J. Dоnald REYNOLDS as Guardian Ad Litem (Charlotte Kyle Martin & Kathleen Gerson, et al.)
v.
FIRST ALABAMA BANK OF MONTGOMERY, N.A.
Charlotte Kyle MARTIN, Kathleen Gerson, et al.
v.
FIRST ALABAMA BANK OF MONTGOMERY, N.A.
FIRST ALABAMA BANK OF MONTGOMERY, N.A.
v.
Charlotte Kyle MARTIN & Kathleen Gerson, et al.
Supreme Court of Alabama.
*1239 Jack Crenshaw and Richard H. Gill of Copeland, Franco, Screws and Gill and J. Donald Reynolds, Montgomery, for appellants/cross-appellees.
M.R. Nachman, Jr. of Steiner, Crum & Baker, Montgomery, for appellee/cross-appellant.
ADAMS, Justice.
This is the third time beneficiaries of trusts held by First Alabama Bank of Montgomery, N.A., have come to us asking to be made whole, their claims being occasioned *1240 by the imprudent investments made by their paid trustee.[1]
On remand, the beneficiaries were able to obtain a judgment in the amount of $5,753,747.00 and the beneficiaries' attorneys were awarded a fee of one-third of that amount, or $1,795,200.00. The guardian ad litem was awarded a fee of $7,200.00. The beneficiaries' attorneys filed a motion to require the bank to pay these fees because trial judge Hooper's decree of August 19, 1981, ordered that "... the class plaintiffs be put in the same position they would have occupied except for the breaches of fiduciary duty ... [and] that the defendant perform such acts as are necessary to put the class plaintiffs in that position." Furthermore, they point to language in our opinion in Martin II which they claim further strengthens their argument that the bank should pay their counsel fees. We said in Martin II:
Where a trustee makes an investment that is improper, it is equitable for the court to put the parties in a position they would have occupiеd except for the breach of trust.
First Alabama Bank of Montgomery, N.A. v. Martin,
Before this case could be heard on remand, the original trial judge, Judge Hooper, had retired from the bench, and Judge Charles Price had assumed responsibility for this litigation.
Judge Price took testimony concerning the reasonableness of an attorney's fee in this case, and considered the motion to assess fees against the bank. Although it does not appear that the parties had the benefit of our recent decision concerning attorney's fees, Peebles v. Miley,
Judge Price rejected this argument and held that counsel were entitled to the fee he had set, but that it must come solely from the fund which the attorneys had created. In so doing, Judge Price was following the American rule, that a party must pay his own counsel fees and there can be no shifting of litigation costs.
At this juncture, let us assess the posture of the case as it is presented to us on appeal. As a result of procedures in the trial court, the beneficiaries have received the amount of their judgment, less $1,795,200.00, which has been paid directly to their counsel of record. Defendant bank has cross-appealed, claiming that it has overpaid in this case because the statute of limitations bars recovery to those beneficiaries whose trusts terminated more than one year before the filing of this law suit. The beneficiaries claim that this defense was raised in Martin II, and thus, that the issue is not before us because of the doctrine of res judicata.
*1241 The beneficiaries' attorneys are not seeking additional compensation for this appeal. They agree that they have been adequately compensated for their hours (approximately 2,600), and by all the other yardsticks used in determining attorney's fees, but they appear before us because they believe they have a professional responsibility to see that their clients are made whole as per the law of the case as expressed by Judge Hooper and by this Court. The sole purpose of the beneficiaries' appeal is to shift the responsibility of the fee from their shoulders to the bank. Of course, the bank claims that the fees for the beneficiaries, as well as for the guardian ad litem, are clearly excessive, are not in conformity with the criteria we set out in Peebles, supra, and, if allowed to stand, would bring the bench and the bar into great disrepute.
The issues spring from the cases so postured:
1. Did the trial court correctly refuse to assess the beneficiaries' attorneys' fees against the bank?
2. Was the amount of the award of the attorneys' fees to the beneficiaries' lawyers, as well as the amount of the award of attorneys' fees to the guаrdian ad litem, grossly and clearly excessive?
a. Does the bank have standing to claim excessiveness?
3. Did the trial court erroneously reject the bank's plan to exclude as participants from any distribution of principal and income, beneficiaries of trusts that had terminated more than one year prior to the commencement of this action?
