ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEES
Karen M. Freeman-Wilson Thomas M. Atherton
Attorney General of Indiana Katz and Korin
Indianapolis, Indiana
Jon Laramore
Deputy Attorney General James K. Gilday
Indianapolis, Indiana Wood, Tuohy, Gleason, Mercer &
Herrin
Indianapolis, Indiana
Kenneth J. Falk
Indiana Civil Liberties Union
Indianapolis, Indiana
Richard A. Waples
Waples and Hanger
Indianapolis, Indiana
Peter H. Donahoe
Hill, Fulwider, McDowell, Funk &
Matthews,
P.C.
Indianapolis, Indiana
IN THE
SUPREME COURT OF INDIANA
STATE BOARD OF TAX COMMISSIONERS, )
)
Appellant (Respondent Below), )
)
v. ) No. 49S10-0009-TA-541
)
TOWN OF ST. JOHN, et al., )
)
Appellees (Petitioners Below).)
ON REVIEW FROM THE INDIANA TAX COURT
The Honorable Thomas J. Fisher, Judge
Cause No. 49T10-9309-TA-70
July 18, 2001
SHEPARD, Chief Justice.
We return to the ongoing case in which taxpayers proved Indiana’s real
property assessment scheme unconstitutional. They now ask us to adopt and
apply a common law exception to the American rule and award them their
legal fees as private attorneys general. We decline.
Facts & Procedural History
In 1993, the Town of St. John and various taxpayers (“Taxpayers”)
challenged Indiana’s real property assessment procedure, asserting that it
did not provide “a uniform and equal rate of property assessment and
taxation . . . . ” Ind. Const. art. X, § 1(a); Town of St. John v. State
Bd. of Tax Comm’rs, 665 N.E.2d 965 (Ind. Tax 1996). Seven reported
decisions later (two in this Court[1] and five in the Indiana Tax
Court[2]), the Tax Court ordered the State Board of Tax Commissioners “to
adopt new, constitutional regulations . . . .” Town of St. John v. State
Bd. of Tax Comm’rs, 729 N.E.2d 242, 251 (Ind. Tax 2000). That mandate is
still pending.
Having prevailed on the merits, Taxpayers asked for an award of
attorney fees under a private attorney general theory. Town of St. John v.
State Bd. of Tax Comm’rs, 730 N.E.2d 240, 242 (Ind. Tax 2000). The Tax
Court granted the request and ordered the Taxpayers to submit their
proposed award. Id. at 265. The State Board sought review in this Court,
and the Tax Court stayed the deadline for submission of Taxpayers’ claim.
Town of St. John v. State Bd. of Tax Comm’rs, No. 49T10-9309-TA-70 (Ind.
Tax July 12, 2000) (order granting motion to extend time to file proposed
fees).
I. The Private Attorney General Doctrine: An Overview
As a prelude to analyzing Indiana law, we note that there are two
basic attorney fee schemes: the English rule (“loser pays”) and the
American rule (“every man for himself”). W. Kent Davis, The International
View of Attorney Fees in Civil Suits: Why Is the United States the “Odd
Man Out” in How It Pays Its Lawyers?, 16 Ariz. J. Int’l & Comp. L. 361,
399, 403 (1999). Both schemes are grounded in statute. Id. at 400, 404.
Some view the English rule as more fair, arguing that a legal victory
is not complete if one is out of pocket for attorney fees. Id. at 405.
Proponents of the American rule respond:
[S]ince litigation is at best uncertain one should not be penalized
for merely defending or prosecuting a lawsuit, and [] the poor might
be unjustly discouraged from instituting actions to vindicate their
rights if the penalty for losing included the fees of their opponents’
counsel. Also, the time, expense, and difficulties of proof inherent
in litigating the question of what constitutes reasonable attorney’s
fees would pose substantial burdens for judicial administration.
Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718 (1967)
(citations omitted).
