Jon Flemming v. Barnwell Nursing Home and Health Facilities, Inc.
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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
----------------------------------------------------------------No. 149
Jon Flemming, &c.,
Respondent,
v.
Barnwell Nursing Home and Health
Facilities, Inc.,
Defendant.
Caroline Ahlfors Mouris,
Appellant;
Paul Macari,
Respondent.
Michael S. Gruen, for appellant.
George J. Szary, for respondent Flemming.
PIGOTT, J.:
On this appeal, we are asked to consider whether New
York law permits an award of counsel fees and expenses to an
objectant in a class action.
We hold that it does not.
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No. 149
This class action lawsuit was brought on behalf of 242
individuals, who were residents at defendant Barnwell Nursing
Home and Health Facilities, Inc. at any time from January 1, 1999
through January 31, 2000.
The class claim, brought pursuant to
New York's Public Health Law § 2801-d, alleged that the nursing
home failed to comply with state-imposed standards of patient
care.
After nearly six years of litigation, the parties
reached a compromise and a motion for approval pursuant to CPLR
Rule 908 was made to Supreme Court.
Caroline Ahlfors Mouris, on
behalf of her mother's estate, filed objections to the proposed
award of fees to class counsel, the compensation established for
the settlement administrator, and the incentive award to the
class representative.
settlement amount.
She did not object to the overall
Mouris also cross-moved for an award of
counsel fees she incurred in preparing and presenting her
objections.
Supreme Court approved the proposed settlement, and
directed that certain monies be awarded to class counsel for fees
and expenses, to the originator of the claim as an incentive
award, and to the administrator for past and future services -the remainder be distributed among the class members in
accordance with the approved distribution formula.
The court
denied Mouris's objections, as well as her cross motion for
counsel fees, noting that her objections had neither assisted the
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No. 149
court nor benefitted the class.
The Appellate Division modified by reducing or
eliminating each category of Supreme Court's award (56 AD3d 162).
As relevant to this appeal, the court held that Mouris was not
entitled to an award of counsel fees because CPLR 909 "does not
provide for the payment of counsel fees to any . . . party or
individual" other than class counsel (id. at 168).
The court
remitted the matter to Supreme Court to determine the
administrator's fees and expenses.
Thereafter, Supreme Court
issued a judgment determining such fees and expenses.
This Court granted Mouris leave to appeal from the
judgment of Supreme Court to bring up for review the prior
nonfinal Appellate Division order.
We now affirm.
Under the general rule in New York, attorneys' fees are
deemed incidental to litigation and may not be recovered unless
supported by statute, court rule or written agreement of the
parties (Hooper Assoc. v AGS Computers, 74 NY2d 487, 491 [1989]).
An attorney is not entitled to legal fees from persons other than
his or her client merely because such other persons were
benefitted by his or her services (Matter of Loomis, 273 NY 76
[1937]).
There are certain exceptions to the general rule,
including an award of counsel fees for class actions brought on
behalf of all members of a class.
Such an award is embodied in CPLR 909, which provides:
"If a judgment in an action maintained as a
class action is rendered in favor of the
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No. 149
class, the court in its discretion may award
attorneys' fees to the representatives of the
class based on the reasonable value of legal
services rendered and if justice requires,
allow recovery of the amount awarded from the
opponent of the class" (emphasis added).
Enacted in 1975, this provision was part of a
comprehensive reform of the laws relating to class actions in New
York:
"The bill codifies the usual rule that the
attorneys for a class that has been
successful (through judgment or settlement)
are awarded a reasonable attorney's fee;
historically, the prospect of obtaining
substantial counsel fees has been an
important factor in encouraging the private
bar to undertake the class action
representation of persons with moderate or
modest resources" (Memorandum to Counsel to
the Governor from the State Consumer
Protection Board, Bill Jacket, L 1975, ch 207
[emphasis added]).
The statute codifies the common law rule that attorneys' fees may
be paid out of a fund created for the benefit of the class by the
litigation.
It further empowers the court to order the fees to
be paid by the class opponent "if justice requires."
