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Pasternak v. Radek

April 3, 2008

WILLIAM PASTERNAK, MARGARET LASKOWSKI FOR THE ESTATE OF LEONARD LASKOWSKI, AND CAROL MOHEDANO, PLAINTIFFS,
v.
DENNIS R. RADEK AND EDWARD A. RADEK, JR., DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly United States District Judge

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge

William Pasternak, Margaret Laskowski (for the estate of Leonard Laskowski), and Carol Mohedano brought this action against Dennis R. Radek and Edward A. Radek, Jr. pursuant to section 1132(e)(1) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(e)(1), seeking to recover benefits due them under the health plan administered by their employer, Ready Metal Manufacturing Company. The parties agreed to settle plaintiffs' claims for $30,000, with a petition for attorney's fees to be submitted to the Court for adjudication.

Plaintiffs now seek $129,735 in attorney's fees and $2,603.97 in expenses pursuant to 29 U.S.C. § 1132(g)(1). For the reasons stated below, the Court awards plaintiffs $59,178.47 in attorney's fees and expenses.

Background

Plaintiffs allege the following facts. Until May 2005, plaintiffs worked for Ready Metal, a metal manufacturing company. While it was still operating, Ready Metal maintained a self-insured health plan for its employees administered through Blue Cross and Blue Shield of Illinois ("BCBS"). Plaintiffs and other plan participants had their share of the premiums deducted from each paycheck, to be paid to BCBS. On May 17, 2005, Ready Metal sent a notice to all of its employees, stating that the company had permanently ceased operations at its Chicago facility as of May 12, 2005. Ready Metal mailed an additional memorandum to its employees that day, informing them that the company was unable to continue to provide health insurance and had discontinued coverage as of May 12, 2005. The employees also received a copy of a May 13, 2005 agreement by which Ready Metal assigned its assets to a trustee, for the benefit of creditors.

The employees' final earning statement for the period ending May 15, 2005 included an adjustment to the medical plan deductions reflecting a credit to each employee for the insurance premiums withheld from their paychecks as far back as January 1, 2005. After receiving his statement, Mr. Pasternak requested a Certificate of Coverage from BCBS. The certificate he received stated that coverage began on January 1, 1999 and ended January 1, 2005. From January 1 to May 19, 2005, Ready Metal had continued to withhold healthcare premiums from the employees' paychecks but had not paid the money to Blue Cross. Only after Ready Metal ceased operations did its employees, including plaintiffs, discover that they had paid for four and a half months of health insurance coverage that they did not receive. The plaintiffs each had incurred medical bills during the period in 2005 when they believed they had coverage. BCBS paid some of their 2005 claims but soon requested reimbursement from them and from providers it had paid, and it refused to pay outstanding claims.

In August 2005, the law firm of Krislov & Associates ("K & A") began receiving calls from former Ready Metal employees about their rights to vacation pay and medical expenses. Associate Elizabeth Neugent Dixon had primary day-to-day responsibility for the matter, under the supervision of senior partner Clinton Krislov. On May 22, 2007, K & A filed a complaint against defendants, the president and executive vice--president of Ready Metal, for breach of fiduciary duty under ERISA.

In response, defendants claimed that they had paid over far more to BCBS in 2005 than they had withheld from their employees' paychecks. They also asserted that they could not have anticipated either the collapse of Ready Metal or the cancellation of their employees' BCBS coverage as of January 1, 2005.

Following an unsuccessful settlement conference, plaintiffs researched additional claims against defendants. However, after the Court deferred their request to file an amended complaint and conducted a settlement conference on October 10, 2007, the parties arrived at a settlement. The settlement called for a payment of $30,000 to the plaintiffs to cover their medical bills in full and left plaintiffs' attorney's fees for the Court to determine.

