Regional Employers' Assurance Leagues Voluntary Employees' Beneficiary Ass'n Trust v. Castellano

Citations: 164 F. Supp. 3d 705; 2016 U.S. Dist. LEXIS 17264; 2016 WL 540794Docket: CIVIL ACTION NO. 03-6903

Court: District Court, E.D. Pennsylvania; February 9, 2016; Federal District Court

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Mrs. Castellano has filed a motion for attorneys’ fees totaling $1,009,905.85 in an ERISA case after successfully obtaining summary judgment for benefits under her husband’s welfare benefit plan. The case stems from her late husband, Dr. Domenic M. Castellano, who had purchased a life insurance policy through the Regional Employers’ Assurance League (REAL) that named the REAL VEBA Trust as the beneficiary. Upon his death in 2003, the Trust received $751,266.18 in life insurance proceeds. Mrs. Castellano claimed the benefits, but Penn-Mont, the plan administrator, denied her request and filed a declaratory judgment action against her. After numerous delays, Judge McLaughlin ruled in favor of Mrs. Castellano on August 24, 2015, ordering the Trust to pay her $750,000.

Mrs. Castellano’s attorney, Ira B. Silverstein, supports the fee request with an affidavit and detailed time records. The Koresko Entities have not responded to the motion, while the Department of Labor (DOL) has partially opposed it, arguing that fees should not be prioritized over equitable distribution from the Trust. The DOL also contends that any awarded fees should be limited to those related solely to the successful claim. Mrs. Castellano has submitted a reply supporting her motion. 

The legal standard for awarding attorneys' fees in ERISA cases involves determining whether the claimant has achieved "some degree of success on the merits" and then assessing whether attorneys’ fees should be awarded.

In ERISA cases, there is no automatic entitlement to attorneys' fees for successful plaintiffs unless exceptional circumstances exist, as established in McPherson v. Employees’ Pension Plan of Am. Re-Ins. Co. However, the Third Circuit recognizes that defendants often bear the costs for a prevailing plaintiff. Key factors for determining the appropriateness of attorneys' fee awards include: the culpability or bad faith of the offending parties; their ability to pay; the deterrent effect of an award; benefits conferred on the pension plan’s members; and the relative merits of the parties’ positions. Courts must articulate their analysis regarding each of these factors and may consider others, but no single factor is decisive. 

In the case at hand, Mrs. Castellano has shown some degree of success by obtaining the full amount of her plan benefits after her husband’s death. The court must analyze the Ursic factors to assess the propriety of a fee award. The first factor, culpability and bad faith, suggests the offending parties acted with bad faith due to documented fiduciary breaches and procedural irregularities, supporting a fee award. The second factor involves evaluating the Koresko Entities' ability to pay the awarded fees, indicating a more complex analysis is required, as these entities were responsible for the delays and denial of Castellano's claim.

Judge McLaughlin has prohibited certain individuals from interacting with the Trusts and mandated the repayment of $19,852,114.88 to the Trusts in the Perez case. An additional $19,987,362.16 is under court control, reduced by $79,568.74. Mr. Koresko and his entities have not responded to Mrs. Castellano’s fee motion, leaving the court unable to assess their ability to pay. Complicating matters, Mrs. Castellano’s counsel anticipates fees to be paid from Trust assets rather than from the wrongdoers. The court remains uncertain if it must evaluate the Trust's ability to cover attorney fees, though determining this would be logical if fees were ordered. The Trust's financial status is ambiguous; it has some liquid assets, but its liabilities are unclear. The Koresko entities owe over $19 million to the Trusts, which remains unpaid. A forensic accountant has been appointed to assess the Trust’s financial situation.

Regarding the deterrent effect of a fee award, it is noted that the offending parties have been removed as fiduciaries, diminishing the potential for deterrence. While fees could deter future misconduct in other ERISA plans, the impact is minimal in light of the broader implications of the Perez case.

The benefit conferred on the plan is another point of contention. There is disagreement between Mrs. Castellano's counsel and the Department of Labor (DOL) concerning the relative benefits of their respective actions. Mrs. Castellano argues her case significantly benefited all REAL VEBA participants, while the DOL credits its civil action for the removal of Koresko and Penn-Mont as fiduciaries. The DOL contends that there is no substantial direct benefit from awarding attorney fees, which weighs against such an award. However, the DOL downplays Mrs. Castellano’s contributions in revealing Koresko’s breaches of fiduciary duty, which were integral to the DOL's own case. Ultimately, this factor supports awarding fees.

