Young v. Verizon's Bell Atlantic Cash Balance Plan et al

Filing 263

MEMORANDUM Opinion and Order signed by the Honorable Morton Denlow on 10/20/2010. Mailed notice(ldg, )

Young v. Verizon's Bell Atlantic Cash Balance Plan et al

Doc. 263

IN THE UNITED STATES DISTRICT COURT F O R THE NORTHERN DISTRICT OF ILLINOIS E A S T E R N DIVISION C Y N T H I A N. YOUNG, on behalf of ) h e r s e lf, and others similarly situated, ) ) Plaintiff, ) ) v. ) ) V E R I ZO N 'S BELL ATLANTIC ) C A S H BALANCE PLAN, formerly ) k n o w n as Bell Atlantic Cash Balance ) P la n , formerly known as Bell Atlantic ) M a n a g e m e n t Pension Plan, and ) V E R I ZO N COMMUNICATIONS, ) I N C ., as successor in interest to Bell ) A tla n tic Corporation, ) ) Defendants. )

Case No. 05 C 7314 Magistrate Judge Morton Denlow

M E M O R A N D U M OPINION AND ORDER P la in tif f Cynthia N. Young ("Plaintiff"), class representative in this ERISA class a c tio n suit, brings a motion for attorney's fees and costs under 29 U.S.C. § 1132(g)(1) f o llo w in g the resolution of the case by the Seventh Circuit Court of Appeals. The Seventh C irc u it's ruling affirmed the prior judgments reached by this Court in a two-phase trial p r o c e s s . The Court entered judgments in favor of Plaintiff on Counts III and IV of their S e c o n d Amended Complaint and in favor of Defendants on Counts I and II of Plaintiff's S e c o n d Amended Complaint, as well as in favor of Defendants on their counterclaim for r e f o r m a tio n . This motion presents the issue of whether the judgments in favor of Plaintiff constitute

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"some degree of success" on the merits that would entitle her to recover attorney's fees and c o s ts under the Employee Retirement Income Security Act of 1974 ("ERISA"). Specifically, th e Court must determine: (1) whether, in the exercise of its discretion, the Court should a w a rd attorney's fees and costs to Plaintiff in connection with Phase I of the litigation, and (2 ) whether, in the exercise of its discretion, the Court should award attorney's fees and costs to Plaintiff in connection with Phase II of the litigation. For the reasons discussed below, the C o u rt awards partial attorney's fees for Phase I and no fees for Phase II. I . BACKGROUND FACTS T h e complicated facts of this case have been fully developed in prior opinions by this C o u rt and the Seventh Circuit Court of Appeals. See Young v. Verizon's Bell Atl. Cash B a la n c e Plan (Young III), 615 F.3d 808 (7th Cir. 2010); Young v. Verizon's Bell Atl. Cash B a la n c e Plan (Young II), 667 F. Supp. 2d 850 (N.D. Ill. 2009) (regarding the Phase II trial); Y o u n g v. Verizon's Bell Atl. Cash Balance Plan (Young I), 575 F. Supp. 2d 892 (N.D. Ill. 2 0 0 8 ) (regarding the Phase I trial). The following summarizes the facts most relevant to the c u rre n t motion. P la in tif f initiated this suit in 2005 under ERISA § 502(a)(1)(b), 29 U.S.C. § 1132(a)(1)(b), and § 502(a)(3), 29 U.S.C. § 1132(a)(3), seeking to recover retirement benefits under an ERISA-governed pension plan. Plaintiff alleged that Defendants Verizon's B e ll Atlantic Cash Balance Plan (the "Plan") and Verizon Communications, Inc. ("Verizon") (c o lle c tiv e ly "Defendants") improperly calculated her pension benefits and those of similarly

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situated employees. The Court certified a class pursuant to Federal Rule of Civil Procedure 23. The class members were all participants in a series of defined benefit pension plans p ro v id e d by the Bell Atlantic Corporation (now Verizon) to its management employees. At is s u e in this case were certain provisions in a cash-balance pension plan first instituted in 1 9 9 6 . Before 1996, Bell Atlantic operated a traditional pension plan, known as the Bell A tla n tic Management Pension Plan ("BAMPP"), under which employees received a defined b e n e f it beginning at age 65. On December 31, 1995, the BAMPP was amended and renamed th e Bell Atlantic Cash Balance Plan ("Cash Balance Plan"), under which employees received b e n e f its according to the balance they had accrued under the plan. To transition then-current employees from the BAMPP to the Cash Balance Plan, the P la n provided a formula in § 16.5.1 to calculate each participant's opening balance in the n e w plan. The formula consisted of two steps: (1) calculating the lump-sum cashout value o f a participant's annuity under the BAMPP; and (2) multiplying the lump-sum cashout value b y a transition factor. To determine the lump-sum, the plan used a mortality table to d e te rm in e the participant's life expectancy and then applied an interest rate to convert the e x p e c te d annuity payments into a lump-sum benefit. Then, the transition factor to be m u ltip lie d was determined by an actuarial formula based on the participant's age and service. For employees covered by § 16.5.1(a)(1), the Plan called for the lump-sum cashout v a lu e to be multiplied once by the transition factor. For employees covered by § 16.5.1(a)(2),

