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Smith v. Contini


August 21, 2003


The opinion of the court was delivered by: Walls, District Judge


Plaintiff Stanley Smith ("Plaintiff"), having prevailed on the merits, now moves for recovery of attorneys' fees. Defendants oppose the motion. Pursuant to Fed. R. Civ P. 78, the motion is decided without oral argument. The motion is granted, and fees are awarded in the amount of $104,632.17.

Plaintiff filed a complaint in this Court in May 1997, after the defendants denied him retirement benefits. Plaintiff had been employed as a truck driver and earned service credits that could be used towards applying for pension benefits with three separate pension funds in the 1960s and 1970s. Plaintiff earned two quarters of service credits with the Local 202 Fund, 26 quarters of service credits with the Local 816 Fund, and 16 quarters of service credits with the Local 641 Fund. The Local 641 Fund had reciprocal agreements with the other two funds whereby it accepted service credits earned at the other funds in calculating whether an employee earned enough credits to receive a pension benefit. If the employee qualified for a benefit, the Local 641 Fund paid the pro-rata share, or percentage, of the pension benefit to the employee that equaled the percentage of the combined pension credits earned by the employee with the Local 641 Fund. In other words, a employee who qualified for a benefit by accumulating service credits earned under several funds, and who earned 40 percent of his service credits with the Local 641 Fund, would received 40 percent of his total pension benefit from the Local 641 Fund. The Local 641 Fund called this benefit a "Pro-Rata Pension," distinct from a "Deferred Pension" earned by employees who qualified using only service credits accumulated with the Local 641 Fund.

This dispute arose out of the qualifying rules for the Local 641 Fund pension plan. Those rules provided that an employee seeking a "Pro-Rata Pension" qualified upon the accumulation of 15 years of service credits. By contrast, employees seeking a "Deferred Pension" qualified with ten years of service credits. Plaintiff had accumulated a total of 11 years of service credits at the three funds. He challenged the qualifying rules as a violation of 29 U.S.C. § 1132 (a)(3), alleging that the defendants' adherence to the 15-year service credit requirement was contrary to ERISA and constituted a breach of fiduciary duty. The alleged breach of fiduciary duty arose from ERISA's minimum vesting requirements, which require benefits to vest with an employee upon ten years of service. 29 U.S.C. § 1053(a).

On April 8, 1999, this Court granted summary judgment in favor of the defendants, holding that ERISA's 10-year vesting requirement did not apply to the Pro-Rata Pension because the ERISA definition of "years of service" permitted the Local 641 Fund plan to disregard service with other employers. On appeal, the Third Circuit reversed, ruling that the Local 641 Fund plan was governed by ERISA, including the 10-year vesting requirement. The Court of Appeals remanded to this Court with instructions to enter judgment for Plaintiff and to fashion appropriate relief.

By opinion and order dated November 19, 2002, this Court entered judgment for Plaintiff, ordering that he was entitled to pro-rata pension benefit payments from the Local 641 Fund. Consistent with the Third Circuit's ruling, the Court found that the Local 641 Fund was not responsible for pension payments based on the periods of time during which Plaintiff worked for other employers, but rather only for its pro rata share. Plaintiff, however, was entitled to seek payments from the appropriate pension funds for those times when he worked for other employers. Plaintiff's counsel, in an affidavit submitted with this motion, estimates that the total monthly pension payment Plaintiff will receive will be approximately $800. He further estimates that the total present-day value of Plaintiff's pension benefits is $82,560. Those estimates, however, are based only on Plaintiff's representations, and Plaintiff's counsel does not explain how he arrived at those figures. They will not be accepted as true for purposes of this motion; however, the Court will consider, as discussed at greater length later, the generally positive results obtained by Plaintiff in this litigation.

Plaintiff's counsel now seeks $100,000 in attorney's fees and $4,632.17 in costs.

An award of attorneys' fees to a prevailing plaintiff in an ERISA case is within the discretion of the district court. McPherson v. Employees' Pension Plan of American Re-Insurance Co., 33 F.3d 253, 256 (3d Cir. 1994), citing Schake v. Colt Indus. Operating Corp. Severance Plan, 960 F.2d 1187, 1190 (3d Cir. 1992). There is no presumption that a successful plaintiff in an ERISA suit should receive an award. McPherson, 33 F.3d at 254, citing Ellison v. Shenango, Inc. Pension Bd., 956 F.2d 1268, 1273 (3d Cir. 1992). Five factors must be considered in deciding an application for attorneys fees: (1) the offending parties' culpability or bad faith; (2) the ability of the offending parties to satisfy an award of attorneys' fees; (3) the deterrent effect of an award of attorneys' fees against the offending parties; (4) the benefit conferred on members of the pension plan as a whole; and (5) the relative merits of the parties' position. McPherson, 33 F.3d at 254, citing Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir. 1983).

