KEITH GIBSON, MARIE HOLDER, ALEC FARMER, PHILIP TALDO, AND ROBERT S. MOORE, JR., AS MEMBERS OF THE ARKANSAS STATE HIGHWAY COMMISSION; LORIE TUDOR, DIRECTOR OF THE ARKANSAS DEPARTMENT OF TRANSPORTATION; ARKANSAS DEPARTMENT OF TRANSPORTATION; ASA HUTCHINSON, GOVERNOR OF THE STATE OF ARKANSAS; LARRY W. WALTHER, DIRECTOR OF ARKANSAS DEPARTMENT OF FINANCE AND ADMINISTRATION; ANDREA LEA, AUDITOR OF THE STATE OF ARKANSAS; AND DENNIS MILLIGAN, TREASURER OF THE STATE OF ARKANSAS v. SHELLY BUONAUITO, MARY WEEKS, VERLON ABRAMS, AND SARAH B. THOMPSON
No. CV-21-557
SUPREME COURT OF ARKANSAS
December 1, 2022
2022 Ark. 206
JOHN DAN KEMP, Chief Justice
Opinion Delivered: December 1, 2022; APPEAL FROM THE PULASKI COUNTY CIRCUIT COURT [NO. 60CV-18-7758]; HONORABLE MORGAN E. WELCH, JUDGE
JOHN DAN KEMP, Chief Justice
Appellants Keith Gibson, Tom Schueck, Robert S. Moore, Jr., Alec Farmer, and Philip Taldo, Members of the Arkansas State Highway Commission; Scott E. Bennett, Director, Arkansas Department of Transportation (“the Department“) (collectively “Highway Appellants“); Dennis Milligan, Treasurer of the State of Arkansas; Andrea Lea,
I. Facts
We recited the underlying facts of this case at length in the previous appeal, Buonauito v. Gibson, 2020 Ark. 352, 609 S.W.3d 381. In Buonauito, we held that tax funds levied from Amendment 91 to the Arkansas Constitution could only be used for constructing or improving four-lane highways and that the use of Amendment 91 funds for two projects, CA0602 and CA0608 involving six-lane interstate highways, constituted an illegal exaction.
The Department reviewed the Amendment 91 expenditures and determined that $83,745,901.56 of unreimbursed funds had been spent on project CA0602 and $37,363,490.28 of unreimbursed funds on project CA0608 for a total of $121,109,391.84 to be reimbursed to the Department‘s Amendment 91 fund.1 On January 28, 2021, the parties entered into a joint stipulation that “the net balance to be reimbursed to the Amendment 91 fund [was] $121,109,391.84.” On February 1, 2021, the circuit court ordered that $121,109,391.84 “shall be reimbursed to the Amendment 91 fund.” As part of the judgment, the circuit court reserved jurisdiction to consider the attorney‘s-fee issue.
Appellees had entered into a 25 percent contingency-fee agreement with Denton & Zachary in 2018. On February 16, 2021, appellees filed a motion for attorneys’ fees, costs, and expenses. In their brief, they relied on Walther v. Wilson, 2020 Ark. 194, 600 S.W.3d 554, as precedent to support a “reasonable contingency fee,” and they requested $18,715.57 in costs and expenses. Attached to their motion was (1) an affidavit of Justin C. Zachary, lead counsel, who stated that his firm had spent 771.70 hours on the case; (2) Denton & Zachary‘s itemized bill totaling 771.70 hours; (3) Denton & Zachary‘s representation letters to separate appellees; (4) an itemized list of expenses totaling $18,715.57; (5) an affidavit of
On March 30, 2021, appellants jointly responded to the motion for attorneys’ fees. They argued that appellees were not entitled to attorneys’ fees because (1) sovereign immunity prohibited an award of attorneys’ fees; (2) there was no statutory authority to award attorneys’ fees; (3) Walther, 2020 Ark. 194, 600 S.W.3d 554, was inapplicable because the funds had not been transferred to a private entity; and (4) there was no substantial benefit to the state or common fund. They asserted that even if appellees were entitled to attorneys’ fees, the requested amount of fees and costs was excessive, unreasonable, and should be significantly reduced. Attached to their joint response were (1) appellees’ responses to appellants’ requests for admission; (2) an affidavit of Jared D. Wiley, assistant chief engineer for planning at the Department; and (3) motions for attorneys’ fees filed by appellees’ counsel in other cases.
