Dolan v. King County

KEVIN DOLAN and a class of similarly situated individuals, Respondent, v. KING COUNTY, a political subdivision of the State of Washington, Respondent, DEPARTMENT OF RETIREMENT SYSTEMS, Appellant.

No. 52253-5-II

Court of Appeals of Washington, Division 2

May 12, 2020

UNPUBLISHED OPINION

Cruser, J.

In this class action litigation, the superior court awarded attorney fees and costs to class counsel based on the common fund doctrine. On appeal, the Department of Retirement Systems (DRS) argues that the superior court erred by exempting class member Judge Laura Inveen from paying a pro rata share of the class's common fund attorney fees. DRS argues that the exemption violates the common fund doctrine principles set forth in Bowles v. Department of Retirement Systems 121 Wn.2d 52, 847 P.2d 440 (1993), and CR 23(b)(1) and (2). DRS also requests guidance on how it should implement the process for assessing common fund attorney fees for other class members who, like Inveen, are members of the judiciary or may become members of the judiciary in the future.

We affirm and hold that the superior court did not abuse its discretion when providing equitable relief to Inveen by ordering DRS to not reduce Inveen's pension due to the common fund attorney fees, thereby exempting Inveen from payment of attorney fees. Additionally, we decline DRS' request to provide guidance on how it should implement the process for assessing the common fund attorney fees.

FACTS

I. Background

In 2006, Kevin Dolan filed a class action lawsuit against King County (County) on behalf of all employees of public defender agencies with which the County had contracted to provide legal defense services. The complaint alleged that the class members were entitled to membership and benefits in the Public Employees' Retirement System Plan (PERS), but that the County had not reported their services to DRS or made retirement contributions on their behalf. The class members requested declaratory and injunctive relief concerning the County's obligation to provide PERS benefits and an order requiring the County to make all contributions needed to fund those benefits. The superior court certified the class as a mandatory injunctive class action under CR 23(b)(1) and (2).

The case proceeded to a bench trial. The superior court ruled that the class members should be considered county employees for purposes of receiving coverage under PERS. Based on its decision, the court issued a permanent injunction requiring the County to enroll class members in PERS.

The County appealed to our Supreme Court. Dolan v. King County, 172 Wn.2d 299, 310, 258 P.3d 20 (2011) (Dolan I). The court affirmed the superior court holding that class members were county employees for purposes of PERS and were entitled to be enrolled in PERS. Id. at 320. The court remanded for further proceedings regarding remedies. Id. at 322.

On December 18, 2012, the County and the class reached a settlement. The County agreed to make retroactive payments to PERS on behalf of the County as the employer and on behalf of the class members as the employees without receiving reimbursements from the class. The County also agreed to make payments from the date that the County should have enrolled the class members. Pursuant to the settlement, the class members received retroactive benefit eligibility and service credits in PERS from the date that the County should have enrolled the class members.

DRS was not a party to the settlement. Shortly after the superior court's preliminary approval of the settlement agreement DRS moved for full intervention. The court allowed DRS limited intervention to object to the settlement and to have the right to appeal. The court entered a final order approving the settlement over DRS' objections.

DRS appealed the superior court's approval of the settlement agreement to this court. Dolan v. King County, No. 44982-0-II (Wash.Ct.App. Nov. 18, 2014) (unpublished), http://www.courts.wa.gov/opinions/pdf/D2%2044982-0-II%20%20Unpublished%20Opinion .pdf (Dolan II). DRS argued that the Administrative Procedure Act^[1] (APA) removed the superior court's original subject matter jurisdiction for matters affecting PERS, and the court erred by denying DRS' motion to intervene and in ruling that the settlement agreement bound DRS. We affirmed the superior court's original jurisdiction but reversed and remanded the court's order denying DRS' motion for full intervention and final order approving the settlement agreement.

