A Substantial Benefit Leads to Substantial Fees

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From the desk of Bill Taaffe:

In disputes that require a finding on constitutional grounds, there is the potential for the prevailing party to recover attorney fees. However, when a party prevails on a dispute based on a statutory issue, the attorney must show that the outcome of the dispute resulted in a “substantial benefit” on others beyond the prevailing party in order to be awarded attorney fees.

Claims Pointer:

The Oregon Court of Appeals held that vindication of constitutional right(s) has never been the sole requirement in awarding attorney fees under a court’s equitable powers, and that the substantial benefit theory is a form of the attorney fee doctrine that does not require protection of a constitutional right, but rather requires the prevailing party to vindicate a right that applies to others, beyond the party itself.  

De Young v. Brown, 368 Or 64 (May, 2021)

Facts:

In this case, plaintiff James De Young (“plaintiff”), a resident and past city councilor of Damascus originally filed suit for declaratory and injunctive relief, seeking to enjoin a scheduled disincorporation vote and alleging that House Bill (“HB”) 3085 violated the city charter, state statutes, and the Oregon Constitution.

In a 2013 election, the residents of Damascus voted on a referral from city council to disincorporate. Although a majority of the residents did vote for disincorporation, the number of votes fell short of the absolute majority as required by law. Subsequently, the legislature passed HB 3085, which referred to the voters of Damascus the decision whether to disincorporate and specifically provided that a majority of those voting, rather than an absolute majority, would be sufficient to disincorporate. This legislative referral appeared on the voting ballots for residents of Damascus as Measure 93 in 2016.

Plaintiff had originally filed before the 2016 election, but his request was denied by the trial court, and the Damascus residents subsequently voted to disincorporate. Plaintiff continued his lawsuit, seeking declaration that the vote violated numerous statutory and constitutional requirements, and thus Damascus had not validly disincorporated. The trial court granted summary judgement in favor of Kate Brown, in her official capacity as Governor, and the State of Oregon (collectively “the state”) and declared Measure 93 valid. Plaintiff ultimately appealed this decision and the Court of Appeals agreed with plaintiff on his statutory argument. Holding that ORS 221.610 and ORS 221.621 (2013) provided the only means of disincorporation for a city. Thus, because Measure 93 failed to comply with those statutes, it was invalid. De Young v. Brown, 297 Or App 355, 443 P3d 642 (2019) (“De Young I”). Because the Court of Appeals disposed of the case on statutory grounds, it did not reach plaintiff’s constitutional argument. De Young I at 355.

Following the Court of Appeals’ decision in De Young I, plaintiff petitioned for an award of attorney’s fees and costs. Arguing that he was entitled to fees because he was the prevailing party and because he sought “to vindicate important constitutional rights and was not seeking a pecuniary gain for himself other than to protect the statutory and constitutional rights of those in Damascus.” The state objected, arguing that “because plaintiff prevailed on statutory and not constitutional grounds, [Court of Appeals case law] forecloses any attorney fee award.” The Court of Appeals rejected the state’s argument that a plaintiff must prevail on a constitutional issue in order to be awarded attorney’s fees through the court’s exercise of their inherent equitable powers.

The state petitioned for review to the Supreme Court, asserting under the substantial benefit theory that the “beneficiaries” of this litigation were the residents of Damascus, but a fee award against the state would be paid by residents of the whole state, spreading the costs of litigation among both those who benefitted and those who did not benefit from it. The state also argued that the litigation did not confer a substantial benefit because there was a significant amount of uncertainty regarding whether Damascus will ever be a city again.[1] Ultimately, the Supreme Court agreed with the Court of Appeals determination that the benefits conferred were sufficiently substantial that it would be inequitable for plaintiff to bear those costs alone.

Law:

There are three prerequisites for a fee award under a court’s inherent authority: (1) the proceeding must be one in equity; (2) the party requesting fees must have been the prevailing party; and (3) the party requesting fees must have been seeking to vindicate a right that applies to others as well as the party itself, without an overriding personal interest. When a party has met these prerequisites, the courts are permitted to award equitable attorney fees in three different circumstances: first, where a party vindicates an important constitutional right applying to all residents of the state without personal gain to the party. Second, where a party creates, discovers, increases, or preserves a common fund of money to which others also have a claim. And finally, where a party’s litigation confers “substantial benefit” on others, even if that benefit is neither constitutional nor financial in nature.

Here, the Oregon Supreme Court provides clarification on how to determine the level of substantiality needed in regard to the benefit sustained by the community as a whole. The theory of “substantial benefit” is centered on determining whether the nature of the benefit conferred on those beyond plaintiff, as a whole, is substantial enough that it would be inequitable for the plaintiff to bear the cost alone.

Analysis:

As set out in this case, the purpose of the “substantial benefit” theory relies on a basic premise; that fees awarded under the court’s equitable authority are awarded in order to spread the costs among those on whose behalf the case was brought and who benefitted from the plaintiff’s efforts, not for the purpose of making the plaintiff whole by shifting costs to the wrongdoer. However, it can be more difficult to determine the degree of benefit provided by vindicating statutory rights – even those the courts deem to be of similar importance to fundamental constitutional rights. Therefore, beneficiaries need to be identified more precisely.

Plaintiff in this suit demonstrated that important legal rights were at stake due to the unique relationship between the election statutes at issue and the foundational constitutional rights of citizens to vote along with the rights of local government to establish and amend their political structures. Thus, the Court found that the benefit was sufficiently substantial to support an award of fees under this theory.

The Big Picture:

Petitioning for attorney fees is a common, and typically important, part of the litigatory process for the prevailing party. However, when petitioning for attorney fees under the theory of “substantial benefit,” it is important to identify, as precisely as possible, the benefit and/or beneficiaries beyond the party bringing the litigation in order to illustrate the significance of the benefit and the substantial effect it has on others as a whole.

[1] In 2019, the state legislature passed Senate Bill (SB) 226 (2019) “to cure any defect in the procedures, and to ratify the results” of the 2016 disincorporation vote of Damascus. Or Laws 2019, ch 545, § 4(1).