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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. United Services Automobile Assoc. v. Pruitt (12/28/2001) sp-5521

United Services Automobile Assoc. v. Pruitt (12/28/2001) sp-5521

     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, phone (907)
264-0608, fax (907) 264-0878, e-mail corrections@appellate.courts.state.ak.us.


             THE SUPREME COURT OF THE STATE OF ALASKA


UNITED SERVICES AUTOMOBILE    )
ASSOCIATION,                  )    Supreme Court No. S-9571
                              )
             Appellant,       )
                              )    Superior Court No.
     v.                       )    3AN-97-5235 CI
                              )
SEAN PRUITT by and through    )    O P I N I O N
GLENN PRUITT,                 )
                              )
             Appellee.        )    [No. 5521 - December 28, 2001]
______________________________)


          Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage, John Reese, Judge.

          Appearances:  Kenneth M. Gutsch, Richmond &
Quinn, Anchorage, for Appellant.  Michaela Kelley Canterbury,
Kelley & Kelley, Anchorage, for Appellee.

          Before:   Fabe, Chief Justice, Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.  

          MATTHEWS, Justice.


I.   INTRODUCTION
          The superior court bifurcated this case, addressing
separately the coverage and damages issues before it, and
eventually awarded separate attorney's fees for each part.  The
questions presented are whether separate awards were appropriate
and whether the amounts awarded were justified.  We answer the
first question in the affirmative, but vacate the award as to one
part of the case because the court did not explain its reasons for
deviating from the presumptive award prescribed by Alaska Civil
Rule 82(b)(1). 
II.  FACTS AND PROCEEDINGS
          Sean Pruitt ("Pruitt") was injured while riding as a
passenger in a car driven by his older brother Gabriel.  Gabriel
had insurance coverage with United Services Automobile Association
("USAA").  Pruitt sued Gabriel.  Soon thereafter USAA denied
coverage, based on the policy's family member exclusion provision. 
Gabriel eventually confessed judgment for $229,535 in favor of
Pruitt and assigned his rights against USAA to Pruitt. 
          Pruitt then sued USAA for the amount of the judgment and
for damages for bad faith denial of coverage.  Following cross-
motions for summary judgment on the issue of the enforceability of
the family exclusion, Superior Court Judge John Reese found in
favor of Pruitt, holding that the exclusion was invalid. 
          A two-day settlement conference followed at which the
parties agreed to bifurcate the coverage issue from Pruitt's claim
for damages.  The parties agreed that "Judgment [would] be entered
in favor of [Pruitt] on the exclusion issue, after which [Pruitt]
may request costs and fees as prescribed by the rules."  To
facilitate the application for costs and fees, the parties agreed
that "[w]ithin 14 days of this date, [Pruitt] will provide a
breakdown of costs and fees between the two bifurcated parts of the
case."  The parties also agreed that the bad faith claim against
USAA would be abandoned, that the confessed judgment against
Gabriel would be vacated, and that Pruitt's "injury claims" would
be arbitrated.  The agreement was memorialized in an order issued
by Judge Reese. 
          A week later Pruitt moved for attorney's fees and costs,
accompanying the motion with a listing of hours and costs expended. 
USAA opposed the motion, arguing that Pruitt's request for
attorney's fees was premature and that the submittal did not
provide the required breakdown between the two portions of the
case. 
          Before the court ruled on the motion, the arbitration
took place.  The panel found Gabriel to be 100% at fault and
awarded Pruitt damages for his injuries of $47,975. Issues of
interest, costs, and attorney's fees were left to the trial court. 

