ANITA FOUNDATIONS v. ILGWU Nat. Retirement Fund, 87 Civ. 7242 (KC)

• Decision Date: 21 August 1989
• Docket Number: 88 Civ. 1716 (KC).,No. 87 Civ. 7242 (KC),87 Civ. 7242 (KC)
• Citation: 718 F. Supp. 244
• Parties: ANITA FOUNDATIONS INC., et al., Plaintiffs, v. ILGWU NATIONAL RETIREMENT FUND, et al., Defendants. FASHION AFFILIATES, INC., Plaintiff, v. ILGWU NATIONAL RETIREMENT FUND, Defendant.
• Court: U.S. District Court — Southern District of New York

718 F. Supp. 244

ANITA FOUNDATIONS INC., et al., Plaintiffs, v. ILGWU NATIONAL RETIREMENT FUND, et al., Defendants.

FASHION AFFILIATES, INC., Plaintiff, v. ILGWU NATIONAL RETIREMENT FUND, Defendant.

Nos. 87 Civ. 7242 (KC), 88 Civ. 1716 (KC).

United States District Court, S.D. New York.

August 21, 1989.

Phillips, Nizer, Benjamin, Krim & Ballon, New York City, for Anita Foundations, Inc.

Milgrim, Thomajan & Lee, New York City, Arnold & Porter, Washington, D.C., for ILGWU Nat. Retirement Fund.

Miller, Hamilton, Snider, Odom & Bridgeman, Washington, D.C., Pontani & Lieberman, New York City, for Fashion Affiliates, Inc.

OPINION AND ORDER

CONBOY, District Judge:

This is an application for attorney's fees under Section 4301(e) of ERISA, as amended by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), 29 U.S.C. § 1451(e).

Background

The Fund defendants sought to void final settlements and releases made with the plaintiffs concerning each's respective withdrawal liability and to collect additional sums from each based on a revised method of calculation set out in a Ninth Circuit decision, Trustees of the Amalgamated Insurance Fund v. Geltman Industries, Inc., 784 F.2d 926 (9th Cir.), cert. denied, 479 U.S. 822, 107 S.Ct. 90, 93 L.Ed.2d 42 (1986). On April 20, 1989, we granted the plaintiffs' motions for summary judgment barring the Fund from opening the final settlements. 710 F.Supp. 983, 987-988 (S.D.N.Y.1989).

The grounds underlying the grant of summary judgment were numerous. First, we rejected outright the application of the retroactivity doctrine to these settlements because that doctrine only applies to matters that are open and pending when a decision making new law is announced. We also rejected the Fund's contention that the agreements were voidable on the theory of mutual mistake of law. We found that all parties knew that there had been no judicial interpretation of how the subsections under ERISA Section 4225, 29 U.S.C. § 1405, interrelated and, thus, that the state of the law at the time was unclear. And, even if there had been a mutual mistake (which we determined had not occurred), the Fund could not meet its burden of establishing that it did not bear the risk of the mistake. All of the parties bore the risk that a subsequent judicial resolution of the uncertainty might be adverse to the positions taken by each in the settlement. In addition, we found that since parties cannot reopen settlements made in reliance on a judicial decision that is subsequently overruled, settlements made when the law was unclear should not be placed on different footing. We invoked the strong public policy in favor of out of court settlements, which would be undermined if these settlements were reopened. Furthermore, the equities strongly favored the plaintiffs here.

Plaintiffs in Anita assert that they were forced to initiate this declaratory action and to file a lengthy, and somewhat complicated, summary judgment motion and opposition papers to the Fund's cross-motion. The plaintiffs also assert that the decision they obtained in this action will help plaintiffs in more than twenty other collection actions similar to this currently pending. They contend that they are small businessmen who did nothing "to bring these expensive proceedings down on their heads." Affidavit of Norman Solovay, sworn to May 17, 1989, at ¶ 10. The initial fee reimbursement request of Anita was $194,032.33.

Plaintiff in Fashion Affiliates is in a somewhat different situation. It originally filed its complaint in the District Court in Massachusetts based on diversity of citizenship. The Massachusetts court ultimately determined that the action was not predicated on diversity but on a federal statute and transferred the case here on venue grounds. Accordingly, it does not seek to recover for the fees incurred while the case was not pending in our Court regarding the jurisdictional aspect of the case; however, it does believe that it, too, is entitled to fees that it incurred in trying to ward off the Fund on the ERISA claim before the suit was filed. The total this plaintiff seeks is $27,290.60. This plaintiff believes that the fund postponed the twenty other collection actions pending the outcome of this case. Affidavit of Lester Bridgeman, sworn to May 17, 1989, at ¶ 9, and it appears from the Fund's papers that it did, in fact, postpone the actions of approximately 30 (not 20) other employers pending the outcome of this case.

