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Municipality of Anchorage v. Gentile (8/16/96), 922 P 2d 248
<![CDATA[
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the
attention of the Clerk of the Appellate Courts, 303 K Street,
Anchorage, Alaska 99501, telephone (907) 264-0607, fax (907) 264-
0878.
THE SUPREME COURT OF THE STATE OF ALASKA
MUNICIPALITY OF ANCHORAGE, )
) Supreme Court No. S-5965
Appellant, )
) Superior Court No.
v. ) 3AN-92-9377 CI
)
JOHN M. GENTILE; GREG BAUER; )
JERRY FRIES; MARGARET BORRECCO; ) O P I N I O N
DONAVON LANGDOK; and WILLIAM SMITH,)
) [No. 4388 - August 16, 1996]
Appellees. )
___________________________________)
)
JOHN M. GENTILE; GREG BAUER; )
JERRY FRIES; MARGARET BORRECCO; )
DONAVON LANGDOK; and WILLIAM SMITH,) Supreme Court No. S-6305
)
Appellants, )
)
v. )
)
MUNICIPALITY OF ANCHORAGE, )
)
Appellee. )
___________________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Karl S. Johnstone, Judge.
Appearances: Mark A. Casciari, Seyfarth,
Shaw, Fairweather & Geraldson, Chicago,
Illinois, George M. Newsham, Assistant
Municipal Attorney, Richard L. McVeigh,
Municipal Attorney, and Mary K. Hughes,
Municipal Attorney, Anchorage, for Appellant.
Peter J. Maassen, Ingaldson Maassen, P.C.,
Anchorage, and Peter Gruenstein, Gruenstein,
Hickey & Stewart, Anchorage, for Appellees.
Before: Rabinowitz, Matthews, Compton and
Eastaugh, Justices. [Moore, Chief Justice,
not participating.]
EASTAUGH, Justice.
I. INTRODUCTION
After the Municipality of Anchorage (MOA) reduced the
post-retirement medical benefits of its retired police officers and
firefighters, John Gentile and five other retirees, representing
154 affected retirees, filed a class action to restore benefits and
prevent future decreases. The superior court permanently enjoined
the reductions, held that MOA did not breach the covenant of good
faith and fair dealing, and awarded the retirees substantial
attorney's fees against MOA. These appeals followed. We remand
for reconsideration of attorney's fees. We otherwise affirm.
II. FACTS AND PROCEEDINGS
A. Background
MOA reduced the post-retirement medical benefits of its
retired police officers and firefighters in 1992, substantially
increasing their deductibles and copayments.
B. The Collective Bargaining Agreements
Although the retired firefighters and police officers
comprise the plaintiffs' class, the claims of these two groups of
retirees are based on two separate series of collective bargaining
agreements (CBAs). The police officer retirees' contract claims
are based on CBAs between MOA and the Anchorage Police Department
Employees Association (APDEA); the firefighter retirees' contract
claims are based on a series of CBAs between MOA and the
International Association of Firefighters (IAFF). The historical
context, established by trial court evidence, of contract
negotiations is important.
In the 1970s the Teamsters Union, representing Anchorage
police officers, negotiated contracts providing substantial post-
retirement medical coverage. Although union police officers had an
excellent retirement plan, unrepresented command officers had less-
favorable coverage. This created a problem for MOA in that veteran
officers did not wish to be promoted because they would lose their
more-favorable retirement benefits.
In 1977, the Anchorage Municipal Assembly approved
Anchorage Code Ordinance (ACO) 77-257 (1977). The ordinance
provided medical benefits to the command officers under the
"medical insurance program of the Municipality"at the
Municipality's expense. At a MOA Assembly meeting, Police Chief
Anderson stated that ACO 77-257 would help close the gap that
existed between represented and non-represented public safety
officers. The superior court found that "[i]n adopting AO 77-257,
both Mayor Sullivan and the Assembly understood the open-ended
nature of the cost and commitment MOA was undertaking to the non-
represented public safety employees with respect to their post-
retirement medical benefits."
The APDEA and IAFF CBAs at issue here were negotiated
about three years after ACO 77-257 was approved. The post-
retirement medical benefits provision of the pertinent APDEA CBAs
contain the following language:
Effective January 1, 1981, the Municipality
shall provide medical coverage for all
retirees from the Anchorage Police Department
who are not provided such coverage by another
plan. Major medical coverage including
coverage for audio and visual will be
provided. The retiree will have the option to
purchase dental coverage at his own expense.
Coverage under this provision may not be
diminished during the term of this agreement.
This language was first adopted in the CBA governing July 1980 to
October 1982. (EN1) All subsequent CBAs between the APDEA and MOA
contained this language. (EN2)
Every IAFF CBA since January 1, 1981, has contained the
following post-retirement medical benefits provision:
16.2 Members of the Union who retired
after January 1, 1978 may participate in the
post retirement medical benefits plan at the
cost of the employer. Eligible retired
members may elect to participate in the audio,
vision or dental coverages of the plan. Such
coverage, if elected, shall be at the expense
of the retired member. (EN3)
The trial court found that MOA intended to provide a
level of medical retirement coverage to represented IAFF employees
similar to that provided command officers under ACO 77-257. John
Franklin, who at different times had been Deputy Fire Chief, Fire
Chief, Commissioner of Public Safety, and City Manager for Mayors
George Sullivan and Tony Knowles, was involved in the negotiations
with IAFF. He understood throughout the negotiations that the
level of post-retirement medical benefits could not be diminished
for current retirees. He widely communicated that belief to
firefighters and other MOA employees.
B. Conduct under the CBAs
Several retired police officers and firefighters
testified that they believed their benefits could not be reduced
from their 1980 levels. They stated that shortly before retirement
one or more MOA employees unequivocally informed them that the
retirees' post-retirement medical benefits would not be subject to
reduction. The superior court found those police and fire
employees to be more credible than those witnesses who offered
conflicting testimony.
The retirees' beliefs were also supported by letters MOA
sent to retirees stating that they were entitled to health
insurance, and by benefits booklets MOA sent retirees between 1978
and 1992. MOA did not dispel the retirees' belief that retiree
medical benefits would not decrease.
In 1986 the MOA legal department considered whether MOA
could unilaterally terminate the medical benefits of retirees. It
concluded that the contracts and documents given to retirees "may
create . . . a vested right." The legal department advised MOA
that if it wished to decrease post-retirement medical benefits it
should immediately change the language of the agreements and
documents given to the retirees and instruct its management not to
make "lifetime"representations regarding post-retirement medical
benefits. MOA did not follow any of these recommendations.
In 1991, while Tom Fink was mayor, the MOA Assembly
created an advisory committee (Committee) to study the issue of
unfunded liabilities created by the retiree medical benefits of MOA
police and firefighters. The Committee prepared an interim and a
final report. Both reports concluded that there was "substantial
risk of liability"if MOA reduced medical coverage for retirees.
The interim report recommended that "coverage continue to be
provided as in the past,"and the final report recommended
implementation of "reasonable cost containment measures"(such as
a preferred provider plan). However, the final report noted that
with the present retirees, "it appears the Municipality must act so
that actions are not determined to be a diminishment of retiree
benefits." The final report recommended that "the Assembly and
Administration never again enter into a blank check unlimited
contract or accept the existence of an unfunded liability."
