Porreca v. City of Millville, 419 N.J. Super. 212 (App. Div. 2011). Rule 4:42-9(a)(2) permits recovery of attorneys’ fees from a “fund in court.” Porreca, a decision written by Judge Axelrad, held that the plaintiff’s counsel could seek a fee based on the “tangible economic benefit” to the public that the plaintiff’s case had achieved, even though there was no “‘pot of money’ or actual fund in the possession of the court.” That ruling was consistent with prior Supreme Court of New Jersey authority. The Appellate Division remanded, however, on the issue of whether the plaintiff’s counsel had waived the fee claim.
The plaintiff had complained to the City about two alleged failures by the City, and then brought separate lawsuits as to each of those issues. The first case alleged that the City had not properly managed tax abatements that the City had granted. The second matter asserted that the City had failed to collect and charge, in proper fashion, inspection and review fees for development projects.
Over one year after the second case was filed, the parties settled both cases. A written settlement agreement recited that after the plaintiff had complained to the City about the tax abatements, and as a result of his complaint, but before he filed suit, the City had disallowed certain tax abatements that had been improperly granted, and had changed its abatement ordinance and implementing procedures to ensure that abatements would be granted properly in the first instance and fully billed thereafter. The settlement agreement also stated that after the plaintiff complained about the review fees, but before he filed suit, the City determined that some of his complaints were “well-founded” and changed the City’s business practices to ensure proper calculation, billing, and collection of those fees.
The agreement was silent about attorneys’ fees for the plaintiff’s counsel. But it did release “all claims for damages that were or could have been advanced” by the parties against each other.
The Law Division found that the plaintiff’s counsel was not entitled to fees. The Appellate Division reversed. Explaining that the “fund in court” doctrine can apply whenever a lawsuit creates benefits to persons other than the plaintiff even where there is no actual “pot of money” in court, Judge Axelrad’s opinion found that the plaintiff’s abatement lawsuit redounded to the benefit of other citizens of the City, so that it was “unfair to saddle the full cost” of the cases on the plaintiff. The settlement agreement recited that the City took actions that resulted, indirectly, in financial benefits to other citizens, since improper tax abatements were abrogated. In contrast, because the second lawsuit was not said to have produced benefits “as a result of” the plaintiff’s having filed it, the Appellate Division remanded for further consideration of whether the second case produced a “fund in court.”
The ruling that a “fund in court” could be present on the facts of Porreca is consistent with Henderson v. Camden Cty. Mun. Util. Auth., 176 N.J. 554 (2003), and Silverstein v. Shadow Lawn Sav. & Loan Ass’n, 51 N.J. 30 (1968), two of the leading cases on the “fund in court” doctrine. [Disclosure: I served as an expert witness on attorneys’ fees for the plaintiff’s counsel in Henderson]. Attorneys who create a benefit for the public should not be deprived of the ability to seek a fee equivalent to a portion of that benefit merely because there is no physical “pot of money.” The public would be ill-served if attorneys were disincentivized from bringing public benefit lawsuits by such an unrealistic limitation on fees.
There still remained, however, the question of whether the plaintiff’s counsel had waived any fee claim by virtue of the settlement agreement’s silence on the fee issue. The court cited Torres v. Metropolitan Life Ins. Co., 189 F.3d 331 (3d Cir. 1999), a case that supported the plaintiff’s position on comparable facts, and noted that Warrington v. Village Super Market, Inc., 328 N.J. Super. 410 (App. Div. 2000), had applied the principle of Torres in the context of a fee-shifting statute. But Porreca did not involve a fee-shifting statute, and Judge Axelrad’s opinion observed that “the law on this issue [of whether the “bright-line federal rule” of Torres should apply where no fee-shifting statute is involved] is far from settled, and is essentially non-existent.” There seems little reason, however, to create different rules for settlement negotiations for cases involving fee-shifting statutes on the one hand and cases that rest on other bases on the other hand.
The Appellate Division criticized the plaintiff’s counsel in Porreca for having been “intentionally silent [during the settlement negotiations] about the counsel fee issue, holding back a material term for a substantial claim, apparently lying in wait for the City to sign the agreement, and then springing the claim after the fact,” especially given the agreement’s release of all damage claims. The court found this an “apparent lack of candor.” That characterization seems too harsh.
As the decision also noted, “it would have been preferable for the City to have acted defensively and made clear during negotiations that it was entering into a global settlement with no loose ends.” The City thereby could have confronted the counsel fee issue head on. Certainly the City knew that the plaintiff’s counsel was not working for free, and that he would not be compensated from the benefits that he had helped create since there was no “pot of money” from which he could draw.
The parties in Porreca may have been influenced by the rule of Coleman v. Fiore Bros., 113 N.J. 594 (1989), which forbade the simultaneous negotiation of a merits settlement and attorneys’ fees in cases of public interest lawyers handling Consumer Fraud Act cases. Though the specific context of Coleman was a consumer fraud case, many counsel considered it more broadly applicable. The Supreme Court left the Coleman rule behind in Pinto v. Spectrum Chemicals, 200 N.J. 580 (2010). Going forward, it would be prudent for either or plaintiffs or defendants to raise explicitly, in settlement discussions in any type of case, the question of whether the negotiated settlement consideration includes attorneys’ fees.