On April 6, 2021, appellees filed a motion for enforcement of the court‘s order, for civil contempt, and for funds to be deposited in the registry of the court for review by a special master. In their motion, they requested that appellants be found in contempt and that the circuit court enter an order directing $121,109,391.84 to be deposited into the registry of the court. Appellants responded and moved for dismissal because they had repaid the Amendment 91 fund and had sent proof of a full reimbursement on April 2, 2021.
The circuit court held a two-day hearing on the motions. The Department‘s director, Lorie Tudor, testified about its highway funding and its procedure for reimbursing $121,109,391.84 to the Amendment 91 fund pursuant to this court‘s order. Tudor explained that she and Wiley developed a funding plan “after the Supreme Court opinion” in which eight construction projects were earmarked for Amendment 91 fund eligibility. She described the Department‘s reimbursement procedure as “an accounting exercise,” stating, “[T]here‘s an account that‘s called Amendment 91 and there‘s an account for regular state funds, and we changed the coding on those projects to be in compliance.” She further explained, “The 121 million, the journal entry transferred 121 million of Amendment 91 funds to those [eight] projects below, and the regular state funds from each of those projects below was journal entried into those the 30 Crossing [CA0602] and 630 [CA0608] project. It was a redistribution of funds.” Specifically, Tudor provided the following analogy:
Well, everyone in the courtroom understands about those big tins of popcorn you get at Christmas, and you have your cheesy popcorn, your caramel popcorn, and your regular popcorn. . . . Well, highway funding is very, very similar. . . . [Y]ou have Amendment 91 funds, you have regular state funds, and you have federal funds, three major types of funds, but it‘s all money. It‘s all funding. It‘s a finite, fixed amount of money. The amount of popcorn doesn‘t change, the amount of money doesn‘t change, just the flavor.
So when the Supreme Court ruling came down and we knew that we were going to have to rearrange our funding. . . . I told our commissioner, [“L]ook, don‘t worry. The amount of funding has not changed. The projects will not change. We have a lot of flexibility with our funding. We just need to move the funding around to be in compliance with the Supreme Court ruling.[“]
So basically, what we did is, if you want to think of the caramel popcorn as Amendment 91 funds, we took all the caramel popcorn away from 30 Crossing [CA0602] and 630 [CA0608], and we put it into other project bowls. And we took regular state funds from them and put it into 30 Crossing [CA0602] and 630 [CA0608]. It‘s that simple. There‘s the same amount of money. The amount of money didn‘t change. The projects that we funded didn‘t change. We just had to do
an accounting exercise in order to be in compliance. . . . [O]verall, I was just reassuring our commissioners that the amount of funding wasn‘t going to change, it was just how we distributed the funding.
She later reiterated,
We knew that $121 million had been expended of Amendment 91 funds on 30 Crossing [CA0602] and 630 [CA0608]. . . . [T]hey could no longer use Amendment 91 funds on those projects, so we went through the exercise of identifying projects that were eligible for Amendment 91 funds and doing - putting together the journal entry for the expended funds so that we journal entried over on one side regular state funds from these eligible projects. We journal entried the regular state funds to 30 Crossing [CA0602] and 630 [CA0608] thus reimbursing Amendment 91 funds. And we took the Amendment 91 funds that had been expended on 630 [CA0608] and 30 [CA0602] and applied them to these projects, which was an eligible use of Amendment 91 funds.