The language of CPLR 909 permits attorney fee awards
only to "the representatives of the class," and does not
authorize an award of counsel fees to any party, individual or
counsel, other than class counsel.
Had the Legislature intended
any party to recover attorney fees it could have expressly said
so, as it has in other contexts (see e.g. Surrogate Court
Procedure Act § 2302 [6] ["In a proceeding to construe a will or
after appeal in such a proceeding, pursuant to the direction of
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No. 149
the appellate court the court may award to a fiduciary or any
party to the proceeding such sum as it deems reasonable for his,
her or its counsel fees and other expenses necessarily incurred
in the proceeding or on the appeal" [emphasis added]).
Although
federal courts have awarded counsel fees to objectors in certain
situations under Federal Rule 23 (h), New York's statute is only
in part modeled on that federal provision (Matter of Colt Indus.
Shareholder Litig., 77 NY2d 185 [1991] [noting that CPLR 901-909
"has much in common" with Federal Rule 23]).
Mouris argues, and the dissent agrees, that a basis for
an award of fees may be recognized under the "common fund"
doctrine.
However, no modern New York court has applied such
rule to authorize an objector's counsel fee award in a class
action lawsuit.
The dissent cogently argues that section 909,
being in derogation of our common law, should not be read so
broadly as to totally eliminate the "common fund" doctrine.
However, having comprehensively revised Article 9, it is not for
this Court to assume a provision the Legislature could have
easily provided and recognize a doctrine that has not been
invoked in the last century.
Simply put, although a class may at
times benefit from an objectant's actions, the Legislature did
not provide recompense for those efforts.
Accordingly, the judgment of Supreme Court appealed
from and the order of the Appellate Division brought up for
review should be affirmed, with costs.
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Jon Flemming, Individually &c. v Barnwell Nursing Home and Health
Facilities, Inc., et al.
No. 149
SMITH, J.(dissenting):
A class action lawyer who recovers money for the class
is, of course, entitled to apply to the court for a fee to be
paid out of the class's recovery.
But the majority today holds
that a class member's lawyer who opposes the fee application,
even if he does so successfully, must work for free or be paid
entirely from the resources of the person who hired him.
This
result is bad policy; it is contrary to New York's common law;
and it is not required by any statute.
I therefore dissent.
Whatever the faults and virtues of the class action
device, no one disputes the need to control class counsel's fees
-- and nothing furnishes so effective a check on those fees as an
objecting lawyer.
Even in the many cases where no objection to
the fee application is ever filed, the possibility of an
objection is one of the few restraints on class counsel's
ambitions.
And usually, class counsel can be sure that no one
will object to a fee application if a class member does not.
The
party opposing the class has no incentive to object to a payment
that will come out of pockets other than its own; indeed, in the
vast majority of class actions that are settled, the party that
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No. 149
has settled with the class will be anxious to see the settlement
approved without a hitch.
It is true that courts have the duty to scrutinize
class counsel's fee applications, whether objected to or not, but
it is hard for them to do so effectively without the help of a
lawyer who has an incentive to point out the application's flaws.
Objectors, of course, cannot replace the court or diminish its
role.
It is the court that must authorize both class counsel's
fee and a successful objector's; it must do so only where the
lawyers have conferred an actual benefit on the class, and then
only in proportion to the benefit.
But courts that hear an
advocate for only one side of the issue are handicapped in making
their judgments.
Class counsel who submit unopposed fee
applications, like most lawyers without adversaries, often get
what they ask for.
Today's decision greatly lessens the likelihood that
fee applications submitted by class counsel will ever be opposed.
Opposition will be filed only where a lawyer or client is willing
to act from philanthropic motives, or in the few cases where a
member of the class has a large enough interest in the size of
the fee to justify bearing the expense of objecting to it.
The
problem of excessive fees in these cases is well known (see,
e.g., Coffee, Class Wars: The Dilemma of the Mass Tort Class
Action, 95 Colum L Rev 1343, 1348 [1995]; Hensler, The
Globalization of Class Actions: An Overview, 622 Annals of the
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No. 149
American Academy of Political and Social Science 7, 19 [2009]).
