filed: November 20, 1991; As Amended December 4, 1991.
Appeal from the United States District Court for the District of New Jersey; D.C. Civil No. 85-04725.
Cowen, Nygaard, and Weis, Circuit Judges.
In this appeal we determine that attorney's fees owed to a third-party were an element of damages sought by an indemnitee and, therefore, earlier rulings by the district court did not become appealable until an order quantified those fees. We also conclude that the district court did not err in finding that an insurer owed coverage for civil rights violations allegedly committed by its insured political campaign committees. However, we reverse an order granting a contingency enhancement of attorney's fees because the record establishes that the attorneys sought out the class representatives to bring the action.
The plaintiff class, consisting of certain citizens in Jersey City, New Jersey, filed a complaint alleging a conspiracy to prevent them from voting in an election for mayor of the City. Included as defendants were Gerald McCann, a candidate for mayor, and members of his campaign staff, Mark Munley, Matthew Burns, and John Finn,*fn1 as well as the Hudson County Board of Elections and the Superintendent of Elections.
The National Union Fire Insurance Company, which had written a general liability policy at the request of the McCann campaign committees, refused to defend or indemnify the individual defendants. The McCann defendants joined National Union as a third-party defendant, alleging that it had breached its duties under the policy. Also included as third-party defendants were Johnson Excess, Ltd. and J. R. Insurance Brokerage, Inc. The district court severed the third-party action from the class suit.
In due course, the district court granted summary judgment against National Union declaring that it owed coverage to the McCann defendants. The court, however, also left some issues in the third-party action to be resolved after trial of the class claims. Vargas v. Calabrese, 714 F. Supp. 714, 725-26 (D.N.J. 1989).
Soon afterward, the McCann defendants settled the class plaintiffs' case. The court approved the settlements and after a hearing concluded they were enforceable against National Union. On April 24, 1990, the district court ordered National Union to indemnify the McCann defendants for the amounts of the settlements and for "the amount of any attorneys' fees award which may be made in favor of [class] plaintiffs and/or plaintiffs' attorneys against the [McCann] defendants." In addition, the court ordered National Union to reimburse those defendants for their own attorneys' fees.
On December 13, 1990, the district court entered an attorneys' fees and expense award in favor of the plaintiff class directing that two-thirds be paid by the McCann defendants and one-third jointly by the Hudson County Board of Elections and the County Superintendent of Elections. Vargas v. Calabrese, 750 F.Supp. 677, 690 (D.N.J. 1990).
National Union filed its Notice of Appeal on January 11, 1991 from the December 13, 1990, and previous orders. Various parties have filed cross-appeals.
The parties have raised a number of issue that require further discussion of the facts. This amplification will be included in the consideration of the separate issues.
The McCann defendants and the class plaintiffs have moved to dismiss National Union's appeal of January 11, 1991, as untimely as to all orders other than that of December 13, 1990. They argue that the district court's order of April 24, 1990, was final and appealable, therefore this appeal as to that order and the earlier rulings is untimely.
National Union contends that the district court's order of December 13, 1990 quantifying the class attorneys' fees under 42 U.S.C. § 1988 was the final order and that the Notice of Appeal was therefore filed within the thirty day period specified by Federal Rule of Appellate Procedure 4(a).
As the district court's severance order implicitly acknowledged, the litigation in reality consists of two separate, but interrelated, claims. The class action sought damages and attorneys' fees against the McCann defendants and others for civil rights violations. National Union was not named as an original defendant in that suit.
The second claim is that brought by the McCann defendants against National Union seeking indemnification for damages and attorneys' fees that might be due the class plaintiffs, as well as attorneys' fees expended by the McCann defendants in defending the class action and, finally, attorneys' fees expended by the McCann defendants in connection with the suit brought against National Union. The latter two claims for attorneys' fees -- that is, those for the McCann defendants' lawyers, are not challenged in the briefs and are not involved in the jurisdictional issue.
Although many orders were entered in this prolonged litigation, the timeliness issue requires that we focus only on a few.
1. The third-party action was based on the McCann defendants' contentions that National Union's general liability policy issued to the campaign committees applied to the civil rights claims made by the class plaintiffs and the carrier had wrongfully denied coverage. The district court agreed and in its order of June 1, 1989, granted the McCann defendants' motions for summary judgment against the insurance company "as to the duty to defend and indemnify [class] plaintiffs' claims regarding civil rights violations and intentional acts."