During Tudor‘s testimony, plaintiff‘s exhibit 4 was received into evidence without objection. Exhibit 4, entitled “Reimbursement of Amendment 91 Funds,” outlined the Department‘s itemization of the court-mandated $121,109,391.84 reimbursement, which included eight construction projects and the total amount expended on each project, as follows: (1) Highway 5 for $28,601,975.26; (2) Highway 147 for $5,734,068.11; (3) Highway 206 for $7,205,605.07; (4) I-49 for $5,366,874.59; (5) Highway 274 at Hampton for $17,427,754.03; (6) Highway 274 North for $10,483,372.13; (7) Highway 331 for $45,244,394.00; and (8) Highway 64 for $1,045,348.65, totaling $121,109,391.84 in reimbursement to the Amendment 91 fund as stipulated by the parties. In her testimony, Tudor emphasized exhibit 4‘s footnote, which states, “The amount of [regular] state funds expended on the 8 projects listed will now be funded with Amendment 91 funds. These [regular] state funds will be used to reimburse Amendment 91 funds expended on CA0602 and CA0608.”
Plaintiff‘s exhibit 3 was also received into evidence without objection. Tudor described exhibit 3 as the Department‘s plan to reconcile the funding of its projects in an effort to comply with Buonauito, 2020 Ark. 352, 609 S.W.3d 381. Under a section entitled “Projects Completed,” the foregoing eight projects were listed with a note that $121,109,000 in “Amendment 91 Funds [was] Moved from [CA0602] and [CA0608] and Applied to Eligible Projects, while $83,746,000 and $37,363,000 in ‘Regular State Funds [was] Applied to [CA0602] and [CA0608.]‘”
Exhibit 3 also revealed the Department‘s plan to reconcile the funding of other four-lane projects subjected to Buonauito, 2020 Ark. 352, 609 S.W.3d 381. From the Department‘s three types of projects - projects completed, projects scheduled, and projects under construction - the “Grand Total” indicated that “489,836 [million]” of “Federal and Regular State Funds [was] Applied to 30 Crossing and I-630” while “489,836 [million]” of “Amendment 91 Funds [was] Moved from 30 Crossing and I-630 and Applied to Eligible Projects.” During cross-examination, when specifically asked about the CA0602 project and any Amendment 91 funds released to other eligible projects, Tudor stated, “[W]e were going to spend that money anyway on those highways. There‘s not additional money. The projects . . . didn‘t change.”
Lisa Wilkerson, an assistant administrator in the accounting office at DF&A, testified that she operated, maintained, and helped the state agencies make entries into the State‘s accounting system, known as the Arkansas Administrative Statewide Information System. She stated that the Department had contacted DF&A about reconciling the accounts of the Amendment 91 fund. During her testimony, exhibits were introduced that showed funds
Dr. Scott also testified at the hearing. He admitted that he is not a highway-funding expert and had never prepared a financing plan for a transportation entity. He also stated that he had never testified in an illegal-exaction case against the Department. He testified that, in his estimation, the total benefit to the Amendment 91 bond account was approximately $448 million, or $448,191,448. He reached that conclusion by “a total reimbursement amount of 159 million, and that‘s the 121 million that still needs to be reimbursed plus the 38 million that has actually already been reimbursed.” He testified that after the “121 million that still needs to be reimbursed . . . that leaves us 288,957,000 . . . available for construction.” When asked how the total budget for the Department had not changed but how the Amendment 91 account had benefited, Dr. Scott stated that “[it] was a very restrictive account” and “[t]hose funds had to be used for a specific purpose.” On cross-examination, however, when asked if he agreed that “paying for something from my savings account versus paying for something from my checking account doesn‘t create an economic benefit for my son,” Dr. Scott replied, “Yeah. I would agree with that.”
Local attorneys Tom Thrash and Paul Byrd also testified at the hearing. Thrash testified that he has been practicing since 1980 and that since 1996, his practice has focused on class actions and “cases similar to this.” Thrash testified that a 25 percent contingency fee was “in line with the standard fees in this locality and across the country.” Additionally, Paul Byrd, an attorney from Little Rock who has been licensed since 1985, testified that he
On June 30, 2021, the circuit court entered an order awarding $18,160,000 in attorneys’ fees to Denton & Zachary. The circuit court found that because appellees had “established a substantial benefit to the State of Arkansas as well as the creation and/or preservation of a common fund, this court GRANTS Plaintiffs’ Motion for Attorneys’ Fees, Costs, and Expenses.” The circuit court ruled that Denton & Zachary‘s attorneys’ fee constituted “approximately a 15% contingency fee of the $121,109,391.84 reimbursed to the Amendment 91 Fund.” In addition to the $18,160,000 in attorneys’ fees, the circuit court awarded $6,896.70 in costs. Appellants filed motions for reconsideration, which were deemed denied by operation of law. Appellants now bring their appeal.