          Following the arbitration, Pruitt moved for "enhanced"
attorney's fees for the arbitration.  USAA opposed this motion in
what it called a "Supplement to USAA's Opposition to Plaintiff's
Motion for Attorneys Fees."  USAA argued that the court "should
apply the 'contested with trial' (20% for the first $25,000 and 10%
for the next $75,000 awarded thereafter) schedule of Civil Rule
82(b)(1) to plaintiff's arbitration award (after addition of
prejudgment interest on the past damages of $27,575) as the
appropriate barometer for plaintiff's pending motion for fees and
costs."  USAA also filed an additional memorandum that opposed both
motions for attorney's fees.  In this memorandum USAA asked that
the motions be treated as consolidated "to avoid duplicative fees"
and that the "arbitration award should be the gauge for the court's
Rule 82 award." 
          The superior court then ruled on both pending motions for
attorney's fees.  With regard to what the court referred to as the
"Declaratory Judgment action" concerning coverage, the court awarded
Pruitt $48,468.75.  The court noted that it was not following Rule
82(b)(2)'s 20% of actual fees guideline, and held that "under the
totality of the circumstances," an award of 75% of Pruitt's "actual
fees incurred," $63,825, was reasonable.  The court explained:  "In
this case, the issue was of substantial importance to defendant and
was vigorously defended by it. The issues were unique and
plaintiff's efforts were effective, efficient and although driven
by economic motive, also had broad beneficial effect for the
public."  With regard to the "[l]iability/damages action (submitted
to arbitration by agreement)" the court declared, without
specifying a figure, that "[t]o the arbitration award of $47,975.00
must be added prejudgment interest and Civil Rule 82(a) fees,
contested with trial."  
          USAA moved for reconsideration of this ruling.  The court
denied the motion, reaffirmed the fee award of $48,468.75 for the
coverage litigation, added prejudgment interest to the arbitration
award, and awarded attorney's fees of $16,407.00 for the
arbitration aspect of the litigation.  
III. DISCUSSION
     A.   Standard of Review
          Review of an award of attorney's fees is conducted under
an "abuse of discretion" standard. [Fn. 1] "The trial court has
broad discretion in awarding attorney's fees; [this court] will not
find an abuse of that discretion absent a showing that the award
was arbitrary, capricious, manifestly unreasonable, or stemmed from
an improper motive." [Fn. 2] 
          The interpretation of the civil rules is a question of
law and is subject to de novo review. [Fn. 3]
     B.   The Superior Court Did Not Abuse Its Discretion by
Awarding Attorney's Fees for the Arbitration Portion of the Case.
          1.   The settlement agreement did not preclude
attorney's fees for the arbitration.
          USAA argues that the trial court inappropriately awarded
attorney's fees for the arbitration because the grant was contrary
to the settlement agreement.  In the order memorializing the
settlement agreement, the case was split into two parts:  (1)
coverage and (2) the claim for damages.  USAA argues that because
the memorializing order addressed attorney's fees solely with
respect to the coverage aspect of the case, the court erred when it
awarded attorney's fees for the arbitrated claim for damages.  USAA
contends that the order "contemplated that there would be only one
attorney's fee award in connection with the fees and costs relating
to the family exclusion issue." 
          Pruitt responds that 
          [t]here was nothing in the Order which
indicated in any way that [Pruitt] would be precluded from applying
for attorney's fees with respect to his actual damages in this
case, and, in point of fact, the wording of the Order implied that
the trial court would be considering other attorney's fees and
costs incurred at a later date.  
That the court asked for a "breakdown of costs and fees between the
two bifurcated parts of the case" shows, according to Pruitt, that
the court contemplated awarding attorney's fees for both parts of
the case. 
          We believe that Pruitt has the better of this argument.
The order reiterated the parties' agreement that "[j]udgment
[would] be entered in favor of [Pruitt] on the exclusion issue,
after which [Pruitt] may request costs and fees as prescribed by
the rules."  Its silence on the issue of attorney's fees for the
subsequent arbitration on the injury claim is not evidence of an
agreement that such fees were precluded.  Additionally, and most
compellingly, the lawyer for USAA stated at the oral argument on
attorney's fees that "the idea [at the time of the settlement] was
to bifurcate one out from the other, that is, award attorney's fees
separately."  Hence, the court did not err in declining to hold
that the agreement precluded attorney's fees for the arbitration
portion of the case.
          2.   The superior court did not err by applying Rule 82
to the arbitration.
          USAA also contends that the superior court erred because
Civil Rule 82 does not apply to arbitrations.  Civil Rule 82
provides for an award of attorney's fees to the "prevailing party
in a civil case," [Fn. 4] not, USAA argues, in arbitration. 
          Pruitt calls attention to the fact that "USAA itself
expressly requested the trial court to apply [Rule 82] to
[Pruitt's] arbitration award . . . as the appropriate barometer for