The Department of Labor (DOL) acknowledges that the fifth Ursic factor favors Mrs. Castellano regarding the award of attorney’s fees, despite disagreements about the payment of funds from the REAL VEBA Trust. The court emphasizes that Mrs. Castellano's successful claim in 2003 should not be undermined by the costs of her legal representation. Furthermore, the Third Circuit's approach allows for considerations beyond the Ursic factors, highlighting the relevance of the Perez case, where significant fiduciary breaches by Koresko and his entities harmed Mrs. Castellano. The court notes that awarding attorney’s fees from the Trust could negatively impact other beneficiaries, but past rulings permit such awards from plan assets, leading to a conclusion that fees are warranted in this instance, especially given Mrs. Castellano's prolonged efforts and collaboration with the DOL.

Regarding the calculation of reasonable attorney’s fees in ERISA litigation, the lodestar method is applied, which entails multiplying the reasonable hours worked by a reasonable hourly rate. The Koresko Entities did not contest the motion for fees, and the DOL's suggestion for a blanket fee reduction based on Mrs. Castellano's limited success is rejected. The court found that her successful claim under section 1132(a)(1)(B) justified the full review of her attorney's timesheets, as previous court decisions indicated that her other claims were preempted by ERISA and did not warrant a reduction in fees based on perceived limited success.

Mr. Silverstein, the lead counsel in this twelve-year litigation, charged an hourly rate between $400 and $700, while supporting attorneys billed at lower rates. His affidavit was the only evidence provided to support his rate, with no evidence for the rates of other counsel. The court is inclined to accept both Mr. Silverstein’s rate and those of the other attorneys based on his qualifications and past case evidence.

To determine the reasonable hours expended for the litigation and the appropriate rates, the court references the Hensley v. Eckerhart standard, stating that hours are not reasonable if they are excessive, redundant, or unnecessary. Six categories of unreasonable time were identified: excessive hours, duplicative work, travel time, billing for administrative tasks, time spent on administrative proceedings, and fees for unnecessary activities related to Mrs. Castellano's claims. 

The court will address these categories individually, indicating amounts to be deducted. Specific examples of excessive billing include:

1. **Excessive Hours**: The burden to establish reasonableness lies with the party seeking fees. Counsel billed 37.8 hours for drafting and editing a 26-page document, which was deemed excessive, resulting in a reduction by half. 
   
2. **Preparation of Interrogatories**: Counsel charged 89.7 hours for discovery preparation, totaling $22,148, without justifying the nearly 90 hours for this work, leading to a reduction by half.

3. **Response to Summary Judgment Motion**: 62.4 hours were billed by five attorneys for an 18-page response, which included excessive procedural history and legal standard repetition, prompting a fee reduction by half.

4. **Motion to Compel**: The preparation of a motion to compel resulted in 20.1 hours billed at $4,075, with the brief being excessively lengthy for the amount of legal argument presented, leading to a fee reduction by half.

Overall, the court finds various charges excessive and plans to apply significant reductions across the board based on these assessments.

A total of 90.4 hours ($22,555) was billed for preparing Castellano’s motion for summary judgment, which includes 14 pages and numerous exhibits. Although the motion provides new quotations from policy language, much of its factual background was previously covered in earlier filings. The accompanying 65-page memorandum, which contains 21 pages of background, leads to a conclusion that billing 35.4 hours for similar content is unreasonable, resulting in a one-third fee reduction. 

For responses to Plaintiffs’ motions for summary judgment and to disqualify counsel, 80.9 hours ($21,125) was billed. The response to the disqualification motion is acknowledged as addressing new issues, but the summary judgment response largely reiterates arguments from Castellano's own motion, prompting reductions in fees. The full amount for the disqualification response ($5,342) will be paid, while a quarter of the time billed for the summary judgment response ($3,545.75) is deemed appropriate, reducing total payment from $21,125 to $8,887.75.

Counsel also billed $4,600 for 17.5 hours related to a 10-page reply brief, which reused prior legal arguments. This charge is excessive and will be cut by two-thirds, resulting in a payment of $1,533.33. 

The supplemental summary judgment motion filed on August 26, 2011, involved 304.2 hours ($137,190) for a detailed 172-page document. While the court acknowledges the depth and success of this motion, the billed hours are excessive and will be halved. The summary judgment reply brief filed on December 2, 2011, was billed at 12.8 hours for an 8-page document, which the court finds unreasonable and will also reduce by half. Finally, 45.6 hours were billed for a motion to supplement the record with newly discovered evidence, amounting to $20,471, which the court will reduce by half due to excessive time spent relative to the brief length.