American Rule
In order to properly analyze the interplay of the American rule in this case, we must first keep in mind the nature of the litigation vehicle. First and foremost, this is a class action filed by the beneficiaries of approximately 1,250 individual trusts against their paid trustee seeking a declaration as to the duty of the bank and its liability to aсcount, a declaration that certain investments were imprudent, and affirmative relief requiring the bank to restore to the common trust fund the losses sustained because of the bank's improper investments. In other words, this is essentially an equitable proceeding.
We said in Martin II that "in Alabama, a court of equity is authorized to mold its decree so as to adjust the equities of the parties and meet the necessities of each situation, Coupounas v. Morad,
In Alabama, attorney's fees are recoverable only where authorized by statute, when provided in a contract, or by special equity, such as in a proceeding where the efforts of an attorney create a fund out of which fees may be made. Shelby County Commission v. Smith,372 So.2d 1092 (Ala.1979); State ex rel. Payne v. Empire Life Ins. Co.,351 So.2d 538 (Ala. 1977). We affirm the trial court's finding that the decree creates a common fund from which counsel fees may be made.
We think these two doctrines can co-exist, but a better understanding of the rule is necessary to appreciate the basis of our decision. Strangely, although we borrowed our body of law cаlled the common law from England when this country was established, we did not borrow the English method of handling attorney's fees. As early as 1278, the English courts allowed counsel fees to the successful plaintiffs in litigation. However, it took until 1607 for the English courts to authorize an award of counsel fees to the defendants in all actions where such awards might be made to plaintiffs.[2]
*1242 In fact, our research has found no country in the world that does not allow the equitable allocation of attorney's fees except our own.[3]
It is said that the rule arose out of our colonial experience where lawyers were looked upon with suspiciоn and were considered characters of disrepute. In those days, judges in most cases were laymen and, therefore, it was thought that counsel was unnecessary. This general feeling was evidenced by the fact that statutes forbade lawyers from receiving fees and denied them the use of the courts if they were paid.[4] As our country grew, more people obtained legal training and became judges and the process of recognizing the values of a lawyer's services began. Eventually, statutes were passed which allowed the losing party his costs. This was later expanded to include specified fees to be рaid counsel.
Although the rule has been soundly criticized by the commentators, its vitality on the American scene has not seemed to weaken.[5] Furthermore, there seems to be no organized effort to mount an assault on the doctrine.
Nevertheless, the rule is usually expressed with exceptions encouched therein. One of the main exclusions is the equitable exception. In the United States Supreme Court case of Hall v. Cole,
Although the traditional American rule ordinarily disfavors the allowance of attоrneys' fees in the absence of statutory or contractual authorization, federal courts, in the exercise of their equitable powers, may award attorneys' fees when the interests of justice so require. Indeed, the power to award such fees "is part of the original authority of the chancellor to do equity in a particular situation," Sprague v. Ticonic National Bank,307 U.S. 161 , 166 [59 S.Ct. 777 , 780,83 L.Ed. 1184 ] (1939), and federal courts do not hesitate to exercise this inherent equitable power whenever "overriding considerations indicate the need for such a recovery." Mills v. Electric Auto-Lite Co.,396 U.S. 375 , 391-392 [90 S.Ct. 616 , 625-626,24 L.Ed.2d 593 ] (1970)....
Thus, it is unquestioned that a federal court may award counsel fees to a successful party when his opponent has acted "in bad faith, vexatiously, wantonly, or for oppressive reasons." 6 J. Moore, Federal Practice ¶ 54.77[2], p. 1709 (2d ed. 1972) .... In this class of cases, the underlying rationale of "fee shifting" is, of course, punitive, and the essential element in triggering the award of fees is therefore the existence of "bad faith" on the part of the unsuccessful litigant.
Another established exception involves cases in which the plaintiff's successful litigation confers "a substantial benefit on the members of an ascertainable class, and where the court's jurisdiction over the subject matter of the suit makes possible an award that will opеrate to *1243 spread the costs proportionately among them." Mills v. Electric Auto-Lite, supra, at 393-394 [90 S.Ct. at 626 ].