The Fund defendants oppose the applications for attorneys' fees. Their principal theory is that the Fund should not be required to pay the plaintiffs' attorneys' fees because the Fund's trustees, who were acting on the advice of counsel, were simply complying with "their fiduciary duty to pursue substantial, and potentially viable, claims for withdrawal liability." Defendants' Opposition to Plaintiff's Application for Attorneys' Fees at 1. ("Defendants' Memo.") They also state that although they knew that there was a possibility that they would not prevail here, they believed that they could not abandon the potential claims without a judicial decision. They further believe that pension plans "must not be discouraged from pursuing legitimate claims — even claims that ultimately do not prevail — by the threat of an employer attorneys' fees award." Id. at 2. In any event, they asserted that the initial fee request here was "bloated" and disproportionate to the work required.

The Fund states that after Geltman they sought the advice of counsel to determine to whom this new interpretation should be applied: (1) newly withdrawn employers, (2) employers who withdrew before Geltman was announced but whose cases had not yet been resolved, (3) employers (like the plaintiffs) with who the Fund had reached settlements prior to Geltman, and (4) employers whose liability had previously been established by a final judgment. Defendants' Memo. at 3-4. They were advised by counsel that they should seek to have Geltman applied in all cases except those where the employers were protected by the doctrine of res judicata (thus, all but category four). Id. at 5. However, counsel did express doubts about the viability of category three cases in its letter of April 23, 1987 to the Fund. Talking about res judicata and final decisions, counsel stated "however, judgments by default, stipulation or agreement ... are also judgements on the merits that have become final when all appeal possibilities have been exhausted." Defendant's Memo., Ex. C, Letter of Arnold & Porter to Fund, April 23, 1987, at 6 (emphasis added). Counsel's advice purported to be based on the general principles of fiduciary duty as well as a desire to moot assertions from the different categories of employers of "discrimination and detrimental reliance." Id.

The Law Governing Fee Requests

The parties appear to agree that the standard to be applied under ERISA Section 4301(e), 29 U.S.C. § 1451(e) (the specific section that governs the fee requests here) is the same as the standard under ERISA Section 502(g)(1), 29 U.S.C. § 1132(g)(1), (the general ERISA provision covering fees).¹ E.g., Central States, Southeast and Southwest Areas Pension Fund v. 888 Corp., 813 F.2d 760, 767 (6th Cir.1987); Miles v. New York State Teamsters Conference Pension and Retirement Fund, 698 F.2d 593, 602 n. 9 (2d Cir.), cert. denied, 464 U.S. 829, 104 S.Ct. 105, 78 L.Ed.2d 108 (1983). The factors to be considered are:

(1) the degree of the opposing (losing) party's culpability or bad faith;

(2) the relative merits of the parties' contentions;

(3) whether an award of fees against the opposing party would deter others from acting in similar circumstances;

(4) whether the party requesting fees sought to benefit all participants or beneficiaries in a plan or to resolve significant legal questions; and

(5) the ability of the opposing party to satisfy an award of attorneys' fees.

No one of these five factors is decisive and some may be irrelevant. Carpenters Southern California Administrative Corp. v. Russell, 726 F.2d 1410, 1416 (9th Cir.1984). We will endeavor to discuss each factor in this order below, providing only the main and essential arguments of both sides.

(1) The degree of the opposing party's culpability or bad faith

The plaintiffs claim that, as they believed all along and as we subsequently found, the Fund's attempt to collect additional withdrawal liability from these plaintiffs was not supported by any valid legal claim under any reasonable analysis.

The defendants contend that they did not act in bad faith, but rather on the advice of counsel who advised them, among other things, that they had a fiduciary duty to pursue the claims against these plaintiffs. This fiduciary duty is derived from the idea that the trustees must act for "the exclusive purpose of ... providing benefits...." ERISA section 404(a)(1) 29 U.S.C. § 1104(a)(1). However, in maximizing benefits, they do have to act with the care, skill, diligence and prudence of a reasonably prudent trustee in the same circumstances. Thus, the question is whether it was reasonable to pursue these claims against these plaintiffs.

The Fund believes that it has a duty to pursue potentially viable claims despite the fact that the other party has potential defenses that may ultimately prevail. Defendants' Memo. at 12. The Fund contends, citing the Restatement (Second) of Trusts at § 177, Comment C, that the only times that it is "unreasonable" for the trustee to bring suit to collect monies are (a) when the expenses involved would be too high or (b) the probability is that the action would be unsuccessful or (c) that even if successful, the claim would be uncollectible. They claim that the probability factor requires a consideration of whether the action would be futile, citing another section of the Restatement. Defendants' Memo. at 14. Finally, they also claim that the "`culpability of a losing trustee...