Bensi et al v. El Camino Hospital

Filing 48

ORDER Re Attorneys' Fees. Signed by Judge Charles R. Breyer on 4/11/2012. (crblc2, COURT STAFF) (Filed on 4/11/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

United States District Court
For the Northern District of California

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ORDER RE ATTORNEYS’ FEES

Plaintiffs,

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No. C 11-03978 CRB

PAUL BENSI. et al.,

v.
EL CAMINO HOSPITAL,

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Defendant.

/

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The Court granted Defendant’s Motion for Summary Judgment on February 24, 2012.

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Dkt. 37. The Court ordered the parties to provide supplemental briefing on whether

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attorneys’ fees were warranted, and held a hearing on Friday, April 6, 2012. Dkt. 47. While

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the Court finds this to be a close question, it holds the balance tips in favor of DENYING the

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motion for attorneys’ fees.

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I.

The parties are familiar with the factual background of this case.

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FACTUAL BACKGROUND

II.

LEGAL STANDARD
ERISA section 502(g)(1), 29 U.S.C. § 1132(g)(1), provides that the Court, in its

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discretion, may award reasonable attorneys’ fees and costs to either party in an action by a

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fiduciary to enforce the plan. “A fees claimant must show ‘some degree of success on the

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merits’ before a court may award attorney’s fees under § 1132(g)(1).” Hardt v. Reliance
Standard Life Ins. Co., 130 S. Ct. 2149, 2158-59 (2010) (quoting Ruckelshaus v. Sierra Club,

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463 U.S. 680, 694 (1983)). The court considers the following “Hummell” factors in deciding

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whether to award fees: (1) the degree of the opposing parties’ culpability or bad faith; (2) the

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ability of the opposing parties to satisfy an award of fees; (3) whether the award of fees

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would deter others; (4) whether the parties requesting fees sought to benefit all participants

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and beneficiaries of an ERISA plan or solve a significant legal question regarding ERISA;

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and (5) the relative merits of the parties’ positions. See Simonia v. Glendale Nissan/Infiniti

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Disability Plan, 608 F.3d 1118, 1121 (9th Cir. 2010) (citing Hummell v. S.E. Rykoff & Co.,

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634 F.2d 446, 453 (9th Cir. 1980)).

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III.

United States District Court
For the Northern District of California

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DISCUSSION
The Hospital argues the Hummell factors counsel in favor of fees. It is asking for fees

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in the amount of $92,139.75, and expenses in the amount of $2,322.73. While this is a close

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question, the Court does not believe the factors tip strongly in favor of fees; thus, the Court

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DENIES the motion for attorneys’ fees. The Court will examine the factors in turn.

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A.

Factor 1 – Bad Faith

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Generally, the Hospital argues the Trust Fund is attempting in bad faith to expand the

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scope of the Hospital’s required contributions to the Fund beyond what is provided in the

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CBA and Trust Agreement. The Hospital argues that since this position is in conflict with

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the language of the agreements, it demonstrates bad faith. See Paddack v. Morris, 783 F.2d

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844, 847 (9th Cir. 1986) (upholding award of fees when district court found trustees’ efforts

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to expand audit beyond territorial limits imposed on the trust plan constituted bad faith).

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Preliminarily, the Hospital points to the Trust Fund and Union’s general litigation

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activities to demonstrate bad fath. The Trust Fund is involved in other litigation attempting

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to compel audits. The Hospital includes in its first supplemental filing a long list of other

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cases that the Union or Trust Fund has been involved with in the past decade, but this

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includes cases that have nothing to do with ERISA issues or collective bargaining

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agreements. That the parties engage in litigation generally is not an indication of bad faith.

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For example, one of the cases is where the Trust Fund served as lead counsel in a Securities

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Act case. See In re Elec. Arts, Inc. Sec. Litig., No. 05-1219, 2006 WL 27210, (N.D. Cal.
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Jan. 5, 2006). This is exactly the type of case that the Court wants institutional investors to

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participate in, and should not be held against the Fund.

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Moreover, the Hospital points to cases where analysis by the Lindquist auditors

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provides the basis for a union or trust fund to bring litigation. See Supp. Memo at 7 (listing

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cases). This does not appear directly relevant to the Trust Fund’s lack of good faith.

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Moreover, it is not surprising that the results of auditors sometimes lead to enforcement

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litigation. Finally, some of these citations demonstrate that the analysis lead to recovery of

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funds owed, certainly not demonstrating bad faith. See, e.g., Locals 302 & 612 of the Int’l

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Union of Operating Eng’rs Constr. Indus. Health & Sec. Fund v. Gill, 737 F. Supp. 2d 1304,

United States District Court
For the Northern District of California

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1311 (W.D. Wa. 2010) (awarding costs and fees to trust funds when employer failed to

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provide required documentation to Lindquist auditors). Thus, the Court does not find this

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information persuasive.

