No. 03-504
IN THE SUPREME COURT OF THE STATE OF MONTANA
2004 MT 236
JEREMY RUHD,
Petitioner and Respondent,
v.
LIBERTY NORTHWEST INSURANCE CORPORATION,
and RICHARD BARBER d/b/a BARBER HOMES,
Respondents and Respondents,
v.
FISCH, FROST, RAUSCH,
Intervenors and Appellants.
APPEAL FROM: Workers’ Compensation Court, State of Montana,
The Honorable Mike McCarter, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Monte D. Beck (argued), Beck, Richardson & Amsden, PLLC, Bozeman,
Montana (Fisch)
Stephen D. Roberts, Attorney at Law, Bozeman, Montana (Frost)
Lon J. Dale (argued), Milodragovich, Dale, Steinbrenner & Binney, P.C.,
Missoula, Montana (Rausch)
For Respondent Ruhd:
Geoffrey C. Angel (argued), Angel Law Firm, Bozeman, Montana
For Amicus Curiae Montana State Fund:
Bradley J. Luck, Thomas J. Harrington, Garlington, Lohn & Robinson, PLLP,
Missoula, Montana
Argued: March 24, 2004
Submitted: April 27, 2004
Decided: August 31, 2004
Filed:
__________________________________________
Clerk
Justice John Warner delivered the Opinion of the Court.
¶1 Appellants/Intervenors, Fisch, Frost, and Rausch, and their respective counsel, Mr.
Monte Beck, Mr. Stephen Roberts, and Mr. Lon Dale, appeal a decision of the Workers’
Compensation Court (WCC) that the attorneys’ fees common fund created via the litigation
entitled Rausch v. State Compensation Insurance Fund, 2002 MT 203, 311 Mont. 210, 54
P.3d 25, was limited solely to claimants insured by the State Fund. The Workers’
Compensation Court bifurcated the issue of common fund attorneys’ fees from the other
issues in the case and certified it for appeal.
¶2 We state the issues on appeal as follows:
¶3 Did the Workers’ Compensation Court err in determining that Intervenors’ counsel
are not entitled to common fund attorneys’ fees with respect to impairment awards payable
by insurers other than the State Fund.
¶4 Did the Workers’ Compensation Court err in determining that Ruhd’s attorney is
entitled to common fund attorneys’ fees with respect to all relevant impairment awards
payable by Liberty Northwest Insurance Corporation.
¶5 Reversed and remanded.
FACTUAL AND PROCEDURAL BACKGROUND
¶6 The history of this case is intertwined with that of Rausch v. State Compensation
Insurance Fund, 2002 MT 203, 311 Mont. 210, 54 P.3d 25.1 In 1999 and 2000, Rausch,
1
The Rausch decision encompasses three companion cases: Rausch v. State
Compensation Insurance Fund, WCC No. 9907-8274; Fisch v. State Compensation
Insurance Fund, WCC No. 2000-0023; Frost v. State Compensation Insurance Fund,
WCC No. 2000-0030.
2
Fisch, and Frost filed petitions in the WCC on behalf of themselves and all similarly situated
workers, to determine whether permanently totally disabled workers were entitled to
impairment awards upon establishment of their impairment ratings or if they had to wait until
retirement age. In late 2000 and early 2001, the WCC determined that permanently totally
disabled workers’ compensation claimants were not entitled to impairment awards at all.
The plaintiffs appealed.
¶7 In January 2002, while the Rausch appeal was pending in this Court, Ruhd filed a
petition in the WCC seeking essentially the same relief as that sought in Rausch with the
exception that Liberty Northwest Insurance Corporation was the defendant insurer. In June
2002, Ruhd amended his petition to join similarly situated claimants and for common fund
attorneys’ fees. In August 2002, the WCC entered judgment against Ruhd relying on its
prior decision in Rausch. Ruhd appealed.
