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GE Group Life Assurance Co. v. Kurczak

April 12, 2007

GE GROUP LIFE ASSURANCE CO., PLAINTIFF,
v.
JOHN KURCZAK, DEFENDENT



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

MEMORANDUM ORDER AND OPINION

Before me is a petition by defendant John Kurczak ("Kurczak") for attorneys' fees and costs. Because plaintiff GE Group Life Assurance Co. ("GE Group")*fn1 voluntarily dismissed its claims against Kurczak, Kurczak contends that he is the prevailing party in this suit and is therefore entitled to fees and costs. For the following reasons, I deny Kurczak's petition.

I.

The following facts are relevant to Kurczak's petition: GE Group's complaint against Kurczak alleged that Kurczak was eligible for long-term disability benefits under the terms of the employee welfare plan (the "plan") of his former employer, Rin, Inc. (Compl. at ¶¶ 5-6.) The complaint alleges, and Kurczak concurs, that the plan is governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (2007) ("ERISA"). (Compl. at ¶ 1.) Under the terms of the plan, long-term disability benefits awarded under the plan are allegedly subject to adjustment if the recipient of those benefits received income from other sources, including Social Security disability income. (Id. at ¶ 8.) The parties agree that in January of 2001 Kurczak claimed he had become disabled and was unable to work, and received long-term disability benefits from the fund. (Id. at ¶¶ 1, 8.) He allegedly later received a retroactive Social Security award in the amount of $33,797.60 for back benefits with a monthly award to continue indefinitely (the "Social Security award"). (Id. at ¶9.) GE Group contends that as a result, the benefits awarded to Kurczak under the plan are subject to adjustment so that Kurczak now owes GE Group the amount of his Social Security award, or $33,797.60. (Id.)

GE Group originally brought suit against Kurczak in the District of Connecticut, but upon a motion by Kurczak the court transferred the case to the Northern District of Illinois. See GE Group Life Assurance Co. v. Kurczak, No. 04 C 1906, slip op. at 1 (D. Conn. Mar. 3, 2005). Kurczak argues, and GE Group does not dispute, that GE Group conducted no discovery before the discovery cut-off on May 31, 2006. Following the cut-off, the parties both moved for extensions of time to file dispositive motions, which the court granted. In September of 2006, Kurczak moved for summary judgment. Before GE Group's response to Kurczak's motion became due, GE Group filed a consent motion to dismiss. In support of its motion to dismiss, GE Group stated that it sought to voluntarily dismiss its claims because an investigation of Kurczak's financial situation caused it to determine that "its likely recovery did not justify the expected costs of continued litigation." (Pl.'s Mot. to Dismiss at 1.) GE Group's motion further stated that although Kurczak consented to its motion, he would still seek an award of attorneys' fees and costs. (Id. at 2.) On December 13, 2006, I entered an order dismissing the case without prejudice but retained jurisdiction to resolve Kurczak's demand for attorneys' fees. See GE Group Life Assurance Co. v. Kurczak, No. 05 C 1616, slip op. at 1 (N.D. Ill. Dec. 13, 2006). Kurczak's petition for fees followed.*fn2

II.

Kurczak seeks an award of attorneys' fees and costs under 29 U.S.C. § 1132(g)(1), which provides that in any ERISA action "by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party." The Seventh Circuit has read into this statute a requirement that the party be a "prevailing" party in order to receive a fee award. See, e.g., Bender v. Freed, 436 F.3d 747, 749 (7th Cir. 2006) (stating that § 1132(g)(1) "authorizes the court to award fees, in its discretion, to the prevailing party in an ERISA action"); Lowe v. McGraw-Hill Cos., Inc., 361 F.3d 335, 339 (7th Cir. 2004) ("ERISA authorizes . . . the award of reasonable attorneys' fees to a prevailing plaintiff in a suit for benefits."). There is a "modest" and rebuttable presumption in favor of awarding fees to the prevailing party. See Senese v. Chicago Area Int'l Bd. of Teamsters Pension Fund, 237 F.3d 819, 826 (7th Cir. 2001) (quoting Harris Trust & Sav. Bank v. Provident Life & Accident Ins. Co., 57 F.3d 608, 617 (7th Cir. 1995)); see also Herman v. Cent. States, Southeast and Southwest Areas Pension Fund, 432 F.3d 684, 695-96 (7th Cir. 2005) (internal citation omitted). The Seventh Circuit has also articulated two other tests to determine whether attorneys' fees should be granted, but these tests both presume that a party was a "prevailing" party. See Herman, 432 F.3d at 696. Therefore, before addressing those tests I must determine whether Kurczak is a "prevailing" party such that he may recover under 29 U.S.C. § 1132(g)(1).