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the Plan called for the lump-sum cashout value to be multiplied twice by the transition factor. V e riz o n contended the language in § 16.5.1(a)(2) contained a scrivener's error and that each s e c tio n should have called for only one multiplication of the transition factor. All of the c o m m u n ic a tio n s Defendants sent out to participating employees explaining the transition to th e Cash Balance Plan, including the Summary of Material Modifications ("SMM") required b y ERISA, only referenced one transition factor for all employees. Defendants calculated b e n e f its for all employees multiplying only once by the transition factor. The Plan was a m e n d e d again in September 1997, the year Plaintiff retired, and continued to contain the s e c o n d reference to the transition factor in § 16.5.1(a)(2). In 1998, the Plan was amended a g a in , this time without reference to the second transition factor. P la in tif f 's claims against Defendants involved both the calculation of the lump-sum v a lu e for all covered employees as well as the use of the transition factor for certain e m p lo ye e s covered by § 16.5.1(a)(2) of the plan. Plaintiff alleged Defendants used the in c o rre c t Pension Benefit Guaranty Corporation ("PBGC") interest rate when calculating the o p e n in g balance of her account. Defendants used a rate of 120% of the applicable interest ra te specified by the PBGC, and Plaintiffs alleged they should have used 100% of the a p p lic a b le interest rate. Plaintiff also alleged Verizon abused its discretion in multiplying th e transition factor once for employees covered by § 16.5.1(a)(2). The class members were divided into two subclasses. Subclass 1 included those em ploye e s whose opening balances under the Cash Balance Plan were calculated using 120%

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of the PBGC rate pursuant to § 16.5.1(a)(1) and (a)(2). The class claim associated with S u b c la s s 1 (the "Discount Rate Issue") was defined as follows: W h e th e r, in determining the benefits afforded by the Bell Atlantic Cash B a la n c e Plan to the plaintiff and the Class, it was proper to use 120% rather th a n 100% of the applicable PBGC interest rate when calculating the "opening b a la n c e s ," and, if improper, the remedy therefor[]. A g re e d Order for Class Certification, 2, Jan. 16, 2007. Subclass 2 included those employees whose opening balances were calculated by m u ltip lyin g their applicable transition factor once pursuant to § 16.5.1(a)(2). The class claim a s s o c ia te d with Subclass 2 (the "Transition Factor Issue") was defined as follows: W h e th e r, in determining the benefits afforded by the Bell Atlantic Cash B a la n c e Plan to plaintiff and the Class, it was proper to apply the cash balance tra n s itio n factor found in Table 1 of Section 16 of the Cash Balance Plan once ra th e r than twice when calculating the "opening balances," and if improper, th e remedy therefor[]. Id . T h e Court decided these issues in two phases. In Phase I, the Court conducted a trial o n the papers, applying a deferential standard of review to the Plan administrators' decisions to deny Plaintiff's claims based upon the administrative record. Young I, 575 F. Supp. 2d 8 9 2 . On the Discount Rate Issue (Counts I and II), the Court upheld Defendants' decision to calculate Plaintiff's opening account balance at 120% of the PBGC rate, instead of 100%, a s a reasonable interpretation within Defendants' discretion. Id. at 910. On the Transition F a c to r Issue (Counts III and IV), the Court found Defendants abused their discretion by u n ila te ra lly disregarding unambiguous Plan terms requiring the Transition Factor to be 5

multiplied twice in calculating Plaintiff's opening balance, even though Defendants claimed th e language was ambiguous due to a "scrivener's error." Id. at 918. The Court held that " u p o n determining the language was a mistake, the Committee should have sought to reform th e plan document in court" subject to de novo judicial review. Id. In Phase II, Defendants counterclaimed for reformation of the Plan to eliminate the s e c o n d reference to the Transition Factor multiplication. The Court then conducted a bench tria l to evaluate Plaintiff's claims under the de novo standard of review and to decide D e f e n d a n ts ' counterclaim for reformation. Young II, 667 F. Supp. 2d 850. Following completion of the Phase II trial, the Court entered its final judgment. On th e Discount Rate Issue (Counts I and II), the Court entered judgment in favor of Defendants, f in d in g the correct interpretation of the Plan required a participant's opening account balance a t 120% of the PBGC rate. Id. at 906. On the Transition Factor Issue (Counts III and IV), th e Court entered judgment in favor of Plaintiff to the extent Defendants abused their d is c re tio n by unilaterally disregarding the plain language of the plan. Id. at 906-07. The C o u rt then entered judgment in favor of Defendants on their counterclaim for reformation a n d reformed § 16.5.1(a)(2) of the 1996 and 1997 Cash Balance Plan to eliminate the second re f e re n c e to a Transition Factor. Id. at 907. The Court found that Defendants committed " p ro f o u n d negligence" for failing to discover the mistake in 1997, but that negligence is not a bar to reformation. Id. at 905-06. Therefore, the Court held the Plaintiff class members w e re not entitled to additional Plan benefit distributions by reason of this litigation. Id. at