¶8 On September 5, 2002, this Court decided Rausch v. State Compensation Insurance
Fund, 2002 MT 203, 311 Mont. 210, 54 P.3d 25. The decision reversed the WCC and held
that permanently totally disabled workers are entitled to impairment awards immediately
upon receipt of their impairment ratings. The decision also held that the Rausch attorneys
were entitled to common fund fees from the State Fund. The decision, however, did not
specifically reach the question of whether the common fund included only claimants ensured
by the State Fund or whether the common fund included all permanently totally disabled
claimants irrespective of their insurer.
¶9 Immediately following the Rausch decision, Liberty acknowledged that the decision
was binding upon it and agreed to pay Ruhd an impairment award under the same terms and
3
conditions as set forth in Rausch. On December 10, 2002, this Court decided Ruhd v.
Liberty Northwest Insurance Corp., 2002 MT 290N, affirming Liberty’s agreement to pay
Ruhd pursuant to the holding in Rausch, and remanding the issues of class certification and
common fund attorneys’ fees to the WCC.
¶10 On remand the WCC joined the Rausch attorneys as Intervenors on the issue of
whether they were entitled to common fund attorneys’ fees from all permanently totally
disabled impairment claimants regardless of insurer. The court concluded that the Rausch
attorneys were not entitled to common fund fees from any claimants other than State Fund
claimants. The WCC ordered that Ruhd’s attorney, Geoffrey Angel, was entitled to common
fund attorneys’ fees from all Liberty claimants. The court denied class certification but
retained jurisdiction to oversee payment of impairment awards by Liberty, and to determine
the appropriate common fund fee awards.
STANDARD OF REVIEW
¶11 The parties dispute the appropriate standard of review to be applied to this case. Ruhd
asserts that the WCC made a discretionary ruling that Ruhd’s counsel was entitled to
common fund attorneys’ fees from the Liberty claimants. Further, Ruhd contends that while
the WCC could have extended the common fund doctrine to all workers’ compensation
insurers in Montana, it exercised its discretion in only extending the doctrine to the State
Fund in Rausch and Liberty in Ruhd.
¶12 The Intervenors assert that the WCC decision constitutes an incorrect conclusion of
law in determining that the Rausch common fund did not include claimants covered by
insurers other than the State Fund.
4
¶13 We hold the decision by the WCC was a conclusion of law. The issue is not whether
the WCC abused its discretion in awarding fees, but rather what would be the source of the
fees once awarded. This Court undertakes plenary review of the WCC’s conclusions of law
to determine whether the WCC was correct. Murer v. State Compensation Mutual Insurance
Fund (1997), 283 Mont. 210, 217, 942 P.2d 69, 73.
DISCUSSION
Issue One
¶14 Did the Workers’ Compensation Court err in determining that Intervenors’ counsel
are not entitled to common fund attorneys’ fees with respect to impairment awards payable
by insurers other than the State Fund.
¶15 When a party, through active litigation, creates, reserves, preserves, or increases a
fund which directly benefits an ascertainable class of non-participating beneficiaries, the
common fund doctrine provides that non-participating beneficiaries sharing in the proceeds
of the fund must bear a portion of the litigation costs including reasonable attorneys’ fees.
Rausch, ¶ 46-47.
¶16 There are three elements necessary to establish a common fund. First, a party, styled
the active beneficiary, must create, reserve, preserve, or increase an identifiable monetary
fund or benefit in which all active and non-participating beneficiaries have an interest.
Second, the active beneficiary must incur legal fees in establishing the common fund. Third,
the common fund must benefit ascertainable, non-participating beneficiaries. Mountain West
Farm Bureau Mutual Ins. Co. v. Hall, 2001 MT 314, ¶¶ 15-18, 308 Mont. 29, ¶¶ 15-18, 38
P.3d 825, ¶¶ 15-18.
5
¶17 The parties to this appeal seize on specific phraseology utilized in our decision in
Rausch to make their arguments. Ruhd and the WCC focused on the following language:
The attorneys incurred legal costs and fees in the preservation of that right, and
the common fund will benefit an ascertainable class of workers who were
denied immediate payment of an impairment award by the State Fund . . . .
Rausch, ¶ 48, (emphasis added).