National Union did not at that point undertake the defense of the McCann defendants in the class suit. Shortly after the court entered its order, however, the McCann defendants negotiated settlements with the class plaintiffs. The agreements left open the amount of counsel fees to which the class would be entitled as a prevailing party under 42 U.S.C. § 1988.
2. The next relevant order was that of April 24, 1990, in which the district court found the settlements with the class plaintiffs by the McCann defendants to be in good faith and directed indemnification by National Union. Included in that order was a requirement that National Union indemnify the McCann defendants for attorneys' fees awarded in favor of the class plaintiffs. At the time of that order, the class plaintiffs had not yet submitted a petition for fees.
3. It was not until its order of December 13, 1990, that the court fixed the attorneys' fees and expenses due the class plaintiffs and directed the McCann defendants to pay two-thirds of that amount.
The McCann defendants argue that the order of April 24, 1990, was final or, in the alternative, that the litigation as a whole became final for purposes of appealability when the district court entered an order in July of 1990 disposing of all remaining claims in the third party action.*fn2 In their view, the pending matter of attorneys' fees due the class was a collateral matter that did not affect the finality of the April 24, 1990 order.
Resolution of this issue requires a discussion of Budinich v. Becton Dickinson & Co., 486 U.S. 196, 100 L. Ed. 2d 178 , 108 S. Ct. 1717 (1988). There, the Supreme Court adopted a "brightline" rule for attorneys' fees orders as they might affect finality for appeal purposes. The Court decided that "an unresolved issue of attorney's fees for the litigation in question does not prevent judgment on the merits from being final." Id. at 202.
The Court's opinion must be read closely. It does not, as the McCann defendants would seemingly have us read it, say that all claims for attorneys' fees are collateral matters that do not affect the finality of orders on the merits of a dispute. The Court, in categorizing attorneys' fees, consistently used such qualifications as: "fees for the litigation," id. at 199, "fees for the litigation at hand," id. at 201, "fees for the litigation in question," id. at 202, "fees attributable to the case," id. at 203. See Justine Realty Co. v. American Nat'l Can Co., No. 90-3067, slip op. at 8 (8th Cir. Sept. 27, 1991).
These limitations underscore the facts and posture of the case before the Court in Budinich. The plaintiff had brought that action to recover employment compensation and, as the prevailing party, sought attorney's fees that were authorized by a state statute. The Supreme Court concluded that in the interest of clarifying what constituted a final order for purposes of appealability, the effect of an unresolved issue of attorney's fees for that litigation should not turn upon the characterization of those fees as "costs" or as part of the "merits."
In reaching this conclusion the Court resolved an intercircuit conflict between Courts of Appeals. Compare Holmes v. J. Ray McDermott & Co., 682 F.2d 1143, 1146-48 (5th Cir. 1982) (Court concluded that attorney fees in a maritime action were an integral part of the merits) with International Ass'n of Bridge, Structural, Ornamental, & Reinforcing Ironworkers' Local Union 75 v. Madison Indus., 733 F.2d 656, 658-59 (9th Cir. 1984) (attorney's fees requests are always collateral to the main action). In both Holmes and Madison Industries the prevailing party claimed counsel fees. The Courts of Appeals differed on whether an order fixing the amount of the fees was the final action of the district court for purposes of appeal under 28 U.S.C. § 1291.
The Supreme Court settled the conflict in Budinich stating that "a claim for attorney's fees is not part of the merits of the action to which the fees pertain. Such an award does not remedy the injury giving rise to the action . . . ." Budinich, 486 U.S. at 200 (emphasis added).
In Osterneck v. Ernst & Whinney, 489 U.S. 169, 175, 103 L. Ed. 2d 146 , 109 S. Ct. 987 (1989), the Court concluded that pre-judgment interest was part of the "merits" of a case. In addition, the Court commented that it had said in Budinich that attorney's fees were "not part of the merits of the underlying action because such fees are not part of the compensation for the plaintiff's injury." Id. (emphasis added). Essentially, Budinich concluded that an award of counsel fees to the prevailing party is not a part of the judgment, but rather is due because of the judgment. Cf. Buchanan v. Stanships, Inc., 485 U.S. 265, 267-68, ...