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The Hospital then argues bad faith is evident from the Trust Fund’s refusal to

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articulate a theory of relevance during the months of correspondence and the position taken

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regarding subcontracting. The Court is most troubled by the Trust Fund’s refusal to

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articulate a theory of relevance for the cash disbursement journals.

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The cash disbursement journals are records reflecting all payments made to all

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vendors of the Hospital. Ramsell Decl. ¶ 7. The journals include the hundreds of invoices

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the Hospital processes each week for a variety of products and services with no relevance to

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the Hospital’s mechanical and electronic equipment or work performed by the bargaining

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unit. Id. For example, the journals reflect payments for office and medical supplies; utilities

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such as PG&E; medical equipment; contracted laundry, custodial and information technology

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services; professional services performed by legal, consulting and accounting firms; and

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employee benefit premiums. Id. The journals also include payments for work performed by

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contractors, such as medical equipment service vendors and construction firms. Id.

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The Hospital believed these records were of no apparent significance to the audit per

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the CBA, and thus, requested that the auditors put their request for the journals in writing.

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Ramsell Decl. ¶ 8. The auditors subsequently requested by letter dated June 29, 2010 all
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cash disbursement journals for the first quarter of 2010, the third quarter of 2008, and the

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second quarter of 2007. In the alternative, the auditors asserted that a complete vendor list

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would be acceptable. Johnston Decl. Ex. C. This letter appeared to be a standard letter

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issued to multiple employers, without regard to whether the requests therein were applicable

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to the Hospital. See Ramsell Decl. ¶ 3. The Hospital and the Fund then exchanged multiple

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rounds of correspondence regarding the relevancy of the cash disbursement journals.

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Johnston Decl. Exs. D-F; Reis Decl. (dkt. 28) Exs. A-D. The responses of the Trust Fund are

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troubling to the Court.
In its July 13, 2010 letter, for instance, the Hospital asked the Trust Fund to justify

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United States District Court
For the Northern District of California

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why the journals were relevant or necessary to the audit. Johnston Decl. Ex. D. In response,

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counsel for the Fund asserted the journals “were necessary to determine whether El Camino

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Hospital is in compliance with its contributions obligation” and that “Federal law requires

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that El Camino Hospital produce the books and records requested by the Trust Funds.” Id.

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Ex. E.

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The Hospital again requested the Fund’s position on why the journals were relevant or

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necessary to the audit in a September 27, 2010 letter. Reis Decl. Ex. A. The Fund asserted

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that “[t]he Trust Fund’s auditors determined that the cash disbursement journals were

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relevant and necessary . . . . As such, they are entitled to the requested documents.” Id. Ex.

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B. The Hospital made a third request for an explanation by letter dated January 14, 2011. Id.

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Ex. C. The Fund’s April 13, 2011 response reiterated that the “auditors have determined [the

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journals] are necessary to complete the audit” and “[i]t is not up to El Camino Hospital to

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decide which documents are necessary.” Id. Ex. D. The Trustees consistently provided only

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non-explanation explanations. These statements did not demonstrate in what way the

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journals were relevant to and necessary for the audits, nor did they even attempt to do so.

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The Court finds this behavior counterproductive and unprofessional.

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The Trust Fund does acknowledge that it could have and should have been clearer in

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explaining its position with respect to the cash disbursement journals and the subcontracting

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provisions. Trust Fund Supp. Memo (dkt. 39) at 8. “Counsel to the Trust Fund apologizes to
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the Hospital and the Court for failing to provide a better explanation of the need for the cash

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disbursement journals and why the Trust Fund believed they were relevant and necessary to

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the audit of the Hospital’s books and records.” Id. at 8-9. The Trust Fund then seemed to

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backpedal on this apology at the hearing before finally deciding to take responsibility. The

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Court would like to underscore that while it ultimately determines the balance of factors does

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not tip strongly in favor of fees, the Trust Fund’s behavior and in particular, counsel’s

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conduct, in this regard is inappropriate. The Court would warn the Trust Fund and its

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counsel that a repeat of such behavior would likely be grounds for a determination of bad

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faith.

United States District Court
For the Northern District of California

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The Trustees then finally stated to the Hospital – and argued to the Court – that the

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journals were needed to determine whether the Hospital was properly subcontracting work.

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See Jones Decl. ¶ 8 (stating she told the Hospital that the auditors needed the journals “in

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order to determine whether the Hospital was in compliance and not improperly

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subcontracting out work covered by the collective bargaining agreement”); Opp’n at 8.

