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De Salvo v. Bryant (2/15/2002) sp-5536
De Salvo v. Bryant (2/15/2002) sp-5536
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.
THE SUPREME COURT OF THE STATE OF ALASKA
LYNELLE DeSALVO, RICHARD )
McCREADIE, STUART MORLANG )
through his mother and sole heir, LOIS )
MORLANG, JOSEPH D. WEISE, and )
RUBY L. WHITE, )
) Supreme Court No. S-9827
Appellants, )
) Superior Court No.
v. ) 4FA-97-1285 CI
)
THOMAS K. BRYANT, WILLIAM )
R. LYTLE, and MASCOT MINING, )
INC., ) O P I
N I O N
)
Appellees. ) [No. 5536 - February
15, 2002]
________________________________)
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District,
Fairbanks, Niesje J. Steinkruger, Judge.
Appearances: John E. Havelock, Law Offices
of John E. Havelock, Anchorage, for
Appellants. Charles E. Cole, Law Office of
Charles E. Cole, Fairbanks, for Appellees.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
CARPENETI, Justice.
I. INTRODUCTION
I. In 1996 five people began working at a mining operation
near the Dalton Highway. Irregularly paid, they filed suit a
year later against three people involved with the mining
operation, one or more of whom may have been their employer. Two
years after that, in 1999, without telling their attorney, they
privately entered into settlement agreements purportedly
releasing all involved from further liability stemming from their
employment. When he learned what his clients had done, the
employees' attorney moved for dismissal of the case with
prejudice and asked for attorney's fees in the amount of one-
third of the recovery (the fees apparently to be paid by the
defendants). The trial court dismissed the case with prejudice
but denied the application for fees.
Because the Alaska Wage and Hour Act may be implicated
by some of the plaintiffs' claims, private settlement of those
issues could be precluded by statute. Furthermore, the superior
court must determine whether an award of attorney's fees is
appropriate. We therefore remand the case to the superior court
to determine whether the plaintiffs and defendants fall under the
Wage and Hour Act and to determine if an award of attorney's fees
to the employees is proper.
II. FACTS AND PROCEEDINGS
Around May of 1996, Lynelle DeSalvo, Ruby L. White,
Richard McCreadie, Stuart Morland, and Joseph Weise (the
employees) were hired to work on mining claims in the Chatman
Creek area of the Dalton Highway for the 1996 mining season under
the authority of Thomas Bryant. At or around the time of hire,
the employees entered into wage agreements with Thomas Bryant,
William Lytle, or Mascot Mining (Mascot), the terms of which are
disputed. The employees, entitled to pay at least once a month
pursuant to AS 23.05.140, were not regularly paid.
On June 12, 1997, the employees, represented by
Attorney John E. Havelock, filed suit in superior court alleging
violations of AS 23.10.015 (false representations to procure
employment), AS 23.05.140(b)-(d) (failure to timely pay wages
due), AS 23.10.060 (failure to render payment for overtime under
the Alaska Wage and Hour Act), and fraud. Each plaintiff had a
claim for false representations, failure to timely pay wages due,
and fraud. McCreadie, Morlang, and Weise, in addition, claimed
overtime pay and damages in an amount equal to the amount of
unpaid overtime.
Bryant and Mascot Mining, represented by Attorney
Charles E. Cole, filed answers in October and December,
respectively, of 1997. The next spring, plaintiffs filed proof
of service by publication for Lytle. In June and July 1999,
without notifying Havelock, the employees signed settlement
agreements releasing Lytle "and all his associates" from any
claims arising from their employment at the mine. The
settlements were entered without the benefit of counsel on either
side.
In February 2000 the superior court granted Bryant and
Mascot's motion for leave to amend their respective answers to
assert the defense of settlement and compromise. In May 2000
John Havelock, the employees' attorney, discovered the employees'
settlement when Charles Cole, counsel for Bryant and Mascot,
furnished copies of checks and documents indicating that each
plaintiff had been paid an amount in settlement of their claims
that satisfied each individual.