Counsel has billed 21.2 hours for preparing the attorneys’ fees petition, which is compensable but deemed excessive at $700 per hour, resulting in a reduction of the billed amount by half, totaling a cut of $138,600.67. Instances of duplicative work were noted, including two attorneys attending several hearings and conferences unnecessarily. Specific reductions include eliminating four hours billed by a junior attorney for depositions, one hour for a status conference, and duplicate charges for attending various hearings and conferences. Notably, duplicative billing for case reviews and conferences was also addressed, with reductions applied to junior attorney hours in several instances. Additionally, the court disallowed double billing for research related to a motion that was not filed until later, resulting in a further reduction of $6,480. Overall, significant billing reductions were made due to excessive and duplicative hours.

Redundant billing has led to a total reduction of $14,988. Travel time billing entries are deemed excessive, particularly on March 18 and 19, 2007, where counsel billed 6 hours for travel and preparation and 10 hours for client conferencing and deposition attendance, without evidence of work during travel. As a result, the billing rate of $455 per hour will be halved for 6 hours on March 19. Similar reductions apply for full hourly rates billed during travel for depositions and conferences in July 2007, November 2007, and October 2010, totaling $3,927.50 in reductions for travel.

Administrative duties billed at full rates, such as retrieving dockets and scheduling, are not recoverable since these tasks are not typically charged to clients. Courts have ruled that clerical tasks should not be billed at an hourly rate and are considered part of office overhead. Consequently, time spent on administrative tasks will not be compensated, as established in various cases.

Clerical and secretarial tasks must not be billed at paralegal rates, as established in Halderman v. Pennhurst State Sch. Hosp. The court intends to prevent the inefficient use of skilled personnel for tasks that can be performed by non-professionals. A list of specific billing entries deemed administrative or clerical includes activities such as obtaining docket entries, reviewing and editing documents, making phone calls related to the transfer of files, and preparing deposition notices. The court has disallowed charges for various actions, such as retrieving pleadings, conducting internet searches, and preparing documents, which total various amounts. The overarching principle is to ensure that billing reflects appropriate use of legal talent, reserving paralegal rates for substantive legal work rather than administrative tasks.

The document outlines a detailed record of legal services rendered, including dates, activities, and corresponding fees. Key points include:

- Various administrative tasks such as receipt and review of file labels from the records center, updating file folders, and communicating with court and Department of Labor (DOL) regarding discovery issues.
- Multiple telephone conferences and correspondences with DOL attorneys and court personnel aimed at obtaining documents, discussing discovery requests, and coordinating court appearances.
- Efforts to draft, revise, and finalize legal documents, including letters summarizing exhibits and proposed motions, with specific dates and amounts charged for each service.
- Significant time spent organizing and indexing cases for a summary judgment motion, including preparation of binders and collaboration with colleagues.
- Ongoing communication with the court regarding submissions, deadlines, and summary judgment details, with fees reflecting the complexity and time involved in these tasks.

Overall, the record indicates a comprehensive legal effort involving extensive communication, document management, and preparation for court proceedings, with detailed billing for each service rendered.

The case file has been updated regularly with various activities documented from May to November 2013. Key actions included circulating orders and motions related to Koresko, updating the case file, and preparing and editing motions for temporary restraining orders (TROs). Specific tasks involved proofreading, formatting, and finalizing motions, as well as organizing and filing documents related to bankruptcy proceedings. Transcripts were requested and circulated, with several entries detailing communication with court clerks and updates to the correspondence binder. The document also notes a total reduction of $24,422 for administrative and clerical tasks.

The Third Circuit ruled that attorney fees incurred during administrative proceedings prior to filing an ERISA action cannot be included in a prevailing party's fee award. In this case, the administrative proceedings occurred after the lawsuit was initiated, with the docket inactive for over a year. The administrative process concluded on June 29, 2005, when an attorney denied a claim for benefits. Billing records showed entries for the administrative process, which will not be included in the ERISA fee request, leading to a fee reduction of $2,978.76.

Additionally, the fee request included charges for activities deemed unnecessary for pursuing the case. Examples include efforts to seek remedies through the Department of Labor and the Pennsylvania Disciplinary Board during the inactive docket period, inquiries related to other lawsuits, and unnecessary reviews of filings and dockets from unrelated cases. Specific charges, such as preparing an affidavit for a process server and verifying military status, were also found to lack necessity. Moreover, time spent drafting unfiled motions, including a motion to consolidate and a motion for sanctions, will be excluded. The total reduction for unnecessary activities amounts to $9,724.