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During the litigation on the issue, the Trust Fund provided an unclear and unsupported

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argument. See, e.g. Opp’n at 10. The Trust Fund now argues their dispute with the Hospital

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simply reveals a disagreement over the meaning of the documents, not a demonstration of

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bad faith. They state their position was not “grossly unfair.” Operating Engineers Pension

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Trust v. Gilliam, 737 F.2d 1501, 1506 (9th Cir. 1990).

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In their Supplemental Memo, the Trust Fund presents the briefing it should have

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presented at the merits stage. It provides more support and explanation for its argument that

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the CBA covers types of work, rather than types of workers, see Supp. Memo at 4, and

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further explanation of why it does not find the subcontracting provision to be an expansive

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exception, Supp. Memo at 5-6 (discussing principles of exclusionary lists and ambiguous

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lists in contract interpretation). For example, the Trust Fund now points to the fact that the

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CBA sets out the job duties and types of work performed by each engineer as set forth in

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each of the engineer’s classifications, providing some support for the argument that the CBA

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covered types of work performed, rather than types of workers. Amar Decl. Ex. B § II.1-8.
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While this does not change the Court’s view, it is unclear why they did not make this

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argument on the merits briefing. Still, it does seem to demonstrate the Trust Fund was not

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operating completely from a place of bad faith.1 Overall, the Court does not think this

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conduct, while unprofessional, rises to the level of bad faith.

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B.

Factor 3 – Deterrence

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The Hospital argues an award of fees because would deter future tenuous claims by

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employee trusts. See Paddack, 783 F.2d at 847 (concluding an award would “discourage

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trustees from asserting and possibly fabricating, claims with no basis in law or fact”). The

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Hospital argues the Trust Fund’s position that the auditors require cash disbursement journals

United States District Court
For the Northern District of California

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of “all” employers and the fact that the auditors wrote a blanket form letter to the Hospital

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that included requests that were inapplicable to the Hospital suggest that the Fund initiated

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this litigation in an effort to bully the Hospital into complying with an unduly over broad

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request. Amar Decl. ¶ 5, Ramsell Decl. ¶ 3.

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The Trust Fund argues this case is not analogous to Paddack, where the fund expressly

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instructed the auditor to base his report in part on work performed outside the jurisdiction

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covered by the CBA. It is true that there is not direct evidence of such an action by the Fund

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here. Still, the Fund did attempt to gather large amounts of information without regard to the

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specific situation of the employer at issue, as demonstrated both by the form letter from the

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auditors and the fact that the auditors planned to receive all the cash disbursement journals

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before ever turning to the CBAs to determine what and who were actually covered by the

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plan. The Trust Fund’s further explanation of their reasoning, discussed in the bad faith

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section, does show though that they believe they often may have a legal basis for such

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requests. Thus, fees may not serve as a deterrent when they have a fiduciary duty to uphold

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the agreements as they interpret them. This factor is indeterminate.

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C.

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The Hospital argues the fourth factor weighs in its favor because deterring baseless

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Factor 4 – Benefit to Participants or Significant Legal Question

litigation by the Fund benefits all plan participants by saving litigation fees. The Trust Fund

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The Parties agree the second factor is not at issue here.
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argues that they are seeking to reveal whether additional contributions are owed to the Fund

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for covered work, which benefits the participants. This prong does not point strongly in

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either direction, and is not decisive

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D.

Factor 5 – Relative Merits

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The Hospital argues the fifth factor supports attorneys’ fees because Trustees’ position
was untenable given the clear language of the CBA permitting subcontracting and not

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requiring contributions for work by subcontractors. The Trustees argue in response that their

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position is clearly supported by the audit provisions of the Trust Agreement. As discussed

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above, there is some textual support for the Trustees’ position in the Agreement. Again, they

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United States District Court
For the Northern District of California

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have now provided more support in the case law and from the documents for their position as

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well. Thus, while the Court determined that the relative merits were in favor of the Hospital,

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the Trust Fund’s supplemental papers help demonstrate that did not have a completely and

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totally untenable position. Thus, this factor ends up neutral.
Overall this is a close question. The Court is troubled by the Trust Fund’s failure to

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provide a coherent and timely explanation for their requests, both to the Hospital and the

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Court. Yet, while poorly litigated, the Court is not convinced the Trust Fund acted

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completely in bad faith. Given all the factors, the Court denies the motion for fees.

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IV.

CONCLUSION

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For the foregoing reasons, the Court DENIES the motion for attorneys’ fees.

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IT IS SO ORDERED.

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CHARLES R. BREYER
UNITED STATES DISTRICT JUDGE

Dated: April 11, 2012

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