II. Attorneys’ Fees
For the first point on appeal, State Appellants argue that the circuit court erred in awarding attorneys’ fees. Specifically, they contend that (1) sovereign immunity bars the award of attorneys’ fees; (2) no statutory authority exists for awarding the fees; and (3) appellees are not entitled to attorneys’ fees because the American rule exceptions do not apply.
Highway Appellants assert that the circuit court (1) erred because sovereign immunity bars the award of attorneys’ fees and costs; (2) abused its discretion in awarding attorneys’ fees and costs because no exception to the American rule applies; and (3) abused its discretion by calculating the fees award using a percentage-contingency-fee method.
Appellees respond that (1) the circuit court properly ruled that sovereign immunity was not a bar to attorneys’ fees; (2) the circuit court did not abuse its discretion in finding that the underlying illegal-exaction claim entitled them to attorneys’ fees and costs; and (3) the circuit court did not abuse its discretion by awarding a percentage-contingency fee.
Thus, based on the arguments before this court, the sole question before us is whether the circuit court abused its discretion in awarding a flat 15 percent attorneys’ fee award of $18,160,000 to Denton and Zachary from the court-mandated amount of $121,109,391.84 reimbursement. We first turn to appellants’ claim for attorneys’ fees under our statutes, the American Rule, and its exceptions.
A. Statutory Authority for Attorneys’ Fees and Exceptions
Both State Appellants and Highway Appellants argue that there is no statutory authority to award attorneys’ fees. They contend that Arkansas has adopted the American rule for attorneys’ fees, which stands for the proposition that attorneys’ fees are not recoverable in litigation unless expressly provided for by statute. They further contend that the exceptions to the American rule do not apply in this instance.
Appellees respond that the circuit court did not abuse its discretion in finding that the underlying illegal-exaction claim entitled them to attorneys’ fees and costs. Specifically, they assert that the Amendment 91 litigation increased funds in the Amendment 91 account; the circuit court‘s judgment protected and preserved funds in the Amendment 91 account; and the Amendment 91 litigation provided a substantial benefit to the taxpayers of Arkansas.
1. Statutory authority
Arkansas follows the American rule, which requires every litigant to bear his or her attorneys’ fees, absent a state statute to the contrary. Walther v. Wilson, 2019 Ark. 105, at 5, 571 S.W.3d 897, 900; Lake View Sch. Dist. No. 25 v. Huckabee, 340 Ark. 481, 495, 10 S.W.3d 892, 900 (2000); Millsap v. Lane, 288 Ark. 439, 442, 706 S.W.2d 378, 379 (1986). The decision to award attorneys’ fees and the amount to award is discretionary and will be reversed only if the appellant can demonstrate that the circuit court abused its discretion. Harrill & Sutter, PLLC v. Kosin, 2011 Ark. 51, at 17, 378 S.W.3d 135, 145.
Arkansas Code Annotated section 26-35-902(a) (Repl. 2012) authorizes an award of attorneys’ fees to prevailing litigants in some illegal-exaction cases. Barnhart v. City of Fayetteville, 335 Ark. 57, 59, 977 S.W.2d 225, 226 (1998).
(a) It is the public policy of this state that circuit courts may, in meritorious litigation brought under
Arkansas Constitution, Article 16, § 13 , in which the circuit court orders any county, city, or town to refund or return to taxpayers moneys illegally exacted by the county, city, or town, apportion a reasonable part of the recovery of the class members to attorneys of record and order the return or refund of the balance to the members of the class represented.