The Committee's conclusions were consistent with the
legal opinion of Corbett & Kane, a California law firm hired to
present independent legal advice to the Committee. Corbett & Kane
reviewed the CBAs, municipal ordinances, MOA letters sent to
retirees, the health benefits booklets and policies, and other
documents concerning retiree medical benefits prepared by MOA's
Employee Relations Department. In its written report to the
Committee, the law firm concluded that "[t]here is a substantial
risk of liability if medical benefits for bargaining unit Retirees
or Deferred Vesteds are eliminated or reduced or if a charge for
them is imposed." It also informed the Committee that a unilateral
decrease would be the riskiest option to reduce the liability.
MOA's administration and Assembly received the
Committee's reports. Mayor Fink read, and disagreed with, the
Committee's reports and the Corbett & Kane analysis. He is a law
school graduate and is knowledgeable about insurance. He testified
at trial that he had read articles in the Wall Street Journal that
indicated that there were "multiple cases across the country
challenging post retirement benefits in the public sector as well
as the private sector." He also testified that before deciding to
decrease the benefits, he asked the Municipal Attorney, Richard
McVeigh, whether such a move would be legal. McVeigh recalled
telling the Mayor that there did not appear to be anything in the
contract language that would require the benefits to continue.
However, McVeigh acknowledged that he did not research the issue
because the issue was being handled by the Committee.
Mayor Fink decided to reduce the benefits. He wanted the
unfunded liability issue to be resolved through litigation,
believing that the risk was minor compared to the cost MOA would
incur if no action were taken. In 1992 Mayor Fink reduced post-
retirement medical benefits to the same level as medical benefits
for active public safety employees.
C. Legal Proceedings
The Gentile plaintiffs, acting as representatives of
retirees affected by the reductions, filed their class action suit
against MOA in October 1992. The retirees ultimately claimed
breach of contract, bad faith breach of contract, violation of the
Alaska Constitution, breach of fiduciary duties, estoppel, and
breach of the covenant of good faith and fair dealing.
After a bench trial on the breach of contract and
constitutional claims, the trial court granted a permanent
injunction that prevented MOA from reducing the medical benefits.
The court found that the parties intended to establish vested post-
retirement medical benefits. It also held that the Alaska
Constitution prevented MOA from diminishing the retirees' medical
benefits. It entered final judgment against MOA on September 3,
1993.
After a separate three-day trial, the trial court held
that the attempted benefit reduction did not violate the covenant
of good faith and fair dealing. It entered a separate judgment on
March 14, 1994 against the retirees on that claim.
Counsel for the class moved for an attorney's fees award.
They sought "an amount that acknowledged the value of the benefit
that the litigation preserved to the class, took into account the
case's contingent risks, and advanced the public policies of
[Alaska Civil] Rule 23." The trial court found the retirees to be
the prevailing parties and awarded them $342,531 in attorney's fees
against MOA. It held that under Civil Rule 82 it was unable to
include any risk-enhancement in the award.
MOA appeals from the September 3, 1993 judgment, arguing
the trial court (1) erred in holding that the CBAs intended to vest
post-retirement medical benefits at retirement; (2) erred in
holding that the medical benefits were "vested"under article XII,
section 7 of the Alaska Constitution; and (3) usurped the
Assembly's legislative authority. (EN4)
The retirees appeal from the March 14, 1994 judgment and
the order awarding attorney's fees, asserting the trial court erred
in holding that MOA did not violate the covenant of good faith and
fair dealing and in failing to award enhanced attorney's fees.
III. DISCUSSION
A. Intention to Vest Post-Retirement Medical Benefits at
Retirement
We must decide whether MOA and the APDEA and IAFF
intended the CBAs to vest post-retirement medical benefits at
retirement. As both parties recognize, this is fundamentally a
question of contract. The goal of the court is to enforce the
reasonable expectations of the parties. Stepanov v. Homer Elec.
Ass'n, Inc., 814 P.2d 731, 734 (Alaska 1991). In determining the
intent of the parties the court looks to the written contract as
well as extrinsic evidence regarding the parties' intent at the
time the contract was made. Fairbanks N. Star Borough v. Tundra
Tours, 719 P.2d 1020, 1024 (Alaska 1986). The parties'
expectations are assessed by examining the language used in the
contract, case law interpreting similar language, and relevant
extrinsic evidence, including the subsequent conduct of the
parties. (EN5) Id. (citing Peterson v. Wirum, 625 P.2d 866, 870,
872 nn.7 & 10 (Alaska 1981), and Mitford v. de Lasala, 666 P.2d
1000, 1005 (Alaska 1983)).
The interpretation of words in a contract, where the
extrinsic evidence is undisputed, is generally a task for the trial
court whose decision is reviewed de novo. Oaksmith v. Brusich, 774
P.2d 191, 195 (Alaska 1989); Norton v. Herron, 677 P.2d 877, 880
(Alaska 1984). However, where the trial court relies on
conflicting extrinsic evidence, as in this case, we are "confined
to determining whether the facts support the trial court's
interpretation." Tundra Tours, 719 P.2d at 1025. We review the
trial court's findings under the clearly erroneous standard. Id.
A clearly erroneous finding is one which leaves the court with "a
definite and firm conviction on the entire record that a mistake
has been made." Klosterman v. Hickel Inv. Co., 821 P.2d 118, 122
(Alaska 1991) (quoting Parker v. Northern Mixing Co., 756 P.2d 881,
891 n.23 (Alaska 1988)).
The trial court concluded that MOA breached its contract
with the retirees by diminishing their post-retirement medical
benefits. It found that the parties intended when they entered
into the CBAs to assure represented members that their retirement
benefits would not be decreased if they retired during the term of
the contract. In arriving at its conclusion, the trial court
employed Alaskan contract principles enumerated in Alyeska Pipeline
Serv. Co. v. O'Kelley, 645 P.2d 767 (Alaska 1982), Peterson v.
Wirum, 625 P.2d 866, and Wright v. Vickaryous, 598 P.2d 490 (Alaska
1979). Although the trial court also considered applicable federal
law, it did not rely on any legal presumptions or inferences
federal courts use when considering changes in post-retirement
medical benefits.
Although the parties urge us to apply conflicting
presumptions favorable to their side, (EN6) we agree with the trial
court that traditional contract principles are sufficient to decide
this case. A presumption or inference should be used only when
traditional contract principles fail. See, e.g., Bidlack v.
Wheelabrator Corp., 993 F.2d 603, 609 (7th Cir.), cert. denied, 114
S. Ct. 291 (1993) (stating that in contract interpretation, default
rules such as presumptions should only be used after extrinsic
evidence has been considered).
MOA initially argues that the language of the CBAs does
not indicate an intent to vest. Citing Bidlack, MOA contends that
the absence of clear language showing an intent to vest indicates
a lack of an intent to vest. MOA argues that if the parties had
intended the benefits to vest, they would have employed words like
"vested,""accrued,"or "guaranteed." That usage would have
simplified resolution of this dispute, but those terms are not
prerequisites to finding the parties intended the benefits to vest.
Even though, as MOA correctly notes, the language of the
CBAs does not explicitly indicate an intent to vest post-retirement
medical benefits at the time of retirement, the language is
consistent with such an intent. In such circumstances, courts
should turn to extrinsic factors to determine contract meaning.
Trial courts have broad latitude in looking at extrinsic evidence.
(EN7) The trial court in this case properly considered extensive
extrinsic evidence.
1. Negotiation histories
The APDEA and IAFF CBAs have separate negotiation
histories. (EN8) The trial court, however, found that since at
least 1980, it was MOA's policy to keep the police and firefighter
benefits as similar as possible. The testimony of former Mayor
Sullivan supports the court's finding. Although we will separately
review the negotiation histories of the APDEA and the IAFF CBAs,
MOA's stated policy lends support to the trial court's conclusion
that the parties intended to vest post-retirement benefits under
both sets of CBAs.
a. APDEA contract negotiations
The first APDEA CBA at issue here governed from July 1980
through October 1982. The pertinent language, see supra p. 4, was
the same in subsequent CBAs. The trial court found that "[w]ith
respect to [the 1980 APDEA CBA], the intent of both parties was to
assure that those represented employees who retired prior to the
expiration of that contract received medical retirement benefits
that would not be reduced or otherwise impaired subsequent to their
retirement."
