ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEES
Karen M. Freeman-Wilson Thomas M. Atherton
Attorney General of Indiana Katz and Korin
Deputy Attorney General James K. Gilday
Indianapolis, Indiana Wood, Tuohy, Gleason, Mercer & Herrin
Kenneth J. Falk
Indiana Civil Liberties Union
Richard A. Waples
Waples and Hanger
Peter H. Donahoe
Hill, Fulwider, McDowell, Funk & Matthews,
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 ).)
July 18, 2001
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 attorneys 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 Josephs Coll. v. Morrison, Inc., 158 Ind. App. 272, 279, 302 N.E.2d 865, 870 (1973). The most common exceptions are:
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, Attorneys Fees for Frivolous, Unreasonable or Groundless Litigation, 20 Ind. L. Rev. 151, 152-53 (1987).
The common fund exception, in which an award benefits members of an ascertainable class, and the court reimburses the prevailing litigants attorney fees out of that pool of money to prevent the unjust enrichment of free riders. Id. at n.11. See footnote
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 Socy, 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. Dept of Health & Human
Res., 121 S.Ct. 1835, 1839 (Rehnquist, C.J., for majority), 1856 (Ginsburg, J., dissenting)
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.
See footnote 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.
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. See footnote 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).
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
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.
The second factor in the Tax Courts 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 Appellants 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 partys 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 Courts 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 litigations
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 Commrs, 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.
See footnote 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. Indianas 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.
Dickson, Sullivan and Rucker, JJ., concur.
Boehm, J., not participating.