Id. (emphasis added).
In reviewing
In the present case, the circuit court ruled from the bench that “this is not something that is authorized expressly by statute.” We agree. The plain language of section 26-35-
Specifically,
Second, appellees did not request a refund or return to the taxpayers. Instead, the reimbursement transpired within the Department and was transferred from the Department‘s general fund to its Amendment 91 fund. Based on our well-established standard of review, the circuit court did not abuse its discretion in denying the motion for attorneys’ fees on this basis.
2. American rule exceptions
Next, we must determine whether an American rule exception applies. When attorneys’ fees are not expressly authorized by
a. Common-fund exception
First, under the common-fund exception, a plaintiff has created or augmented a common fund or assets have been salvaged for the benefit of others as well as himself or herself. Walther v. Wilson, 2019 Ark. 105, at 5, 571 S.W.3d 897, 900 (Wilson II). In such a situation, to allow the others to obtain the full benefit from the plaintiff‘s efforts without requiring contribution or charging the common fund for attorneys’ fees would be to enrich the others unjustly at the expense of the plaintiff. Id., 571 S.W.3d at 900.
The present case is not an illegal-exaction case where a class action is sought, and a common fund is established. See Fox v. AAA U-Rent It, 341 Ark. 483, 489-90, 17 S.W.3d 481, 485-86. A common fund contemplates a new pool of money. Id., 17 S.W.3d at 485-86. Here, contrary to the circuit court‘s findings, no common fund was created, and no new pool of money was created. Thus, the record does not support a common-fund exception.
b. Substantial-benefit exception
i. Applicable law
The second exception is the substantial-benefit rule. This court first acknowledged the rule in a shareholder-derivative action. Millsap, 288 Ark. at 442, 706 S.W.2d at 379-80 (citing Fletcher v. A.J. Indus., 266 Cal. App. 2d 313 (1968)). We stated that a shareholder could recover attorneys’ fees against a corporation “if the corporation received ‘substantial benefits’ from the litigation even [when] the benefits were not pecuniary and no fund was created.” Id. at 442, 706 S.W.2d at 380.
We then extended the exception to cover attorneys’ fees against the State of Arkansas in Lake View, 340 Ark. at 495, 10 S.W.3d at 900-01. But the Lake View court explicitly
Despite the “unique set of circumstances” of the fee award in Lake View, id., 10 S.W.3d at 902, we subsequently awarded attorneys’ fees under the substantial-benefit exception in Wilson II, 2019 Ark. 105, 571 S.W.3d 897. But that case involved a direct financial benefit to the State because state funds were returned from a private entity. In Wilson v. Walther, 2017 Ark. 270, 527 S.W.3d 709 (Wilson I), appellant Mike Wilson, a taxpayer, brought an illegal-exaction lawsuit that successfully challenged the constitutionality of certain legislative acts of 2015 appropriating funds from the Arkansas General Improvement Fund to eight regional planning and development districts. The court held that the acts were unconstitutional and reversed and remanded. Wilson I, 2017 Ark. 270, at 11, 527 S.W.3d at 716. Upon remand, the circuit court ruled that Wilson had
ii. Analysis
The present case is distinguishable from this line of precedent in Arkansas. In Lake View, this court noted that the litigation presented remarkable circumstances. The substantial-benefit rule announced in Lake View was sui generis and not to be repeated. This court clearly stated that, by authorizing attorneys’ fees, it was not “endorsing a new exception to the American Rule.” Lake View, 340 Ark. at 497, 10 S.W.3d at 902.
