Common Fund Doctrine

The Vermont Supreme Court reversed the grant of summary judgment to the defendant in a fee dispute between law firms

This case involves a dispute between two law firms over attorney’s fees in separate litigation. As relevant to this appeal, plaintiff Gravel & Shea PC brought suit against defendant Costello, Valente & Gentry, P.C., claiming defendant was unjustly enriched for receiving attorney’s fees without compensating plaintiff for the work plaintiff did to procure the settlement from which defendant received its fees. Defendant appeals a trial court order granting summary judgment to plaintiff on the grounds that, under the common-fund doctrine, equities require defendant to contribute to plaintiff’s attorney’s fees. Plaintiff cross-appeals the court’s order following a bench trial, challenging the court’s calculation of damages. We agree with defendant that the trial court improperly expanded the common-fund doctrine to apply to this case and thus reverse the court’s order granting summary judgment to plaintiff and remand for the court to enter summary judgment in favor of defendant. Accordingly, we do not reach plaintiff’s cross-appeal.

The following facts are undisputed for summary-judgment purposes. The present dispute arises from lawsuits involving an employee’s injury at work and his employer’s worker’s compensation insurance. One case is employer’s1 lawsuit against its insurer, Cornerstone Risk Management, LLC. Plaintiff represented employer in this lawsuit and had a contingency fee arrangement with employer. Employer brought this suit to recover damages alleging Cornerstone failed to procure worker’s compensation insurance for employer. Employer asserted “it did not have the financial resources to compensate [employee] for his injuries on its own, without insurance.” Employer sought damages from Cornerstone including the amount employee was seeking from employer, the amount employer already paid employee for his injuries, and employer’s own losses for not having worker’s compensation insurance. Lloyd’s of London provided a defense to Cornerstone as Cornerstone’s professional-liability insurer. Cornerstone filed motions to dismiss and for summary judgment. Employer prevailed on both motions.

The other case is employee’s personal-injury lawsuit against employer. Defendant represented employee and had a contingency-fee arrangement with employee. Plaintiff also represented employer in this lawsuit.

Employer and Cornerstone agreed to mediation and allowed employee to participate. After mediation was unsuccessful, employee settled with Lloyd’s independently. As part of the settlement agreement, employee agreed to dismiss his claims against employer, as Lloyd’s sought “to limit its and their exposure in the Cornerstone Action by agreeing to settle [employee’s] claims for his injuries in exchange for [employee] dismissing his claims against [employer].” Employer was not a party to this agreement. Defendant received its contingency fee from the settlement proceeds. Employer and Cornerstone later settled, and plaintiff received its contingency fee from those settlement proceeds.2 

The current dispute involves, as relevant to this appeal, a third action—plaintiff’s unjust-enrichment claim against defendant. Plaintiff claims that it is entitled to defendant’s fee from the settlement proceeds between employee and Lloyd’s because, had employer not sued Cornerstone and not been successful in defeating Cornerstone’s motions in the Cornerstone action, employee would not have settled with Lloyd’s. After discovery, plaintiff and defendant filed cross-motions for summary judgment.

Common fund doctrine

Here, plaintiff argues that it should be awarded fees for the work it did for its client in one case, that benefitted the attorney of its client’s adversary in another. Notwithstanding any benefit conferred on defendant, the common-fund doctrine cannot apply. Here, employer, on whose behalf plaintiff was acting, was not a beneficiary to the settlement proceeds, or the fund from which plaintiff seeks compensation. Therefore, plaintiff’s efforts on behalf of employee have not created a common fund. Cf. Kitzman, 739 N.E.2d at 1270 (applying common-fund doctrine because “[plaintiff’s attorney] alone pursued this case for longer than three years before securing a[] . . . settlement for the benefit of all the heirs, including [defendants]” and plaintiff).

In any event, plaintiff is not entitled to attorney’s fees under the common-fund doctrine merely because employee ultimately settled with Lloyd’s…

We decline to extend the common-fund doctrine beyond the insurance subrogation context to the circumstances before us here because there is no common fund. The cases relied on by plaintiff involving class-action objectors do not support a contrary conclusion.

(Mike Frisch)