Compensation for time billed related to the Solis v. Koresko case (Civil Action 09-988) is contentious. While the court acknowledges the relevance of Mr. Silverstein's involvement and the Castellano case to the DOL action against the Koresko Entities, the Solis case is deemed unnecessary for Mrs. Castellano’s claims. Consequently, time spent analyzing the Solis case is not compensable, though overlap in discovery allows for some allowances in billing. Specific reductions in billed hours include various tasks such as reviewing complaints, preparing motions, and analyzing case materials, with amounts ranging from $27.00 to $2,457.00 for individual entries. The summary outlines a detailed list of tasks along with their corresponding billed amounts, ultimately leading to a conclusion that not all time charged related to Solis is justified for compensation.

The document outlines various legal activities conducted between November 2009 and January 2011, primarily related to a Department of Labor (DOL) case and a separate Brown Estate matter. It details specific tasks, including reviewing transcripts, drafting motions, and conducting research, with associated costs amounting to a subtotal of $45,884.25 for DOL case activities. Additionally, it notes a total reduction of $55,608.25 for unnecessary work.

Counsel seeks a 25% upward adjustment in fees, citing extraordinary expenses and delays in litigation. The document references legal standards for fee adjustments under ERISA, acknowledging that while such adjustments are permissible in exceptional cases, the circumstances here do not warrant one. The court highlights that the protracted litigation and resulting cost increases were already reflected in the hourly rates, which rose from $400 in 2004 to $700 in January 2012.

Counsel did not provide evidence of negative impacts from delayed payment. While the court acknowledges counsel's concerns regarding reputational harm due to Mr. Koresko's conduct, it finds that counsel's reputation remains intact and may have even been enhanced by their success in this litigation. The court declines to grant the requested 25% fee enhancement and will instead award $567,400.26 in attorneys' fees and costs, after reducing the total sought by $240,524.42. This payment will come from the SEWBPT and REAL VEBA Trust, which the Koresko Defendants must restore. The attorneys' fees were directly linked to the Koresko Entities' breaches of fiduciary duty to Mrs. Castellano. The counterclaim defendants, referred to as "the Koresko Entities," include various entities and individuals associated with Koresko. In a related case, Judge McLaughlin found that Koresko and his associates violated ERISA, resulting in their removal from trust-related positions. An administrator and forensic accountant have been appointed to manage the trusts and conduct an accounting of their assets. Mr. Silverstein, representing counsel, detailed billing records from five law firms and mentioned unsubmitted records for approximately $157,000 in fees from two additional firms. Judge McLaughlin's ruling addressed the denial of benefits to Mrs. Castellano but did not assess the validity of prior settlement offers made by the Koresko Entities. The Perez case, initially filed by the Department of Labor, remains relevant in this context.

Judge McLaughlin granted a temporary restraining order and appointed an Independent Fiduciary (IF) to oversee the Trusts’ assets. The author managed the implementation of this order, monitored depositions, and facilitated the transfer of an electronic database to the IF. The court referenced the Third Circuit’s ruling in *Bell v. United Princeton Props.*, which prevents the court from sua sponte reducing attorney fee requests, but noted the unique circumstances of this case, where the Koresko entities were removed as fiduciaries and had abandoned the litigation. The Department of Labor (DOL) was consulted but was not a party to the case, with plan assets earmarked for attorney fees.

The court asserted its authority to oversee the disbursement of plan assets and assess the reasonableness of fees, noting that while individual plaintiffs may represent themselves, corporate plaintiffs must have licensed counsel. Mr. Koresko, who represented the corporate entities, was suspended from practicing law in December 2013 and disbarred in September 2015, with disciplinary actions under consideration.

In the case of *Langlais v. Pennmont Benefit Servs.*, Mr. Silverstein submitted a fee petition for $285,572.30, paralleling rates for similar time periods. The Koresko entities' response to this petition was deemed unhelpful due to reliance on the appeal's status. Judge McLaughlin awarded partial attorney fees from a supersedeas bond, acknowledging at least $100,000 in fees entitled to the petitioners. 

Mr. Silverstein's billing rates were detailed chronologically, increasing from $400 in 2004 to $700 in 2012. Context from the *Langlais* case included an affidavit supporting his rates, with comparisons to other ERISA attorneys. Judge Davis had previously approved a fee of $400 per hour in a similar case. The complexity of evaluating 13 years of billing records was noted, especially due to block billing practices, with exclusions for administrative tasks addressed in a separate section.

