a motion to dismiss the ratepayers' Sound Transit claim as moot. Over the ratepayers' objection, the court dismissed the claim as moot but "without prejudice to plaintiffs'right to file suit again if Seattle adopt[ed] or enter[ed] into an allegedly improper funding mechanism for the Community Development Fund." After dismissal of the claim, Okeson and Lane filed a motion requesting an award of attorney fees for 25 percent of the $21.5 million preserved by the litigation under the common fund doctrine.
On July 19, 2005, the court entered two orders. In the Lane case, the court entered an order certifying the class on behalf of SPU ratepayers. In a separate order, the court awarded the Okeson and Lane ratepayers attorney fees, costs, and incentives of approximately $1.4 million under the common fund doctrine. The City appeals the trial court's decision to award attorney fees, costs, and incentives. On cross appeal, Okeson and Lane challenge the amount the court awarded and the failure to enter findings justifying the amount awarded.
ANALYSIS
Common Fund Doctrine
The City contends the trial court erred in awarding attorney fees and costs under the common fund doctrine. In the alternative, the City argues substantial evidence does not support the trial court's decision.
Washington follows the American rule. Under the American rule, attorney fees are not awarded unless authorized by contract, statute, or a recognized equitable principal. City of Seattle v. McCready, 131 Wn.2d 266, 273-74, 931 P.2d 156 (1997). Whether an award of attorney fees is authorized by a recognized equitable exception is a legal question. Tradewell Group, Inc. v. Mavis, 71 Wn. App. 120, 126, 857 P.2d 1053 (1993). In McCready, the Washington Supreme Court held that the common fund doctrine is one of the recognized equitable exceptions to the American rule. McCready, 131 Wn.2d at 274.
The other recognized equitable exceptions are actions by a third party subjecting an individual to litigation, misconduct or bad faith by a party, and the dissolution of wrongfully issued temporary restraining orders or injunctions. McCready, 131 Wn.2d at 274.
The well established equitable common fund doctrine authorizes an award of attorney fees when a litigant brings an action that preserves or creates a common fund for the benefit of the litigant and others. Bowles v. Dep't of Retirement Sys., 121 Wn.2d 52, 70-71, 847 P.2d 440 (1993). Unlike a lodestar approach, the award of fees under the common fund doctrine is borne by the prevailing party and the court uses a percentage of recovery rather than actual hours expended in computing attorney fees. Bowles, 121 Wn.2d at 71.
The Court in Bowles also noted that the doctrine furthers the important policy of encouraging access by class action plaintiffs to the legal system. Bowles, 121 Wn.2d at 71.
Here, the trial court granted the City's motion to dismiss the Sound Transit claim because the court concluded "the 2005 substitute CDF funding agreement rendered plaintiffs' Sound Transit claim moot by providing essentially all of the relief that would have been available to plaintiffs on their claim." But the court concluded the ratepayers were entitled to an award of attorney fees, costs, and incentives under the common fund doctrine because the "initiation and prosecution" of the Sound Transit claim prevented the City from contributing $21.5 million in utility ratepayer funds to Sound Transit.
[T]he court finds that plaintiffs and their attorneys have conferred substantial benefits on City Light ratepayers and SPU ratepayers by preserving the Light Fund and the SPU combined utilities fund to the extent of $17.5 million for the Light Fund and $4 million for the SPU combined utilities fund, and are therefore entitled to an award of attorney fees, expenses and incentives, to [sic] paid out of those funds.
The City argues the trial court erred as a matter of law in awarding attorney fees under the common fund doctrine because the court dismissed the Sound Transit claim as moot and there was no decision on the merits. The Washington Supreme Court in Grein v. Cavano, 61 Wn.2d 498, 506, 379 P.2d 209 (1963), squarely rejected this same argument.
In Grein, union members sued the Union for an accounting, alleging the officials illegally used union funds. Grein, 61 Wn.2d at 499. As a result of the litigation, new officers were elected and accounting and bookkeeping procedures were adopted to ensure only authorized expenditures of union funds. Grein, 61 Wn.2d at 503. The primary contention on appeal was the trial court erred in awarding attorney fees and costs based on the common fund doctrine because the case was dismissed as moot and there was no legal determination on the merits. Grein, 61 Wn.2d at 505.
The primary contention is that, since the case was dismissed by this court as moot, there has never been a legal determination that respondents would have been successful in maintaining their action so as to become entitled to costs and attorneys' fees . . . Appellants contend that respondents are not entitled to costs and attorney fees'unless they can show that they would, or should have `won' if the litigation had not been terminated because of mootness.