In Mills v. Electric Auto-Lite Co.,
The fact that this suit has not yet produced, and may never produce, a monetary recovery from which fees could be paid does not preclude an award based on this rationale. Although the earliest cases recognizing the right to reimbursement involved litigation that had produced or preserved a "common fund" for the benefit of a group, nothing in these cases indicates that the suit must actually bring money into the court as a prerequisite to the court's power to order reimbursement of expenses [footnote omitted].
Thus, we see that special equity does not necessarily mean the spreading out of attorney's fees among the members of a class where a fund has been created, as counsel for the bank has seemed to suggest. It can be awarded, as was the case in Mills, where there has been a fraudulent representation.
Although a more recent United States Supreme Court Case, Alyeska Pipeline Service v. Wilderness Society,
As far back as Moss v. Winston,
The general rule here applicable is stated in 17 Corpus Juris, 807, as follows: "Apart from the sums allowable and taxed as costs, there can, as a general rule, be no recovery as damages for thе costs and expenses of litigation or expenditures for counsel fees. In cases of civil injury or breach of contract, in which there is no fraud, willful negligence, or malice, the courts have considered that an award of costs in the action is sufficient to cover the expenses of litigation and make no allowance for the time, indirect loss and annoyance."
The obvious conclusion to be reached from this quote is that Alabama recognizes exceptions to the American Rule where fraud, willful negligence or malice has been practiced. In the present case, there was evidеnce before the court from which it could conclude that the bank concealed the existence of its own written investment standards, violated its own written minimum standards of safety, attempted to conceal the holding of REIT's under the heading of insurance, and attempted to conceal the fact that it had sold Associated Coca-Cola stock at a loss in January 1975 by lumping the sale of this stock with the sale of 1,000 shares of a parent company Coca-Cola stock.
*1244 The above evidence would justify the award of the beneficiaries' attorneys' fees against the trustee. Furthermore, we said in Murphy v. Merchants National Bank of Mobile,
It has been recognized that costs necessarily incurred by the trustor or cestui que trust to compel a defaulting trustee to make a final settlement of his administration of the trust should be assessed against the trustee who wrongfully necessitated these expenditures on accounting. This result finds expression in 4 Bogert on Trusts, § 962; Pomeroy v. Noud,145 Mich. 37 ,108 N.W. 498 ; 24 C.J. p. 1057, § 2531; Perry on Trusts, 7th ed. vol. 1, § 903; April v. April,245 App.Div. 841 ,281 N.Y.S. 538 , 540; In re Rosenfeldt's Will,185 Minn. 425 ,241 N.W. 573 ; Buder v. Franz, 8 Cir.,27 F.2d 101 ; Royal v. Royal,30 Or. 448 ,47 P. 828 ,48 P. 695 .
American Jurisprudence has stated the general rule regarding the allowance of attorney's fees in trust matters:
The allowance of counsel fees and litigation expenses is within the discretion of the court. Generally, where an allowance is made, to whom it is made, and who pays it, depend upon factors such as who benefits from the litigation, the outcome of the litigation, and the necessity for the litigation. [Emphasis added.]
[Footnotes omitted.]
76 Am.Jur.2d Trusts § 656 (1975).
There being ample authority in the exception to the American rule to justify the shifting of litigation costs from the beneficiaries to their paid trustee, we are compelled to reverse the trial court's judgment which failed to do so.
Excessiveness of Fees
Having decided that Judge Price erred in not assessing the award of attorneys' fees in this case against the party who caused the loss, we now turn to the question of whether his award of attorneys' fees was excessive. At the outset, we must consider whether the bank had standing to question the fee allowance. Jordan v. Guaranty Pest Control, Inc.,
We likewise reject the beneficiaries' argument that because the bank has been a determined and vigorous adversaryrequiring three appeals to this Court, a petition for certiorari to the Supreme Court of the United States, an attempt to relitigate what has already been decided in this Court, as well as in the circuit court, and the litigation of twelve separate defenses in circuit courtthat somehow this justifies additional compensation. This claim does not fall within any of the rubrics set forth in Peebles, and, therefore, we reject it. In the ordinary case counsel will be well paid because of thе additional time and energy expended in opposing such a vigorous adversary. Our adversary judicial system works best when lawyers of comparable intellectual ability, financial backing, and vigorous determination are pitted against each other.