On remand, the class moved to modify the superior court's April 2009 permanent injunction to clarify issues of service credit for the class members. On June 5, 2015, the court entered an order modifying the permanent injunction. The County and DRS agreed to its entry. The modification order stated that the class was entitled to receive retroactive PERS service credit for work as county employees between January 1, 1978 and March 31, 2012. Additionally, the County would be required to pay DRS retroactive employer and employee contributions of approximately $32 million. The order did not resolve the issue of whether DRS could assess interest on retroactive service credit contributions. The order also did not resolve the issue of whether class members had an obligation to pay attorney fees or the method of paying attorney fees.

The class moved for approval of an attorney fee award of $12, 554, 000 pursuant to the common fund doctrine. On August 28, 2015, the superior court entered an order granting the class's request. Under this theory, the court ordered the attorney fees to be taken from the class members' overall pension benefits recovered through the suit. The court ordered the attorney fees to be immediately paid by the County from employee PERS contributions that the County would have otherwise paid to DRS. The reduced pension benefits created a reduction from each class member's pension.

Class members' monthly pension checks would then be reduced by a maximum of about 13 percent to account for each class member's pro rata share of the attorney fees from the common recovery. The reduction assured that DRS would be repaid by the class as a whole for the attorney fees paid by the County from the contributions to be made by the County. The class members were also provided the option to repay DRS by paying their pro rata share of the attorney fees in a lump sum to DRS directly before receiving monthly pension benefits.

The County and DRS disputed whether the County should be required to pay interest in the amount of about $64 million on the retroactive contributions (omitted PERS contributions) for the service credits. DRS also contended that under the APA, the superior court did not have subject matter jurisdiction to address whether the County was required to pay interest because it had not exhausted all administrative remedies. The court disagreed. The court ruled that it had subject matter jurisdiction to decide the interest issue and it could exercise equitable authority in ordering a fair remedy. After considering the equities of each party, the court assessed the County interest in the amount of $10.5 million on retroactive contributions. The remaining interest would be socialized among PERS participants.

DRS appealed the superior court's order on jurisdiction and assessment of interest, arguing that the court erred in applying equitable principles to determine the County's interest obligation, and in the alternative, equity did not support imposing only a portion of the interest. Dolan v. King County, No. 49876-6-II (Wash.Ct.App. May 1, 2018) (unpublished) http://www.courts.wa.gov/opinions/pdf/D2%2049876-6-II%20Unpublished%20Opinion.pdf (Dolan III). We held that the superior court had subject matter jurisdiction regarding the interest matter. We also held that the superior court did not err in exercising its exclusive and equitable authority in ruling that the County was required to pay a portion of the interest on retroactive PERS contributions.

II. Current Appeal

On March 11, 2016, the superior court entered an agreed order implementing the class repayment plan for pension contributions used for the attorney fees. The court ordered the Office of the State Actuary (OSA) to calculate the amount each class member owed in common fund attorney fees by calculating the total pension liability (value) added by service credits obtained though the Dolan litigation. The court also ordered OSA to calculate a reduction percentage to be applied to each class member's pension.

On August 30, 2017, the superior court entered an agreed order that approved notices to be sent to class members. The notices included an invoice for each class member's pro rata share of attorney fees owed and the two payment options. The court's order also provided that if DRS learned of additional class members before sending the notices, DRS and class counsel must estimate the pro rata share of the newly identified members. Subsequently, DRS sent each of the 635 class members a notice specific to that member.

On June 26, 2017, the class brought a motion on behalf of Julia Garratt, a class member and a King County Superior Court Judge. In addition to receiving PERS benefits as a result of the Dolan litigation, Garratt was a participant in the judicial benefit multiplier program. Under that program, a judge earns 3.5 percent of their average final salary each year of service with up to a maximum of 75 percent of their final salary. RCW 41.40.404. In contrast, under the PERS program^[2] Garratt selected, members earn 2 percent of their average final salary for each year of service, with no maximum percentage. RCW 41.40.620.

Stated differently, the judicial benefit multiplier program allows a judge to...