This court then ignored the admonition from the Lake View court and authorized fees in Wilson II, 2019 Ark. 105, 571 S.W.3d 897. But unlike the GIF funds in Wilson II, the Amendment 91 funds in this case have not been transferred to a private entity and have not been abandoned. In fact, the Wilson funds were ordered to be returned to the State of Arkansas. Id. at 3, 571 S.W.3d at 899. As in Lake View, our decision in Wilson II finding a substantial benefit had been conferred to taxpayers was predicated on the case‘s unique circumstances - GIF funds were remitted from a private entity back to the State treasury. Yet, the dissent would extend our holding in Wilson II to find a substantial benefit in this illegal-exaction case where no State funds were recouped. Under the dissent‘s rationale, a substantial benefit would accrue whenever there is an illegal exaction, thereby permitting
In the present case, the Amendment 91 funds remain in the Department‘s control, no new funds have been created, and the State Treasury has not received any direct financial compensation. As a result, we decline to extend the substantial-benefit exception any further to cover a nonpecuniary interest in the proper reallocation of departmental funds. The decision to allow attorneys’ fees in scenarios like this one rests with the General Assembly, the branch of government tasked with implementing public policy. See Martin v. Haas, 2018 Ark. 283, at 9, 556 S.W.3d 509, 515. Thus, we continue to follow the American rule and leave to the legislative branch policy decisions on whether to allow attorneys’ fees.
This conclusion is further supported by the testimony at the hearing. Director Tudor explained the Department‘s reallocation process. She testified that the $121 million of Amendment 91 funds had been transferred to other departmental construction projects, and “the regular state funds from each of those projects . . . was journal entried into the [CA0602 and CA0608] project[s].” When asked if new funds had been created or if the Department
In light of this analysis, the dissent, citing only one case with scant legal analysis, fails to provide to the bench, bar, and people of Arkansas a rationale by which it would affirm the circuit court‘s award of approximately $18 million in state funds to the attorneys at Denton and Zachary. It further fails to address how its proposed ruling would comport with the majority‘s sovereign-immunity analysis in Wilson II.
In sum, we hold that, in the absence of express statutory authority, the circuit court abused its discretion in awarding $18.16 million in attorneys’ fees and costs to Denton & Zachary. While we commend the attorneys at Denton & Zachary for bringing an illegal-exaction suit to correct the Department‘s allocation of funds, we nevertheless hold that no basis exists for the award of $18.16 million in attorneys’ fees and costs. Accordingly, we reverse on this point.
Because we hold that the circuit court abused its discretion in awarding attorneys’ fees and costs, we decline to reach appellants’ remaining arguments on appeal concerning a contingency fee, the Chrisco factors, any apportionment of fees, and sovereign immunity.
III. Cross-Appeal
On cross-appeal, appellees argue that the circuit court erred in denying their motion for contempt against appellants. Appellees had filed a motion for civil contempt against
Civil contempt can only be established when there is a willful disobedience of a valid court order. Omni Holding & Dev. Corp. v. 3D.S.A., Inc., 356 Ark. 440, 450, 156 S.W.3d 228, 235 (2004). We review civil-contempt proceedings for whether the findings are clearly against the preponderance of the evidence. Ark. Dep‘t of Health & Hum. Servs. v. Briley, 366 Ark. 496, 501, 237 S.W.3d 7, 11 (2006). In our review, we defer to the superior position of the circuit court to determine the credibility of witnesses and the weight to be given their testimony. Russell v. Russell, 2013 Ark. 372, at 9, 430 S.W.3d 15, 20.
Here, the circuit court entered its order on February 1, 2021, finding that $121,109,391.84 “shall be reimbursed to the Amendment 91 Fund.” As previously noted, Tudor testified that the Amendment 91 fund had been reimbursed, and Wilkerson testified that she was involved in making those accounting adjustments. Thus, we hold that the circuit court properly denied appellees’ contempt motion, and we affirm the circuit court‘s ruling.
Reversed on direct appeal; affirmed on cross-appeal.
WOMACK, J., concurs.
BAKER, HUDSON, AND WYNNE, JJ., dissent.
SHAWN A. WOMACK, Justice, concurring. By recovering $121 million and triggering the preservation of at least an additional $289 million of funds collected via the Amendment 91 tax, the appellees undoubtedly created a substantial economic benefit for
Illegal-exaction lawsuits are the cornerstone of accountability between the government and the taxpaying citizens that it serves. Our framers recognized the importance of balancing the relationship between taxpayers and tax spenders and enshrined the right to file illegal-exaction lawsuits in our constitution.