Each employee apparently received an amount equal to or
approximating his or her claim for net back wages. Unable to
contact his clients, Havelock filed a motion to dismiss with a
grant of plaintiffs' attorney's fees. He established in his
supporting affidavit that he had entered into a costs plus one-
third contingent fee arrangement with each of the employees.
Havelock concluded his affidavit by stating that because the
total amount of money paid to the employees was $34,189, he would
be entitled to $11,396 under the one-third contingency fee
agreement.1
On July 14, 2000, Cole filed an opposition on behalf of
"Defendants, and each of them," apparently causing Havelock to
assume that Cole represented the missing defendant, Lytle, who
had never answered the complaint after being served by
publication. On July 21, 2000, an order granting plaintiffs'
motion to dismiss with prejudice and denying the award of
attorney's fees was entered by the superior court.
On July 24, 2000, not having received notice of the
dismissal, Havelock filed a reply to Cole's opposition to his
motion, attaching as exhibits the forms signed by each individual
employee or employee's representative. Each release set out the
amount of money received in these words (spelling and punctuation
as in originals):
On This ____ day of June 1999 I have received
the summer of __________ Dollars from Mr.
Willam Lytel for Worked Performed for Mr.
Lytel In the summer of 1996 In Alaska At his
mining operation. With my sigutuner on this
document I relice Mr.Lytel and all his
associates of all obligations to me in regard
to this mater.
Though he sought and was given leave to file a motion for
reconsideration, Havelock instead appealed the dismissal and
denial of fees to this court.
III. STANDARD OF REVIEW
We review a trial court's decision to dismiss with
prejudice under an abuse of discretion standard.2 An abuse of
discretion is found only "when we are left with a definite and
firm conviction, after reviewing the whole record, that the trial
court erred in its ruling."3
IV. DISCUSSION
A. The Superior Court Should Have Considered Whether
the Employees' Claims Could Be Privately Settled under
the Alaska Wage and Hour Act.
Generally, " `[s]ound judicial policy indicates that
private settlements and stipulations between the parties are to
be favored and should not be lightly set aside.' "4 In such
cases, an action may be voluntarily dismissed by the plaintiff by
filing a stipulation of dismissal by all parties who have
appeared in the action.5 Or, a court may dismiss an action upon
the plaintiff's motion where there are such terms and conditions
as the court deems proper.6
In certain instances, though, the legislature has
indicated that private settlements are disfavored; in such cases,
the legislature has required court supervision. Overtime claims
under the Alaska Wage and Hour Act (AWHA) fall into this
category. AWHA was enacted to establish new and safeguard
existing minimum and overtime wage standards for workers to
promote their health, efficiency, and general well-being.7
The employees' causes of action for fraud, false
representations of employment, and failure to timely pay wages
due do not fall under AWHA. These actions, therefore, could be
privately settled for any amount, or for nothing.
McCreadie, Morlang, and Weise, though, pled a cause of
action under AS 23.10.060, for failure to pay overtime. Alaska
Statute 23.10.060 is part of AWHA. A settlement of such a claim
requires the approval of the court or the Alaska Department of
Labor.8 If such approval is not obtained, an employee is
entitled to liquidated damages unless the employee expressly
waives the right to receive liquidated damages.9 Such a private
written settlement is subject to the review of the department,
which may approve it if it is fair to the parties involved.10
Settlement agreements entered into after August 21, 1995 that are
not approved by the court or the department are expressly
rendered unenforceable.11 In privately settling claims under this
section, therefore, parties are required to follow the procedures
set out in AS 23.10.110(a) and (j).