Ruhd and the WCC argue that this Court utilized the emphasized language in order to limit
the common fund created in Rausch solely to claimants insured by the State Fund.
¶18 On the contrary, Intervenors argue that this Court’s statement that “[t]he attorneys
representing Rausch, Fisch, and Frost all engaged in active litigation which preserved the
benefit of immediate impairment awards to permanently totally disabled claimants” is more
telling. Rausch, ¶ 48, (emphasis added). Intervenors contend that this language, coupled
with the broadly inclusive tenor of Rausch when read in its entirety, constitutes a conclusion
that Intervenors recover common fund fees from all permanently totally disabled claimants
irrespective of insurer.
¶19 In Rausch, we had before us only claimants insured by the State Fund. However,
there is no question that the Intervenors, via active litigation, are directly responsible for
securing the right of all permanently totally disabled claimants to receive an impairment
award, regardless of their insurer. While it is true that in Rausch the State Fund was the
named defendant, and therefore our focus, this was because the issue, whether carriers other
than the State Fund should be included in the common fund application, was not specifically
raised.
¶20 The three elements necessary for establishment of a common fund have been met by
6
the Intervenors. There is no question that elements two and three are satisfied. Intervenors
have incurred fees pursuing litigation, and all permanently totally disabled claimants
constitute an ascertainable class.
¶21 Primarily disputed is element one; whether Intervenors created a benefit for all
beneficiaries or merely State Fund beneficiaries. Prior to our decision in Rausch, the State
Fund, Liberty, and perhaps other workers’ compensation insurers, contested either the
availability of impairment awards to permanently totally disabled claimants, or contested the
timing of those payments. Intervenors efforts in the Rausch litigation resolved both
questions in favor of claimants.
¶22 In spite of this, Ruhd argues that the WCC correctly awarded Mr. Angel common
fund fees with respect to Liberty claimants because Mr. Angel pressed forward with the
claim against Liberty and established Liberty’s liability in spite of his awareness of an
adverse holding in the WCC on similar issues presented in Rausch. As soon as we decided
Rausch, however, liability for immediate payment of impairment awards was established
against all insurers. Acknowledging this, Liberty capitulated and agreed to pay Ruhd as
required by Rausch. In disposing of Ruhd’s appeal, we stated,
Ruhd and Liberty agree that Ruhd’s claim to an impairment award under the
1999 version of the Act has been resolved by the Court’s decision in Rausch
. . . . Liberty indicates that it will pay Ruhd the benefits to which he is entitled
. . . . Ruhd does not contest this assertion.
Ruhd, ¶ 12. The Rausch decision disposed of the questions presented by Ruhd. There was
nothing further for Mr. Angel to do, and his efforts did not assist the Intervenors in any way
in establishing new legal authority or in creating a common fund.
7
¶23 Additionally, Ruhd relies heavily on the fact that the WCC assigned significant
weight to the work Mr. Angel would have to do prospectively in enforcing the Liberty
claims. He argues that merely establishing new precedent is not key, rather, the laborious
process of enforcing payment is paramount. The common fund doctrine requires creation,
increase, reservation, or preservation of a common fund. Enforcement in a specific case is
not a necessary element of the common fund doctrine. If enforcement of Rausch is unduly
complicated or difficult in a specific case, it is possible for the WCC to consider further fees.
¶24 A conclusion contrary to what is held here could easily spawn unnecessary litigation.
Acknowledging, as the parties posit, that there are 600 licensed insurers that could be
implicated, it appears from the record that there are only 165 permanently totally disabled
claimants covered by 48 active insurers in the state of Montana. Holding that Intervenors
are only entitled to common fund fees from State Fund claimants, and that Mr. Angel is
entitled to common fund fees from Liberty claimants, could inspire at least one claimant
covered by each of the other 46 insurers to file a suit which could lead nowhere but to where
we are right now. The law established by Rausch will not be changed by further suits.
Redundant litigation, which could lead to disparate fee awards, and thus disparate recovery,
should not be encouraged.
