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Schell v. Oxy USA, Inc.

United States District Court, Tenth Circuit

October 31, 2013

David and Donna Schell, and Ron Oliver, individually, and as representative parties on behalf of surface owners, Plaintiffs,
v.
Oxy USA Inc., Defendants.

MEMORANDUM AND ORDER

J. THOMAS MARTEN, JUDGE

On March 26, 2013, the court granted summary judgment to the plaintiffs in this contest over who owed the duty to make free gas useable under the contracts at issue. Dkt. 155. On September 11, 2013, the court held that its judgment applied to the entire plaintiff class, not just the individual plaintiffs. Dkt. 191. Having decided these issues, the court now has before it the plaintiffs’ Motion for Attorneys’ Fees and Nontaxable Expenses (Dkt. 160) and Motion for Approval of Second Class Notice (Dkt. 163). The court is prepared to rule.

Motion for Attorneys’ Fees and Nontaxable Expenses

A. Attorneys’ Fees

The plaintiffs seek attorneys’ fees of $2 million, nontaxable expenses of $4, 790.50, and incentive awards of $120, 000 in total. They estimate the value of the outcome of the litigation at over $30 million and argue that their requested fees, expenses and incentive awards are reasonable in light of this valuation.

Under Section 2 of the Declaratory Judgment Act, codified at 28 U.S.C. § 2202, the district court has broad authority to grant “further necessary or proper relief based on a declaratory judgment . . . after reasonable notice and hearing, against any adverse party whose rights have been determined by the judgment.” Gant v. Grand Lodge of Texas, 12 F.3d 998, 1002 (10th Cir. 1993). “Necessary or proper relief” may include attorneys’ fees. Id. at 1002–03.

“[T]he standard for an award [pursuant to § 2202] is no lower than for general civil litigation under the American rule.” Jones v. Cole, No. 08-1011-JTM, 2011 WL 1375685, at *4 (D. Kan. April 12, 2011) (internal citation omitted). “That is, the scope for any attorney fee award, even under § 2202 ‘is drawn very narrowly, and may be resorted to only in exceptional cases and for dominating reasons of justice.’ ” Id. (quoting Kornfeld v. Kornfeld, 393 Fed. App’x 575, 577 (10th Cir. Aug. 31, 2010)). Accordingly, the court looks to the American rule.

“Under the American Rule, absent a statute or enforceable contract, a prevailing litigant is ordinarily not entitled to collect reasonable attorney fees from the loser.” Aguinaga v. United Food and Commercial Workers Intern. Union, 993 F.2d 1480, 1481 (10th Cir. 1993) (internal citation omitted). “However, federal courts, in the exercise of their equitable powers, may award attorneys' fees when the interests of justice so require. Id. (internal quotation marks and citation omitted). Accordingly, courts have recognized a small number of equitable exceptions to the American Rule—i.e., the bad faith exception, the common fund exception, the willful disobedience of a court order exception, and the common benefit exception. Id. (citing Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 257–59 (1975)).

“The first and perhaps most firmly established exception to the traditional American rule is illustrated by those exceptional cases where the behavior of a litigant has reflected a willful and persistent defiance of the law, or where an unfounded action or defense is brought or maintained in bad faith, vexatiously, wantonly, or for oppressive reasons.” Gilpin v. Kansas State High Sch. Activities Ass’n, Inc., 377 F.Supp. 1233, 1245 (D. Kan. 1973) (internal quotation marks and citations omitted). “The award of attorneys’ fees under this exception is punitive in nature and therefore is limited to those cases where a defense is maintained in ‘bad faith’ without any basis in law or fact and represents ‘obdurate obstinacy.’ “ Id.

Under the common fund exception, the successful plaintiff is awarded attorney fees because his suit creates “a common fund, the economic benefit of which is shared by all members of the class.” Hall v. Cole, 412 U.S. 1, at 5 n. 7 (1973). The common fund exception allows the court to make the beneficiaries of the plaintiff’s litigation “contribute to the costs of the suit by an order reimbursing the plaintiff out of the defendant’s assets from which the beneficiaries eventually would recover.” Id.

The common benefit exception to the American rule originates from the common fund exception. This exception permits “reimbursement in cases where the litigation has conferred 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 operate to spread the costs proportionately among them.“ Mills v. Electric Auto-Lite, 396 U.S. 375, 393–94 (1970). “The fact that this suit has not yet produced, and may never produce, a monetary recovery from which the fees could be paid does not preclude an award based on this rationale.” Id. at 392. As the case law makes clear, applying this exception inherently requires a relationship between the class of beneficiaries and the defendant such that an award of attorneys’ fees against the defendant shifts the costs of litigation to “the class that has benefited from them and that would have had to pay them had [the class members] brought the suit.” See Id . at 397. For example, this relationship exists between a corporation and its shareholders (see Mills) and between a union and its members (see Hall).

As was stated above, this court has the authority to award fees and expenses under § 2202. However, this case does not meet any of the exceptions to the American rule that justify granting fees to the prevailing plaintiffs. As the plaintiffs recognize, there are only a small number of exceptions to the American Rule, including the bad faith exception and the common fund/common benefit exceptions. Aguinaga, 993 F.2d at 1492. The plaintiffs argue for attorneys’ fees under the bad faith and common benefit exceptions.

In their reply brief, plaintiffs argue that OXY litigated this issue in bad faith. The plaintiffs’ assertion of bad faith relies solely on the fact that OXY sent out letters to all house gas users, leading the plaintiffs to believe their free gas supply might be in jeopardy. Although this act by OXY may have been the catalyst for plaintiffs filing their suit, it is not evidence of bad faith. The court finds no evidence supporting a finding that OXY litigated this issue in bad faith.

Plaintiffs also argue that they are entitled to fees under the common benefit exception. But, as the court explained above, cases where courts have applied this exception require a relationship between the defendant and the class members such that an award that will operate to spread the costs proportionately among them. “Fee shifting is justified in these cases, not because of any bad faith of the defendant but, rather, because to allow the others to obtain full benefit from the plaintiff’s efforts without contributing equally to the litigation expenses would be to enrich the others unjustly at the plaintiff’s ...


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