1. Culpability or bad faith. Although "bad faith" normally connotes an ulterior motive or sinister purpose, a losing party may be culpable without having acted with an ulterior motive. McPherson, 33 F.3d at 256 (citation omitted). "In a civil context, culpable conduct is commonly understood to mean conduct that is `blamable; censurable; ... at fault; involving the breach of a legal duty or the commission of a fault.... Such conduct normally involves something more than simple negligence.... [On the other hand, it] implies that the act or conduct spoken of is reprehensible or wrong, but not that it involves malice or a guilty purpose.'" Id. at 256-57, quoting Black's Law Dictionary (6th ed. 1990). Accordingly, a defendant need not have acted with an ulterior or sinister purpose for a prevailing plaintiff to be entitled to a fee award. Id. at 257. However, a party is not culpable merely because it has taken a position that did not prevail in litigation. Id.

Here, the Third Circuit concluded that the Defendants' 15-year vesting requirement violated ERISA. In other words, the Defendants breached their legal duty as established by the statute. It is true, as Defendants note, that there is no evidence that they acted with sinister purpose or ulterior motive. Such showing is not required; a defendant is "culpable," in the words of the McPherson court, if its conduct "involv[ed] the breach of a legal duty." As fiduciaries under ERISA, defendants breached their legal duty to plaintiff when they improperly denied his claim for pension benefits. That they did not act with malice does not, under McPherson, mean that they did not act culpably.

This factor weighs in favor of giving an award.

2. Ability to pay. Defendants concede that the Local 641 Fund has the ability to pay an award of attorney's fees. Defendants claim that this means that the factor "does not inform the analysis in any particularly meaningful way." Apparently, Defendants interpret this factor as pertinent only if it makes an award less appropriate. That is, if the defendant cannot pay, then the factor weighs against an award, but if the defendant can pay, then the factor has no impact on the analysis. In fact, however, that a defendant has the financial resources to pay makes an award for attorneys' fees more appropriate. See Ellison v. Shenango Inc. Pension Bd., 956 F.2d 1268, 1277 (3d Cir. 1992) ("Since Shenango does not dispute the sufficiency of the Plan's assets to cover an award of fees in this case, the district court should have resolved the second Ursic factor in favor of an award of fees to Ellison.").

This factor weighs in favor of giving an award.

3. Deterrent effect. The Third Circuit has held that "it will further the objectives of ERISA if fee awards are employed to deter behavior that falls short of bad faith conduct." McPherson, 33 F.3d at 258, citing Kann v. Keystone Resources, Inc. Profit Sharing Plan, 575 F.Supp. 1084, 1096-97 (W.D.Pa. 1983). Even if a defendant does not act in bad faith, a district court should consider "whether it would serve the objectives of ERISA to award counsel fees in an effort to deter conduct of the kind in which the [defendant] engaged." Id.

Plaintiff's counsel argues that "the Local 641 Fund persisted in maintaining an illegal provision in their Plan for more than twenty-five years. An award of fees and costs to plaintiff will plainly convey that it is unacceptable to maintain a pension plan in non-conformance with the statute for twenty-five years." For deterrence to be effective, however, the conduct to be deterred must have been undertaken knowingly. Put another way, the Local 641 Fund will be deterred from maintaining an illegal provision in their Plan by an award of attorneys' fees only if it was aware that the pension-vesting provisions at issue in this case were illegal. There is no evidence of such knowledge here. The evidence indicates that the Local 641 Fund believed, however erroneously, that the Plan's provisions were in compliance with ERISA. There can be no deterrent effect by the imposition of attorneys' fees against conduct that the Local 641 Fund believed was legal.

This factor does not support an award of attorneys' fees.

4. Benefit conferred on members of the pension plan as a whole. The fourth McPherson factor is somewhat awkwardly worded. "Members of the pension plan as a whole" can easily be understood to mean all members of the plan, so that a benefit conferred on some substantial number of plan members, but not on all members, would not support an award of fees. A better interpretation of this factor would look at whether there were any other plan members who received a benefit, and if so how many. In other words, the factor calls for the examination of a benefit to others, not of a benefit to all others. Case law makes this clear. In McPherson itself, the Third Circuit noted that this factor did not support an award in that case because, "there were, and would be, no other similarly situated Plan members," and consequently the plaintiff's legal victory would not result in a "benefit... conferred on others." 33 F.3d at 256 (emphasis added). Moreover, other circuits, in adopting substantively similar five-factor analysis, describe this factor in such ways that make clear that it does not require a benefit conferred on all other plan members. See, e.g., Eddy v. Colonial Life Ins. Co. of America, 59 F.3d 201, 209 (D.C.Cir. 1995).

Defendants concede that Plaintiff "has conferred a benefit upon certain participants, in particular, participants who, like Smith, have limited participation in the Plan." They continue, however, "The benefit comes at the expense of those with substantial participation. The plan as a whole certainly did not benefit." As Plaintiff notes, such pitting of plan beneficiaries against each other is not the point of the analysis. Rather, this Court must examine whether other similarly situated participants will benefit from Plaintiff's legal victory. As Defendants concede, other participants will benefit. Although it is unclear how many such participants there are, this factor weighs in favor of a fee award.

5. Relative merits of the parties' position. Plaintiff argues that, because the Defendants' arguments did not prevail at the Court of Appeals, their position was entirely without merit. Plaintiff overstates the case. Although the relative merits of the positions of the parties can support an award even in the absence of bad-faith litigating, "the fact that the defendants' positions have not been sustained does not alone put the fifth factor in the column favoring an award." McPherson, 33 F.3d at 258. In the Court's view, this was a close case; indeed, this Court initially favored Defendants' position. That the Third Circuit overturned this Court's initial judgment does not mean that Defendants' position was wholly meritless. In close cases such as this one, the fifth factor does not weigh in favor of making an award.

In sum, three factors - Defendants' culpability, their ability to pay, and the benefit conferred on similarly situated participants -weigh in favor of a fee award. Two factors - deterrent effect and relative merits of the parties' position - do not support an award, though they also do not offer affirmative reasons to deny an award. These two factors are instead neutral.

The Court concludes that an award of fees is appropriate. The remaining issue is whether Plaintiff should be awarded the full amount sought-after fees and costs, which total $104,632.17 ($100,000 in fees and $4,632.17 in costs). Defendants argue that the full amount is inappropriate. First, they argue that Plaintiff's counsel actually pursued two claims, one for a deferred pension benefit and another for a pro rata pension benefit, and was only successful on one of those claims. Accordingly, Defendants seek to reduce the fee award by 50 percent. Defendants also claim that some of the tasks performed by Plaintiff's counsel - only some of which Defendants identify with specificity - were done in an inordinate amount of time. Defendants conclude that, based on their proposed reductions, if an award is to be given the amount should be $21,133.30. Plaintiff's counsel answers that his client sought reformation of the pension plan to conform to ERISA by eliminating the 15-year vesting requirement and a pension benefit based on his 11 years of credited service. Both of those goals were achieved in this litigation, according to Plaintiff's counsel: the plan was reformed, and the Plaintiff will receive a pension benefit for his entire service time (although collecting only the pro rata share from these Defendants).

Plaintiff's counsel has the better of the argument. Plaintiff sought to collect a pension benefit through the reformation of his pension plan. He sought such a benefit under two related theories: first that he was entitled to a deferred pension, and second that he was entitled to a pro rata pension. Ultimately, although his theory based on a deferred pension failed, he has gained the sought-after reward, reformation of the plan and a pension benefit based on his client's credited years of service. The Court will not reduce the sought-after attorneys' fees on the grounds that the theories of litigation were only half-successful. As far as Plaintiff (and reality) are concerned, the results of the litigation are fully satisfactory.

The Court also rejects Defendant's challenges to certain time records of Plaintiff's counsel. The only specified challenges are to the time put into drafting the original complaint (26.5 hours) and the fees associated with the filing of the summary judgment motion dated June 28, 2001 ($10,049.50 by Defendants' calculations). The Court does not find either of these amounts unreasonably excessive. The Court also does not agree with the Defendants' description of the summary judgment motion as "largely pointless." Although several issues raised in that motion were moot, at least by the time they were considered by the Court, other issues, including the application of prejudgment interest, were both pertinent and contested.

In conclusion, Plaintiff is entitled to be reimbursed for attorneys' fees under the five-part McPherson standard, and the Court accordingly orders Defendants to reimburse Plaintiff's reasonable attorneys' fees and costs in the amount of $104,632.17.

William H. Walls, U.S.D.J.


The Court having considered the motion for an award of attorneys' fees by Plaintiff Stanley Smith, it is on this 21st day of August, 2003,

ORDERED that the Defendants reimburse Plaintiff for his reasonable attorneys' fees and costs in the amount of $104,632.17.

William H. Walls, U.S.D.J.


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