Colsey v. Delaware Charter Guarantee & Trust Co.

Citations: 908 F. Supp. 214; 1995 U.S. Dist. LEXIS 19252; 1995 WL 765701Docket: No. 94 CV 7240 (BDP)

Court: District Court, S.D. New York; December 26, 1995; Federal District Court

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A motion for attorney fees arose from a lawsuit under the Employee Retirement Income Security Act (ERISA) concerning duplicate payments to beneficiaries of Clearwater Excavating Corp.’s Profit Sharing Plan, administered by Gilbert Shott. Shott, as Plan Administrator, had obligations to file annual reports and prepare summary reports, which he outsourced to Delaware Charter from 1985 to 1991. However, Clearwater did not engage Delaware Charter for the years 1992-1994 and failed to provide necessary information for terminating the Plan. This led to disputes regarding incomplete distribution requests, resulting in approximately $172,700 in improper duplicate payments to beneficiaries in 1993. Most of these payments were recovered, but about $30,306 remained unreturned when the lawsuit began. Prudential Securities, the custodian, cross-claimed against Delaware Charter and brought in third-party defendants, who indicated willingness to return funds upon receiving assurances regarding their pension interests and tax implications. The case settled in July 1995, with an option for plaintiffs to seek attorney fees. Under ERISA, the court may award reasonable attorney fees based on five factors: the offending party’s culpability, ability to pay, deterrent effect of an award, benefit to plan participants or legal significance, and the merits of the parties’ positions.

The motion for attorneys' fees requested by the plaintiffs is denied. The first step in assessing culpability indicates that Prudential is not at fault, having followed the instructions provided for distributing checks to plan participants. Responsibility for the incorrect payments is disputed between Delaware Charter and Shott, with Shott failing to provide accurate distribution instructions, which significantly contributed to the errors. Despite Shott's claims that Delaware Charter also erred, both parties share culpability, preventing Shott from gaining any advantage in this context.

Shott received over $115,000 from the recovery, making it reasonable for him to bear the costs related to the mistake he helped create. Awarding fees against Delaware Charter or Prudential would not deter future misconduct, as Prudential's lack of wrongdoing is evident. Delaware Charter, while at fault for making payments without clear instructions, should not be held liable for fees given the shared responsibility for the inaccuracies.

The lawsuit did not result in substantial benefits for the plan participants, as the recovery was not directly due to this litigation. The third-party defendants returned the incorrect payments without requiring significant intervention, and the resolution was efficient. Considering these factors, the court concludes that attorneys' fees should not be awarded.

Moreover, counsel for the plaintiffs represented both Mr. Shott and other unpaid plan participants, which may have complicated the case due to conflicting interests. Counsel has a retainer agreement with Shott for compensation in case fees are denied. He may collect fees from Shott according to their agreement, but cannot collect fees from the other plaintiffs unless he files an affidavit within ten days demonstrating that no conflict of interest exists.