As we have stated earlier, although counsel for the parties did not have the benefit of our decision in Peebles, a study of the record convinces us that most, if not all of *1245 the factors enumerated in Peebles, were considered.[7]
This case has caused us to extensively study complex litigation in other jurisdictions, as well as in Alabama, some of which used the factors in Peebles and some which did not, where the litigation brought about a recovery of over $1,000,000.00.
Some of the cases which we studied are attaсhed as Appendix I to this opinion.[8] A study leads us to the conclusion that the fee assessed by Judge Price is not excessive under the factors outlined in Peebles, nor does it bring the bench and bar into disrepute, but it does represent the outer limit of what a reasonable fee should be in this case. For those reasons, we will not disturb it, and particularly are we constrained to not disturb it where counsels' clients have expressed agreement to it.
On the other hand, we are asked to assess, and accept the responsibility of assessing, a reasonable attorneys' fee against the paid trustee who defaulted under its obligation under the trust. The cases that we have considered have taught us that generally, even with the fine tuning of assessing the factors in Peebles, courts in complex six-figure and seven-figure judgments have assessed fees from 20% to 25% of the recovery. This has generally worked out to be the rule in our own State, as evidenced by the Appendix, but this is not to say that there have not been courts that have assessed one-third, or even higher fees which we, after reading the decisions, also conclude were reasonable. In assessing the fee against the defaulting bank, as opposed to the fund, one factor that we have considered has been the quality of thе actions of the bank. Although the bank's actions are considerably below the standards required of a paid fiduciary, yet they fall far short of actions which would justify a fee award of 33 1/3% of the recovery, or even 20% to 25% of the recovery, which is more in line with most of the stockholders, securities, and civil rights cases that we have reviewed.
The bank itself has suggested in oral argument that if a reasonable fee were due, a reasonable amount should be $500,000.00 to $750,000.00 to $1,000,000.00. It is our opinion that a reasonable fee should be paid by the bank to the beneficiaries in this case as and for a portion of their attorneys' fees in the sum оf $1,000,000.00.
The fee of the guardian ad litem of $7,200.00, based on the 72 hours at $100.00 per hour is not excessive and will be affirmed.
Statute of Limitations Claim
We have reviewed the bank's argument concerning the statute of limitations as applied to those accounts that ceased more than one year before this litigation commenced, and we are of the opinion that the same was decided in Martin II, albeit perhaps not with the precision desired by counsel for the bank, and, therefore, that matter is res judicata and not a proper subject of this appeal.
For the reasons heretofore stated in this opinion, the order of this court is that thе judgment of the trial court as to attorneys' fees in the amount of $1,795,200.00, against the fund is hereby affirmed. The judgment of the trial court is reversed insofar as it failed to shift all or part of the litigation costs against the trustee bank and a judgment against the bank is hereby rendered in the amount of $1,000,000.00. The trial court is directed to enter an appropriate order.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED WITH DIRECTIONS.
*1246 JONES, SHORES, EMBRY and BEATTY, JJ., concur.
TORBERT, C.J., and MADDOX, J., dissent.
FAULKNER and ALMON, JJ., recused.
APPENDIX I
Fee Awards in Various Jurisdictions
Fees Awarded as
Case Recovery Fees Awarded Percentage of Recovery
Philadelphia Electric Co. v. $22,175,000 $5.5 million 25% of recovery, except
Anaconda American Brass Co., 15% of $1 million
47 F.R.D. 557 (E.D.Pa.1969) recovered by City of
New York
Illinois v. Harper & Row $3,213,287-1972 $475,000 14.4%-1972
Publishers, Inc., 55 F.R.D. 221 pre 1972 pre 1972 16.2%-pre 1972
(N.D.Ill.1972) $3,461,628 $662,000
Cannon v. Texas Gulf Sulphur, $2.7 million $585,000 21.7%
1973 Sec.L.Rep. (CCH) ¶ 94,110 plus interest
(S.D.N.Y.1973) of $100,000
Colson v. Hilton Hotels Corp., $5,176,386 $950,000 18.5%
1972 Trade Cas. (CCH) ¶ 74,785
[59 F.R.D. 324 ] (N.D.Ill.1972)
Powell ex rel. Gulf Life Holding $1,300,000 $262,000 20%
Company v. Fitts
CA 3-4004-A
(N.D.Tex.1971)
Fischer v. Wolfinbarger, 5911 $1,100,000 $350,000 31.8%
(W.D.Ky.1972) (approx)
Mintz v. Birmingham Trust $2,179,135 $435,827 20%
National Bank, CA 71-731 (N.D.