Courts in various American jurisdictions have sought a middle ground
by using their inherent equitable powers to carve out exceptions to the
American rule. See Saint Joseph’s Coll. v. Morrison, Inc., 158 Ind. App.
272, 279, 302 N.E.2d 865, 870 (1973). The most common exceptions are:
1) The “obdurate behavior” exception, in which courts impose costs
upon defendants as a punishment for bringing frivolous actions
or otherwise acting in bad faith. Andrew W. Hull, Attorney’s
Fees for Frivolous, Unreasonable or Groundless Litigation, 20
Ind. L. Rev. 151, 152-53 (1987).
2) The “common fund” exception, in which an award benefits members
of an ascertainable class, and the court reimburses the
prevailing litigant’s attorney fees out of that pool of money to
prevent the unjust enrichment of free riders. Id. at n.11.[3]
3) The “private attorney general” exception, where courts award
fees to litigants who bring actions to protect important social
policies or rights. Id.
Judge Jerome Frank coined the phrase “private attorney general” in
1943, to describe a private person acting to “vindicate the public
interest.” Associated Indus. v. Ickes, 134 F.2d 694, 704 (2d Cir. 1943).
In 1975, the U.S. Supreme Court resolved a federal circuit split by
declining to reallocate by judicial decree the burdens of federal
litigation under the private attorney general doctrine. Alyeska Pipeline
Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247, 270 n.46 (1975). The
Court expressed concern that without statutory authorization, authority to
make fee awards would leave courts free to “pick and choose among
plaintiffs and the statutes under which they sue and to award fees in some
cases but not in others, depending upon the courts’ assessment of the
importance of the public policies involved in particular cases.” Id. at
269. The Court recently reaffirmed its commitment to the American rule,
citing Alyeska, in Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of
Health & Human Res., 121 S.Ct. 1835, 1839 (Rehnquist, C.J., for majority),
1856 (Ginsburg, J., dissenting) (2001).
II. What Indiana Courts Have Said
Supreme Court. In 1944 (around the time the private attorney general
doctrine was born), this Court implicitly acknowledged its common-law
authority to create exceptions to the American rule, and stated Indiana’s
baseline fee rule. Said Justice Shake, “The right to recover attorneys’
fees from one’s opponent does not exist in the absence of a statute or some
agreement, though a court of equity may, under some circumstances, allow
attorneys’ fees to be paid out of a fund brought under its control.” Gavin
v. Miller, 222 Ind. 459, 465, 54 N.E.2d 277, 280 (1944) (citations
omitted)(estate administration case). See also Trotcky v. Van Sickle, 227
Ind. 441, 85 N.E.2d 638 (1949)(denying fees in a nuisance case). In City
of Hammond v. Darlington, 241 Ind. 536, 542, 162 N.E.2d 619, 621 (1959), we
applied this “common fund” concept flexibly to award fees to an attorney
whose lawsuit prevented the City from paying judgments totaling $950,000.
In Kikkert v. Krumm, 474 N.E.2d 503, 505 (Ind. 1985), we discussed the
obdurate behavior exception to the American rule, but found it inapplicable
under the facts presented. The following year, the Indiana legislature
codified this exception in what is now Ind. Code Ann. § 34-52-1-1 (West
2001). The “General Recovery Rule” allows prevailing parties to recover
attorney fees if the court finds the other party brought or pursued a
frivolous, unreasonable or groundless claim or defense, or acted in bad
faith. Id. at § 34-52-1-1(b).
Court of Appeals. In a number of cases, our Court of Appeals has
referred to the three American rule exceptions listed above, in order to
provide context for a case holding.[4] In City of Marion v. Antrobus, 448
N.E.2d 325, 332 (Ind. Ct. App. 1983), the court went so far as to say that
Indiana recognized all three exceptions. See also City of E. Chicago v.
Broomes, 468 N.E.2d 231, 234 (Ind. Ct. App. 1984); Dotlich v. Dotlich, 475
N.E.2d 331, 347 (Ind. Ct. App. 1985).