MOA argues that the court incorrectly found that the
APDEA contract was intended to match the command officers' post-
retirement medical benefits under PERS and ACO 77-257. It argues
that if MOA intended to bind itself to terms beyond the duration of
the agreement it would have accepted the APDEA's proposed language
that "[t]his provision will remain in effect in this and all
subsequent agreements. Coverage under this provision may not be
diminished." MOA contends that it rejected APDEA's proposed
language because it did not want to eliminate this issue from all
future negotiations. Instead, the parties settled on the sentence:
"Coverage under this provision may not be diminished during the
term of this agreement." MOA contends that this compromise
language was intended to limit the level of guaranteed benefits to
the three-year term of the agreement.
The trial court found, however, that this was not the
intent of the various proposals. The court found that APDEA's
offer was intended to "obligate MOA to provide a guaranteed level
of coverage to all future retirees in perpetuity." (Emphasis
added.) In essence, the trial court found that if the APDEA
language had been accepted, the level of retirement medical
benefits could never be renegotiated, even for future retirees. In
comparison, the compromise language actually adopted vested
benefits for those retiring during the operating CBA, but allowed
the post-retirement benefits of active employees to be negotiated
in future CBAs.
The record supports this finding. The lead MOA
negotiator, Bill Smith, testified that he understood the language
APDEA proposed would obligate MOA to provide the same benefits for
future retirees. The testimony of APDEA's chief negotiator, Fred
Dichter, also supports the court's finding. He testified that
during the 1980 negotiations he researched post-retirement medical
benefits and concluded that they were necessarily vested. He
testified that he communicated his findings to Smith on several
occasions and that Smith never contradicted or voiced opposition to
Dichter's conclusion. (EN9)
MOA claims that ACO 77-257 was intended to be a twenty-
year commitment rather than open-ended. MOA therefore contends
that the parties could not have intended the APDEA and IAFF CBA
retiree benefits to vest if the parties simply intended to match
the benefits provided to command officers. MOA's argument is
contrary to the language of ACO 77-257, which states that benefits
will "cease when the retired member is no longer eligible to
receive a monthly benefit." The ordinance also states that
eligibility will be available to those who are entitled to receive
a "presumably permanent monthly benefit from said retirement plan."
Nowhere does the ordinance state that it is limited to twenty
years. There was testimony the Assembly was fully informed the
ordinance imposed an "open-ended commitment."
The negotiation history of the APDEA CBA supports the
trial court's finding. MOA cites evidence supporting its position;
however, under the clear error standard of review we do not reweigh
the evidence heard by the trial court. Horton v. Hansen, 722 P.2d
211, 215 (Alaska 1986); Alaska R. Civ. P. 52(a). We conclude that
the trial court did not commit clear error in finding that the
parties intended to vest post-retirement medical benefits for APDEA
retirees.
b. IAFF contract negotiations
The first IAFF contract in dispute was in effect January
1981 through December 1983. It contained the retiree health
benefits language quoted above. Subsequent IAFF agreements
contained the same language.
The trial court found that MOA intended the 1981-83 IAFF
agreement "to provide a level of medical retirement coverage to
represented IAFF employees similar to that provided to the command
officers under AO 77-257."
MOA argues that the trial court ignored extrinsic
evidence that MOA did not intend to vest retiree benefits. (EN10)
There is no indication the trial court ignored this evidence.
Furthermore, following review of the Sullivan and French testimony,
we conclude that it is more ambiguous than MOA contends.
Other evidence supports the trial court's finding. A
November 1979 MOA "Response to IAFF Proposal"stated that the MOA
negotiator would recommend that the retirees be provided "the same
level and type of p[o]st retirement medical benefits as all
Municipal employees receive under PERS." (Emphasis omitted.)
Since PERS benefits are vested, it is fairly inferable that the
parties also intended the IAFF benefits to vest. (This inference
is also supported by evidence of the course of performance of the
CBA.) The trial court's finding was not clearly erroneous.
2. Evidence of post-formation conduct
Alaska courts may use extrinsic evidence regarding the
intent of the parties "to interpret a contract regardless of
whether the contract appears to be ambiguous on its face or not."
Peterson, 625 P.2d at 871; Vickaryous, 598 P.2d at 497 n.22. We
have recognized that the parties' conduct after entering into the
contract is probative of the intent behind the agreement.
Peterson, 625 P.2d at 870 n.7.
MOA argues that extrinsic evidence is relevant "insofar
as it relates to `the time the contract was made.'" MOA contends
that "the trial court erred in relying on the testimony of a number
of people who were unknowledgeable about CBA intent, or were merely
voicing opinions independent of CBA intent." In essence, MOA
argues that the only people who may testify about the intent of the
parties to the CBA are those who were in the negotiating room
during formation of the contract. It relies on Norton, 677 P.2d at
881, which it claims found that "the testimony of a party's
attorney who was not present at contract negotiations"was not
indicative of contract intent. Norton is readily distinguishable.
We there held that the testimony of a title company manager who
drafted a contract was not indicative of the parties' intent both
because his knowledge was more speculative than first-hand, and
because it shed no light on what the parties contemplated with
respect to the events that ultimately occurred. (EN11) Id.
In comparison, the testimony on which the trial court
relied here and which MOA characterizes as irrelevant was from
persons with first-hand knowledge of party intent and conduct.
(Because institutions are the parties to the CBAs, party intent may
be demonstrated by knowledgeable individuals who think and act for
the institutions.) MOA consequently argues that it was error to
rely on the testimony of John Franklin, Deputy Fire Chief and Fire
Chief during the Sullivan administration, and Commissioner of
Public Safety and City Manager during the Knowles administration,
because "Franklin testified that he never directly participated in
any of the CBA negotiations." The trial court found that
Franklin understood that, from the late 1970's
through the Knowles administration, the
administration was obligated to maintain post-
retirement medical benefits to current
retirees without diminishment. He widely
communicated that understanding to many other
firefighters and MOA employees.
The trial court did not err in relying on Franklin's testimony
concerning actions he took based on his understanding of the CBAs.
We likewise reject MOA's arguments directed at the
testimony of other MOA employees. Testimony of the following
persons was correctly considered by the trial court and supports
that court's findings: former Mayor Tony Knowles; Ron Otte, Deputy
Chief and Chief of Police during the Knowles administration; former
municipal attorneys Jerry Wertzbaugher and Richard Kibby; Sally
Wood, MOA benefits specialist; and MOA labor specialist John
Marton. These witnesses were all involved in performing the
contracts and all testified that they operated under the assumption
that retiree medical benefits were vested.
Gentile class members also supported the trial court's
findings by testifying that in conversations with MOA personnel
shortly before retirement, they were told their benefits would not
be subject to reduction. (EN12) This testimony is substantial
evidence that the parties believed the benefits to be vested. The
record also supports a conclusion that this understanding prevailed
when the parties negotiated and entered into subsequent APDEA and
IAFF contracts.