Discussion

I. Determination of whether fees should be awarded

ERISA's fee-shifting statute provides that a district court may "allow a reasonable attorney's fee and costs of action to either party." 29 U.S.C. § 1132(g)(1). Although, under this statute, "there is a 'modest presumption' in favor of awarding fees to the prevailing party . . . that presumption may be rebutted." Stark v. PPM Am., Inc., 354 F.3d 666, 673 (7th Cir. 2004) (quoting Senese v. Chicago Area I.B. of T. Pension Fund, 237 F.3d 819, 826 (7th Cir. 2001)).

The Court may apply either of two tests recognized by the Seventh Circuit to determine whether the prevailing party should be awarded attorney's fees and costs. Quinn v. Blue Cross and Blue Shield Ass'n, 161 F.3d 472, 478 (7th Cir. 1998). One test "looks to whether or not the losing party's position was 'substantially justified.'" Id. (citing Bittner v. Sadoff & Rudoy Indus., 728 F.2d 820, 830 (7th Cir. 1984)). The other, multi-factor test considers: "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 attorney's fees; 3) whether or not an award of attorney's fees against the offending parties 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." Id. (citing Filipowicz v. Am. Stores Benefit Plans Comm., 56 F.3d 807, 816 (7th Cir. 1995)).

Regardless of which test is used, the overall question is the same: "was the losing party's position substantially justified and taken in good faith, or was that party simply out to harass its opponent?" Id. (citing Hooper v. Demco, Inc., 37 F.3d 287, 294 (7th Cir. 1994)). Indeed, the multi-factor test should be "used to structure or implement, rather than to contradict, the 'substantially justified' standard." Lowe v. McGraw-Hill Co., Inc., 361 F.3d 335, 339 (7th Cir. 2004).

Because the parties have structured their arguments around the multi-factor test, and because that test is more suitable in cases in which the prevailing party is the plaintiff, the Court will use the multi-factor test to guide its analysis.

A. Degree of Culpability or Bad Faith

Plaintiffs argue that defendants demonstrated bad faith both in the substantive actions that were the object of the lawsuit (withholding employees' healthcare premiums from their paychecks and not paying the amounts over to BCBS) and in their litigating posture (asserting that they had paid more money to BCBS in 2005 than they had withheld, although they knew that the money they paid in 2005 was for 2004 coverage).

Defendants respond that they exhibited no bad faith during the litigation and that they had little culpability with respect to the underlying conduct. They argue that they did not breach their fiduciary duties under ERISA because they did not know very far ahead of time that Ready Metal was going to close and because they had a reasonable belief that BCBS would cover their employees for 2005. Although defendants admit they were not paying over to BCBS the amounts they were withholding from their employees, they contend that they thought the funds they sent in were sufficient "to keep the plan going." Def. Resp. at 7. Furthermore, defendants assert that it was more important to Ready Metal's employees to have jobs than to have their health insurance premiums fully paid on time each month.

Defendants breached their fiduciary duties under ERISA when they withheld money from plaintiffs' paychecks for health insurance premiums but knowingly failed to pay the withholdings over to BCBS. In doing so, they left their employees completely uninsured and, worse yet, unaware that they were uninsured. By any standard, their conduct was unreasonable (to be charitable about it). Accordingly, defendants are sufficiently culpable that the first factor weighs in favor of an award of fees.

B. Ability to Satisfy Personally an Award of Attorney's Fees

The Radeks contend that although they are not "destitute," they have no current income and would have to use funds from their retirement accounts to satisfy any judgment. Def. Resp. at 8. In his sworn affidavit, Edward A. Radek, Jr. also contends that he might have to sell his home to generate sufficient funds. Neither defendant has provided any financial statements to substantiate his claims. There is no indication that defendants would be unable to pay reasonable attorney's fees here or that the award would be paid out of the pockets of anyone but them. Cf. Bittner v. Sadoff & Rudoy Indus., 728 F.2d 820, 829 (7th Cir. 1984) (noting that this factor would weigh against the plaintiff if plan assets were used to pay for attorney's fees, to the detriment of other beneficiaries). The fact that defendants ...


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