Court: Court of Appeals for the Second Circuit; June 18, 2009; Federal Appellate Court
Honeywell International, Inc. appeals a judgment from the U.S. District Court for the Western District of New York, challenging an attorney’s fee awarded against it. The underlying case involved enforcing a 1976 Guaranty by Bendix Corporation, where Honeywell is the successor, to ensure uninterrupted employee benefits for workers from three unionized manufacturing plants sold to another company. The employees, now working for a remote successor of the acquiring company, sued Honeywell for violations of the Labor Management Relations Act (LMRA), the Employee Retirement Income Security Act (ERISA), and contractual rights. The district court previously granted summary judgment in favor of the plaintiffs under the LMRA, and Honeywell complied, securing the benefits.
Three subsequent orders are relevant: a summary judgment on the ERISA claim in December 2003, a consent judgment in December 2005 following a settlement agreement, and a December 2006 order granting attorney’s fees. Honeywell contends that the ERISA ruling was erroneous and thus invalidates the attorney’s fee award. However, since the 2005 settlement included the ERISA claim and Honeywell only reserved the right to appeal the fee award, it cannot contest the ERISA judgment. Upon review, the court finds that the 2006 fee award was improperly based in part on Honeywell’s conduct related to the LMRA claim. Since the fee statute applies only to ERISA claims, the case is remanded to determine the plaintiffs’ entitlement to attorney’s fees based solely on their ERISA claim. The original Guaranty required Bendix to maintain employee benefits post-divestiture, and Honeywell is obliged to uphold these terms.
In Honeywell Int’l, Inc. v. Purolator Prods. Co., the plaintiffs, after experiencing a reduction in benefits during collective bargaining negotiations in 2002, initiated a class action against Honeywell, asserting claims under the LMRA, ERISA, and for promissory estoppel. The district court granted summary judgment on the LMRA claim and issued a preliminary injunction favoring the plaintiffs, which was affirmed on appeal. While the LMRA appeal was pending, the plaintiffs sought summary judgment on their ERISA claim, which Honeywell contested by arguing that the Guaranty was not an ERISA 'plan' and that it was not a proper defendant. The district court ruled in favor of the plaintiffs on the ERISA claim, establishing that the defendants' liability could also be based on ERISA, although this ruling did not change the relief already granted. Honeywell's petition for an interlocutory appeal of the ERISA decision was denied.
Following the affirmance of the LMRA rulings, the parties settled all claims, preserving the issue of Honeywell’s liability for attorney’s fees under ERISA. The district court approved the settlement and dismissed the plaintiffs’ claims with prejudice. After the settlement, the plaintiffs sought attorney’s fees, while Honeywell appealed the 2003 ERISA ruling. The appellate court noted that the settlement mooted all issues except the pending attorney’s fee motion and declined to review the ERISA liability ruling since the district court had not yet awarded fees, rendering it non-appealable. Ultimately, the district court awarded reduced attorney’s fees and costs to the plaintiffs. The current appeal combines a second appeal of the ERISA ruling with the first appeal of the attorney’s fee award. The appellate court reaffirmed its earlier position that the settlement mooted the ERISA liability issue.
An appealable final order on fees and costs is now available for review, but the issue of ERISA liability cannot be reviewed due to the settlement of the case. The losing party in a settlement forfeits the right to appeal, as established in Microsoft Corp. v. Bristol Tech. Inc., which indicates that a settlement renders the case moot. The defendants in the court-endorsed settlement reserved their rights only regarding the recoverability of attorneys’ fees and costs under specific statutes but did not preserve the right to appeal the ERISA judgment. The First Circuit's position is that a party must unequivocally reserve the right to appeal when consenting to a judgment. Previous case law, including Doyle v. Kamenkowitz, supports the conclusion that disputes related to underlying claims are moot once a settlement is reached. This court finds that the parties' assumption of a de novo review of the ERISA judgment is incorrect; the jurisdiction of the court is limited to the attorney’s fee award, as the settlement has rendered all other disputes moot in accordance with Article III of the Constitution.
The award of attorney’s fees in ERISA actions is reviewed for abuse of discretion, defined as an erroneous legal determination or a clearly erroneous assessment of evidence. Under ERISA (29 U.S.C. 1132(g)(1)), a court may award reasonable attorney’s fees to either party at its discretion, based on five factors: (1) the offending party’s culpability or bad faith; (2) the ability of the offending party to satisfy the fee award; (3) the deterrent effect on similar future conduct; (4) the relative merits of both parties’ positions; and (5) whether the action benefited a group of pension plan participants.