Grein, 61 Wn.2d at 504-05. The Court affirmed the trial court's decision to award fees based on the common fund doctrine. Grein, 61 Wn.2d at 508. The court held that the "party whose participation in litigation brings benefit to the common fund is entitled to an award of reasonable attorneys' fees regardless of his success in the litigation." Grein, 61 Wn.2d at 506.
Here, as in Grein, even though the court dismissed the Sound Transit claim as moot, the trial court did not err in awarding fees under the common fund doctrine because the litigation preserved and protected $21.5 million in ratepayer funds.
In the alternative, the City contends substantial evidence does not support the trial court's findings that the litigation conferred substantial benefits on the ratepayers and preserved $21.5 million in ratepayer funds. We review the trial court's findings under the substantial evidence standard and determine whether the findings support the court's legal conclusion. Tradewell, 71 Wn. App. at 126. Substantial evidence is the quantum of evidence sufficient to persuade a rational fair-minded person the premise is true. Wenatchee Sportsmen Ass'n v. Chelan County, 141 Wn.2d 169, 176, 4 P.3d 123 (2000).
Substantial evidence supports the trial court's finding that the class action litigation saved the ratepayers $21.5 million. In the CDF Agreement, the City agreed to contribute $42. million to Sound Transit. As part of its commitment, the City designated $21.5 million from City Light and SPU. Section 4.2.1.2 of the CDF Agreement states that "Seattle shall continue to submit quarterly reports until Sound Transit has received a total of $21.5 million in payments and offsets." Section 4.2.1.4 sets forth a contribution schedule for the $21.5 million beginning in 2003. Although all the scheduled contributions had not all been made when the City entered into the Substitute CDF Agreement, the record supports the trial court's conclusion that the class action litigation preserved and protected $21.5 million, the full amount the City failed to contribute in ratepayer funds.
The City also relies on Public Util. Dist. No. 1 v. Kottsick, 86 Wn.2d 388, 545 P.2d 1 (1976), to argue there is a distinction between public and private funds. Kottsick does not support this argument. Kottsick addressed the failure to meet the Weiss requirements, not whether there were public or private funds involved.
In addition, the City's designated CR 30(b)(6) representative, Jonathan Layzer testified in a deposition that the ratepayers' legal challenge was the "primary reason" for the Substitute CDF Agreement.
Q: Was one of the reasons for developing the ___ the substitute agreement to avoid the risk a court might hold that the City's utilities would not be allowed to contribute to the CDF as had been contemplated in the CDF agreement?
A: I believe we evaluated options in part with that ___ with the ___ with the possibility in mind that if a court were to rule as you ___ rule that way, that a remedy would be prescribed. So I believe that was one of the issues we considered in developing options. Sorry.
Q: Was that one of the reasons for developing the substitute CDF agreement?
A: I guess the ___ the compelling reason to consider options was that, in the uncertainty ___ that is, in the time ___ in the time period when we would not know whether a court would support our position that it was a lawful use of utility funds or whether a court would not support that, that there would be a time period of uncertainty. And during that same time period, impacts would be accruing to businesses in the Rainier Valley, and the work would need to continue getting done.
So I believe it was not so much the risk — it was not the risk that a court would — would rule that our use of funds was illegal; rather, it was the risk that we had a period of uncertainty and that if we acted affirmatively on our belief that the use of funds was legal and were later directed otherwise, that a remedy could be prescribed, rather than us having this opportunity to examine our options and see if there was a better option.
Q: Was what you just said ___ would it be fair to characterize that as the primary reason for developing the substitute CDF funding agreement?
A: . . . I think the primary reason for developing a substitute agreement was to find the best way for the City and Sound Transit to meet the needs of the community in light of uncertainty about what funding may ___ may be ___
Q: As a result of the legal challenge being asserted in this litigation?
A: Yeah, I think that was the source of the uncertainty.
And the City's Director of Finance, Dwight Dively, testified that because of the litigation, the City was concerned about the original CDF Agreement to contribute $21.5 million from City Light and SPU.
We conclude substantial evidence supports the trial court's findings, and the court's findings support the court's conclusion that the litigation conferred substantial benefits on the utility ratepayers by saving $21.5 million. Substantial evidence also supports the trial court's determination that the litigation was the primary reason the City decided to enter into the Substitute CDF Agreement to use block grant funds instead of ratepayer funds.