¶25 We hold that the common fund for attorneys’ fees created by Rausch includes fees
culled from all claimants regardless of insurer. The Workers’ Compensation Court is
reversed on this issue. The Workers’ Compensation Court shall supervise enforcement of
the common fund pursuant to Rausch, and all court-approved agreements stemming from it,
from all insurers involved.
8
Issue Two
¶26 Did the Workers’ Compensation Court err in determining that Ruhd’s attorney is
entitled to common fund attorneys’ fees with respect to all relevant impairment awards
payable by Liberty Northwest Insurance Corporation.
¶27 Resolution of issue one forecloses Ruhd’s counsel’s claim for common fund
attorney’s fees with respect to all Liberty claimants. However, this does not foreclose
counsel’s claim to fees for work done in Ruhd’s case.
¶28 The common fund doctrine was created to prevent unjust enrichment of claimants who
receive the benefit of a successful lawsuit but who did not participate in the suit. Subsumed
within this broad purpose is a narrower purpose which is designed to prevent unjust
enrichment of fee-seeking attorneys who join a suit on behalf of a beneficiary, but who add
no value to the suit. This problem has been denominated “free-riding” and “coattailing” by
various courts. See duPont v. Shackelford (Va. 1988), 369 S.E. 2d 673, 677; Hobson v. First
State Bank (Tenn.App.1990), 801 S.W.2d 807, 810.
¶29 We addressed this problem to some extent in Means v. The Montana Power Company
(1981), 191 Mont. 395, 404, 625 P.2d 32, 37, stating that non-participating beneficiaries
should bear litigation costs under the common fund doctrine, and that a non-participating
beneficiary is one who fails to retain counsel or whose counsel “fails, in any degree, to
participate in any labors leading to the creation of the fund.” Based on this definition, Means
further held that where more than one active beneficiary retained counsel, but counsel for
one did the bulk of the work while the other did relatively little, counsel who did the lion’s
share of the work would still be entitled to common fund fees from the less active party.
9
Means, 191 Mont. at 404, 625 P.2d at 37. This situation presumes, however, that both
attorneys are representing parties to the same litigation.
¶30 Factually, Means does not precisely mimic the situation currently before us, but does
provide a useful analogy. Ruhd’s counsel, while ably advocating on Ruhd’s behalf, did not
assist in any way in the creation of the common fund at issue. Intervenors filed a suit on
behalf of their individual clients and all others similarly situated. Ruhd was a similarly
situated beneficiary and was entitled to retain his own counsel. The Travelers Insurance Co.
v. Williams (Tenn. 1976), 541 S.W.2d 587, 590. However, rather than joining the suit filed
by Intervenors, as is typically the case, Ruhd filed a separate suit making the same statutory
claims against a different defendant. Ultimately, via successful prosecution of the Rausch
litigation, Intervenors were solely responsible for creation of the common fund. In seeking
common fund fees for work that did not contribute to creation of the Rausch common fund,
Ruhd’s counsel asks too much.
¶31 To resolve this problem, we believe reversion to the general American rule, that
counsel must look only to his own client for remuneration, is appropriate. Mountain West,
¶ 13. The decision of the WCC that Ruhd’s counsel is entitled to common fund fees from
all relevant claimants insured by Liberty is reversed. Intervenors have advised they will seek
no common fund fees from Ruhd. Ruhd’s counsel’s claim for fees is limited to the terms of
his contract with Ruhd. See also Vincent v. Hughes Air West, Inc. (9th Cir. 1977), 557 F.2d
759, 772 (the vesting of certain attorneys with a recognized representative status in a
common fund case limited reimbursement for the other attorneys to the terms of their
individual contracts with their clients).
10
¶32 Determination of the appropriate fee award due Mr. Angel is remanded to the WCC.
¶33 Reversed and remanded to the Workers’ Compensation Court for proceedings in
conformity with this Opinion.
/S/ JOHN WARNER
We Concur:
/S/ KARLA M. GRAY
/S/ PATRICIA O. COTTER
/S/ JIM REGNIER
/S/ W. WILLIAM LEAPHART
/S/ JAMES C. NELSON
/S/ JIM RICE
11