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907. F o llo w in g this Court's judgment, both parties appealed to the Seventh Circuit. Plaintiff filed an appeal from this Court's rulings on the Discount Rate Issue in Phase I and o n the judgment for Defendants in Phase II. Defendants cross-appealed on the judgment for P la in tif f on the Transition Factor Issue in Phase I. The Seventh Circuit affirmed this Court's ru lin g on all counts. Young III, 615 F.3d at 824. Plaintiff now moves this Court to award a tto rn e y's fees pursuant to 29 U.S.C. § 1132(g)(1). II. DISCUSSION T h e Supreme Court recently interpreted ERISA's fee-shifting provision in Hardt v. R e lia n c e Standard Life Insurance Co., --- U.S. ---, 130 S. Ct. 2149 (2010). The discussion b e lo w explains the new standard and then applies it to this litigation, ultimately concluding th a t Plaintiff should receive attorney's fees for Phase I but not Phase II. A. T h e New Standard for ERISA Attorney's Fees Under Hardt. E R IS A section 502(g)(1) provides, "In any action under this title . . . by a participant, b e n e f ic ia ry, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and c o s ts of action to either party." 29 U.S.C. § 1132(g)(1). The statute is otherwise silent as to the standard for an award of attorney's fees. Before the Supreme Court's recent decision in Hardt, the Seventh Circuit utilized a tw o -s te p process to determine entitlement to attorney's fees under ERISA. See Quinn v. Blue C ro s s & Blue Shield Ass'n, 161 F.3d 472, 478 (7th Cir. 1998). First, an ERISA fee claimant

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had to show it was the "prevailing party." Id. Second, the Seventh Circuit applied a fivef a c to r test, to examine the claimant's entitlement to fees and costs.1 Sullivan v. Randolph, In c ., 504 F.3d 665, 670­71 (7th Cir. 2007). Alternatively to the five-factor test, the Seventh C irc u it sometimes applied a "substantial justification" test, holding that ERISA authorizes th e award of reasonable attorney's fees to the prevailing party unless the losing party's p o s itio n was substantially justified. Id. In Hardt, the Supreme Court expressly overruled the "prevailing party" requirement, a n d instead held that a court may award fees under ERISA when the claimant has achieved " s o m e degree of success on the merits." 130 S. Ct. at 2152 (quoting Ruckelshaus v. Sierra C lu b , 463 U.S. 680, 694 (1983)). Hardt involved a district court's remand to a plan a d m in is tra to r to determine benefit eligibility, following a determination by the court that the p la n administrator abused its discretion in evaluating the plaintiff's claim. Id. at 2154. The S u p re m e Court overturned the ruling below that an ERISA beneficiary must obtain a court a w a rd of benefits to qualify for attorney's fees. Id. at 2155­56. But the Court also held that to achieve some degree of success, a "trivial success on the merits" or a "purely procedural v ic to ry" will not suffice. Id. at 2158. Rather, the standard is satisfied if the court can "fairly c a ll the outcome of the litigation some success on the merits without conducting a lengthy

The five factors are: (1) the degree of the offending parties' culpability or bad faith; (2) the ability of the offending parties to satisfy personally an award of attorney's fees; (3) whether or not an award of attorney's fees against the offending parties would deter other persons acting under similar circumstances; (4) the amount of benefit conferred on members of the pension plan as a whole; and (5) the relative merits of the parties' positions. Sullivan v. Randolph, Inc., 504 F.3d 665, 671 (7th Cir. 2007).

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inquiry into the question whether a particular party's success was substantial or occurred on a central issue." Id. (citation and internal quotation marks omitted). In Hardt, the Court relied on its previous decision in Ruckelshaus v. Sierra Club, 463 U .S . 680 (1983), a case involving the discretionary "whenever appropriate" fee standard u n d e r the Clear Air Act. Hardt, 130 S. Ct. at 2157. The Court found the standards d e v e l o p e d under that fee-shifting provision to be applicable to the ERISA fee-shifting p ro v is io n in 29 U.S.C. § 1132(g)(1). Id. In Ruckelshaus, the Court held that "partially p r e v a ilin g parties--parties achieving some success, even if not major success" were eligible f o r fee awards. 463 U.S. at 688 (emphasis in original). In Ruckelshaus, however, a complete re je c tio n by the appellate court of the plaintiff environmental groups' claims constituted no s u c c e s s on the merits, and therefore did not entitle the plaintiffs to attorney's fees. Id. at 694. In Hardt, on the other hand, the Court determined that the plaintiff did meet the "some degree of success" standard because she "persuaded the District Court to find that the plan a d m in is tra to r [had] failed to comply with the ERISA guidelines and that Ms. Hardt did not g e t the kind of review to which she was entitled under applicable law." 130 S. Ct. 2158­59 (c ita tio n and internal quotation marks omitted). Hardt then proceeded to discuss the second step of the analysis, in which courts e x e rc ise their discretion to determine whether awarding fees is appropriate. It held that the f iv e -f a c to r test was not necessary under the ERISA fee-shifting statute, but the Court did not

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foreclose the possibility that the five-factor test can be used to guide a court's discretion. Id. a t 2158 n.8. B. P la in tiff Is Entitled to Attorney's Fees for the Transition Factor Issue in Phase I of the Litigation. Because this litigation proceeded in two distinct phases, it is most natural to analyze th e fee issue separately for each phase. The Supreme Court has noted that dividing litigation in to phases "is a system for analyzing requests for attorney's fees and costs that appears to b e useful in protracted litigation." Pennsylvania v. Del. Valley Citizens' Council for Clean A ir , 478 U.S. 546, 549 (1986). In fact, the Court has held that "where the plaintiff achieve[s] o n ly limited success, the district court should award only that amount of fees that is re a s o n a b le in relation to the results obtained." Hensley v. Eckerhart, 461 U.S. 424, 440 (1 9 8 3 ). The Hensley rule suggests that in a case with distinct phases of litigation, a plaintiff m a y only recover fees with respect to those phases that satisfy the relevant standard for a w a rd in g fees. Ohio River Valley Envtl. Coalition, Inc. v. Green Valley Coal Co., 511 F.3d 4 0 7 , 417­18 (4th Cir. 2007). Though Hensley involved a "prevailing party" standard, at least one court of appeals h a s used phase-by-phase analysis in a "some degree of success" inquiry to justify a partial a w a rd , shifting fees for a preliminary injunction phase but none of the later litigation. See id . And the Supreme Court has used phase-by-phase analysis when dealing with a "some s u c c e s s " fee standard, even if it did not hold that the method was required. See Del. Valley, 478 U.S. at 549, 561. Using the same approach, this Court will first apply the Hardt standard 10