We consequently hold that the trial court did not err in
concluding that MOA breached the APDEA and IAFF CBAs by
unilaterally decreasing the retirees' medical benefits. It
correctly entered a permanent injunction preventing any future
attempt to decrease those benefits. (EN13)
B. Judicial Authority to Grant Relief
MOA argues that the Assembly was not fully aware of the
costs involved when it accepted the APDEA and IAFF CBAs. MOA
compares the acceptance of the CBAs with the Assembly's previous
approval of ACO 77-257, which gave command officers lifetime post-
retirement health benefits. When the Assembly passed ACO 77-257,
it had access to a twenty-year estimate of the costs of the
benefits. MOA argues that because there was no similar cost
estimate for the CBAs, the trial court's judgment saddles the
Municipality with a financial obligation the Assembly never
accepted. It argues that the trial court's judgment usurped the
Assembly's power and should be considered "an unauthorized promise
by a government official to appropriate government funds, which
under Alaska [law] is of no force and effect."
MOA's argument is without merit. The trial court did not
err in finding that MOA entered into contracts that granted vested
benefits to the retirees. Consequently, MOA's asserted failure to
comprehend or fund its liability does not excuse its contractual
obligations on a theory the trial court somehow usurped the power
of the MOA Assembly. (EN14)
C. Covenant of Good Faith and Fair Dealing
As a matter of law, all contracts in Alaska contain an
implied covenant of good faith and fair dealing. Alaska Pacific
Assurance Co. v. Collins, 794 P.2d 936, 947 (Alaska 1990); Guin v.
Ha, 591 P.2d 1281, 1291 (Alaska 1979). This covenant primarily
sounds in contract; in limited situations, however, it may sound in
tort. Loyal Order of Moose, Lodge 1392 v. International Fidelity
Ins. Co., 797 P.2d 622, 626 (Alaska 1990); State Farm Fire &
Casualty Co. v. Nicholson, 777 P.2d 1152, 1156 (Alaska 1989). In
Alaska, breach of the covenant is a tort only if it is in the
surety or insurance context. See Loyal Order of Moose, Lodge 1392,
797 P.2d at 626-27 (holding tort claim based on covenant available
in surety context); Nicholson, 777 P.2d at 1156-57 (holding
insurance contracts are subject to tort action for breach of duty
of good faith and fair dealing). We have specifically declined to
extend a tort remedy to commercial and employment contracts. State
v. Transamerica Premier Ins. Co., 856 P.2d 766, 774 (Alaska 1993)
(refusing to extend tort to commercial contract); ARCO Alaska, Inc.
v. Akers, 753 P.2d 1150, 1153-54 (Alaska 1988) (refusing to extend
tort based on covenant to employment contract).
The trial court held that MOA was potentially liable in
tort because it was the underwriter of the health insurance plan
and was in a position of trust in relation to the retirees. The
retirees contend that the court failed to properly apply the tort
standard to MOA. They argue that the trial court's finding that
MOA did not breach the covenant of good faith and fair dealing was
clearly erroneous and unsupported by the record.
We do not reach the merits of the retirees' arguments
because we believe the trial court erred in subjecting MOA to
potential tort liability for its actions. Public policy concerns
do not require the imposition of tort liability in this case.
We first recognized the tort of breach of the duty of
good faith and fair dealing in Nicholson, 777 P.2d at 1156. (EN15)
We there noted that an action in tort provides a remedy for harm to
insureds in situations where there is no breach of an express
contract or where contract damages fail to adequately compensate
insureds. Id. at 1156. A primary concern is that without the
threat of tort liability, insurance companies may be "encouraged to
delay payment of claims to their insureds with an eye toward
settling for a lesser amount than that due under the policy."
Scott Wetzel Serv., Inc. v. Johnson, 821 P.2d 804, 810 (Colo. 1991)
(quoting Bibeault v. Hanover Ins. Co., 417 A.2d 313, 318 (R.I.
1980)); Nicholson, 777 P.2d at 1156.
Insurance companies have been subjected to tort liability
for breaching the covenant of good faith in resolving claims
covered by their insurance policies. See Gruenberg v. Aetna Ins.
Co., 510 P.2d 1032, 1037 (Cal. 1973) (holding that tort liability
exists if company refuses without proper cause "to compensate its
insured for a loss covered by the policy"); Noble, 624 P.2d at 868
(holding tort liability applies when "dealing with its insured on
a claim"); Nicholson, 777 P.2d at 1157 (holding that tort liability
exists for "insurer's bad faith failure to settle a first-party
claim").
It is unnecessary to decide here whether MOA would be
subject to tort liability for failing to deal fairly and in good
faith in the settlement of a covered insurance claim. That is not
the nature of the retirees' claim. They instead claim that MOA
breached the covenant of good faith and fair dealing by
unilaterally decreasing the insurance coverage required by the
CBAs. Although insurance is the topic in dispute, MOA breached the
CBAs, not policies of insurance. The public policy concerns are
fundamentally different. When the parties enter into a CBA, they
are not in substantially disparate bargaining positions. APDEA and
IAFF are unions. They negotiate with MOA at arm's length. CBAs
are generally not form contracts that the union must either accept
or reject. Evidence of bargaining over the disputed contract
language establishes that the CBAs were not adhesion contracts.
Although the retirees are in a poorer financial position
than MOA, the context that makes insurance claim cases compelling
is not present. The retirees are not like insureds who, after
suffering a loss from which a claim arises, may find themselves at
a great disadvantage, potentially forcing them to accept less than
the amount of their loss. We believe that CBAs are closer to
commercial contracts than to insurance contracts. In Transamerica
Premier Ins. Co., we held that in commercial contracts, "a tort for
breach [of the covenant of good faith] arises only when `a party's
conduct . . . rises to the level of a traditionally recognized
tort.'" 856 P.2d at 774 (quoting Akers, 753 P.2d at 1154). We
therefore conclude that MOA was not subject to tort liability under
the covenant of good faith and fair dealing. Because the retirees
succeeded on the breach of contract claim, it is unnecessary to
determine whether MOA breached a contractual duty of dealing in
good faith.
D. Attorney's Fees
Invoking Civil Rules 23 and 82, the retirees moved for an
attorney's fees award of $2.8 million. (EN16) MOA, arguing that it
was the prevailing party on a substantial portion of the
litigation, moved for an attorney's fees award to be set off
against the retirees' fee recovery. Implicitly rejecting MOA's
motion, the trial court concluded that the retirees were the
prevailing parties. It awarded them attorney's fees of $342,531,
100% of "actual"hourly fees calculated as the product of counsels'
usual hourly rates and the hours spent. (EN17) This award thus
exceeded the award called for by Rule 82(b)(2) (thirty percent of
actual reasonable fees where no money judgment is recovered), but
the court declined to award a risk premium under Rule 82 and also
declined to fund an enhanced award via reduced future benefits to
the retirees.
The retirees argue on appeal that the trial court should
have awarded greater-than-actual (enhanced) attorney's fees. They
argue several theories in support: that public policy favoring the
promotion of class action lawsuits and the availability of
competent counsel requires enhanced fees, that a common fund
analysis applies, and that, at the least, the class members should
pay for the risk factor portion of the fees. Underlying each
theory is the retirees' premise that compensation for class action
attorneys should recognize the risk of not being paid.
Before we address these arguments, we note that the class
representatives and their attorneys apparently agreed that the
attorneys would receive whatever fees the trial court awarded at
the conclusion of the case, and would receive nothing if the class
did not prevail. At the fee hearing below, class counsel stated
they had no right to recover directly from the class members any
unpaid balance of accrued fees. (EN18) Thus, both the payment and
the amount of any fees the attorneys might recover were contingent
on the class prevailing and entry of a fee award.