The City also argues substantial evidence does not support the finding that the trial court did not decide the merits of the Sound Transit claim. In the July 2003 order granting the City's motion to quash Okeson's discovery requests and stay discovery on the Sound Transit claim, the court in a handwritten interlineation states that the City had a statutory obligation to move utilities at its own expense. But approximately eight months later, the court granted Okeson's motion to amend the complaint to add the Sound Transit allegations and lifted the order staying discovery on the claim. And in the court's order awarding attorney fees on the Sound Transit claim, the court expressly states that "the court has had no occasion to make any determination as to the merits of the claim." The order also expressly states that the court "did not intend its handwritten interlineations in its Order Granting Motion of the City of Seattle that Certain Discovery Not Be Permitted, dated July 17, 2003, to constitute a determination of, or a finding on, the merits of plaintiffs' claim." On this record, substantial evidence supports the finding that the court did not decide the merits of the Sound Transit action.
Next, the City relies on Seattle School Dist. v. State, 90 Wn.2d 476, 585 P.2d 71 (1978), to argue the court erred in awarding attorney fees because public funds are treated differently than private funds and the requirements of Weiss v. Bruno, 83 Wn.2d 911, 914, 523 P.2d 915 (1974), were not met.
In Seattle School Dist., the court affirmed the denial of attorney fees under the common fund doctrine because the litigation did not "protect, preserve or create an immediate fund." Seattle School Dist., 90 Wn.2d at 542. According to the court, "[t]he only source from which attorneys fees might be drawn would be a legislatively imposed tax." Id. at 542.
Weiss is a narrow and limited exception to the requirement that the litigant must protect, preserve, or create a fund. Seattle School Dist., 90 Wn.2d at 544. In Weiss, the Court awarded attorney fees based on the common fund doctrine in a successful constitutional challenge to state action even though there was no "identifiable fund." Weiss, 83 Wn.2d at 913-14. The court in Weiss set forth four requirements that must be met to award attorney fees when there is no identifiable fund: (1) a successful suit; (2) challenging the expenditure of public funds; (3) based on "patently unconstitutional legislative and administrative actions;" and (4) a refusal of the official or agency to maintain the challenge. Weiss, 83 Wn.2d at 914.
But here, unlike in Weiss and Seattle School Dist., the litigation preserved and protected $21.5 million in identifiable ratepayer funds.8 And unlike in Weiss and Seattle School Dist., City Light and SPU revenues are for the benefit of the ratepayers, not the general public.
The City also argues that the ratepayers impermissibly sought an award of attorney fees under the private attorney general doctrine which has been rejected by our Court. See Hillis v. Dep't of Ecology, 131 Wn.2d 373, 401, 932 P.2d 130 (1997). The City mischaracterizes the ratepayers' argument below. The ratepayers did not seek an award of fees under the private attorney general doctrine. Below, the ratepayers cited a couple of California cases that approved of the private attorney general doctrine to support their argument that the litigation caused the City to enter into the Substitute CDF Agreement. California for Responsible Toxics Management v. Kizer, 211 Cal. App. 3d 961, 967, 259 Cal. Rptr. 599 (1989) (the court concluded the appropriate inquiry was to examine the situation before the lawsuit and determine what role, if any, the plaintiff's litigation played in bringing about that result); Leiserson v. City of San Diego, 202 Cal. App. 3d 725, 735, 249 Cal. Rptr. 28 (1988) (whether there is a casual connection between the lawsuit and the result is a question of fact).
For the first time on appeal, the City also argues that contrary to the Supreme Court's decision in Buckhannon Bd. Care Home, Inc. v. W. Virginia Dept. of Health and Human Res., 532 U.S. 598, 121 S. Ct. 1835, 149 L. Ed. 2d 855 (2001), the court impermissibly relied on the catalyst theory to award fees under the common fund doctrine. This court need not address issues raised for the first time on appeal. RAP 2.5(a); see also Herberg v. Swartz, 89 Wn.2d 916, 925, 578 P.2d 17 (1978). Nevertheless, we conclude Buckhannon is inapposite.
Under the catalyst theory, the plaintiff is entitled to attorney fees as the prevailing party under a fee-shifting statute if the lawsuit results in a voluntary change in the defendant's conduct. A. Conte, H. Newberg, Newberg on Class Action, § 14.4, "Catalyst Theory" (4th ed. 2002).
In Buckhannon, the Court rejected the catalyst theory as an impermissible basis to award attorney fees when a federal statute expressly allows for an award of attorney fees. Buckhannon, 532 U.S. at 610. The entire rationale of the Court's decision in Buckhannon turned on the meaning of "prevailing party" in two federal fee-shifting statutes, the Fair Housing Amendments Act of 1988, 42 U.S.C. § 3613(c)(2), and the Americans with Disabilities Act, 42 U.S.C. § 12205. Buckhannon, 532 U.S. at 610.
