Virginia Hospital Ass'n v. Kenley

74 F.R.D. 417, 1977 U.S. Dist. LEXIS 16492
District Court, E.D. Virginia·Decided April 7, 1977·No. Civ. A. No. 76-0300-R·Published·Cited by 5 cases

Opinion

MEMORANDUM

MERHIGE, District Judge.

This matter is before the Court on motion by the plaintiff-intervenors for an award of attorneys’ fees to be paid out of a portion of the funds which plaintiff hospitals have or will receive from the state defendants as a consequence of this Court’s preliminary injunction issued December 3, 1976 and dissolved January 28, 1977. The background of this litigation has been previously dealt with by the Court in its Memoranda of December 3, 1976 and February 23, 1977. The issues have been briefed by both the plaintiff-intervenors and the plaintiff Virginia Hospital Association, and the matter is now ripe for disposition.

The relevant facts applicable to this motion are as follows: The plaintiffs, Virginia Hospital Association, individual hospitals and Medicaid recipients, instituted this action on July 12,1976. Plaintiff-intervenors, on behalf of a class of all Medicaid recipients in Virginia, moved to intervene on October 8, 1976. The complaint of plaintiff-intervenors alleged for the first time in this litigation that the state defendants had failed to comply with the notice and hearing requirements under the Social Security Act and its regulations. These allegations were extensively briefed and ably argued by counsel for the plaintiff-intervenors in support of the motion for a preliminary injunction, heard by the Court on November 2, 1976. On December 3, 1976, this Court issued its preliminary injunction enjoining the operation of the 21-day limitation on inpatient hospital care solely by virtue of the failure of the state defendants to comply with the notice and hearing requirements of the federal regulations. The injunction therein entered remained in effect until January 28, 1977, when it was dissolved upon the motion of this Court sua sponte, the state defendants having complied with the notice and hearing requirements. Subsequently, on February 23, 1977, judgment was entered for the defendants. (See Memorandum Opinion under date of February 23, 1977). D.C., 427 F.Supp. 781. As a result of the preliminary injunction, the hospitals received between $11,000 and $15,000 a day from December 3, 1976 until January 28,1977.1 The plaintiff-intervenors now seek an award of attorneys’ fees from the plaintiff hospitals, contending that as of the result of the preliminary injunction entered by this Court, the plaintiff-intervenors have conferred a benefit on plaintiff hospitals in excess of $600,-000 and created a fund for the payment of [419]*419such benefits. ■ The plaintiff-intervenors seek an award of “the greater of $25,000 or 10% of the benefit accruing to each hospital.”

Although the general rule in the United States has been that attorneys’ fees are not ordinarily recoverable as costs, both the courts, through their traditional equity powers, and the Congress, through legislation, have developed exceptions to this rule in particular situations.

One such exception fashioned by the judiciary through a long line of decisions .by the United States Supreme Court, is the “common fund-common benefit” rule. See, e. g., Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1881); Central Railroad & Banking Co. v. Pettus, 113 U.S. 116, 5 S.Ct. 387, 28 L.Ed. 915 (1885); Sprague v. Ticonic National Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939); Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Hall v. Cole, 412 U.S. 1, 93 S.Ct. 1943, 36 L.Ed.2d 702 (1973).

In Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975), the Supreme Court, although rejecting a private Attorney-General theory of recovery of attorneys’ fees, reaffirmed the common fund-common benefit theory based on “the historic power of equity to permit ... a party preserving or recovering a fund for the benefit of others in addition to himself, to recover his costs, including his attorneys’ fees from the fund or property itself or directly from other parties enjoying the benefit.” Supra at 257, 95 S.Ct. at 1621.

The United States Court of Appeals for the Fourth Circuit has also applied the common fund-common benefit doctrine. Brewer v. School Board of City of Norfolk, 456 F.2d 943 (4th Cir. 1972). In awarding attorneys’ fees to counsel for plaintiffs in the school desegregation case, who had secured a right to free bussing for students assigned to schools beyond walking' distance of their homes, the Court stated:

“The rationale ... is that it is only fair that he who creates or conserves a common fund or property should be reimbursed for his reasonable expenses, including attorneys’ fees, for protecting the common fund for others having a similar interest with him in that fund .
The doctrine extends not only to cases in which a fund is either created or protected but also ‘where the effect of the suit is the same as though a fund were created.’ [Citations omitted] .
The purpose .of the award in such case, however, is not designed ‘as an additional recovery against the wrongdoers, but as a means of ordering compensation to counsel from the class benefited.’ ” [Citations omitted] Supra at 948-949.

In Mills v. Electric Auto-Lite Co., supra, the Supreme Court established a three-prong test for determining whether application of the common fund-common benefit exception should be applied. Reimbursement for attorneys’ fees is permitted 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 cost proportionately among them.” 396 U.S. at 393-4, 90 S.Ct. at 626.

The Court is in agreement with the plaintiff-intervenors that all three requirements of the Mills test have been met in the instant case:

(1) A substantial fund or benefit has been produced by the efforts of the plaintiff-intervenors. Plaintiff hospitals will receive monetary benefits in excess of $600,-000 as the result of the preliminary injunction issued by this Court solely on the basis of issues successfully raised by the plaintiff-intervenors. With this contention, the plaintiff hospitals are in substantial agreement.

(2) The benefit has been conferred on an ascertainable class. The class of plaintiff hospitals who will receive monetary benefits is easily ascertainable from the Medicaid claims they have filed with the state defendants as a result of the preliminary injunction heretofore referred to. The plaintiff hospitals contend, however, that [420]*420the benefited class includes the Medicaid recipients who have derived a benefit from the preliminary injunction.

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Virginia Hospital Ass'n v. Kenley, 74 F.R.D. 417, 1977 U.S. Dist. LEXIS 16492 (E.D. Va. 1977).

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