to Phase I of this case and then apply the same standard independently to Phase II. U n d e r Hardt, the Court is first charged with determining whether Plaintiff obtained " s o m e degree of success on the merits." 130 S. Ct. at 2158. If so, the Court then must e x e rc ise its discretion in deciding whether to award fees. Plaintiffs may only recover fees re la tin g to counts that can meet this standard of success. See Hensley, 461 U.S. at 440 (re q u irin g claim-by-claim consideration of success); Sierra Club v. EPA, 769 F.2d 796, 801, 8 0 8 (D.C. Cir. 1985) (applying the Hensley rule to a "some success" Clean Air Act fee in q u iry). Here, because Plaintiff achieved no success on the Discount Rate Issue, this Court w ill only consider awarding fees for time attributable to the Transition Factor Issue. 1. P la in tiff Achieved "Some Degree of Success on the Merits" in Phase I.

T h e outcome of the Transition Factor Issue in Phase I is analogous to the scenario p re s e n te d in Hardt. Hardt held that the plan administrator failed to comply with ERISA g u id e lin e s and that the plaintiff did not receive the kind of review to which she was entitled. Id. Likewise, this Court found that Defendants abused their discretion by unilaterally d e n yin g benefit payments after determining that the Plan language contained a scrivener's e rro r or mistake. Young I, 575 F. Supp. 2d at 918. Hardt held that the plan administrator did n o t act properly on the plaintiff's application for benefits by failing to consider all the e v id e n c e . 130 S. Ct. at 2154. Similarly, this Court found that Defendants acted improperly b y disregarding the unambiguous Plan terms requiring the Transition Factor to be multiplied tw ic e . Young I, 575 F. Supp. 2d at 918.

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The practical difference between Hardt and the present case is that following the re m a n d in Hardt, the plan administrator ultimately reversed its prior decision and awarded th e plaintiff benefits. Hardt, 130 S. Ct. at 2154. Hardt expressly left open the question of w h e th e r a remand alone, without a further recovery of benefits, would constitute "some s u c c e s s on the merits." Id. at 2159. That said, at least two district courts post-Hardt have f o u n d a remand alone enough to meet Hardt's "some success" standard. Blajei v. Sedgwick C la im s Mgmt. Servs., Inc., No. 09-13232, 2010 WL 3855239, at *3­4 (E.D. Mich. Sept. 28, 2 0 1 0 ); Richards v. Johnson & Johnson, No. 2:08-CV-279, 2010 WL 3219133, at *3 (E.D. T e n n . Aug. 12, 2010). E R IS A 's statutory structure also suggests that a party may achieve "some degree of s u c c e s s " even without a monetary judgment. The statute's remedial provisions include other im p o rta n t relief. 29 U.S.C. § 1132(a). Specifically, ERISA § 502(a) provides that a b e n e f ic ia r y may bring suit to recover benefits under the plan; enforce his rights under the te rm s of the plan; clarify his rights to future benefits under the terms of the plan; recover re lie f for breach of fiduciary duty by the plan; enjoin any act or practice which violates E R IS A or the terms of the plan; or obtain other equitable relief to redress an ERISA violation o r enforce ERISA's provisions. Thus, a court's determination that a plan administrator a b u s e d its discretion in interpreting a plan constitutes "some degree of success." It redresses a n ERISA violation and is a necessary step to clarifying beneficiaries' future rights under the p la n .

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By providing an attorney fee-shifting provision in ERISA, Congress signaled its intent th a t meritorious claims should be pursued and violations of the law redressed. See Anderson v . AB Painting and Sandblasting Inc., 578 F.3d 542, 545­46 (7th Cir. 2009) (rejecting the n o tio n that ERISA fees should be calculated proportionally to the plaintiff's damages). Parties seeking to vindicate their rights under such provisions should be encouraged through f e e awards when they are appropriate and reasonable. Id. Furthermore, an award of a tto rn e y's fees can act as a deterrent to plan administrators by rewarding suits that "force[] d e f e n d a n ts to abandon illegal conduct." Ruckelshaus, 463 U.S. at 686 n.8. It is also helpful to look at how courts have interpreted other fee-shifting statutes that trig g e r the Ruckelshaus "some success" standard.2 For instance, in a Clean Air Act case, an o rd e r from the court that the defendant violated the Act was enough to achieve "some s u c c e s s ," even though the court declined to penalize the defendant with any fines and no d a m a g e s were paid. Pound v. Airosol Co., 498 F.3d 1089, 1101­02 (10th Cir. 2007). In P o u n d , the Court determined that, under the less exacting fee-shifting standard, an award of d a m a g e s was not necessary to establish entitlement to fees. Id. In other cases, injunctive