The City cites to two cases, Taylor v. City of Lenoir, 148 N.C. App. 269, 558 S.E.2d 242 (2002); Bublitz v. E.I. Dupont De Nemours Co., 224 F.Supp.2d 1234 (S.D. Iowa 2002) to argue that Buckhannon bars the award of attorney fees under the common fund doctrine. Neither case is persuasive. In Taylor, the court refused to award attorney fees after the City voluntarily enrolled in a new retirement system. Taylor, 148 N.C. App. at 276. On appeal, the Taylor court did not rely on Buckhannon, but rather applied North Carolina law to the facts of that case. Taylor, 148 N.C. App. at 276-79. The court held that an award of attorney fees was not appropriate under the common fund doctrine because (1) an actual monetary amount was not recovered by the litigation, (2) plaintiffs had not complied with North Caroline caselaw by obtaining a formal judgment, court-approved settlement, or consent decree, and (3) it was not clear the court had control of the contested fund. Taylor, 148 N.C. App. at 276-279. In Bublitz, the court held that the common fund did not apply, because "Plaintiffs' counsel are not — and, in fact, cannot — seek a portion of the alleged fund . . . The Court has no jurisdiction over the alleged fund created by . . . the signers. As mentioned, the common fund doctrine presumes jurisdiction over the fund." Bublitz, 224 F.Supp.2d at 1242. Here, because the trial court awarded fees under the equitable common fund doctrine, and not as the prevailing party under a fee-shifting statute, neither the catalyst theory nor Buckhannon applies.
The portion of the Bublitz decision rejecting the catalyst theory under Buckhannon is dicta.
Without citation to authority, the City also argues that the court, in dismissing the claim as moot and awarding attorney fees, creates the potential for Okeson and Lane to seek and obtain multiple attorney fee awards whenever the City engages in conduct that Okeson and Lane allege to be unlawful. Because this argument is not supported by any reference to the record or citation of authority, we do not consider it. RAP 10.3(a)(5); Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801, 809, 828 P.2d 549 (1992).
Reasonableness of Attorney Fee Award
In their cross appeal, the ratepayers challenge the amount the court awarded in attorney fees. The trial court awarded $1 million to Okeson and $300,000 to Lane. The attorney fee award was approximately six percent of the $21.5 million preserved for the ratepayers.
Okeson and Lane contend the trial court abused its discretion in deviating from the benchmark 25 percent or some other reasonable percentage in the 20 to 30 percent range. Twenty to thirty percent of the recovery is a typical benchmark used in awarding attorney fees under the common fund doctrine, but that figure can be adjusted based on the circumstances of the case. Bowles, 121 Wn.2d at 72. The trial court has broad discretion in determining the amount of fees. Bowles, 121 Wn.2d at 71-72. A trial court abuses its discretion when its ruling is manifestly unreasonable or exercised on untenable grounds, or for untenable reasons. T.S. v. Boy Scouts of Am., 157 Wn.2d 416, 423, 138 P.3d 1053 (2006).
In Bowles, the Washington Supreme Court rejected a lodestar approach and adopted a percentage of recovery approach in awarding attorney fees under the equitable common fund doctrine. Bowles, 121 Wn.2d at 73. Under the percentage of recovery approach, attorney fees are calculated based on the total recovery obtained. Bowles, 121 Wn.2d at 72. The court adopted 25 percent of the recovery obtained as a "benchmark." Bowles, 121 Wn.2d at 72-73. But citing Six (6) Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301 (9th Cir. 1990), the Court also held that under "special circumstances, this figure can be adjusted upward or downward, or can be replaced with a lodestar calculation." Bowles, 121 Wn.2d at 72-73.
By contrast, under a lodestar approach, attorney fees are awarded to the prevailing party and calculated by determining the number of hours reasonably spent, times the hourly rate. Bowles, 121 Wn.2d at 72.
According to Arizona Citrus Growers, special circumstances include a determination that the percentage of recovery would be either too small or too large given the hours devoted to the case or other relevant factors based on the circumstances of the case. Arizona Citrus Growers, 904 F.2d at 1311. In Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1048-50 (9th Cir. 2002), the Ninth Circuit identified a number of other considerations in awarding attorney fees under the common fund doctrine including the results achieved, risks taken, duration of the case, and the degree to which the attorney had to forego other work.
Although the record supports the trial court's decision to deviate from the 25 percent benchmark, because the court did not set forth the reasons for doing so, we remand for the court to enter findings.
CONCLUSION
The court did not err in awarding attorney fees under the common fund doctrine and substantial evidence supports the order awarding attorney fees on the Sound Transit claim. But because the court did not enter findings explaining the basis for the amount awarded, we remand.
WE CONCUR: