On this date in 1962, the Supreme Court decided Sarner v. Sarner, 38 N.J. 463 (1962). The Court’s unanimous decision there, along with Sunset Beach Amusement Corp. v. Belk, 33 N.J. 162 (1960), on which Sarner relied extensively, is a foundation stone of the “fund in court” doctrine. That doctrine is currently embodied in Rule 4:42-9(a)(2), but was also contained in the predecessor rule that governed in Sarner.
The fund in court doctrine is one basis for an award of attorneys’ fees. As Justice Schettino stated in Sarner, “[t]he term ‘fund in court’ is one of art. It is applied where plaintiff’s actions have created, preserved or increased property to the benefit of a class of which he is a member.”
But as Chief Justice Weintraub said in Belk, “‘Fund in court’ is not too happy a term. It is a shorthand expression intended to embrace certain situations in which equitably allowances should be made and can be made consistently with the policy of the rule that each litigant shall bear his own costs. The difficulty with the term is that literally it may connote a fund within the precincts of the court in a physical or geographic sense whereas ‘in court’ refers to the jurisdictional authority of the court to deal with the subject matter.”
Returning to the quote from Sarner above, the key to a fund in court is that the plaintiff has advanced not only his own interests but those of others as well. “Where the litigant creates a fund which will benefit others, again it is just that the fund be charged. Included are actions by a stockholder on behalf of the corporation to recover assets diverted or withheld from it.”
Sarner was a stockholders’ derivative action that resulted in a judgment in favor of three corporations. The Court thus found a fund in court and held that a fee award was proper.
The individual defendant against whom the judgment was entered argued, however, that a fee was inappropriate because the companies had only three shareholders: the two plaintiffs and an individual defendant. The Court was “not impressed by this argument.” The companies should have brought the case and paid its own attorneys to do so. Their failure to do that forced plaintiffs to sue, and it was “only equitable” that the corporations, who benefited from the judgment, pay plaintiffs’ counsel fees out of the corporations’ recovery.
The Court’s rejection of that objection shows that its reference to benefiting a “class” did not refer to a “class” as we now think of that term in the context of class actions under Federal Rule of Civil Procedure 23 or New Jersey’s Rule 4:32. A class of three would not be sufficiently numerous to satisfy the numerosity requirement of those rules. The equitable “fund in court” doctrine is not limited by numerosity.
Sarner went on to reverse the fee award on other grounds and remand for further proceedings. One of those was that the trial court erred in allowing fees for services before the Appellate Division. The Supreme Court agreed, stating that “the application for services in the Appellate Division must be made to it.” Today, Rule 2:11-4 permits the appellate court to “refer the issue of attorney’s fees for appellate services for disposition by the trial court” (or, if applicable, by a relevant administrative agency). That occurs with regularity.
Subsequent cases, including Henderson v. Camden Cty. Mun. Util. Auth., 176 N.J. 554 (2003), have applied the “fund in court” doctrine to class actions under Rule 4:32. [Disclosure: I served as an expert witness on attorneys’ fees on the remand in Henderson]. But those cases stand on the shoulders of Sarner and Belk from back in the 1960’s.