Today's decision makes it more difficult to cure that problem.
Not only are there excellent reasons to permit fee
awards to lawyers who have successfully objected to class
counsel's fees; such awards are supported by the same common law
principles on which class counsel's applications are based.
The
common fund rule, going back at least to Trustees v Greenough
(105 US 527, 536 [1882]), permits "those who have instituted
proceedings for the benefit of a general fund" to receive "proper
allowances," including attorneys' fees, out of the fund.
We
adopted this rule in Woodruff v New York, Lake Erie & W. R. R.
Co. (129 NY 27, 30-31 [1891]), saying "that one who successfully
conducts a litigation . . . for the benefit of a fund, shall be
protected in the distribution of such fund for the expenses
necessarily incurred by him in the performance of his duty."
It has long been commonly understood that fees may be
awarded both to a class counsel who benefits a class by winning
or settling a lawsuit and to an objector's counsel who benefits
the class by reducing the amount of class counsel's fee.
a simple corollary of the common fund rule.
That is
In each case, those
who benefit from the lawyer's efforts should bear the cost.
While there seems to be no New York case directly in point,
federal cases decided before the adoption of Rule 23 (h) of the
Federal Rules of Civil Procedure in 2003 assumed that counsel
fees could be awarded to objectors to class action settlements
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No. 149
under common fund principles (Frankenstein v McCrory Corp., 425 F
Supp 762, 767 [SD NY 1977]; ["where the objections filed produced
a beneficial effect upon the progress of the litigation, an award
of fees is appropriate"]; In Re Anchor Sec. Litig., 1991 WL 53651
at *1 [ED NY 1991] ["attorney's fees are available to counsel for
objectors who make the proper showing"]).
The majority holds, in effect, that New York's class
action statute, adopted in 1975, changed the common law by
limiting the scope of the common fund doctrine.
The relevant
statute is CPLR 909, which says:
"If a judgment in an action maintained as a
class action is rendered in favor of the
class, the court in its discretion may award
attorneys' fees to the representatives of the
class based on the reasonable value of legal
services rendered and if justice requires,
allow recovery of the amount awarded from the
opponent of the class."
The majority reads "representatives of the class" to
mean the named plaintiffs in a class action, an interpretation I
assume is correct.
It also reads the statute to forbid the
awarding of attorneys' fees to all those who are not
"representatives of the class," an interpretation I think is
incorrect.
The majority's interpretation would be defensible if
the Legislature had enacted a systematic codification of the
common fund doctrine as it related to class actions, and left
objectors' fees out of that codification.
But I see no evidence
that the Legislature did anything of the kind.
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CPLR 909 consists
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No. 149
The first half of it does reflect the common
fund doctrine in saying that "the court . . . may award
attorneys' fees to representatives of the class" -- no doubt
meaning, though it does not say, that it may award them out of
the class's recovery; the thrust of the statute, however, is to
extend the court's power beyond what the common fund doctrine
would permit, authorizing "recovery of the amount awarded from
the opponent of the class."
I think the authors of the statute
would have been surprised at the suggestion that, by briefly
restating one conspicuous aspect of the common fund doctrine,
they were abolishing the rest of it in the class action context.
I see nothing in the background of the statute or its legislative
history to suggest an intention to make any such change in the
law.
And I can think of no reason why the Legislature would have
wanted to make that change.
Thus, the majority opinion gives to CPLR 909 the
unintended consequence of partially repealing the common fund
doctrine and discourages class members from monitoring the
inflation of attorneys' fees.
I would not follow that course.
I
would reverse the Appellate Division's order and direct Supreme
Court to consider the objector's fee application.
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Judgment appealed from and order of the Appellate Division
brought up for review affirmed, with costs. Opinion by Judge
Pigott. Judges Ciparick, Graffeo, Read and Jones concur. Judge
Smith dissents in an opinion in which Chief Judge Lippman
concurs.
Decided October 21, 2010
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