The trial court's failure to determine whether the
settlement and release entered into by McCreadie, Morlang, and
Weise implicated AWHA is understandable. The employees did not
make clear that they were pursuing a cause of action under AWHA
or what the court's responsibility was under the act. The
complaint contained only a single reference to "AS 23.10.060" in
a heading, but that reference was without any discussion, and the
complaint made no reference to the procedures AWHA mandates. And
the single statute mentioned, AS 23.10.060, itself contains no
reference to the provisions of AWHA that require court
involvement in approving settlements.12
In sum, DeSalvo and White may privately settle their
claims because the claims fall outside AWHA, but as to McCreadie,
Morlang, and Weise, the trial court must make factual findings as
to whether AWHA applies to their claims. This includes findings
as to whether Lytle is a defendant in the case against whom
judgment can be entered,13 whether the defendants were employers
under AWHA,14 and whether the plaintiffs fall under one of the
exceptions to AWHA.15 If AWHA does apply, the superior court
must review the statutory causes of action.16
B. If AWHA Does Not Apply, the Superior Court Should
Consider Whether the Catalyst Theory Supports an
Imposition of Attorney's Fees under Rule 82.
Regardless of AWHA's application to the employees'
claims, we conclude that the courts should not participate in
denying Havelock compensation as the result of the questionable
conduct of Lytle, Bryant, or Mascot in settling the employees'
claims behind counsel's back.
Under Rule 82(a), prevailing parties in a civil case
shall be awarded attorney's fees.17 Even without formal judicial
relief, many plaintiffs achieve the goals of their litigation.
And, "defendants, on the whole, are usually rather reluctant to
concede that the litigation prompted them to mend their ways."18
To compensate for this reluctance, federal courts have previously
adopted a "catalyst" approach to awards of attorney's fees for
cases brought under federal fee-shifting statutes, such as 42
U.S.C. 1988 and other statutes that provide for attorney's
fees.19 Although the United States Supreme Court has recently
disavowed use of the catalyst theory in suits under federal fee-
shifting statutes,20 the rationale behind this theory may apply to
the facts of this case. As this approach allows for awards of
attorney's fees in instances where a plaintiff prevails when his
or her lawsuit brings about the relief requested in a manner
other than a formal judgment, we believe that it may be
appropriately used under the circumstances of this case.21
To determine if a plaintiff who settles is a prevailing
party under Rule 82, using the catalyst approach the plaintiff
must "show both a causal connection between the filing of the
suit and the defendant's actions and that the defendant's conduct
was required by law, i.e., not a wholly gratuitous response to an
action that in itself was frivolous or groundless."22
This two-part test consists of both a factual and a
legal inquiry. The plaintiff must first show that the goal of
litigation has been achieved. He or she need only succeed on any
significant issue which achieves some of the benefit sought in
bringing the suit.23 The court must then determine if there is a
causal connection between the defendant's action generating
relief and the lawsuit. This is established by evidence that the
plaintiff's lawsuit is "a substantial factor or significant
catalyst in motivating the defendants to [settle]."24 This
intensely factual test emphasizes the chronology of events as an
important element in determining causation.25
Once a plaintiff has shown that his or her lawsuit was
a catalyst in causing the defendant to act, the plaintiff has
made a prima facie case that he or she is the prevailing party
and is entitled to attorney's fees. The plaintiff need not prove
that the defendant's conduct is required by law or otherwise show
the defendant's motivation. Rather, it is only if the defendant
can demonstrate that the plaintiff's lawsuit lacked colorable
merit or that the defendant's action was wholly gratuitous that
the plaintiff is not entitled to recover attorney's fees.26
When a plaintiff prevails under the catalyst theory by
settling the case and achieving the goal of the lawsuit, the
court should award attorney's fees under Rule 82(b)(2).27 In
cases that require more of an award than is permitted under Rule
82(b)(2), the court can vary an award according to the factors
listed in Rule 82(b)(3).
On remand, the superior court should consider
whether McCreadie, Morlang, and Weise's claims implicate AWHA.
If they do, the court should award those employees attorney's
fees pursuant to AS 23.10.110(c).28 If McCreadie, Morlang, and
Weise's claims do not implicate AWHA and they are therefore
entitled to privately settle their claims, the superior court
should consider whether they are entitled to an award of fees
under the catalyst theory. Finally, because their claims do not
come under AWHA, DeSalvo and White in any case are entitled to a
determination under the catalyst theory of whether they are
entitled to an award of fees.
