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A New Jersey appeals court on Monday upheld an award of counsel fees to a plaintiff in a shareholder derivative suit, invoking the “common fund” exception to the American Rule even though there was no actual pot of money created by the litigation. The exception, found in Rule 4:42-9(a)(2), allows the court to award fees out of “a fund in court,” and the court found such an award is appropriate where a derivative action results in conferral of benefits upon the defendant company. The ruling, in Trimarco v. Trimarco , A-4093-05, allows Elizabeth Trimarco to recover $38,216 in fees paid to her lawyers at McCarter & English in her suit against Inman Shopping Plaza Inc. Trimarco inherited from her husband a one-sixth share in Inman, a closely held business run by the Trimarco family, owned Woodbridge real estate leased out as a shopping center. Her suit, filed in 2002, alleged derivative claims of corporate misconduct and individual claims that she was fired from her management position when she uncovered the problems. She also named her late husband’s mother and siblings as defendants. An amended complaint filed in 2003 added a claim of usurpation of corporate opportunity, based on allegations that sister-in-law Anne Trimarco bought contiguous property, intending to move Inman’s anchor tenant onto it. It also sought a ruling that Inman owned a parcel to which Anne held title. In the course of the suit, the defendant shareholders were ousted. During a stint as company president, Elizabeth tried to use $263,648 in company assets to pay legal fees expended in the case but the court required the monies to be disgorged, finding it was premature to reimburse legal fees though they might be recoverable later in the case. Eventually, the employment claims were dismissed and the derivative claims were settled. Elizabeth then moved for reimbursement of about $65,000 in fees paid to McCarter & English, while the firm asked for roughly $89,000 in unpaid fees. On Feb. 28, 2006, Middlesex County Superior Court Judge Lorraine Pullen awarded about 60 percent of the request � $38,215 to Trimarco and about $50,000 to McCarter � after allocating between Elizabeth’s derivative and individual claims. Pullen relied on Sarner v. Sarner, 38 N.J. 463 (1962), which awarded fees to a derivative action plaintiff under the predecessor rule, R. 4:55-7. McCarter subsequently reached a settlement with Inman, but the company appealed the award to Elizabeth on the basis there was no fund in court and she had unclean hands on account of the $263,000 in company money she tried to use. Inman also challenged Pullen’s allocation between individual and derivative claims. The appeals court agreed with Pullen that the case fell under Sarner, saying “there could be no real dispute” the common fund rule applied and noting Inman had not appealed the award to McCarter. The tangible benefits to Inman from the litigation included undisputed title to a portion of the land on which the shopping center sits, prevention of lost corporate opportunity and “unquantifiable savings from elimination of past mismanagement and misconduct.” The appeals panel also agreed Elizabeth was not barred by unclean hands from recovering fees. Those allegations had never been proved but were dismissed by virtue of the settlement and Inman was now “equitably estopped from asserting abandoned claims as a bar to plaintiff’s recovery,” wrote Appellate Division Judge Anthony Parrillo, joined by Jack Lintner and Jack Sabatino. There was no abuse of discretion in the amount of fees, the court also held. An award of common fund fees in the absence of a discrete fund is uncommon, and the ruling offers clarity on when the circumstances justify fee shifting in a shareholder’s derivative action, says plaintiff’s lawyer Craig Provorny, of Warren’s Herold and Haines. Other courts have taken a more literal approach to the common fund rule. A 2003 appeals court decision, In re Farnkopf, 363 N.J. Super. 382, denied fees, saying R.4:42-9(a)(2) “only authorizes fees to be paid from the fund in court.” More recently, the plaintiffs in an unreported 2005 Chancery case, involving litigation over estate assets, sought fees under the rule, arguing the proceeds of a partition action are considered funds in court. Superior Court Judge Rosemarie Williams agreed in principle but denied the request, noting no partition had yet been ordered nor had any funds been deposited in court. “Although this court may have the power to award attorney’s fees if there is a fund in court, no such fund currently exists in the instant matter,” she wrote, in Zelano v. Zelano, SOM-C-12308-04. Inman’s lawyer, Julian Wilsey, of Livingston’s Franzblau Dratch, says he is reviewing the opinion with this client to decide whether it wants to seek an appeal.

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