In Downing v. City of Columbus, 505 N.E.2d 841, 845 (Ind. Ct. App.
1987), however, the court correctly observed that the private attorney
general exception had been discussed only in dicta, and never applied in
Indiana to award a prevailing party its fees. More recently, in Morgan
County v. Ferguson, 712 N.E.2d 1038, 1044 (Ind. Ct. App. 1999), the court
reversed an award of attorney fees to a plaintiff who had purchased a tax
deed that the county issued in error, stating that the private attorney
general exception only applies if supported by statutory authority. Id.[5]
III. Other Jurisdictions Have Mixed Views
States Adopting the Exception. A number of state high courts have
adopted the private attorney general exception.[6] One widely-cited case
is Serrano v. Priest, 569 P.2d 1303 (Cal. 1977), in which the California
Supreme Court recognized the exception because:
In the complex society in which we live it frequently occurs that
citizens in great numbers and across a broad spectrum have interests
in common. These, while of enormous significance to the society as a
whole, do not involve the fortunes of a single individual to the
extent necessary to encourage their private vindication in the courts.
Although there are within the executive branch of the government
offices and institutions (exemplified by the Attorney General) whose
function it is to represent the general public in such matters and to
ensure proper enforcement, for various reasons the burden of
enforcement is not always adequately carried by those offices and
institutions, rendering some sort of private action imperative.
Because the issues involved in such litigation are often extremely
complex and their presentation time-consuming and costly, the
availability of representation of such public interests by private
attorneys acting pro bono publico is limited.
Id. at 1313.[7]
New Hampshire was among the most recent to adopt the private attorney
general doctrine, in Claremont School District v. Governor, 761 A.2d 389
(N.H. 1999)(fees sought following declaratory judgment that the state
public education funding system was unconstitutional). The New Hampshire
Supreme Court observed that “proportional and reasonable taxation is one of
the core constitutional foundations of this State” and held that “[t]he
public interest in preserving constitutional rights against governmental
infringement is paramount. Only private citizens can be expected to ‘guard
the guardians.’ Because the benefits of this litigation flow to all
members of the public, the plaintiffs should not have to bear the entire
cost of this litigation.” Id. at 393-94.
States Rejecting the Exception. Likewise, a number of states have
rejected the private attorney general doctrine.[8] Chief Justice Minzner
of the New Mexico Supreme Court expressed these concerns:
Unbridled judicial authority to “pick and choose” which plaintiffs and
causes of action merit an award of attorney fees under the private
attorney general doctrine would not promote equal access to the courts
for the resolution of good faith disputes inasmuch as it lacks
sufficient guidelines to prevent courts from treating similarly
situated parties differently and could easily result in decisions that
favor a particular class of private litigants while unduly
discouraging the government from mounting a good faith defense. Such
authority also would not promote the goal of conserving judicial
resources inasmuch as it calls for the courts to engage in a fact-
specific reexamination of the merits of a case to determine the
significance and scope of the rights that have been protected.
N.M. Right to Choose v. Johnson, 986 P.2d 450, 459 (N.M. 1999) (citations
omitted).
IV. No Proven Need for This Two-Edged Sword
Our Statutory Scheme. Indiana has scores of statutes that provide
some form of fee shifting. Several of those statutes allow private
citizens to bring suit to redress wrongs that involve the public interest,
and to recover attorney fees if they prevail. For example, Indiana’s
housing discrimination statute recognizes a private right of action and
allows recovery of attorney’s fees. Ind. Code Ann. § 22-9.5-7-2 (West
2001). A prevailing plaintiff in a historic preservation action may also
recover attorney fees. Ind. Code Ann. § 36-7-11-21 (West 2001). Indiana’s
Open Door Law, Ind. Code Ann. § 5-14-1.5-7 (West 2001), and Access to
Public Records statute, Ind. Code Ann. § 5-14-3-9 (West 2001), both allow
attorney fees but only if the plaintiff follows certain specific procedural
prerequisites before filing suit.