The Ruckelshaus Court identified the following fee-shifting statutes as equivalent to § 307(f) of the Clean Air Act at issue in that case: § 304(d) of the Clean Air Act; Toxic Substances Control Act, 15 U.S.C. § 2618(d); Endangered Species Act, 16 U.S.C. § 1540(g)(4); Surface Mining Control and Reclamation Act, 30 U.S.C. (Supp. IV) § 1270(d); Deep Seabed Hard Mineral Resources Act, 30 U.S.C. (Supp. IV) § 1427(c); Clean Water Act, 33 U.S.C. § 1365(d); Marine Protection, Research and Sanctuaries Act, 33 U.S.C. § 1415(g)(4); Deepwater Port Act, 33 U.S.C. § 1515(d); Safe Drinking Water Act, 42 U.S.C. § 300j-8(d); Noise Control Act, 42 U.S.C. § 4911(d); Energy Policy and Conservation Act, 42 U.S.C. § 6305(d); Powerplant and Industrial Fuel Use Act, 42 U.S.C. (Supp. IV) § 8435(d); Ocean Thermal Energy Conversion Act, 42 U.S.C. (Supp. IV) § 9124(d); and Outer Continental Shelf Lands Act, 43 U.S.C. (Supp. IV) § 1349(a)(5). 463 U.S. at 682 n. 1.

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orders or consent decrees were enough for "some success," even though the cases were later m o o te d . See Cent. For Biological Diversity v. Marina Point Dev. Co., 566 F.3d 794, 799, 8 0 5 (9th Cir. 2009) (later-mooted permanent injunction qualifies as "some success"); Ohio R iv e r Valley, 511 F.3d at 417 (4th Cir. 2007) (granting fees for preliminary injunction phase b u t not for later-mooted monetary claims); Citizens for a Better Env't v. Costle, No. 80 C 0 0 0 3 , 1988 WL 58590, at *1­2 (N.D. Ill. May 31, 1988) (granting fees for a later-mooted c o n s e n t decree). Other cases have similarly held that remand to an administrative agency qualifies as " s o m e success," regardless of whether the plaintiff prevailed on the remand. See W. Va. H ig h la n d s Conservancy, Inc., v. Norton, 343 F.3d 239, 246, 249 (4th Cir. 2003) (remand to O f f ic e of Surface Mining Reclamation and Enforcement); Nat'l Wildlife Fed'n v. Hanson, 8 5 9 F.2d 313, 316­17 (4th Cir. 1988) (remand to the Corps of Engineers); Home Builders A ss 'n of N. Cal. v. U.S. Fish and Wildlife Serv., No. CIV. S-05-0629 WBS GGH, 2007 WL 4 3 7 4 0 4 7 , at *2 (E.D. Cal. Dec. 14, 2007) (remand to United States Fish and Wildlife S e rv ic e ). Defendants protest that these cases are inapplicable because a remand was the only re lie f possible there, whereas Plaintiff here hoped to obtain monetary relief. But that a rg u m e n t misses the point, because the relevant standard is "some success," not "total s u c c e s s ." Just as a remand plays the important role of ensuring that an agency fulfills its s ta tu to ry duties, Norton, 343 F.3d at 246, so the abuse of discretion finding here held the P la n to its ERISA duties.

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Given the above considerations, and under the standard set forth in Hardt, Plaintiff a c h ie v e d "some degree of success on the merits." While Plaintiff class members lost on the D is c o u n t Rate Issue and did not ultimately recover a monetary judgment, Plaintiff successfully established an ERISA violation and forced Defendants to counterclaim to reform th e Plan. Indeed, viewing matters as they stood after Phase I, Plaintiff was the prevailing p a rty on the Transition Factor Issue; but for this Court's allowance of Defendants' c o u n te rc la im , Plaintiff class members would have been entitled to a substantial judgment as a result of the Phase I litigation. Plaintiff's suit benefitted other Plan beneficiaries by forcing D e f e n d a n ts to officially and transparently correct their mistake, thus clarifying benefits and h o p e f u lly encouraging the Plan to act more carefully in the future. Plaintiff's Phase I victory th e re f o re represented far more than a "trivial success on the merits" or a "purely procedural v ic to ry." Hardt, 130 S. Ct. at 2158. D e f e n d a n t argues that the Phase I trial amounted to a mere procedural victory for P la in tif f , but Defendant's own cross-appeal attacking the Phase I judgment belies this a rg u m e n t. Cross-appeals are not necessary or proper if one merely seeks to defend a ju d g m e n t on alternate grounds. See, e.g., Am. Land Holdings of Ind., LLC v. Jobe, 6 0 4 F.3d 451, 453 (7th Cir. 2010). Rather, a party cross-appeals from a final decree when h e has "a view either to enlarging his own rights thereunder or of lessening the rights of his a d v e rs a ry." United States v. Am. Ry. Express Co., 265 U.S. 425, 435 (1924). Here, D e f e n d a n t claimed the right to unilaterally amend scrivener's errors, but Plaintiff's Phase I

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victory denied them that right. Defendant attempted in its cross-appeal to erase Plaintiff's v ic to ry on the point, but the cross-appeal failed, clinching Plaintiff's success on the merits f o r the Transition Factor Issue in Phase I. 2. T h e Substantial Justification and Five-Factor Tests Support a Phase I Fee A w a r d for Plaintiff.