The legislature has already determined that
It is the public policy of this state that circuit courts may, in meritorious litigation brought under
Arkansas Constitution, Article 16, §13 , in which the circuit court orders any county, city, or town to refund or return to taxpayers moneys illegally exacted by the county, city, or town, apportion a reasonable part of the recovery of the class members to attorneys of record . . . .
While I join the plurality‘s judgment that attorney fees are not authorized in this case, I respectfully differ as to the analysis. While the plurality attempts to distinguish the facts of
The principle that each party should bear its own attorney fees was first recognized in Arcambel v. Wiseman, 3 U.S. 306 (1796). This court adopted that principle, which was later popularized as the “American Rule,” in Thorn v. Clendenin, when we held that “[o]ur entire law of costs and fees is, in substance, statutory[;] [t]he common law did not professedly allow any, the amercement of the vanquished party being his only punishment.” 12 Ark. 60, 62 (1851). We later held that “a court has no jurisdiction over the subject-matter of allowing attorney‘s fees as costs in any case in the absence of a statute authorizing such fees to be taxed or allowed in those cases.” Peay v. Pulaski Cnty., 103 Ark. 601, 610-11, 148 S.W. 491, 495 (1912).
However, in 1905, this court recognized its first exception to the American Rule. Bradshaw & Helm v. Bank of Little Rock, 76 Ark. 501, 89 S.W. 316, 317 (1905). In Bradshaw, we permitted attorneys who brought an action to recover debt from an insolvent bank to collect attorney fees from a receiver-managed fund. Id. We continued to recognize this “common-fund” exception in several instances, noting that “it would be a discouragement if those who might otherwise pursue this type of litigation were inadequately compensated.”
Maintaining adherence to the American Rule—with the recognized common-fund exception—this court reversed the award of attorney fees in an illegal-exaction lawsuit against the State, citing the lack of statutory authority for the award. Munson v. Abbott, 269 Ark. 441, 450-51, 602 S.W.2d 649, 655 (1980). However, we crafted a second exception six years later. Piggybacking off the California courts, this court adopted the “substantial benefit” exception, which allowed a successful plaintiff in a derivative action to recover attorney fees against a corporation “if the corporation received ‘substantial benefits’ from the litigation even where the benefits were not pecuniary[,] and no fund was created.” Millsap v. Lane, 288 Ark. 439, 442-43, 706 S.W.2d 378, 380 (1986) (quoting Fletcher v. A.J. Indus., 72 Cal. Rptr. 146 (Cal. Ct. App. 1968)).
In Lake View School District No. 25 v. Huckabee, this court expanded the scope of the substantial benefit exception to cover economic benefits to the State and put the State on the hook to cover the related attorney fees. 340 Ark. 481, 497, 10 S.W.3d 892, 902 (2000). We continued to invoke this judicially created exception in an illegal-exaction claim against the State. Walther v. Wilson, 2019 Ark. 105, at 7, 571 S.W.3d 897, 901; contra Munson, 269 Ark. at 450-51, 602 S.W.2d at 655 (holding, before the creation of the substantial benefit exception, that attorney fees are recoverable in an illegal-exaction lawsuit only when authorized by statute).
I do not endorse the departure in Bradshaw, Millsap, Lake View, and Walther from the principle that attorney fees are recoverable only when a statute authorizes them. See Peay,
Accordingly, unless the constitution or a statute authorizes attorney fees, litigants are not entitled to them. This court should abandon the common-fund and substantial benefit exceptions, instead of simply attempting to narrow them. The General Assembly should consider whether a law to allow recovery of these fees against the State, as exists for claims against counties, cities, and towns is appropriate. Until then, however, we are without the power to award them.
Respectfully, I concur in the judgment only.
KAREN R. BAKER, Justice, dissenting. Recovering $448,191,448 worth of funds for taxpayers is meaningless. The amount recovered, $448,191,448 million is inconsequential, pointless, insignificant—$448 million is simply inane. That is what the plurality opinion announces to the State of Arkansas today.