[Pruitt's] pending motion for fees and costs."  Pruitt argues that
because USAA requested that the trial court apply Rule 82 to the
arbitration award, USAA may not now contend that this was error.
          This argument would be conclusive except that, in
context, it appears that USAA was arguing for a single award of
attorney's fees for both aspects of the case.  The single award
would be measured by the amount of the arbitration award applying
the percentage of recovery schedule of Civil Rule 82(b)(1). 
          While USAA is not barred by its memoranda in opposition
to the motion for attorney's fees from arguing that no separate
award is appropriate, its admission at oral argument before the
superior court that at the time of the settlement agreement the
parties contemplated that the issues would be bifurcated and the
court would "award attorney's fees separately" does have a
preclusive effect.  This admission resolves the ambiguity that
exists in the order memorializing the settlement agreement as to
whether there would also be a fee award for the arbitration aspect
of the bifurcated case.  
          Further, our decision in Harold's Trucking v. Kelsey [Fn.
5] permits court-awarded attorney's fees based on arbitration
awards where the arbitration is court-ordered, so long as the
action is not filed needlessly in order to obtain attorney's fees.
[Fn. 6]  The present case readily falls within the rule established
by Harold's Trucking.  
          3.   The superior court did not abuse its discretion by
issuing two awards in the same case.
          USAA also argues that compelling policy reasons exist
prohibiting issuing two attorney's fees awards in the same action.
First, "issuing two awards in the same action . . . risks double
recovery."  USAA contends that the court might have included work
done for the arbitration in the award for the exclusion litigation. 
Secondly, "the trial court could have applied two separate
standards.  The court could have applied Rule 82(b)(1) (applying to
money judgments) to the arbitration and Rule 82(b)(2) (applying to
non-money judgments) in calculating the two different awards."  
          Pruitt responds that the "breakdown requested by the
trial court was designed to preclude 'double recovery' in this case
and there is no evidence indicating that such design was not
carried out."  Pruitt also acknowledges that the court used
different standards for the two awards -- 82(b)(1) for the
arbitration award and 82(b)(2) for the exclusion issue.  But he
sees no problem with this for "Rule 82(b)(3) permits enhancement of
either a (b)(1) or a (b)(2) award . . . ."  
          We believe that there are no general reasons of policy
why a case, once bifurcated, could not support two separate fee
awards. [Fn. 7]  Care should be taken not to award fees twice for
the same work, but such duplication should be avoidable.  The fact
that different standards may be used in awarding fees for different
portions of a case involves no principle that should act as a bar. 
Here, once the case was, in effect, converted into two cases, it
was logical that the coverage adjudication would be governed by
Rule 82(b)(2), for the judgment was a declaration of coverage, not
a money judgment.  Likewise, the arbitration award was logically
governed by subsection (b)(1) of the rule because a money award was
made.   
          4.   The superior court erred when it failed to explain
why it deviated from the Rule 82(b)(1) fee schedule with respect to
fees for the arbitration.
          USAA argues that the court erred because (1) it failed to
calculate what the fee award would have been for the arbitration
under Civil Rule 82(b)(1) before it deviated from that schedule and
(2) it failed to explain why it deviated from the schedule.  These
arguments have merit.  We held in State v. Johnson that before
deviating from scheduled fees, courts should first calculate the
authorized award and then give their reasons for deviating from the
authorized award. [Fn. 8]  Here the court ruled that the total
arbitration award on which fees would be based was $54,691,
including prejudgment interest.  The court indicated that the
contested-with-trial schedule of subsection (b)(1) should be used. 
Thus the scheduled award should have been $7,969.10.  But the court
awarded $16,407.
          Rule 82(b)(3) permits a court to deviate from the
guidelines of subsection (b)(1) or (2) if the court determines that
deviation is warranted by the factors listed in subsections
(b)(3)(A)-(K).  But the rule requires that "if the court varies an
award, the court shall explain the reasons for the variation." 
Here the court gave no explanation.  
          A remand is therefore required.  On remand the court
should either state its reasons for deviating from the scheduled
fees or change the fee award so that it is in accordance with the
schedule.
     C.   The Superior Court Did Not Abuse Its Discretion When It
Awarded Attorney's Fees for the Coverage Litigation.
          1.   It was not error to award attorney's fees based on
Pruitt's attorney's submissions rather than on actual fees paid or
owed by Pruitt.
          USAA contends that the award of $48,468.75 in attorney's
fees for the coverage litigation was error because "such award was
not based on fees actually and necessarily incurred by Sean
Pruitt," as required by Rule 82(b)(2).  According to USAA the fees
were based "only on Mr. Pruitt's counsel's evaluation of his