B e f o re Hardt, the Seventh Circuit, as well as other circuits, looked to five factors to g u id e their discretion in determining whether or not to award attorney's fees under 29 U.S.C. § 1132(g)(1). E.g., Herman v. Cent. States, Se. and Sw. Areas Pension Fund, 423 F.3d 684, 6 9 6 (7th Cir. 2005). These factors include: (1) the degree of the offending parties'

c u lp a b ility or bad faith; (2) the ability of the offending parties to satisfy personally an award o f attorney's fees; (3) whether or not an award of attorney's fees against the offending parties w o u ld deter other persons acting under similar circumstances; (4) the amount of benefit c o n f e rre d on members of the pension plan as a whole; and (5) the relative merits of the p a r ti e s ' positions. Sullivan, 504 F.3d at 671(quoting Janowski v. Int'l Bhd. of Teamsters L o c a l No. 710 Pension Fund, 673 F.2d 931, 940 (7th Cir. 1982), vacated on other grounds, 4 6 3 U.S. 1222 (1983)). While the circuits use slightly different language in their phrasing o f the five factors, the Seventh Circuit's factors mirror those from the other circuits. See, e.g., J a n o w s k i, 673 F.2d at 940 (citing to Iron Workers Local 272 v. Bowen, 624 F.2d 1255 (5th C ir. 1980) and Eaves v. Penn, 587 F.2d 453 (10th Cir. 1978)). A s an alternative to the five-factor test, the Seventh Circuit has also applied a " s u b s ta n tia l justification" test, in which a court asks whether the losing party's position, 16

though unsuccessful, was substantially justified. Sullivan, 504 F.3d at 670. The Seventh C irc u it has called into question the usefulness of having a multi-factor test, but it has also s ta te d that the five-factor test can be used to implement, rather than contradict, the substantial ju s tif ic a tio n test. Id. at 672. On this view, both tests amount to the same inquiry. Id. A s discussed above, Hardt left open the possibility that courts could consider the fivef a c to r test, once claimants have established "some degree of success on the merits." 130 S. C t. at 2158 n.8. Since Hardt, the Seventh Circuit has not decided whether the five-factor or s u b s ta n tia l justification tests are still relevant. That said, other circuits have consistently c o n tin u e d to use the five factors to guide their discretion. See, e.g., Williams v. Metro. Life In s . Co., 609 F.3d 622, 635 (4th Cir. 2010); Simonia v. Glendale Nissan/Infiniti Disability P la n , 608 F.3d 1118, 1119 (9th Cir. 2010); Hewel v. Long Term Disability Income Plan, 2 0 1 0 WL 2710582, at *2 (D.N.J. July 7, 2010). Given this consensus among other federal c o u rts, the Seventh Circuit may well continue to use the five factors or the substantial ju s tif ic a tio n test. Under either version of the inquiry, Plaintiff is entitled to fees. D e f e n d a n ts' position on the Transition Factor Issue in Phase I was not substantially ju s tif ie d . This Court found that Defendants abused their discretion in denying Plaintiff b e n e f its under the Transition Factor provision of the Plan, which was unambiguous on its f a c e . Young I, 575 F. Supp. 2d at 914. Precedent made clear, and Defendants should have k n o w n , that they could not simply disregard the Plan's plain language. Id. at 913­14. Defendants essentially argue that their victory in Phase II establishes substantial justification,

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but only Phase I is at issue for the moment. While Phase II raised the novel issue of whether c o u rts could equitably reform an ERISA plan, Phase I did not. Defendants never

s u b s ta n tia lly justified their Phase I position that they could unilaterally deny the class over a billion dollars in benefits promised by the Plan's plain language. T h e five-factor test likewise weighs in favor of awarding fees. As to the first factor, D e f e n d a n ts ' culpability was significant. Generally speaking, a plan administrator's abuse o f discretion does not usually amount to "bad faith" in the ERISA attorney's fees context. See Quinn, 161 F.3d at 479. At the same time, a plan administrator who negligently or ig n o ra n tly construes unambiguous plan terms may be subject to a fee award entered against it. See, e.g., Filipowicz v. Am. Stores Benefit Plans Comm., 56 F.3d 807, 816 (7th Cir. 1995). Here, Defendants are culpable both because of their drafting mistake and their attempt to ig n o re the plain language of the Plan. Defendants relied on their position that the Plan c o n ta in e d a "mistake," a mistake this Court deemed the result of "profound" negligence by D e f e n d a n ts and which the Seventh Circuit described as a "devastating drafting error." Young III, 615 F.3d at 812; Young II, 667 F. Supp. 2d at 904­05. But precedent clearly established th a t Defendants could not simply ignore a plan's plain language. See Young I, 575 F. Supp. 2 d at 913­14. Defendants' meritless construction of a careless drafting error gave rise to the d is p u te , and for that they are culpable. A s to the second factor, no dispute exists that Defendants can satisfy Plaintiff's p o s s ib le award of attorney's fees. The Plan and Verizon are both multi-billion dollar entities.