V. CONCLUSION
Because the superior court did not consider whether
AWHA applied to the claims of McCreadie, Morlang, and Weise, we
remand for determination of that issue. If the statute is found
to apply to those employees, the superior court should apply it
(including determination of liquidated damages) and award
attorney's fees pursuant to AS 23.10.110(c). If AWHA does not
apply, the superior court should determine whether they are
entitled to attorney's fees under the guidelines established in
this opinion. As to DeSalvo and White, the court must make the
determination under the catalyst theory, as AWHA does not apply
to their claims.
_______________________________
1 The one-third contingency fee agreement called for
attorney's fees to be paid by each plaintiff out of each
plaintiff's recovery. Havelock's motion, however, called for the
defendants to pay $11,396 directly to Havelock and in addition to
the settlement amounts already paid to plaintiffs.
2 Arbelovsky v. Ebasco Servs., Inc., 922 P.2d 225, 227
(Alaska 1996) (citations omitted).
3 Peter Pan Seafoods, Inc. v. Stepanoff, 650 P.2d 375,
378-79 (Alaska 1982).
4 Henash v. Ipalook, 985 P.2d 442, 450 (Alaska 1999)
(quoting City and Borough of Sitka v. Construction and Gen.
Laborers Local 942, 644 P.2d 227, 234 n.18 (Alaska 1982)).
5 See Alaska R. Civ. P. 41(a)(1).
6 See Alaska R. Civ. P. 41(a)(2).
7 See AS 23.10.050.
8 AS 23.10.110(j) states:
In a settlement for unpaid overtime
compensation that is not supervised by the
department or the court, an employee is
entitled to liquidated damages under (a) of
this section unless the employee and employer
enter into a written settlement agreement in
which the employee expressly waives the right
to receive liquidated damages. A private
written settlement agreement under this
subsection is not valid unless submitted to
the department for review. The department
shall review the agreement and approve it if
it is fair to the parties. The department
shall approve or deny an agreement within 30
days of receipt. A waiver of liquidated
damages may not be a condition of employment.
See also McKeown v. Kinney Shoe Corp., 820 P.2d 1068 (Alaska
1991) ("Permitting private settlement of liquidated damages
claims under AWHA is contrary to the strong policy behind AWHA
and its liquidated damages provisions.").
9 AS 23.10.110(a) states:
An employer who violates a provision of AS
23.10.060 or 23.10.065 is liable to an
employee affected in the amount of unpaid
minimum wages, or unpaid overtime
compensation, as the case may be, and, except
as provided in (d) of this section, in an
additional amount as liquidated damages.
AS 23.10.110(d) states:
In an action under (a) of this section to
recover unpaid overtime compensation or
liquidated damages for unpaid overtime, if
the defendant shows by clear and convincing
evidence that the act or omission giving rise
to the action was made in good faith and that
the employer had reasonable grounds for
believing that the act or omission was not in
violation of AS 23.10.060, the court may
decline to award liquidated damages or may
award an amount of liquidated damages less
than the amount set out in (a) of this
section.
10 See AS 23.10.110(j).
11 Alyeska Pipeline Serv. Co. v. Shook, 978 P.2d 86, 90
(Alaska 1999).
12 See AS 23.10.110(a), (j).
13 William Lytle was one of the three defendants
originally named in the complaint. In September 1998 the
employees were served notice to show cause within 60 days why the
case should not be dismissed for failure to serve Lytle. The
employees filed proof of service by publication for Lytle on
April 28, 1999. Lytle never answered the complaint. However,
when Bryant and Mascot filed their preliminary witness list on
December 6, 1999, William Lytle was listed, with his address
being in care of defense counsel Charles Cole. Then, on July 14,
2000, Cole filed an opposition to Havelock's motion to dismiss
with an award of attorney's fees on behalf of "Defendants, and
each of them." The trial court, therefore, should make a
determination as to whether Lytle is a defendant who has properly
answered the complaint against him and is a party before the
court or if the employees must resort to a default judgment
against him.