The simplicity of this case is this. In Buonauito I, we unanimously held that the State had illegally expended Amendment 91 funds on projects, we reversed and remanded the matter to circuit court. Buonauito v. Gibson, 2020 Ark. 352, 609 S.W.3d 381. Stated differently, Buonauito won. The State must return the funds. Give the money back, period. Thereafter, upon remand, based on the State illegally using Amendment 91 revenue, $448 million of funds was recovered and unequivocally produced a substantial benefit to the taxpayers. Here, as in Wilson II, the litigation preserved millions of dollars in taxpayer
Undeniably, the record demonstrates that each of Buonauito‘s experts testified as to the economic benefit to Arkansas taxpayers resulting from the efforts. Dr. Scott testified that the economic benefit to the state and its citizens totaled at least $448,191,448.45 when considering both the amount reimbursed by the State and the additional Amendment 91 funds that would have been spent on the projects in the absence of Buonauito‘s lawsuit. Further, Thrash, testified about the case‘s novelty and difficulty, and the enormous benefit to Arkansas taxpayers by counsels’ efforts.
Nevertheless, the plurality holds that a substantial benefit was not produced. Four hundred forty-eight million was recovered and preserved. Roads throughout the state, not Little Rock, not the I-30 Crossing project, not the I-630 Widening Project, are being constructed. Taxpayers in other areas of the State are benefitting from improvements and repairs to their own roads.
Yet, somehow the plurality in swift fashion holds there was not a substantial benefit and therefore, an attorney‘s fee is not warranted. Maybe the fee award was too much for the plurality to stomach. During oral argument, one justice indicated that should this court affirm, she stated that she would step down tomorrow because her time would be better spent filing suits against our state government, “to get them to re-account their funds on a regular basis, and . . . walk away with millions. That‘s the message that the Supreme Court, when rewarding those kind of fees -- and if we are going to get into the policy making business, then I am not sure that‘s good policy either. That‘s the best use of public tax dollars.” Transcript of Oral Argument, at 44 (Sep. 29, 2022) (CV-21-557). However, the amount of fees is not a basis for the plurality opinion.
The State of Arkansas spent $448 million illegally. Buonauito‘s illegal exaction suit established such and resulted in a substantial benefit to the taxpayers. Regardless how the plurality frames the issue—reshuffling or reallocating—a substantial benefit occurred. Despite how the plurality labels the funds—popcorn, peanuts, or the like—a substantial benefit occurred. Simply put, Buonauito prevailed, and the taxpayers unequivocally benefitted substantially from this litigation. The plurality states,
[T]he Amendment 91 funds remain in the Department‘s control, no new funds have been created, and the State Treasury has not received any direct financial compensation. As a result, we decline to extend the substantial-benefit exception any further to cover a nonpecuniary interest in the proper reallocation of departmental funds.
This is absurd. The constitution provides for illegal exaction suits, the plurality and concurring opinion have ensured that as a practical matter there will be no illegal exaction
Finally, I would be remiss if I did not address the concurring opinion. Our constitution requires justices of this court to faithfully discharge the duties of a supreme court justice and uphold the Arkansas Constitution. See
Accordingly, I dissent from the plurality opinion.
HUDSON and WYNNE, JJ., join in this dissent.
Leslie Rutledge, Att‘y Gen., by: Vincent P. France, Ass‘t Att‘y Gen., for state appellants.
Friday, Eldredge & Clark, LLP, by: Kevin A. Crass and Kathy McCarroll; and Rita S. Looney and Mark Umeda, Arkansas Department of Transportation, for appellees members of the Arkansas State Highway Commission Keith Gibson, Marie Holder, Robert S. Moore, Jr., Alec Farmer, and Philip Taldo; the Arkansas Department of Transportation; and Lorie Tudor as director of the Arkansas Department of Transportation.
Denton & Zachary, PLLC, by: Justin C. Zachary, Joe Denton, and Andrew Norwood, for appellees.
Brian G. Brooks, Attorney at Law, PLLC, by: Brian G. Brooks, amicus curiae for Arkansas Trial Lawyers Association.