services in terms of the number of hours spent on the case and an
hourly rate which Mr. Pruitt was not charged."  USAA argues:  
          There was no attestation that Sean Pruitt
actually and necessarily incurred the fees requested. Mr. Pruitt
has never denied that he was on a contingency fee agreement. He was
not offered any copies of billing statements nor a copy of the
retainer agreement to show that the fees were actually incurred.
Hence, if Pruitt agreed to a one-third contingency agreement with
his attorney, USAA contends that Pruitt received a fee more than
three times greater than what he actually would pay his lawyer. 
USAA argues that Municipality of Anchorage v. Gentile stands for
the principle that "[a]warding 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 . . . ." [Fn. 9] 
          The superior court considered these points in USAA's
motion for reconsideration, but rejected them.  The court noted
that "[h]ourly compensation is the currency of attorney fees
calculations under Civil Rule 82(b).  Whether plaintiff had a
contingency fee, or an agreement to charge no fee, is irrelevant. 
Such matters are within the attorney client relationship and not
subject to review by an adverse party."  
          In our view the trial court did not err in calculating
what Pruitt's reasonable fees would have been based on the time
expended by his attorney multiplied by the attorney's typical
hourly rate even though actual fees may have been charged on a
contingent basis.
          We have rejected arguments that Rule 82 awards based on
attorney's time multiplied by a reasonable hourly rate are
impermissible because the attorney's services were free to the
client or because the client actually paid a fee different from the
fee as so calculated.  For example in  Gregory v. Sauser we held
that Rule 82 fees should not be denied to a prevailing party who
was receiving free legal services. [Fn. 10]  We stated that it was
"untenable" to deny a Rule 82 award "based on whether the client has
an obligation to pay for the legal services rendered." [Fn. 11] 
Fairbanks Correctional Center Inmates v. Williamson is in accord.
[Fn. 12]  There we said, "the fact that plaintiffs were not liable
for their attorney's fees is irrelevant to an award of fees
otherwise proper under Alaska Rule of Civil Procedure 82." [Fn. 13] 
Similarly, we have upheld fee awards based on an hours/rate measure
to attorneys who represented themselves.  Thus in Doyle v. Peabody
we held that the superior court did not err in valuing a self-
represented attorney's services at $7,500 (75 hours of time
multiplied by an hourly rate of $100) for Rule 82 purposes. [Fn.
14]   
          The superior court's ruling in the present case followed
the principle established by the cases discussed above that Rule 82
fees, except when based on a money judgment, should be measured by
the reasonable value of the attorney's services, not what the
client actually pays.  It was therefore not erroneous.  
          2.   The superior court's explanation concerning the
award for the coverage portion of the case was adequate.
          With regard to the award concerning the coverage aspect
of this case, USAA argues that the trial court's explanation for
awarding 75% of actual fees was insufficient to meet Rule
82(b)(3)'s requirement that trial courts explain their reasons for
deviating from Rule 82's presumptive awards.  
          This court has held that "[i]n general, a trial court has
broad discretion to award Rule 82 attorney's fees in amounts
exceeding those prescribed by the schedule of the rule, so long as
the court specifies in the record its reasons for departing from
the schedule." [Fn. 15] In this case, the court explained its
rationale for deviating from the rule's schedule: 
          In this case, the issue was of substantial
importance to defendant and was vigorously defended by it. The
issues were unique and plaintiff's efforts were effective,
efficient and although driven by economic motive, also had broad
beneficial effect for the public.  
These reasons readily fall within some of the reasons for deviation
that the rule contemplates.  The court's explanation relates to
"the complexity of the litigation;" [Fn. 16] "the reasonableness of
the attorneys' hourly rates and the number of hours expended;" [Fn.
17] "the relationship between the amount of work performed and the
significance of the matters at stake;" [Fn. 18] and "the extent to
which the fees incurred by the prevailing party suggest that they
had been influenced by considerations apart from the case at bar,
such as a desire to discourage claims by others against the
prevailing party or its insurer." [Fn. 19]  We conclude that it
meets the requirements of Rule 82(b)(3).
IV.  CONCLUSION
          Because the parties' settlement contemplated that
attorney's fees would be awarded in both bifurcated portions of the
case, and because fees may be awarded in cases of court-ordered
arbitration, we hold that it was not error to grant prevailing
party attorney's fees in both portions of the case.  But because
the superior court failed to explain its reasons for exceeding the
Rule 82 schedule with regard to the arbitration award, we VACATE
that award and REMAND this case so that the court may either
reinstate the award with an appropriate explanation or enter an
award that conforms to the schedule.  Because no error was
committed with respect to the award for the coverage portion of the
case, we AFFIRM that award. 