Ala. 1973)
Mintz v. First National Bank, $625,676 $130,535 20%
CA 71-732 (N.D.Ala.1973)
The Cast Iron Pipe Cases, CA $1,700,000 $327,079.16 20%
71-516 (N.D.Ala.1973)
Partain v. First National Bank $400,000 $100,000 25%
of Montgomery, CA 3419-N, 59
F.R.D. 56 (N.D.Ala.1973)
Griffin v. First National Bank $752,592 $185,425.55 24.63%
of Mobile, CA 6800-71-P (M.D.
Ala. 1973)
Steelroath v. American National $33,000 $81,306.72 24.6%
Bank & Trust Company, CA (approx)
6799-71-P (M.D.Ala.1973)
Detroit v. Grinell Corp., 1973-1 $10 million $1,500,000 15%
Trade Cas. (CCH) ¶ 74 -341 (S.D.
N.Y.1972)
*1247
The New Jersey Gasoline Cases $29,875,000 $6,111,000 30% of one class =
(D.N.J.1973) $1,760,000
25% of another class =
$918,000
$3,433,000 from third
class
Epstein v. Weiss, 1970-'71 Sec.L. $1 million $300,000 30%
Rep. (CCH) ¶ 92,938, 50 F.R.D.
387 (E.D.La.1970)
Rosenfeld v. Black, 1972-'73 Sec. $1 million $250,000 25%
L.Rep. (CCH) ¶ 93,635 (S.D.N.Y.
1972)
Stull v. Kaymarq Consolidated $440,000 $142,000 32.3%
Corp., 1969-'70 Sec.L.Rep. (CCH)
¶ 92-508 (S.D.N.Y. 1969)
Percentages are Larger
on Smaller Recoveries
Name of Case Citation Recovery % Fee Allowance
Blau v. Mission Corp. 64 Civ. 54 $70,000 49%
Levinson v. Charney 62 Civ. 800 $18,000 48%
(SDNY)
Adler v. Klawans 57 Civ. 391 $23,000 50%
(SDNY)
Blau v. Green Civ. No. 148-76 $45,000 40%
(SDNY)
TORBERT, Chief Justice (dissenting).
I respectfully dissent from that part of the opinion which directs the defendant bank to pay a substantial portion of the plaintiffs' attorney's fees. This decision is the assault on the traditional American rule that the majority recognizes has heretofore never been pursued by the courts of this nation.
Initially, I will address the contention that in Moss v. Winston,
A reading of the cases cited in support of the statement in Corpus Juris reveals that the fraud, willful negligence and malice language is really a reference to whether punitive damages were authorized. The courts would generally remark that plaintiff was only entitled to compensatory damages absent facts supporting an award of exemplary or punitive damages. The rationale of these cases seems to be that while attorney's fees are not recognized as part of compensatory damages, a jury might take into account plaintiff's attorney's fees when awarding punitivе damages otherwise properly assessable as part of the basis for establishing the amount of punitive damages. Therefore, I find Moss not to be precedent for the action taken by this Court in this case.
If Alabama has not recognized the supposed fraud, willful negligence, or malice exception to the American rule, the only other arguable basis for requiring the fee shifting is under the limited exception that exists in equity cases. I recognize that a court sitting in equity has broad powers to do justice in an individual case. First Alabama Bank of Montgomery v. Martin,
The authorities cited by the United States Supreme Court in Hall, supra, illustrate the type of equity cases in which attorney's fees are assessed against an opposing party. The complete statement from Moore's Federal Practice, cited in Hall, is as follows:
"The equitablе power is not confined to the fund cases. It is sufficiently broad that a federal district court may award attorney's fees in favor of one party and against another, where an unfounded action or defense is brought or maintained in bad faith, vexatiously, wantonly, or for oppressive reasons. But only in exceptional cases and for dominating reasons of justice can the exercise of the power by the district court be justified."
