Tuesday, January 29, 2008

Supreme Court reduces attorney fee award in TERI cases

In Lyman v. State, the Supreme Court considered the trial court's award of $8 million in attorney fees to lawyers who garnered an order holding that an act of the General Assembly requiring certain state retirement plan participants to continue to pay into the state retirement system breached a legislatively-created contract as to the class of TERI participants and requiring the return of contributions made by all TERI participants. The trial court awarded fees under the state action statute, but the Supreme Court reversed.

In our view, utilizing common fund methodology when awarding attorneys’ fees pursuant to a fee-shifting statute is wholly inappropriate in light of the underlying theoretical distinction between a common fund source of attorneys’ fees and a statutory source of attorneys’ fees. Although both sources are exceptions to the general rule that each party is responsible for the party’s own attorneys’ fees, the common fund doctrine is based on the equitable allocation of attorneys’ fees among a benefited group, and not the shifting of the attorneys’ fee burden to the losing party. This Court certainly acknowledges that a percentage-of-the-recovery approach may be appropriate under circumstances in which a court is given jurisdiction over a common fund from which it must allocate attorneys’ fees among a benefited group of
litigants. However, where, as here, a fee-shifting statute shifts the source of reasonable attorneys’ fees entirely to the losing party, we find it both illogical and erroneous to calculate fees using the methodology justified under a fee-spreading theory.

Under the trial court's calculation, the $8 million figure resulted in each lawyer for the plaintiffs earning about $6000 per hour worked. The Court further held that an award based on a percentage of the TERI plaintiffs' recovery is inconsistent with the express terms of the statutory scheme. Although the state action statute neither requires that attorneys’ fees be awarded based on an hourly rate, nor places a numerical cap on attorneys’ fees, the court found it significant "that the statute provides that attorneys’ fees assessed to the state agency may only be paid 'upon presentation of an itemized accounting of the attorney’s fees.'" According to the court, the requirement of an "itemized accounting” squarely contradicts the utilization of the percentage-of-the-recovery method in awarding attorneys’ fees under the statute.

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