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As to the third factor, an award of attorney's fees against Defendants would serve to d e te r similarly situated plan administrators from making drafting errors through "profound" n e g lig e n c e . It is not too much to expect that Verizon would have had a second set of eyes p ro o f re a d the crucial provisions of the Plan. Perhaps a fee award would encourage Verizon a n d other plan sponsors and administrators to put in place better drafting practices for the f u tu re . A fee award would also send the message that a plan administrator may not flout E R I S A ' s "plan documents" rule simply because of its own mistake. The Court therefore c o n c lu d e s that this case involves the sort of conduct for which a fee award would serve as a deterrent. As to the fourth factor, Plaintiff sought to benefit all beneficiaries covered by the re le v a n t portions of this Plan by bringing a class-action lawsuit. Unlike cases where only one p a rtic ip a n t's benefits are at stake, here Plaintiff achieved the success she did on behalf of the c la s s as a whole. Although the class ultimately received no monetary benefit, Plaintiff a c h i e v e d an important victory for class members by clarifying their rights and holding the P la n to its ERISA duties. F in a lly, the fifth factor also weighs in favor of awarding fees. As the Seventh Circuit h a s noted, inquiring into the relative merits of the parties' positions is simply an oblique way o f asking whether the opposing party's position was substantially justified. Sullivan, 504 F .3 d at 672. As explained in the "substantial justification" analysis, Defendants' attempt to u n ila te ra lly rewrite the Plan's plain language lacked merit. Thus, all five factors weigh in

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favor of awarding fees. Before moving on to the Phase II fee analysis, the Court must pause to question, in lig h t of Hardt, the continued viability of the substantial justification and five-factor tests. The substantial justification test originated as a reference to the Equal Access to Justice Act, which entitles prevailing parties in many types of suits against the government to reasonable a tto rn e y's fees "unless the court finds that the position of the United States was substantially ju s tif ie d or that special circumstances make an award unjust." Bittner v. Sadoff & Rudoy In d u s ., 728 F.2d 820, 830 (7th Cir. 1984) (quoting 28 U.S.C. § 2412(d)(1)(A)). But that s ta tu te contains a "prevailing party" requirement of the sort that Hardt recently held irre le v a n t to the ERISA fee provision. See 28 U.S.C. § 2412(d)(1)(A). B e c a u s e "some success" represents the new threshold to an ERISA fee award, the s u b s ta n tia l justification test makes little sense. If one party has experienced only some s u c c e s s , then the opposing party, almost by definition, has also achieved some success. If s o , the opposing party's position will often be non-frivolous--that is, substantially justified. Applying a substantial justification test where the threshold for fee eligibility is only some s u c c e s s therefore undermines the broader eligibility for fees that should exist when the fee p ro v is io n lacks a "prevailing party" requirement. For the same reasons, courts should question whether the five-factor test still makes s e n s e in light of Hardt, at least if it is true that the five factors are simply an elaboration of th e substantial justification test. See Sullivan, 504 F.3d at 672. Although several circuits

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have announced that the test remains useful or even mandatory, none of these post-Hardt d e c is io n s contain substantive analysis of the test's continuing viability. Rather, the courts s im p ly note that Hardt did not foreclose using the test and then proceed to employ it. See W illia m s , 609 F.3d at 635; Simonia, 608 F.3d at 1119. But the Supreme Court's declining to decide the issue is no support for continued use of the test. Courts owe the issue a more th o ro u g h analysis. T h is Court believes that the five factors in truth represent a broader inquiry than the s u b s ta n tia l justification test. The first factor (bad faith or culpability) does not necessarily c o rre la te to whether a party's litigation position was justified; a party could have a colorable p o s itio n and yet litigate in bad faith. Moreover, this factor has relevance beyond the course o f litigation. Courts may also wish to ask whether the conduct that gave rise to litigation was c u lp a b le , even if the party has a substantially justified legal argument. The second factor (ability to pay) has little to do with a party's litigation position. Of c o u rs e , at least in the realm of awarding fees to plaintiffs, it may be a somewhat empty factor, g iv e n that ERISA defendants will almost always have the ability to pay attorney's fees. See S u lliv a n , 504 F.3d at 671. The third factor (deterrence) seems closely related to the first, insofar as culpable b e h a v io r or bad faith is generally the sort of conduct that can be deterred. The fourth factor (benefit to members of the pension plan) is similar to the "some s u c c e s s " threshold inquiry, because it asks the court to look at the plaintiff's bottom-line

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success as it relates to other members of the pension plan. Nevertheless, the factor remains u s e f u l insofar as draws it attention to a particularly important type of success. The Seventh C irc u it has also suggested that this factor directs that the award of fees should be p ro p o rtio n a l to the degree of damages awarded, see id. at 672, but that use of the factor s e e m s questionable in light of the new "some success" threshold standard. The new standard s u g g e s ts that courts may sometimes award fees even where the court awards no damages. See supra II.B.1. F in a lly, the fifth factor (relative merits) "is an oblique way of asking whether the lo s in g party was substantially justified." Id. As such, this factor alone equates to the s u b s ta n tia l justification test and should be treated as irrelevant in light of Hardt. C a se s applying the Ruckelshaus "some success" standard to other fee provisions may p ro v id e additional clues about how the discretionary step of ERISA fee inquiries should now w o rk . For instance, some of these provisions have been interpreted to contain a requirement th a t the lawsuit "serve the public interest by assisting in the proper interpretation, or im p le m e n ta tio n of the statute." Pound, 498 F.3d at 1102 (citizen suit under the Clean Air A c t). Likewise, a fee award seems more appropriate under ERISA if a plaintiff's suit set an im p o rta n t precedent. For instance, Plaintiff's suit made clear that plan administrators cannot u n ila te ra lly amend a scrivener's error, even if existing precedent suggested the rule. In any case, whether or not the substantial justification inquiry remains good law, P la in tif f is entitled to reasonable attorney's fees allocable to the Transition Factor Issue in

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Phase I. C. P la in tiff Is Not Entitled to Attorney's Fees for Phase II of the Litigation. 1. P la in tiff Achieved No Success on the Merits in Phase II.