In 1986, our legislature added a general statute governing fee-
shifting in actions involving the State, to supplement the various statutes
providing for fee-shifting in particular areas of law. Under what is now
Ind. Code Ann. § 34-52-2-2, 3 (West 2001), small businesses and not-for-
profit organizations may recover limited attorney fees against state
agencies that have acted unreasonably. The statute lists the types of
proceedings for which fees are available, and some for which fees are not
available. Id. at § 34-52-2-1.
It is apparent that the General Assembly knows how to create statutory
exceptions to the American rule, and that it has been willing to do so when
it deems appropriate. Taking into account the plethora of statutory
provisions already on the books, we are not persuaded that the judiciary
needs to adopt a sweeping common-law exception to the American rule for all
public interest litigation.
A Slippery Slope. Moreover, we could easily create more problems than
we would solve by adopting the private attorney general doctrine. The Tax
Court applied a commonly used three-factor analysis that considers (1) the
societal importance of the vindicated right; (2) the necessity for private
enforcement and the accompanying burden; and (3) the number of people
benefiting from the decision. Town of St. John, 730 N.E.2d at 256 (citing
Serrano, 569 P.2d at 1314). A review of these factors suggests the swamp
we might enter by awarding fees in this case.
To begin, societal importance is in the eye of the beholder. The
subjectivity involved in ranking various public interests could make it
difficult for prospective litigants to know in advance whether fee
reimbursement would accompany a victory. Given this uncertainty, it is far
from clear that the doctrine would serve as a significant incentive to
those seeking to vindicate the public interest.
On the other hand, a broadly-applied American rule exception could
create a contrary risk. Fee-shifting could significantly alter the
dynamics of public interest litigation in Indiana by attracting “bounty
hunters” to the arena. See Bryant Garth, Ilene H. Nagel & S. Jay Plager,
The Institution of the Private Attorney General: Perspectives From an
Empirical Study of Class Action Litigation, 61 S. Cal. L. Rev. 353, 354
(1988). We do not question the motives of the attorneys in this case, but
a decision for the Taxpayers could easily produce a host of unintended
consequences in future cases.
The Taxpayers address this concern in part by asking for a relatively
narrow holding, limited to the context of constitutional claims. This
approach assumes, however, that each and every constitutional provision
represents a higher social priority than any statutory provision.
In fact, because statutory law is far more easily updated than
constitutional law, in many areas it more accurately reflects current
social priorities. For example, Indiana statutes cover human services,
including health care; family and juvenile issues, including child custody
rights; and environmental protection. See Ind. Code Ann. Titles 12, 13,
31. All are areas of undeniable importance that are not specifically
addressed in our constitution. It does not belittle the rights embodied in
the Indiana Constitution to say that we cannot presume that constitutional
mention automatically equates to degree of current social importance.[9]
The second factor in the Tax Court’s test would call upon courts to
decide whether private enforcement is necessary in any given action, and
how great is the burden of the private action. We accept that private
enforcement was necessary to effectuate change in this case, but many
questions remain about the burden on the Taxpayers.
Among these questions is upon whom the burden falls. While the
Taxpayers have yet to quantify their fee request, they do not deny that
they are not actually liable to pay any attorney fees. (See Appellant’s
Br. at 29.) We then face the question whether the only relevant burden is
on the party itself, or whether we should also consider the burden on a
prevailing party’s attorneys.
The question of burden reflects, of course, on what might be a
reasonable fee. This can be a complicated and time-consuming determination
in any case, and a private attorney general claim would present some
special difficulties. For example, should the maximum hourly rate in
Indiana Code § 34-52-2-2, which governs fees in actions involving the
State, apply? Once a litigant crosses the “sufficient burden” threshold,
should that party be eligible for one hundred percent fee reimbursement, or
limited to the portion representing the excessive burden? If some
prevailing parties in a particular action are well-funded and others are
not, may all claim fees?