In Kurczak's petition, he cites the Supreme Court's decision in Buckhannon Bd. and Health Care Home, Inc. v. West Virginia Dept. of Health and Human Res., 532 U.S. 598 (2001), for the proposition that the "prevailing party" is a party "who has been awarded some relief by the court" including where the court enters an enforceable judgment on the merits or a consent decree. Id. at 603-04. The Court held that this was true because consent decrees and enforceable judgments "create the 'material alteration of the legal relationship of the parties' necessary to permit an award of attorney's fees." Id. at 604 (internal citations omitted). Kurczak argues that he is a "prevailing party" based on this language. It is true that Kurczak's legal position has changed because this dismissal of the action serves as a bar to any future attempt by GE Group to bring suit against Kurczak for the same causes of action asserted here. See Hill v. Potter, 352 F.3d 1142, 1144-45 (7th Cir. 2003) (test for whether a dismissal is a "final judgment" for res judicata purposes is whether "the district court has finished with the case"); Elmore v. Henderson, 227 F.3d 1009, 1011 (7th Cir. 2000) ("[A] suit that has been dismissed with prejudice cannot be refiled; the refiling is blocked by the doctrine of res judicata."). This matters to Kurczak because GE Group will not later be able to file suit against Kurczak seeking a return of the funds that it believes are owed to it.*fn3 Therefore I conclude that Kurczak is the prevailing party.

III.

Given that Kurczak is the prevailing party, I must consider whether he should be awarded fees and costs. The Seventh Circuit recognizes two tests for determining whether to award attorneys' fees. See Herman, 423 F.3d at 696. Under the first test, a court may deny fees to a successful defendant if "the plaintiff's position was both substantially justified - meaning something more than non-frivolous, but something less than meritorious - and taken in good faith, or if special circumstances make an award unjust." Id. (internal quotations omitted) (citing Senese, 237 F.3d at 826 (internal citations omitted)). Under the second test, the court analyzes five factors including (1) the degree of the offending parties' culpability or bad faith; (2) the degree of the ability of the offending parties to satisfy personally an award of attorneys' fees; (3) whether or not an award of attorneys' fees 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.

Herman, 423 F.3d at 696 (citing Brewer v. Protexall, Inc., 50 F.3d 453, 458 (7th Cir. 1995)). As the Seventh Circuit has explained, although these two tests are slightly different they both "essentially ask the same question: was the losing party's position substantially justified and taken in good faith, or was that party simply out to harass its opponent?" Quinn v. Blue Cross & Blue Shield Ass'n, 161 F.3d 472, 478 (7th Cir. 1998) (internal citations omitted).

Under both tests I must analyze the merits of the plaintiff's position. I do so keeping in mind the Supreme Court's caution that "[a] request for attorney's fees should not result in a second major litigation." Hensley v. Eckerhart, 461 U.S. 424, 436 (1983) (assessing award of attorneys' fees under 42 U.S.C. § 1988). Kurczak argues that GE Group brought its claims in bad faith because Supreme Court precedent prevented GE Group from obtaining the relief it sought. However, I conclude that GE Group's claims were substantially justified and not in bad faith.

GE Group's complaint brought claims under ERISA and under a common law theory of unjust enrichment, seeking reimbursement in the amount of Kurczak's Social Security award. As GE Group contends, 29 U.S.C. § 1132(a)(3) authorizes GE Group, as a fiduciary of Kurczak's plan, to bring suit to obtain "other appropriate equitable relief" to enforce provisions of ERSIA or the plan. To prevail on a claim for restitution under ERISA, GE Group must show that (1) it is the fiduciary of the plan; (2) Kurczak violated a provision of the plan; and (3) it sought appropriate equitable relief. See Harris Trust and Sav. Bank v. Provident Life and Accident Ins. Co., 57 F.3d at 615. There is no dispute between the parties that GE Group is the plan fiduciary or that Kurczak violated the plan by not turning over his Social Security award.

The parties do dispute, however, whether the restitution GE Group sought was "appropriate equitable relief." Kurczak relies on the Supreme Court's decision in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), in which the Court held that restitution is only "appropriate equitable relief" where "money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession." Id. at 213 (internal citations omitted). This is because an action for restitution to recover "money to pay for some benefit the defendant had received" from the plaintiff, without tracing the money owed to some particular money or property possessed by the defendant, was traditionally viewed as an action at law for breach of contract "whether the contract was actual or implied." Id. The Supreme Court concluded that "for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession." Id. at 214. Based on this decision, Kurczak argues that GE Group's claims were without merit because it could not receive the restitution it sought since ...


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