Opinion
Civil No. 03-5497 (PAM/RLE).
May 11, 2005
MEMORANDUM AND ORDER
This matter is before the Court on Defendants' Motion for Attorneys' Fees and Additional Costs. For the reasons that follow, Defendants' Motion is denied.
BACKGROUND
This case was tried to the Court in January 2005. Plaintiffs contended that they were third-party beneficiaries to a union labor agreement between the union and Defendants. Plaintiffs asserted that this union labor agreement was an ERISA designated plan, and that Defendants were required to make contributions to the benefit funds. Plaintiffs claimed that Defendants failed to make contributions to these funds as required, and brought this action to recover this delinquency.
After a two-day trial, the Court concluded that the union labor agreement was void ab initio because it had been executed through fraud. In particular, the Court noted:
Defendants have successfully demonstrated that McArthur did not know that he was signing a union labor agreement and that his ignorance was excusable because he relied on the representations of Sletton and Hawthorne. Because this document is void ab initio, there was no union labor agreement between McArthur Tile and the Union. McArthur Tile therefore had no obligation to submit contributions to Plaintiffs, and thus there are no delinquent contributions for Plaintiffs to recover.Trustees of Twin City Bricklayers v. McArthur Tile Corp., 351 F. Supp. 2d 921, 925 (D. Minn. 2005) (Magnuson, J.). The Clerk has already entered a judgment of costs in favor of Defendants. Defendants now seek an award of attorneys' fees and additional costs, in the amount of $48,422.23.
DISCUSSION
ERISA permits the Court "in its discretion [to] allow a reasonable attorney's fee and costs of action to either party." 29 U.S.C. § 1132(g)(1). The Court should consider five factors: (1) the degree of Plaintiffs' culpability or bad faith; (2) Plaintiffs' ability to pay; (3) whether an award of fees would deter other persons from acting under similar circumstances; (4) whether Defendants sought to benefit all participants and beneficiaries of the plan or to resolve a significant legal question regarding ERISA; and (5) the relative merits of the parties' positions. See Lawrence v. Westerhaus, 749 F.2d 494, 496 (8th Cir. 1984). These factors are guidelines and are "by no means exclusive or to be mechanically applied." Martin v. Ark. Blue Cross Blue Shield, 299 F.3d 966, 972 (8th Cir. 2002).
The broad language of the statute permits the Court to award fees to "either" party. However, some courts note that consideration of these factors "seldom dictate[s] an assessment of attorneys' fees against ERISA plaintiffs." Marquardt v. North Am. Car Corp., 652 F.2d 715, 719-20 (7th Cir. 1981); see also Operating Eng'rs Pension Trust v. Gilliam, 737 F.2d 1501, 1505-06 (9th Cir. 1984). Indeed, the substantive purpose behind ERISA is remedial and designed to protect "the interests of participants in employee benefit plans and their beneficiaries." 29 U.S.C. § 1001(b); see also Martin, 299 F.3d at 973. "[R]efusal to award attorneys' fees and costs to ERISA defendants, even prevailing defendants, would rarely constitute an abuse of discretion." Marquardt, 652 F.2d at 719 (internal quotations omitted).
A. Degree of Culpability
Although the Court found that the union labor agreement wasvoid ab initio, the Court did not find that Plaintiffs acted in bad faith. Plaintiffs, as trustees of the benefit funds, were not responsible for the negotiation and purported signing of the union labor agreement. Rather, Plaintiffs brought this suit to recover contributions under their reasonable interpretation of the purported union labor agreement. The fact that Plaintiffs erroneously interpreted the validity of the union labor agreement does not demonstrate bad faith. See Marquardt, 652 F.2d at 720 (a losing plaintiff "will not necessarily be found culpable, but may be only in error or unable to prove his case"). Indeed, the invalidity of the union labor agreement was determined after two days of evidence, which required the Court to make both credibility and factual determinations. The Court finds that this factor weighs against awarding fees.
B. Ability to Pay
Defendants baldly attest that Plaintiffs can satisfy an award of attorneys' fees, while Plaintiffs plainly deny that they can satisfy the award. Neither party provides the Court with any substantive evidence on this issue. Although it is likely that Plaintiffs have the resources to pay for attorneys' fees, the Court likewise notes that Plaintiffs "may find it difficult to pay without injuring the beneficiaries of the plan." Carpenters S. Cal. Admin. Corp. v. Russell, 726 F.2d 1410, 1416 (9th Cir. 1984.) The Court therefore finds this factor neutral.
C. Deterrence
As the Russell court noted,
If defendant employers face the prospect of paying attorney's fees for successful plaintiffs, they will have added incentive to comply with ERISA. Plaintiff-trustees, on the other hand, generally will be sufficiently deterred from instituting vexatious suits by the absence of personal gain therefrom and the likelihood that they will have to pay their own fees and costs should they not prevail.Id. In this case, the union failed to properly secure a labor agreement with Defendants, and the unknowing Plaintiffs sought to collect contributions under this invalid labor agreement. Although this Court noted the importance of ensuring "that the execution of contractual labor agreements conform with the applicable standards of contract formation," this Court imposed this obligation on the union, not Plaintiffs. McArthur, 351 F. Supp. 2d at 925. Imposing fees in this instance would deter plaintiff-trustees from seeking unpaid contributions under labor union agreements, instead of deterring unions from fraudulently executing contracts. Furthermore, the fact that Plaintiffs must bear their own attorneys' fees is a sufficient deterrent. Accordingly, the Court finds that this factor weighs against awarding fees. But see Gilliam, 737 F.2d at 1506 (noting hesitancy to assess fees against the plaintiff trust funds, but finding that awarding fees would deter unfair acts).
D. Benefit of the suit
"[T]he benefit of the suit to all participants in an ERISA plan or the resolution of a significant legal question under ERISA is also primarily relevant only to whether plaintiffs should be awarded attorneys' fees." Marquardt, 652 F.2d at 721. Although the Court's decision was not the first that acknowledged the defense of fraud in the execution in the context of contractual labor agreements, it was nonetheless notable because it commented on the propriety of contractual labor agreement negotiation and formation. The Court finds that this factor weighs in favor of awarding fees.
E. Merits
The final factor requires the Court to examine the relative merits of the parties' positions. See Westerhaus, 749 F.2d at 496. "[C]ourts should be careful neither to penalize trustees for seeking to enforce employer obligations under ERISA nor to encourage employers to be indifferent to their obligations."Marquardt, 726 F.2d at 1416. After a two-day bench trial, the Court found that the relative merits of the parties' positions favored Defendants. However, this determination followed an extensive examination of the factual evidence and testimony. Accordingly, the Court finds that this factor weighs against awarding fees.
CONCLUSION
The Court finds that an award of attorneys' fees in this case is improper. Although the Court found that the purported union labor agreement was void ab initio, this finding pertained to the actions of the union, not Plaintiffs. Although Plaintiffs must ensure that they seek contributions from employers under valid union labor agreements, the Court's decision more poignantly referred to the conduct of union representatives throughout the negotiation and formation of union labor agreements. The Court finds that an award of attorneys' fees in this case is unwarranted under the factors iterated inWesterhaus and likewise contravenes the remedial nature of ERISA. Accordingly, based on all the files, records and proceedings herein, IT IS HEREBY ORDERED that Defendants' Motion for Attorneys' Fees and Additional Costs (Clerk Doc. No. 40) is DENIED.