This arrangement appropriately recognized the broad
discretion of trial courts in assessing attorney's fees in class
actions. See, e.g., 7B Charles A. Wright et al., Federal Practice
and Procedure  1803, at 493-94 (2d ed. 1986) ("The court's
authority to reimburse the parties stems from the fact that the
class action is a creature of equity and the allowance of attorney-
related costs is considered part of the historic equity power
. . . .") (hereinafter Federal Practice and Procedure). In
comparison, typical non-class action retention agreements express
or imply definite standards for calculating the fees clients are to
pay their attorneys, either on an hourly rate basis or on a
percentage of a contingent monetary recovery. This case thus
differs from the typical Alaska non-class action suit, in which a
prevailing party moves under Rule 82 for an award requiring the
losing party to make the prevailing party partially or completely
whole for the fees the prevailing party must pay its attorneys
under a retention agreement.
Rule 82 governs any award of attorney's fees to be paid
to retirees by MOA. "Except as otherwise provided by law or agreed
to by the parties, the prevailing party in a civil case shall be
awarded attorney's fees calculated under this rule." Alaska R.
Civ. P. 82(a). No other "law"or agreement applies here.
This court has long recognized that "the purpose of Civil
Rule 82 is to afford reasonable partial compensation for attorney's
fees to the winning civil litigant." Wise Mechanical Contractors
v. Bignell, 718 P.2d 971, 973 (Alaska 1986) (citing Malvo v. J.C.
Penney Co., 512 P.2d 575, 588 (Alaska 1973), and Irving v. Bullock,
549 P.2d 1184, 1190 (Alaska 1976)). See also Childs v. Copper
Valley Elec. Ass'n, 860 P.2d 1184, 1190 (Alaska 1993) ("attorney's
fees awarded under Alaska Civil Rule 82, . . . are intended to
provide reasonable partial compensation"); In re Soldotna Air Crash
Litigation, 835 P.2d 1215, 1225 n.2 (Alaska 1992) ("Civil Rule 82
allows the award of partial attorney's fees to the prevailing party
in a civil action"). "The supreme court has identified Rule 82's
primary goal as partially reimbursing a prevailing party for
attorney's fees." Alaska Judicial Council, Alaska's English Rule:
Attorney's Fee Shifting in Civil Cases 52 (1995).
In Tobeluk v. Lind, 589 P.2d 873 (Alaska 1979), this
court compared fee awards under Civil Rule 82 and the Civil Rights
Attorney's Fees Awards Act of 1976, 42 U.S.C.  1988. We noted:
"The Alaska Rules and Federal statute are similar in that both
provide the court with the discretionary authority to award
attorneys' fees to a prevailing party, and both intend fees awards
to be compensatory rather than punitive." Tobeluk, 589 P.2d at
876. We then observed:
Despite the above similarities, the two fee
award provisions are based on dissimilar
underlying policies. The purpose of Rule 82
is to partially compensate a prevailing party
for the expenses incurred in winning his case.
It is not intended as a vehicle for
accomplishing anything other than providing
compensation where it is justified. In
comparison, the explicit purpose of the fee
shifting provision in the federal statute, 42
U.S.C.  1988, is to encourage meritorious
claims which might not otherwise be brought.
Id. (citations and footnote omitted). (EN19) Given this long-
recognized purpose, Rule 82, both before and after its amendment,
cannot ordinarily be used to award to a prevailing party an amount
larger than the party has agreed to pay its attorneys. (EN20)
Rule 82 requires the trial court to decide what portion
of the fees incurred by the prevailing party will be assessed
against the losing party. In the usual non-class action case, the
fees incurred by the prevailing party are set by contract and can
be calculated without judicial intervention. "Actual"fees are
those the party agrees to pay its lawyer. Because the class
representatives in this case agreed to pay their lawyers whatever
fees the court awarded, however, the "actual"fees were not
necessarily limited to hourly fees. To determine the Rule 82
award, the trial court had to: (1) determine the compensable value
of the services the attorneys rendered to the class, and (2) apply
Rule 82 to the amount calculated in Step 1 to decide how much MOA
should pay. (EN21) (Part III.D.3 below discusses a potential
consequence if a Step 2 award is less than the Step 1 calculation.)
We now consider the theories the class representatives
advance in support of their request for an enhanced fee award.
1. Enhancement of actual attorney's fees
The retirees argue that the trial court erred in failing
to award enhanced fees against MOA, on the theory that public
policy and equity require a risk premium to encourage the
"effective and socially beneficial use of Rule 23"and to ensure
that attorneys in class action cases "are not put off by the
necessarily speculative nature of their compensation."
We have previously upheld the award of enhanced fees in
context of workers' compensation. Wise, 718 P.2d at 974-75. In
Wise, we stated that an enhanced fee award was proper because of
the need to provide incentives to attorneys to represent injured
workers. Id. Incentives are needed, we reasoned, because of the
inability of certain plaintiffs to pay an hourly rate and the
financial risk posed by contingency fee arrangements. We stated:
If an attorney who represents claimants makes
nothing on his unsuccessful cases and no more
than a normal hourly fee in his successful
cases, he is in a poor business. . . . As we
have noted, the objective of awarding
attorney's fees in compensation cases is to
ensure that competent counsel are available to
represent injured workers. This objective
would not be furthered by a system in which
claimants' counsel could receive nothing more
than an hourly fee when they win while
receiving nothing at all when they lose.
Id. at 975 (citations omitted). Nonetheless, in Wise we
distinguished workers' compensation cases from cases in which Rule
82 governs fee awards:
In workers' compensation cases the objective
is to make attorney fee awards both fully
compensatory and reasonable so that competent
counsel will be available to furnish legal
services to injured workers. Wien Air Alaska
v. Arant, 592 P.2d 352, 365-66 (Alaska 1979).
By contrast, the purpose of Civil Rule 82 is
to afford reasonable partial compensation for
attorney's fees to the winning civil litigant.
Id. at 973.
Awarding an enhanced fee, i.e., an amount more than the
party agreed to pay its attorney, is fundamentally contrary to the
purposes behind Rule 82, and would represent a marked departure
from the policy behind that rule. (EN22)
As indicated above, however, that does not mean a Rule 82
award in this case could not exceed the product of the hours worked
and the attorneys' hourly rates. In determining the value of the
services under Step 1, the trial court may take into account the
same policy considerations the class representatives advance in
seeking a Rule 82 award exceeding the hourly basis calculation.
(EN23) The need to promote the efficient use of court resources
via class action litigation and the potential difficulty of
attracting capable counsel are some of the relevant factors a trial
court might consider in evaluating the services in Step 1. (EN24)
We note, however, that a trial court could also conclude that the
potential for recovering money damages may provide capable
attorneys sufficient incentive to bring a case which happens to end
without entry of a money judgment. (EN25) Further, we previously
observed that "generally, full compensation at a reasonable rate
per hour will prove adequate to encourage appropriate public
interest litigation." Thomas v. Bailey, 611 P.2d 536, 541 (Alaska
1980).
The trial court apparently based its denial of the class
representatives' motion for an enhanced fees award on a belief it
did not have discretion to consider risk enhancement under Rule 82.
Because risk enhancement is a factor which could have been
considered at Step 1 of the fee calculation, and because we
conclude that the trial court should analyze the fee issue using
the model suggested above, it is necessary to remand this issue.
(EN26)
2. Common fund analysis
The retirees offer the common fund doctrine as one method
for achieving an enhanced fee award. They argue that the common
fund analysis applies here because their lawyers preserved a common
fund equal to the present value of the retirees' medical benefits
package. The retirees request that the value of the common fund
determine the amount of the fees, but that MOA be their source.