A s mentioned above, the test set forth in Hardt is that a fee claimant must show "some d e g re e of success on the merits" before a court may award attorney's fees under 29 U.S.C. § 1132(g)(1). 130 S. Ct. at 2158 (quoting Ruckelshaus, 463 U.S. at 694). The Supreme C o u rt in Ruckelshaus noted that this standard "strongly suggests that losing parties were not in te n d e d to recover fee awards." 463 U.S. at 691 (emphasis in original); see also N. Plains R e s. Council v. U.S. Envtl. Protection Agency, 734 F.2d 408, 409 (9th Cir. 1984) (finding th a t plaintiff did not achieve "some success on the merits" when its position failed on each o f the issues raised). Plaintiff cites a pre-Hardt ERISA case in which a district court awarded f e e s to a losing party based purely on the equities, Windstream Corp. v. Berggren, No. 4 :0 8 C V 3 1 7 3 , 2010 WL 76364, at *2­6 (D. Neb. Jan. 4, 2010), but Hardt has abrogated that s o rt of reasoning with its requirement of a threshold "some success" showing. In the Phase II trial here, this Court granted Defendants' counterclaim for reformation o f the 1996 and 1997 Plan documents. Young II, 667 F. Supp. 2d at 906. Indeed, Plaintiff's c o u n s e l has previously conceded, as regards Phase II of the litigation, "Yes, we lost. We re c o g n iz e that." Pls.' Resp. to Verizon's Supp. Mem. on Pls.' Request for Fees, 1, Sept. 9, 2 0 1 0 . Because this Court entered judgment in favor of Defendants and against Plaintiff for

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Phase II of the litigation, Plaintiff did not achieve "some degree of success on the merits" and a c c o rd in g ly cannot recover her Phase II fees. 2. I n d e p e n d e n t Trust Principles Do Not Entitle Plaintiff to Fees.

P la in t if f argues that trust law concepts provide alternative grounds for awarding a tto rn e y's fees and costs in this case. According to Plaintiff, the law of trusts permits trustees to recover fees spent defending a trust, a role into which Plaintiff stepped when she defended th e plain language of the Plan. Plaintiff notes that ERISA imports trust law to govern f id u c ia ry duties and argues courts should similarly look to trust principles when awarding fees. U n f o rtu n a te ly for Plaintiff, federal case law forecloses this argument. The Supreme C o u rt case on which Plaintiff relies identified three traditionally recognized situations in w h ic h courts have inherent power to make an exception to the American Rule against s h if tin g fees, but none of those circumstances are present in this case. See Alyeska Pipeline S e r v . Co. v. Wilderness Soc'y, 421 U.S. 240, 257­59 (1975) (listing creation of a common f u n d , disregard of a court order, and bad faith as traditional exceptions to the American R u le ). In fact, after recognizing those judicially-created exceptions, Alyeska held that any n e w exceptions to the American Rule "are matters for Congress to determine," reasoning that C o n g re s s has seized this prerogative by enacting "specific and explicit provisions for the a llo w a n c e of attorneys' fees under selected statutes granting or protecting various federal rig h ts ." Id. at 260­62; see also Buckhannon Bd. and Care Home, Inc. v. W. Va. Dep't of

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Health and Human Res., 532 U.S. 598, 602 (2001) (reaffirming that courts will award fees o n ly with explicit statutory authorization). Here, the relevant statute has just such a fees h if tin g provision, which the Supreme Court recently interpreted in Hardt. Plaintiff cannot m e e t this statutory standard as to Phase II, and this Court is not free to fashion alternative g ro u n d s on which to award fees. See Alyeska, 421 U.S. at 260­62. I I I . CONCLUSION F o r the reasons set forth in this opinion, the motion for attorney's fees and costs is granted in part and denied in part. Plaintiff may collect reasonable attorney's fees a n d costs as to the Transition Factor Issue in Phase I of the litigation but not as to Phase I I . The parties are encouraged to meet and seek a resolution of the amount of fees to b e paid consistent with this order.

S O ORDERED THIS 20th DAY OF OCTOBER, 2010

______________________________________ M O R T O N DENLOW U N IT E D STATES MAGISTRATE JUDGE

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Copies sent to: M a tth e w Thomas Heffner M a tth e w Todd Hurst A r th u r T. Susman S u sm a n Heffner & Hurst LLP T w o First National Plaza S u ite 600 C h ic a g o , IL 60603 C o u n s e l for Plaintiff Allen Channon Engerman L a w Offices of Allen C. Engerman, P.A. 4 8 0 0 North Federal Highway S u ite 300-D B o c a Raton, FL 33431 C o u n s e l for Plaintiff J e ffr e y C. Engerman L a w Offices of Jeffrey C. Engerman, PC 1 1 9 0 1 Santa Monica Boulevard S u ite 700 L o s Angeles, CA 90025 Counsel for Plaintiff J e ffr e y Huvelle F r e d e r ic k G. Sandstrom C o v in g to n & Burling 1 2 0 1 Pennsylvania Ave., NW W a s h in g to n , DC 20004 C o u n s e l for Defendants A b ig a il A. Clapp J a m e s G. Richmond G re e n b e rg Traurig, LLP 7 7 West Wacker Drive S u ite 2500 C h ic a g o , IL 60601 C o u n s e l for Defendants

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