14 Bryant denied that he and Mascot were the employers of
the plaintiff employees. Because the complaint did not allege
that Mascot was the employer, Mascot did not address the issue in
its answer. The employees, though, claim they were employed by
Lytle and Bryant acting in concert, utilizing Mascot to achieve
their objectives.
15 No determination was made by the superior court as to
whether the employees fell within AWHA. Not all employees in
Alaska are subject to the requirements of AWHA. See AS
23.10.055. Specifically, individuals employed in the search for
placer or hard rock minerals are exempt from the provisions of
AWHA. See AS 23.10.055(10). McCreadie, Morlang, and Weise were
hired to work on mining claims near Mile 161 of the Dalton
Highway to move and operate mining equipment, clean up a mining
site, build roads, disassemble a mineral processing plant, and
clean up creeks, thereby possibly falling under one of the
exceptions to AWHA.
16 If AWHA does apply, the trial court must review
McCreadie, Morlang, and Weise's claims for overtime compensation
under AS 23.10.060 and AS 23.10.110(a). Under AS 23.10.110(a),
the employees are entitled to their back overtime pay and an
equal amount in liquidated damages. If Lytle, Bryant, or Mascot
allege that the employee's claims have been privately settled,
the settlement must be reviewed by the court under AS
23.10.110(j) to determine if it is fair to the parties.
17 Alaska R. Civ. P. 82(a) states:
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.
18 Posada v. Lamb County, Texas, 716 F.2d 1066, 1072 (5th
Cir. 1983).
19 See State, Dep't of Natural Res. v. Tongass
Conservation Soc'y, 931 P.2d 1016, 1017 (Alaska 1997). See also
Hennigan v. Ouachita Parish Sch. Bd., 749 F.2d 1148 (5th Cir.
1985); Envtl. Def. Fund, Inc. v. E.P.A., 716 F.2d 915 (D.C. Cir.
1983).
20 Buckhannon Board and Care Home, Inc. v. West Virginia
Dep't of Health and Human Resources, 532 U.S. 598 (2001).
21 In Sanders v. Barth, 12 P.3d 766 (Alaska 2000), we held
that where cases are settled without any reference to Rule 82
attorney's fees, such fees may not be awarded. But given the
suspect conduct of Bryant or Mascot in bypassing the employees'
attorney in reaching settlement, we decline to apply the rule of
Sanders to this case.
22 Hennigan, 749 F.2d at 1151. See also Envtl. Def.
Fund, 716 F.2d at 919-20; Johnston v. Jago, 691 F.2d 283, 286
(6th Cir. 1982); Harrington v. DeVito, 656 F.2d 264, 266-67 (7th
Cir. 1981); United Handicapped Fed'n v. Andre, 622 F.2d 342, 345-
46 (8th Cir. 1980); Operating Eng'rs Local Union No. 3 of the
Int'l Union of Operating Eng'rs v. Bohn, 737 F.2d 860, 863 (10th
Cir. 1984); Nadeau v. Helgemore, 581 F.2d 275, 280-81 (1st Cir.
1978).
23 Nadeau, 581 F.2d at 278.
24 Posada, 716 F.2d at 1072.
25 Id.
26 Hennigan, 749 F.2d at 1152-53.
27 Alaska R. Civ. P. 82(b)(2) states:
In cases in which the prevailing party
recovers no money judgment, the court shall
award the prevailing party . . . in a case
resolved without trial 20 percent of its
actual attorney's fees which were necessarily
incurred. The actual fees shall include fees
for legal work customarily performed by an
attorney but which was delegated to and
performed by an investigator, paralegal, or
law clerk.
28 AS 23.10.110(c) states, in part:
The court in an action brought under this
section shall, in addition to a judgment
awarded to the plaintiff, allow costs of the
action, and except as provided in (e)-(h) of
this section, reasonable attorney fees to be
paid by the defendant.
AS 23.10.110(e)-(h) establish a good faith defense for an
employer who shows by clear and convincing evidence that the
employer had reasonable grounds for believing that the act or
omission was not in violation of AS 23.10.060.