Under the common fund doctrine, "a litigant or a lawyer
who recovers a common fund for the benefit of persons other than
himself or his client is entitled to a reasonable attorney's fee
from the fund as a whole." Boeing Co. v. Van Gemert, 444 U.S. 472,
478 (1980).
In our recent decision of In re Estate of Brandon, 902
P.2d 1299 (Alaska 1995), we discussed with approval the common fund
doctrine. Id. at 1319 n.23 (involving multiple tort claimants
potentially benefited by the efforts of the parties' different
attorneys). We have now squarely adopted this doctrine in Edwards
v. Alaska Pulp Corp., __ P.2d __, Op. No. 4362 at 5-9 (Alaska, June
28, 1996). As we held in Edwards, the common fund doctrine and
Rule 82 have fundamentally different, but reconcilable, purposes:
the former is a fee-sharing rule, and the latter is a fee-shifting
rule. Id. at 7-9. Both principles can apply in an appropriate
case, where the common fund doctrine determines the fees that
benefited class members owe their attorneys, and Rule 82 determines
what part of those fees should be shifted to the losing party. The
proper case is one where the value of the attorney's services is
not contractually specified and the trial court must calculate that
value in Step 1 of the model discussed above. Even though that
value could not properly be directly assessed against the losing
party under Rule 82, the separate Step 2 analysis would potentially
permit part of the value of those services to be shifted to the
losing party under Rule 82.
MOA argues, however, that the common fund doctrine does
not apply here because no common fund was recovered. In Mills v.
Electric Auto-Lite Co., 396 U.S. 375, 392 (1970), the United States
Supreme Court held that the absence of a monetary recovery "does
not preclude an award based on [the common fund] rationale." Mills
involved a fee award to be paid by the defendant corporation in a
successful stockholder derivative action. The Court stated:
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 [the common fund]
rationale. Although the earliest cases
recognizing a right to reimbursement involved
litigation that had produced or preserved a
"common fund"for the benefit of a group,
nothing in these cases indicates that the suit
must actually bring money into the court as a
prerequisite to the court's power to order
reimbursement of expenses.
Id.
In Hall v. Cole, 412 U.S. 1, 5 n.7 (1973), the Court
reiterated this holding in context of an action by a union member
challenging his expulsion from the union, stating:
[I]n Mills v. Electric Auto-Lite Co., 396 U.S.
375, 90 S. Ct. 616, 24 L. Ed. 2d 593 (1970),
we held that the rationale of these cases must
logically extend, not only to litigation that
confers a monetary benefit on others, but also
to litigation "which corrects or prevents an
abuse which would be prejudicial to the rights
and interests"of those others.
Id. (citing Mills, 396 U.S. at 396).
The superior court stated that Mills and Hall could be
distinguished from the present case, and held that "the lack of a
money judgment combined with the problem of determining the actual
value of the judgment precludes this court from applying the common
fund theory." Citing Alaska Civil Rule 23.1(j), the superior court
stated that "Mills can be distinguished in that Alaska law provides
for reasonable attorney's fees in derivative actions by
shareholders." In our view, Mills cannot be distinguished on this
basis, as the Supreme Court did not narrowly found its analysis of
this issue on the derivative posture of Mills, as evidenced by its
expansion of its holding in Hall. Likewise, the fact that Hall did
not "invoke class action considerations"did not make it
distinguishable.
We hold that the absence of a traditional fund does not
preclude application of the common fund rationale in the
appropriate case. We need not consider whether a common fund
rationale would be applicable in every case in which no fund is
recovered. In this case, it is appropriate to apply the rationale
during Step 1, when the attorneys' services are evaluated. In
Edwards, we held that trial courts have discretion to choose
between the lodestar and percentage of the common fund methods in
deciding reasonable fees under the common fund doctrine. Edwards,
__ P.2d __, Op. No. 4362 at 14-15. Both of those methods may yield
fees exceeding fees calculated on a strict hourly basis. In this
case, any difficulty in calculating the value of the common benefit
may make the percentage approach inappropriate. Nonetheless, that
would not make the common fund or common benefit analysis
altogether inappropriate, because other evaluation methods, such as
a lodestar formula, are available.
Finally, MOA claims Moses v. McGarvey, 614 P.2d 1363
(Alaska 1980), supports MOA's position that the common fund theory
does not support a greater-than-actual fee award. MOA apparently
regards the product of the hours spent and the usual hourly rate to
be retirees' "actual"fees. As we intimated above, this view is
incorrect, because the "actual"fees are those the clients agreed
to pay their attorneys. Because these plaintiffs agreed to pay
whatever the court awarded, their "actual"fees are not necessarily
limited to fees calculated on a strict hourly basis. Neither Moses
nor Rule 82 prevents the trial court on remand from awarding fees
greater than those calculated on an hourly basis in this case.
Therefore, we hold that the trial court may apply the common fund
doctrine in calculating fees under Step 1 on remand.
3. Requiring retirees to contribute to their
attorney's fees
The class representatives alternatively asked the trial
court to require all class members to contribute to the "risk
factor"portion of class counsel's fees exceeding the fees assessed
against MOA under Rule 82. (EN27) The unnamed class members
apparently had no prior formal notice of this request. The record
does not clearly establish whether this request was consistent with
the terms of the class representatives' fee agreement with counsel.
For sake of this discussion, we assume it was. The trial court
rejected this request because the entire class had not approved
this procedure, and because "it would be quite cumbersome to
administer, and has no legal support either in case law or
legislative history." The class representatives argue on appeal
that if MOA is not ordered to pay enhanced fees, all class members
should be "allowed"to share the value of their attorneys' services
on a variation of the common fund doctrine.
When litigation bestows a benefit upon a class, the
propriety of spreading the litigation costs among those benefited
is well established. See, e.g., Boeing, 444 U.S. at 478
("[P]ersons who obtain the benefit of a lawsuit without
contributing to the costs are unjustly enriched."). Due process
concerns attendant to assessing fees against absent class members
when a suit is unsuccessful do not arise when a class action
creates a fund from which costs can be reimbursed. Federal
Practice and Procedure  1803, at 505; 3 Herbert B. Newberg,
Newberg on Class Actions  14.03, at 14-2 through 14-3 (3d ed.
1995). Newberg states:
These self-appointed champions of the class,
and their counsel, are not entitled to charge
absent class members for reimbursement of
attorneys' fees or litigation expenses if the
class suit is unsuccessful.
. . . .
. . . When, however, the class action
successfully recovers a fund for the benefit
of a class or when nonparties to the suit will
share in those monies, it is long settled,
based largely on windfall and unjust
enrichment principles, that the attorneys who
created that class recovery are entitled to be
reimbursed from the common fund for their
reasonable litigation expenses, including
reasonable attorneys' fees.
Id. Precedent exists for class contributions to fees from benefits
created or protected by a class action. See, e.g., Yvonne W.
Rosmarin & Daniel A. Edelman, Consumer Class Actions, A Practical
Litigation Guide  15.1.2, at 143-44 (3d ed. 1995) ("[I]n a
successful action to construe a standard form insurance policy to
provide . . . greater . . . benefits . . . it could be argued that
fees should be awarded against the company . . . because . . . the
company has the ability to pass on the expense among the benefitted
class in the form of higher premiums."(citing Cosgrove v.
Sullivan, 759 F. Supp. 166, 169 (S.D.N.Y. 1991) (fees to be paid by
deducting one percent from all Medicare benefit payments disbursed
by the Department of Health and Human Services pursuant to the
judgment))).