Lead counsel's billing rate was $700 per hour, with 24.2 hours charged for a motion primarily drafted by him, deemed unreasonable given his experience. Travel time billed at the full rate will be reduced. The conference lasted 5 hours, and the junior attorney’s time for a client meeting is acceptable but will be billed at $270 per hour for 5 hours. There were two entries for July 13, 2007: 6 hours for travel to the Castellano deposition and 8 hours for attending the deposition. The 6 hours of travel is consistent with other travel to Florida for depositions. Administrative tasks, such as calls regarding service and fees, will be deducted, totaling several hours reduced for various administrative activities, including updating pleadings binders, retrieving docket entries, and scheduling depositions. Specific reductions include 0.4 hours for court service inquiries, 1 hour for preparing binders, and 2 hours for conferring about subpoenas. Other notable reductions involve calls to the court and revising documents, culminating in a substantial overall reduction of hours billed due to the prioritization of necessary legal work over administrative tasks.

Multiple billing entries were reduced for various tasks, primarily related to electronic filing, document organization, and communication with the Department of Labor (DOL). Reductions included: 0.1 hours for reviewing the docket and for each electronic filing of documents; 2 hours for reorganizing exhibits; and additional reductions for drafting cover sheets and letters, circulation of orders, and updates to the case file. Several entries from December 28, 2010, to June 29, 2011, were noted for communications regarding the Solis case, with the court acknowledging the necessity of these entries following Judge McLaughlin's approval for discovery copies. However, many entries were deemed administrative, leading to further reductions for time spent on routine tasks. Entries related to administrative proceedings and specific communications were excluded, particularly those from May and June 2005. The court recognized Mr. Silverstein's significant role in the DOL’s case against the Koresko entities.

Judge McLaughlin's summary judgment opinion highlights the Castellano case as pivotal in revealing breaches of fiduciary duty and mismanagement of Trust assets, attributed in part to Mr. Silverstein's advocacy. The Department of Labor (DOL) argues against paying counsel’s fees from the Trusts, claiming benefits were solely for Mrs. Castellano; however, this fails to recognize non-monetary benefits to the Trusts and other participants. Billing entries from September 24 and October 1, 2007, indicate time spent reviewing the docket in the REAL VEBA v. Sidney Charles appeal. While recognizing the relevance of this case to ERISA status determinations, the court questions the necessity of pre-decision status checks. A significant overlap was noted in February 2011 when discovery requests were made in the Solis case. Specific billings related to DOL hearings that impacted Castellano were accepted. Challenges arose in identifying reviewed transcripts; however, testimony from previous hearings relevant to the REAL VEBA was accounted for without reductions. The motion to consolidate the Castellano and DOL cases was denied. Some billing entries were adjusted or disallowed based on administrative activities or tasks pertinent only to the DOL case, with specific reductions made for overlap between the two cases.

Tasks recorded in this entry pertain to both cases and will be halved in billing. The brief mentioned relates to the motion to consolidate (Doc. 180). Previous entries for checking the status of the DOL case were billed at 0.1 hours, equating to a $50 reduction at a rate of $500 per hour. There was no activity on the Castellano docket from July 2, 2009, to March 17, 2010. In May 2010, the case transitioned from Judge Jones to Judge McLaughlin, who requested status letters by May 24, 2010 (Docs. 192, 193). Various billing entries during this time correspond to a motion for a temporary restraining order filed on May 26, 2011 (Doc. 211) and a motion to reopen the record for dispositive motions filed on November 9, 2010 (Doc. 200). The motion for summary judgment referenced relates to the DOL case (Civ. No. 09-988, Doc. 170), with a 2-hour reduction noted for time spent reviewing the hearing transcript. The term "DOJ" hearing likely refers to the DOL hearing. Time spent on the motion for expedited discovery during a dormant docket period (July 2, 2009, to March 17, 2010) is excluded, while time for the Motion for Preliminary Injunction, filed on May 26, 2011 (Doc. 211), is deemed necessary and related to the Castellano case, resulting in a 0.2-hour reduction. At this stage of litigation, discovery in Solis was unnecessary for pursuing Mrs. Castellano's claims, with Judge McLaughlin recognizing the overlap of cases in February 2011 (Doc. 203). This entry consists of two tasks, one pertaining directly to the Castellano case, leading to a halving of billed hours.