Legal Question in Business Law in California

Re: Common Fund Doctrine

Under the common fund doctrine, a litigant or lawyer in a multiparty case - usually a class action - who recovers a "common fund" (such as a judgment or settlement) for a number of parties other than himself or her client is entitled to an award of reasonable attorney fees from the common fund as a whole. See the U.S. Supreme Court case of Boeing Co. v. Van Gemert (1980) 444 U.S. 472 at page 478.

Although the usual rule in the United States is that each party pays its own lawyer, win or lose, courts find it fair that parties who benefit from someone else's diligence and expense in getting a recovery for them should share the cost.

A lawyer (or unrepresented party)should ask the judge to apply the common fund doctrine when he or she has produced a happy result for others. It's sort of, "I did your dirty work - and got results - so now chip in and share my cost."

Re: Common Fund Doctrine

the common fund doctrine -- was created by the United States Supreme Court in 1881 in the case of Trustees v. Greenough, 105 U.S. 527, 528-29 (1881). Francis Vose was the plaintiff in Greenough. He owned a large number of bonds issued by the Florida Railroad Company. He brought an action on behalf of himself and other bondholders seeking to preserve trust assets, consisting of large real estate holdings, which had been pledged for the payment of the bonds. Payments on the bonds were in arrears and Vose charged that the trustees "were wasting and destroying the [trust] fund by selling at nominal prices the lands by the hundred thousand and even million acres, and failed and refused to provide for the payment of interest or sinking fund on the bonds." Trustees v. Greenough, 105 U.S. 527 (1881). The litigation was hugely successful, but expensive for Vose. "[A] large amount of the trust fund was secured and saved" and dividends were paid to the bondholders. Id. at 529. Vose, as could be expected, was resentful of his fellow, freeloading bondholders, who had reaped the rewards of his tenacity and his financial investment in the lawsuit. He petitioned the Court for litigation expenses, including attorney fees, requesting that his expenses be paid from the recovered funds. Id. at 529-31. The lower court granted his petition. His fellow, but ungrateful, bondholders appealed to the United States Supreme Court.

In its landmark decision the United States Supreme Court held that Vose was entitled to his "reasonable costs, counsel fees, charges, and expenses incurred in the fair prosecution of the suit." Id. at 537. The Court indicated that although Vose was not a trustee of the property "he at least acted the part of a trustee in relation to the common interest." The Court recited the "general principle that a trust estate must bear the expenses of its administration." After noting that Vose had brought the suit not only on his own behalf "but in behalf of all other bondholders having an equal interest in the fund", and that the other bondholders would be unjustly enriched if the Court were to deny him his litigation expenses, the Court held that the other bondholders "ought to contribute their due proportion of the expenses which he has fairly incurred." Id. at 532. It then said, "To make them [the expenses] a charge upon the fund is the most equitable way of securing such contribution." Id (emphasis added). The concept of "charging the fund" rather than the individuals benefiting from the lawsuit became known as the "common fund doctrine."