Therefore, a trial court could conclude that class
members should be required to pay something for the benefit they
have received as a result of the attorneys' efforts, assuming the
class's Rule 82 award is less than the value of the services
contractually agreed upon or calculated in Step 1 when that
procedure applies. (EN28) On remand, the trial court in its
discretion may permit further argument and consideration of this
issue.
IV. CONCLUSION
For the reasons discussed above, we REVERSE IN PART and
AFFIRM IN PART the superior court's September 3, 1993 and March 14,
1994 judgments, and REMAND the attorney's fees issue.
ENDNOTES:
1. The APDEA disaffiliated from the Teamsters and directly
negotiated the July 1980 to October 1982 contract with MOA.
Entering these negotiations, MOA's goal was an agreement for post-
retirement medical benefits less extensive than those of the
Teamsters and more closely aligned with MOA's Public Employees
Retirement System (PERS).
Bill Smith (a different person than plaintiff William Smith)
became MOA's labor negotiator in November 1980. During
negotiations with Fred Dichter, APDEA's labor negotiator, MOA
proposed the following provision:
Amend the existing agreement (Article XIX) to
provide that, effective January 1, 1981, the
Municipality shall provide medical coverage
for all retirees from the Anchorage Police
Department. Major medical coverage including
coverage for audio and visual, but excluding
dental coverage, will be provided.
In response, APDEA proposed the following change to the last
sentence:
Major medical coverage including coverage for
audio, visual and dental will be provided.
This provision will remain in effect in this
and all subsequent agreements. Coverage under
this provision may not be diminished.
(Emphasis added.) MOA rejected this language because it would have
locked in the level of medical benefits in perpetuity. The
language contained in the July 1980 CBA was the parties'
compromise.
2. The APDEA received dental coverage beginning with its 1982
CBA.
3. The history of the IAFF agreements differs slightly from that
of the APDEA agreements, although MOA attempted to keep the
firefighters' retirement medical benefits nearly identical to those
given the police officers. A December 12, 1977 agreement provided
the first post-retirement medical benefits given to IAFF members.
This agreement was "Administrative Letter #2,"an amendment to an
existing agreement. It stated:
Those employees who retire after January 1,
1978 may participate in the reduced level post
retirement medical benefits plan costing
$63.61 which they will pay to the
Municipality. The rate is guaranteed for the
1978 benefit year.
In March 1980, the parties agreed to change the contract to require
MOA to pay for the medical coverage. "Benefits under the plan are
the same as those provided under Administrative Letter #2 dated
December 12, 1977, and will not be diminished during the term of
this agreement, except by mutual agreement." The IAFF CBA
effective January 1981 adopted the post-retirement medical benefits
provision contained in every subsequent IAFF CBA.
4. MOA also argues that the trial court erred in awarding full
"actual"attorney's fees to the retirees. MOA asserts in its
appellee's brief in S-6305, the appeal commenced by the Gentile
parties, that it has cross-appealed from the award of attorney's
fees. However, our files contain no such cross-appeal. MOA filed
a motion to supplement its appellate points with the attorney's
fees issue in S-5965, the appeal in which MOA was the appellant,
but MOA did not file that motion until after briefing in that
appeal was already complete. (Argument in S-5965 preceded argument
in S-6305 by four months.) These two appeals were briefed and
argued separately. We have issued a single opinion because the two
appeals share a common legal origin and factual foundation, even
though they arise out of separate judgments.
We denied MOA's motion to supplement its points on appeal in
S-5965, but our order stated that "upon receipt of the documents
required by AR 204(b), the issues Appellant [MOA] raised in the
supplemental points on appeal will be treated as a cross-appeal in
S-6305." (Emphasis added.) MOA did not file the documents
required by that order and consequently failed to perfect and
preserve its would-be cross-appeal. See also infra note 26.
5. In Wright v. Vickaryous, 598 P.2d 490, 497 n.22 (Alaska 1979),
we noted that we do not require a preliminary finding of ambiguity
before evaluating extrinsic evidence.
6. Relying on Bidlack v. Wheelabrator Corp., 993 F.2d 603, 606-07
(7th Cir.), cert. denied, 114 S. Ct. 291 (1993), MOA argues that a
presumption exists against the vesting of post-retirement medical
benefits. In Bidlack, the Seventh Circuit, sitting en banc, seems
to have limited the strong anti-vesting rule enunciated in Senn v.
United Dominion Indus., 951 F.2d 806 (7th Cir. 1992), cert. denied,
113 S. Ct. 2992 (1993). The retirees argue that if any presumption
applies it should be a pro-vesting presumption, citing such cases
as International Union, UAW v. Yard-Man, Inc., 716 F.2d 1476, 1482
(6th Cir. 1983), cert. denied, 465 U.S. 1007 (1984). In Yard-Man,
the Sixth Circuit applied a pro-vesting presumption, reasoning that
the context in which the collective bargaining agreement was
negotiated, and the fact that retirees are not subject to mandatory
bargaining during collective bargaining, create an inference that
the parties intended retiree medical benefits to vest. Id.
7. In Peterson we listed the following types of evidence that
could be useful:
[T]he language and conduct of the parties, the
objects sought to be accomplished and the
surrounding circumstances at the time the
contract was negotiated. . . . The conduct of
the parties after the contract was entered
into is generally considered to be admissible
as a probative extrinsic aid to determining
the intent of the parties when they made the
contract.
625 P.2d at 870 n.7.
8. MOA argues that it was clear error to deny its motion to
divide the class. Because MOA fails to develop this argument, we
consider it to have been waived. Gates v. City of Tenakee Springs,
822 P.2d 455, 460 (Alaska 1992). We also note that the parties
stipulated that the legal issues in this case were common to the
APDEA and IAFF CBAs.
9. MOA argues that Dichter's testimony "actually shows that the
parties most assuredly did not have that intent." It argues that
Dichter's testimony "endorses the Municipality's position that
there was no mutual intent to guarantee retiree medical benefits
coverage beyond the term of the [CBA]." MOA cites to only a small
portion of Dichter's testimony. Other passages clearly support the
retirees' position. When asked whether the language in the medical
benefits section was intended to freeze benefit levels for police
officers who had already retired, he replied "yes." We defer to
the finding of the trial court which heard the testimony and
observed the demeanor of the witnesses, including Dichter. Crook
v. Mortenson-Neal, 727 P.2d 297, 302 (Alaska 1986).
MOA also urges us to "give no credence to Dichter's research
conclusion." Although we do not accept the research conclusion as
legal grounds for our opinion, we accept the trial court's finding
that Dichter reached a conclusion which he communicated to the MOA
negotiator.
10. MOA relies on the testimony of Smith, MOA's chief negotiator,
that MOA did not intend the CBA to vest benefits. It also argues
that the testimony of former Mayor Sullivan and Emily French, MOA's
chief negotiator under Mayor Knowles, supports a conclusion that
MOA did not intend post-retirement medical benefits to vest.
11. MOA apparently considers that case particularly instructive
because it involved a witness who was not present at contract
negotiations. We did not base our holding on that fact, however,
and instead relied on his demonstrated lack of nonspeculative,
first-hand knowledge. Norton, 677 P.2d at 881.
12. The court explicitly gave additional weight to their testimony
because of
[t]heir demeanor; the clarity of their
recollections; their training as former Public
Safety officers to be careful, responsible
witnesses; the importance of these
conversations to the retirees, who were thus
more likely to remember them; and the
consistency of the testimony with all or parts
of the testimony of MOA employees Pam Barbeau,
Chuck Shelton, Carol Watts.
13. The trial court also held that by diminishing the medical
benefits, MOA violated article XII, section 7 of the Alaska
Constitution. Because the class members' contract claim fully
resolves the question of whether the medical benefits vested when
the covered employees retired, it is unnecessary to consider
claimants' constitutional claim.