In a specific case, the district court applied the Chambless test and determined that all five factors supported granting the plaintiffs’ fee award. However, its analysis focused only on two factors: culpability/bad faith and deterrence, concluding both favored a fee award. The court likely omitted discussion of the other three factors because Honeywell conceded that plaintiffs would be entitled to some fee award if the case were ERISA-related, but argued against the total requested amount.
Regarding the culpability factor, the court noted that while there was no specific finding of bad faith by Honeywell, the company had "reluctantly complied" with the court's orders. This reluctance pertained to compliance with directives related to the LMRA, not ERISA, indicating the district court's culpability assessment was influenced by Honeywell's conduct in a separate context where attorney’s fees are not applicable.
The court identified an error in the district court's handling of the attorney's fee award, emphasizing that the evaluation should focus solely on the ERISA claim rather than other claims. The district court found that awarding fees could deter similar misconduct by fiduciaries like Honeywell, but the appropriate analysis should address the deterrence of unlawful behavior specifically under ERISA. Consequently, the court remanded the case for the district court to reevaluate the culpability and deterrence factors exclusively in the context of the ERISA claim. The district court also needs to determine if the other three factors were conceded by Honeywell or if they should be addressed. Despite establishing ERISA liability, the court noted that this does not automatically justify a fee award, and Chief Judge Jacobs partially dissented, suggesting that the fee award should be reversed due to the district court's clear error in applying the Chambless factors.
Remand is not warranted as plaintiffs have not demonstrated that the merits-based factors favor a fee award. The dissenting opinion argues against the district court's attorney’s fee award, emphasizing that only the "ability to pay" factor supports a fee, while the other four Chambless factors do not. Specifically, the dissent critiques the district court's finding of culpability or bad faith, noting that it failed to establish such conduct by Honeywell, as the court had previously acknowledged. The majority's suggestion to remand for clarification is deemed unnecessary since Honeywell acted in good faith regarding the ERISA claim, which raises ambiguous legal questions. Additionally, the dissent challenges the district court's assertion that a fee award would serve as a deterrent for Honeywell and others, as the analysis improperly conflated issues related to the LMRA claim with the ERISA claim, for which no deterrent value was substantiated.
Honeywell's potential deterrence from litigating an ERISA claim is minimal due to the dubious merit of the plaintiffs' case and the presence of a colorable defense. A fee award would not effectively deter similar conduct, as liability alone suffices for deterrence. The district court erroneously assumed that the relative merits favored a fee award based on a previous ERISA liability ruling, despite Honeywell's strong contestation of its obligations under the Guaranty of benefits. The appellate court clarified that Honeywell's obligation was merely an ordinary contractual promise, complicating the determination of its status as an ERISA employer. Although Honeywell waived the right to relitigate the summary judgment, the district court was still obligated to evaluate the strength of arguments when considering the relative merits for fee awards. A close question regarding merits does not justify a fee award, especially as other factors favor Honeywell. Additionally, the district court's assumption that the ERISA claim conferred a common benefit was flawed, as plaintiffs had already achieved their desired relief through the LMRA claim, rendering the ERISA claim without incremental benefit.
The court established that the ongoing litigation of the ERISA claim was solely for the purpose of potentially securing an award of fees and costs, as noted in a prior ruling. The ERISA claim did not confer a common benefit that led to the settlement because: (a) the settlement occurred only after the LMRA decisions were confirmed by the court; (b) Honeywell appealed to contest the ERISA ruling, with plaintiffs engaging on its merits, indicating a mistaken belief that the ERISA issue was still relevant; and (c) it was acknowledged that reversing the ERISA judgment would not alter the settlement relief for plaintiffs. Consequently, the common benefit factor of the Chambless analysis weighs heavily against granting fee awards to plaintiffs. The district court's evaluation of the Chambless factors was deemed clearly erroneous, labeling the fee award as an abuse of discretion. Remand was not warranted as plaintiffs would likely fail to prove that the Chambless factors favored them regarding the ERISA claim. The burden of proof for fee entitlement rests with the party seeking the award, as per established precedent. The court concluded by reversing the award of attorney's fees, referring to the fees in the singular possessive form as per ERISA terminology.