The third prong of the Tax Court’s test is perhaps most problematic of
all: did a significant number of Indiana citizens benefit from this
decision? The Taxpayers argue that a more transparent and constitutionally
sound real property taxation scheme is a benefit to all. The Tax Court
agreed, saying, “[A]ll Indiana citizens, either directly or indirectly,
stand to benefit from this litigation’s outcome” because they will be
treated more equally and fairly. Town of St. John, 730 N.E.2d at 259.
If challenging unconstitutional or ultra vires action is a good in and
of itself, however, this factor becomes mere surplusage. Here, many
residential taxpayers will shoulder a greater share of the property tax
burden when the Tax Court order is implemented, absent legislative
intervention. State Bd. of Tax Comm’rs, The Projected Fiscal Impact of the
2001 Reassessment 6, Table 1 (1999). These folks might well regard a
taxpayer-funded fee award as adding insult to injury, rather than as
rewarding a deserving benefactor.
The three-factor test is not the only source of difficulties. Under
the Tax Court formulation, fees would be available to those who “vindicate”
important constitutional principles. Town of St. John, 730 N.E.2d at 256.
What exactly must a party accomplish to claim that a “vindication” has
occurred?
The Taxpayers here won their lawsuit, so presumably they would
qualify.[10] Suppose, however, that the State Board had decided that
change was inevitable and rendered the case moot after several years of
litigation by revising its methods to conform to the Taxpayers’ demands.
The policy argument for granting attorney fees to the Taxpayers would be
just as strong. See, e.g., Suter v. City of Lafayette, 67 Cal. Rptr. 2d
420 (Cal. App. 1997)(in California, a litigant need only be “a catalyst
speeding the defendant to act” to qualify for a fee award). A fee award
could, however, discourage government officials from settling meritorious
claims or responding to them by revising objectionable practices. See
Buckhannon Bd. & Care Home, 121 S.Ct. at 1838-39, 1842-43 (acknowledging
the policy argument, then rejecting the “catalyst theory” recognized by
most federal circuits based upon the plain statutory meaning of “prevailing
party”). It could also encourage those seeking governmental action to
prefer going to court over pursuing non-litigious alternatives.
The questions do not end there. The U.S. Supreme Court, in Alyeska,
pointed out three more: Should defendants as well as plaintiffs be
eligible for fee awards? Should awards be mandatory, or discretionary?
Should the presumption be for or against a fee award? 421 U.S. 240, 264.
The Bottom Line. Indiana’s courts regularly tackle tough issues, as
we have in this very case. At the end of the day we are not convinced,
however, of either the need for or the wisdom of adopting the private
attorney general doctrine.
Conclusion
We therefore reverse the decision of the Tax Court and direct that it
deny the petition for fees.
Dickson, Sullivan and Rucker, JJ., concur.
Boehm, J., not participating.
-----------------------
[1] State Bd. of Tax Comm’rs v. Town of St. John, 702 N.E.2d 1034 (Ind.
1998); Boehm v. Town of St. John, 675 N.E.2d 318 (Ind. 1996).
[2] Town of St. John v. State Bd. of Tax Comm’rs, 729 N.E.2d 242 (Ind. Tax
2000); 698 N.E.2d 399 (Ind. Tax 1998); 691 N.E.2d 1387 (Ind. Tax 1998); 690
N.E.2d 370 (Ind. Tax 1997); 665 N.E.2d 965 (Ind. Tax 1996).
[3] One variant on this exception is the “substantial benefit” doctrine,
where the prevailing party attains a significant benefit for an
ascertainable class of similarly situated individuals, although no fund of
money is created. See Cmty. Care Ctrs, Inc. v. Indiana Family and Soc.
Servs. Admin., 716 N.E.2d 519, 543 (Ind. Ct. App. 1999).