                            FOOTNOTES


Footnote 1:

     Alaska Wildlife Alliance v. Rue, 948 P.2d 976, 981 (Alaska
1997).


Footnote 2:

     Power Constructors, Inc. v. Taylor & Hintze, 960 P.2d 20, 44
(Alaska 1998).


Footnote 3:

     D.L.M. v. M.W., 941 P.2d 900, 902 n.2 (Alaska 1997).


Footnote 4:

     Alaska R. Civ. P. 82(a) (emphasis added).


Footnote 5:

     584 P.2d 1128, 1130 (Alaska 1978). 


Footnote 6:

     Integrated Resources Equity Corp. v. Fairbanks North Star
Borough, 799 P.2d 295 (Alaska 1990), and Alaska State Housing
Authority v. Riley Pleas, Inc., 586 P.2d 1244 (Alaska 1978), relied
on by USAA, are not to the contrary, for these cases hold that when
arbitrations are not court-ordered, attorney's fees may be awarded
for confirmation and post-confirmation proceedings conducted in
court, but not for fees incurred in arbitration. 


Footnote 7:

     This is especially so where the bifurcated portions are often
litigated in separate actions.  That is the case here, for
liability and damage claims against a tortfeasor and questions of
the tortfeasor's insurance coverage are often litigated in separate
actions.  See, e.g., C.P. v. Allstate Ins. Co., 996 P.2d 1216
(Alaska 2000); Bohna v. Hughes, Thorsness, 828 P.2d 745 (Alaska
1992); Continental Ins. Co. v. Bayless & Roberts, Inc., 608 P.2d
281, 283 (Alaska 1980).  Indeed, this case originated as two
actions, but the parties agreed that the result of the earlier
case, Pruitt v. Gabriel Pruitt, would be vacated and that the case
would be re-litigated in arbitration under the auspices of the
court in the later litigation.


Footnote 8:

     958 P.2d 440, 446 (Alaska 1998).


Footnote 9:

     922 P.2d 248, 264 (Alaska 1996).


Footnote 10:

     574 P.2d 445 (Alaska 1978).


Footnote 11:

     Id. at 445.


Footnote 12:

     600 P.2d 743 (Alaska 1979).


Footnote 13:

     Id. at 746.  See also City & Borough of Sitka v. Swanner, 649
P.2d 940, 947 (Alaska 1982), where in the context of a fee award
under 28 U.S.C. sec. 1988 we warned against an erroneous focus 
          on the compensation counsel will receive . . .
rather than on the reasonable value of the legal services rendered. 
The courts have recognized the social utility of a contingent fee
as a means of giving those without funds an opportunity for legal
counsel equal to those who can pay at the hourly rate. 


Footnote 14:

     781 P.2d 957, 962-63 (Alaska 1989).  Municipality of Anchorage
v. Gentile, 922 P.2d 248 (Alaska 1996), relied on by USAA, is not
to the contrary.  There we observed that Rule 82 "cannot ordinarily
be used to award a prevailing party an amount larger than the party
has agreed to pay its attorneys."  Id. at 263.  But we added in a
footnote keyed to this statement:  "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."  Id. at 263 n.20. 


Footnote 15:

     State v. Johnson, 958 P.2d 440, 445 n.10 (Alaska 1998).


Footnote 16:

     Alaska R. Civ. P. 82(b)(3)(A).


Footnote 17:

     Alaska R. Civ. P. 82(b)(3)(D).


Footnote 18:

     Alaska R. Civ. P. 82(b)(3)(H).


Footnote 19:

     Alaska R. Civ. P. 82(b)(3)(J).