6 J. Moore, W. Taggart & J. Wicker, Moore's Federal Practice ¶ 54.77[2] (2d ed. 1983). The cases cited by the Supreme Court in Hall readily fall within this rule and can truly be described as exceptional.
In Newman v. Piggie Park Enterprises,
In Vaughan v. Atkinson,
In Bell v. School Board of Powhatan County, Virginia,
"Here we must take into account the long continued pattern of evasion and obstruction which included not only the defendants' unyielding refusal to take any initiative, thus casting a heavy burden on the children and their parents, but their interposing a variety of administrative obstacles to thwart the valid wishes of the plaintiffs for a desegregated education. To put it plainly, such tactics would in any other context be instantly recognized as discreditable. The equitable remedy would be far from complete, and justice would not be attained, if reasonable counsel fees were not awarded in a case so extreme."
Id. at 500.
In Rolax v. Atlantic Coast Line R. Co.,
"The justification here is that plaintiffs of small means have been subjected to discriminatory and oppressive conduct by a powerful labor organization which was required, as bargaining agent, to protect their interests. The vindication of their rights necessarily involves greater expense in the employment of counsel to institute and carry on extended and important litigation than the amount involved to the individual plaintiffs would justify their paying. In such situation, we think that the allowance of counsel fees in a reasonable amount as a part of the recoverable costs of the case is a matter resting in the sound discretion of the trial judge."
Id. at 481.
"In suits to enforce the rights of trust beneficiaries the court exercises discretion as to the allowance of counsel fees and costs out of the trust property or from other sources." G. Bogert, The Law of Trusts and Trustees, § 871 (2d ed. 1982). The trial court, exercising its discretion, apparently determined that the bank's conduct did not rise to the level of conduct described above and, therefore, that the award should not be made against the bank. The majority must have concluded that the court abused its discretion. I find no basis for reaching such a conclusion.
As the author of Martin II, I must point out that the opinion did not contain a finding that the bank acted in bad faith. Our affirmance was based in largе part on the deference accorded the trial court's decision under the ore tenus doctrine and upon our conclusion that the evidence supported the finding that the bank was imprudent in its investment decisions. The opinion implicitly reaches the issue of bad faith, when it discusses the issue of whether the plaintiffs were entitled to compound interest on the judgment. Compound interest is a remedy available where the trustee is guilty of evil or corrupt intent, but that is not the only situation which will support such an award, and the opinion goes on and points out that the award of compound interest can be sustained in another situation that existed in this case. Martin II,
We have upheld the trial court's award of attorney's fees out of the "common fund" rather than against the trustee where the trustee was found to have a conflict of interest and arguably was involved in self-dealing. Birmingham Trust National Bank v. Henley,
Finally, if the majority of this Court believes that under the facts of this case the defendant should be compelled to pay the plaintiffs' attorney's fee, they should recognize that they are making new law rather than applying current law.
MADDOX, J., concurs.
NOTES
[1] First Alabama Bank of Montgomery, N.A. v. Martin, et al.,
Notes
[2] Speiser, Attorney's Fees, § 12:7 (1973).
[3] McLaughlin, The Recovery of Attornеy's Fees: A New Method of Financing Legal Services, 40 Fordham L.Rev. 761, 782 (1972).
[4] See Goodhart, Costs, 38 Yale L.J. 849 (1929).
[5] The Supreme Court's footnote 45 in Alyeska Pipeline Service v. Wilderness Society,
[6] We have always awarded attorney's fees in divorce and malicious prosecution cases without the benefit of statute.
[7] See, also Hensley v. Eckerhart,
[8] See Hornstein, The Counsel Fee in Stockholder's Derivative Suits, 39 Colum.L.Rev. 784 (1939); Kaufman, Counsel Fees in Stockholder's Suits and Securities Class Actions, Resource Materials for Security Litigation, (3d ed. 1979), published by the Ameriсan Law Institute-American Bar Association Committee on Continued Legal Education.
[1] It should also be recognized that while Hall sets out the "bad faith" exceptions which justify an award of attorney fees against an opponent in equity cases, the Court held that the award in Hall was justified under the authority of Mills v. Electric Auto Lite Co.,