Terminology varies among jurisdictions. The phrase “substantial
benefit” has been used by some courts to describe what we call the private
attorney general doctrine. See Claremont Sch. Dist. v. Governor, 761 A.2d
389, 392-93 (N.H. 1999) (adopting a “substantial benefit doctrine” that
mirrors what we call the private attorney general doctrine); see also
Arnold v. Ariz. Dep’t of Health Servs., 775 P.2d 521, 536-37 (Ariz.
1989)(treating “private attorney general doctrine” and “substantial
benefits doctrine” as interchangeable terms).
[4] See, e.g., Saint Joseph’s Coll., 158 Ind. App. at 279-80, 302 N.E.2d
at 870; City of Indianapolis v. Cent. R.R. Co. of Indianapolis, 175 Ind.
App. 120, 125, 369 N.E.2d 1109, 1113 (1977); Umbreit v. Chester B. Stem,
Inc., 176 Ind. App. 53, 57, 373 N.E.2d 1116, 1119 (1978); Cox v. Ubik, 424
N.E.2d 127, 129 (Ind. Ct. App. 1981); Greensburg Local #761 Printing
Specialties v. Robbins, 549 N.E.2d 79, 80 (Ind. Ct. App. 1990); Estate of
Kroslack v. Kroslack, 570 N.E.2d 117, 120 (Ind. Ct. App. 1991); Wernke v.
Halas, 600 N.E.2d 117, 123 (Ind. Ct. App. 1992).
[5] The Tax Court characterized this conclusion as “illogical” because “the
private attorney general exception necessarily comes into play only when no
statute authorizing an award of attorneys’ fees applies to the facts before
the court.” Town of St. John v. State Bd. of Tax Comm’rs, 730 N.E.2d at
247 n.7. We interpret Ferguson to mean that, because Indiana’s courts have
not adopted and applied a common-law private attorney general exception to
the American rule, fee-shifting in public interest litigation is limited to
those situations covered by statute.
[6] See, e.g., Montanans for the Responsible Use of the Sch. Trust v.
State, 989 P.2d 800 (Mont. 1999); Arnold v. Ariz. Dep’t of Health Servs.,
775 P.2d 521 (Ariz. 1989); Brown v. State, 565 So.2d 585 (Ala. 1990); Deras
v. Myers, 535 P.2d 541 (Or. 1975); Stewart v. Utah Pub. Serv. Comm’n, 885
P.2d 759 (Utah 1994).
[7] California’s legislature subsequently codified the exception by
statute. See Woodland Hills Residents Assoc., Inc. v. City Council of
L.A., 593 P.2d 200, 206 (Cal. 1979).
[8] See Doe v. State, 579 A.2d 37 (Conn. 1990); Hamer v. Kirk, 356 N.E.2d
524 (Ill. 1976); Jones v. Muir, 515 A.2d 855 (Pa. 1986); Providence Journal
Co. v. Mason, 359 A.2d 682 (R.I. 1976); Blue Sky Advocates v. State, 727
P.2d 644 (Wash. 1986); Pearson v. Bd. of Health of Chicopee, 525 N.E.2d 400
(Mass. 1988); Nemeth v. Abonmarche Dev., Inc., 576 N.W.2d 641 (Mich. 1998);
Van Emmerik v. Mont. Dakota Utils. Co., 332 N.W.2d 279, 284 (S.D. 1983),
cert. denied, 464 U.S. 915 (1983); Holbert v. Echeverria, 744 P.2d 960
(Okla. 1987).
[9] See, e.g., Ind. Const. art. XV, § 10, which requires the General
Assembly “to provide for the permanent enclosure and preservation of the
Tippecanoe Battle Ground.” It is certainly important to maintain this
historic site, but it would make little sense to grant attorney fees to a
plaintiff who stands up for this constitutional provision, but not to a
plaintiff who champions one of the statutory rights described above.
[10] The fact that a municipality is the class representative adds another
wrinkle to this case. Because we decline to adopt the private attorney
general doctrine generally, we do not delve into the propriety or
ramifications of shifting a cost from one level of government to another.
State Board of Tax Commissioners v. Town of St. John
Combined Opinion