14. MOA does not argue mistake of fact. When the Assembly passed
ACO 77-257 it understood that it was taking on an "open-ended"
commitment. The cost estimates varied from $450,000 to $3,450,000,
and the Assembly was informed that the estimates were based on
nothing more than guesses at the projected rise in health care
costs. We must presume that in accepting the CBAs the Assembly was
aware of what it was voting on and the financial implications of
its actions. See Property Owners Ass'n v. City of Ketchikan, 781
P.2d 567, 572 (Alaska 1989) (holding city council's legislative
decisions presumed correct). MOA has presented no evidence that
would indicate otherwise.
15. In that case we quoted an Arizona Supreme Court opinion that
recognized several public policy arguments warranting application
of the tort. It stated:
We are persuaded that there are sound reasons
for recognizing the rule announced in
Gruenberg [v. Aetna Ins. Co., 510 P.2d 1032,
1037 (Cal. 1973)]. The special nature of an
insurance contract has been recognized by
courts and legislatures for many years. An
insurance policy is not obtained as protection
against calamity. In securing the reasonable
expectations of the insured under the
insurance policy there is usually an unequal
bargaining position between the insured and
the insurance company. . . . Often the
insured is in an especially vulnerable
economic position when such a casualty loss
occurs. The whole purpose of insurance is
defeated if an insurance company can refuse or
fail, without justification, to pay a valid
claim. We have determined that it is
reasonable to conclude that there is a legal
duty implied in an insurance contract that the
insurance company must act in good faith in
dealing with its insured on a claim, and a
violation of that duty of good faith is a
tort.
Id. at 1155 (citations omitted) (quoting Noble v. National Am. Life
Ins. Co., 624 P.2d 866, 867-68 (Ariz. 1981)).
16. This proposal was based on a percentage of the benefits at
stake -- allegedly worth $28 million -- under a common fund theory.
Retirees noted that at rates up to $195 per hour, the hourly fees
would have been $342,531. They proposed alternative awards, the
smallest of which was $1,027,593, using the hourly fees as a
lodestar with a multiplier of three. They argued that the award
should include a risk premium, and should be paid by MOA. The
class representatives proposed alternatively that $1,462,531 be
paid their attorneys, $1,120,000 of which would be a "risk factor"
and would ultimately be contributed by the class members
themselves.
17. The fees decision was entered June 1, 1994. Because both
sides filed their fees motions after amendments to Rule 82 became
effective on July 15, 1993, the trial court should have applied the
amended rule. Instead, the trial court applied the prior version
of Rule 82. The 1993 amendments added eleven specific and general
criteria a trial court might employ in deviating from an award
calculated under Rule 82(b)(1) or Rule 82(b)(2). Alaska R. Civ. P.
82(b)(3). The former rule applied by the trial court permitted it
to award fees based on, among other things, the value of services
provided. We analyze the retirees' appeal under the amended rule.
18. As one fee award alternative, however, class counsel reserved
the right to seek fees from the class members pursuant to a common
fund award that would have resulted in slightly reduced benefits to
the class over time.
19. We have recognized limited exceptions to the partial
compensation purpose of Rule 82 when the losing party has engaged
in frivolous or bad faith litigation tactics, State, Dep't of
Revenue v. Allsop, 902 P.2d 790, 795 (Alaska 1995), or one party is
a public interest litigant which may recover full reasonable fees
if it is the prevailing party, but is not liable for a fee award if
it is not the prevailing party. Eyak Traditional Elders Council v.
Sherstone, Inc., 904 P.2d 420, 422 (Alaska 1995); Hickel v.
Southeast Conference, 868 P.2d 919, 923 (Alaska 1994). These
exceptions do not apply here.
20. In cases where the attorney charges no fee or a lower than
usual fee, however, the proper approach is to value the attorney's
services and to make a Rule 82 award which is some fraction of this
value. Arctic Slope Native Ass'n v. Paul, 609 P.2d 32, 38 (Alaska
1980).
21. Thus, for illustration purposes only, assuming the court were
to decide in Step 1 the value of the services was $1,200,000, and
in Step 2 that under Rule 82 the class should be awarded forty
percent of the value of the attorney's fees, the award against MOA
would be $480,000. Per the retention agreement, the class
representatives would pay counsel the $480,000.
22. Our holding here does not preclude a court from shifting fees
greater than those agreed to by an attorney charging no fees or
lower than usual fees. See discussion of Arctic Slope Native
Ass'n, supra note 20.
23. The trial court noted that the parties disagree about the
value of the judgment to the class. On remand, the trial court may
require further argument on this issue and factor this dispute into
its calculation of the reasonable fees.
24. One court has stated that "it is not the function of judges in
fee litigation to determine the equivalent of medieval just price.
It is to determine what the lawyer would receive if he were selling
his services in the market rather than being paid by court order."
In re Continental Ill. Sec. Litig., 962 F.2d 566, 568 (7th Cir.
1992) (Posner, J.) (reversing trial court fee award to class action
counsel where the trial court refused to award a risk multiplier).
25. The retirees also sought additional tort and contract damages.
Had they obtained a damages award, their attorneys presumably would
have shared in part of that award. A court might conclude that the
attorneys took the risk that they would be unsuccessful in all or
part of this case in exchange for a chance at a large contingent
fee recovery under a common fund analysis, and that awarding a risk
premium is not needed to encourage competent counsel to accept
similar class action cases in the future.
As was done here, class representatives or counsel may offer
affidavits asserting that it would be difficult or impossible to
obtain other capable counsel absent the potential recovery of
enhanced fees. Although the actual difficulty experienced by class
representatives in retaining counsel is probative, a court need not
unquestioningly accept assertions that absent enhanced fees,
capable counsel could not have been retained, or cannot be obtained
in the future. Such assertions are potentially speculative and
self-serving.
26. MOA asserts that it has cross-appealed from the fee award, and
that the court erred in failing to apportion fees by issue and in
awarding full fees under Rule 82. However, MOA failed to properly
raise and perfect its cross-appeal. See supra note 4. Jackson v.
Nangle, 677 P.2d 242, 247 n.3 (Alaska 1984); Alaska Brick Co. v.
McCoy, 400 P.2d 454, 457 (Alaska 1965). We have therefore
considered only the fees issues retirees have raised.
The fact circumstances on which MOA would rely in its
unpreserved attorney's fees appeal may be relevant on remand when
the trial court revisits the retirees' enhanced fees request.
27. The class representatives proposed that these contributions be
funded by requiring MOA presently to advance $1.12 million to be
paid class counsel as a "risk factor,"and permitting MOA to
recover this amount by making minor deductions from the retirees'
future benefit payments.
28. We are mindful of the potential lack of adversity when class
counsel asks the trial court to impose fees on the benefited class
members under the common fund doctrine. Possible solutions include
appointment of masters to decide fact issues or "special counsel"
to represent the class and negotiate the fees issue with
plaintiffs' counsel. In re Continental Ill. Sec. Litig., 962 F.2d
566, 573 (7th Cir. 1992) (suggesting that the trial court could,
absent an adversarial presentation, appoint a special master to
assess objective criteria of cost and performance); Christopher P.
Lu, Procedural Solutions to the Attorney's Fee Problem in Complex
Litigation, 26 U. Rich. L. Rev. 41, 62-63 (1991) ("special
counsel"). It seems likely that in most disputes in which a trial
court may award fees to the prevailing parties under Rule 82, the
losing party will have ample incentive and standing to dispute the
amount of fees to be calculated during Step 1.
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