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Young v. Verizon's Bell Atlantic Cash Balance Plan

October 20, 2010

CYNTHIA N. YOUNG, ON BEHALF OF HERSELF, AND OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
VERIZON'S BELL ATLANTIC CASH BALANCE PLAN, FORMERLY KNOWN AS BELL ATLANTIC CASH BALANCE PLAN, FORMERLY KNOWN AS BELL ATLANTIC MANAGEMENT PENSION PLAN, AND VERIZON COMMUNICATIONS, INC., AS SUCCESSOR IN INTEREST TO BELL ATLANTIC CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Morton Denlow United States Magistrate Judge

Magistrate Judge Morton Denlow

MEMORANDUM OPINION AND ORDER

Plaintiff Cynthia N. Young ("Plaintiff"), class representative in this ERISA class action suit, brings a motion for attorney's fees and costs under 29 U.S.C. § 1132(g)(1) following the resolution of the case by the Seventh Circuit Court of Appeals. The Seventh Circuit's ruling affirmed the prior judgments reached by this Court in a two-phase trial process. The Court entered judgments in favor of Plaintiff on Counts III and IV of their Second Amended Complaint and in favor of Defendants on Counts I and II of Plaintiff's Second Amended Complaint, as well as in favor of Defendants on their counterclaim for reformation.

This motion presents the issue of whether the judgments in favor of Plaintiff constitute "some degree of success" on the merits that would entitle her to recover attorney's fees and costs under the Employee Retirement Income Security Act of 1974 ("ERISA"). Specifically, the Court must determine: (1) whether, in the exercise of its discretion, the Court should award attorney's fees and costs to Plaintiff in connection with Phase I of the litigation, and (2) whether, in the exercise of its discretion, the Court should award attorney's fees and costs to Plaintiff in connection with Phase II of the litigation. For the reasons discussed below, the Court awards partial attorney's fees for Phase I and no fees for Phase II.

I. BACKGROUND FACTS

The complicated facts of this case have been fully developed in prior opinions by this Court and the Seventh Circuit Court of Appeals. See Young v. Verizon's Bell Atl. Cash Balance Plan (Young III), 615 F.3d 808 (7th Cir. 2010); Young v. Verizon's Bell Atl. Cash Balance Plan (Young II), 667 F. Supp. 2d 850 (N.D. Ill. 2009) (regarding the Phase II trial); Young v. Verizon's Bell Atl. Cash Balance Plan (Young I), 575 F. Supp. 2d 892 (N.D. Ill. 2008) (regarding the Phase I trial).The following summarizes the facts most relevant to the current motion.

Plaintiff initiated this suit in 2005 under ERISA § 502(a)(1)(b), 29 U.S.C. § 1132(a)(1)(b), and § 502(a)(3), 29 U.S.C. § 1132(a)(3), seeking to recover retirement benefits under an ERISA-governed pension plan. Plaintiff alleged that Defendants Verizon's Bell Atlantic Cash Balance Plan (the "Plan") and Verizon Communications, Inc. ("Verizon") (collectively "Defendants") improperly calculated her pension benefits and those of similarly situated employees. The Court certified a class pursuant to Federal Rule of Civil Procedure 23.

The class members were all participants in a series of defined benefit pension plans provided by the Bell Atlantic Corporation (now Verizon) to its management employees. At issue in this case were certain provisions in a cash-balance pension plan first instituted in 1996. Before 1996, Bell Atlantic operated a traditional pension plan, known as the Bell Atlantic Management Pension Plan ("BAMPP"), under which employees received a defined benefit beginning at age 65. On December 31, 1995, the BAMPP was amended and renamed the Bell Atlantic Cash Balance Plan ("Cash Balance Plan"), under which employees received benefits according to the balance they had accrued under the plan.

To transition then-current employees from the BAMPP to the Cash Balance Plan, the Plan provided a formula in § 16.5.1 to calculate each participant's opening balance in the new plan. The formula consisted of two steps: (1) calculating the lump-sum cashout value of a participant's annuity under the BAMPP; and (2) multiplying the lump-sum cashout value by a transition factor. To determine the lump-sum, the plan used a mortality table to determine the participant's life expectancy and then applied an interest rate to convert the expected annuity payments into a lump-sum benefit. Then, the transition factor to be multiplied was determined by an actuarial formula based on the participant's age and service.

For employees covered by § 16.5.1(a)(1), the Plan called for the lump-sum cashout value to be multiplied once by the transition factor. For employees covered by § 16.5.1(a)(2), the Plan called for the lump-sum cashout value to be multiplied twice by the transition factor. Verizon contended the language in § 16.5.1(a)(2) contained a scrivener's error and that each section should have called for only one multiplication of the transition factor. All of the communications Defendants sent out to participating employees explaining the transition to the Cash Balance Plan, including the Summary of Material Modifications ("SMM") required by ERISA, only referenced one transition factor for all employees. Defendants calculated benefits for all employees multiplying only once by the transition factor. The Plan was amended again in September 1997, the year Plaintiff retired, and continued to contain the second reference to the transition factor in § 16.5.1(a)(2). In 1998, the Plan was amended again, this time without reference to the second transition factor.

Plaintiff's claims against Defendants involved both the calculation of the lump-sum value for all covered employees as well as the use of the transition factor for certain employees covered by § 16.5.1(a)(2) of the plan. Plaintiff alleged Defendants used the incorrect Pension Benefit Guaranty Corporation ("PBGC") interest rate when calculating the opening balance of her account. Defendants used a rate of 120% of the applicable interest rate specified by the PBGC, and Plaintiffs alleged they should have used 100% of the applicable interest rate. Plaintiff also alleged Verizon abused its discretion in multiplying the transition factor once for employees covered by § 16.5.1(a)(2).

The class members were divided into two subclasses. Subclass 1 included those employees whose opening balances under the Cash Balance Plan were calculated using 120% of the PBGC rate pursuant to § 16.5.1(a)(1) and (a)(2). The class claim associated with Subclass 1 (the "Discount Rate Issue") was defined as follows:

Whether, in determining the benefits afforded by the Bell Atlantic Cash Balance Plan to the plaintiff and the Class, it was proper to use 120% rather than 100% of the applicable PBGC interest rate when calculating the "opening balances," and, if improper, the remedy therefor[].

Agreed Order for Class Certification, 2, Jan. 16, 2007.

Subclass 2 included those employees whose opening balances were calculated by multiplying their applicable transition factor once pursuant to § 16.5.1(a)(2). The class claim associated with Subclass 2 (the "Transition Factor Issue") was defined as follows:

Whether, in determining the benefits afforded by the Bell Atlantic Cash Balance Plan to plaintiff and the Class, it was proper to apply the cash balance transition factor found in Table 1 of Section 16 of the Cash Balance Plan once rather than twice when calculating the "opening balances," and if improper, the remedy therefor[].

Id.

The Court decided these issues in two phases. In Phase I, the Court conducted a trial on the papers, applying a deferential standard of review to the Plan administrators' decisions to deny Plaintiff's claims based upon the administrative record. Young I, 575 F. Supp. 2d 892. On the Discount Rate Issue (Counts I and II), the Court upheld Defendants' decision to calculate Plaintiff's opening account balance at 120% of the PBGC rate, instead of 100%, as a reasonable interpretation within Defendants' discretion. Id. at 910. On the Transition Factor Issue (Counts III and IV), the Court found Defendants abused their discretion by unilaterally disregarding unambiguous Plan terms requiring the Transition Factor to be multiplied twice in calculating Plaintiff's opening balance, even though Defendants claimed the language was ambiguous due to a "scrivener's error." Id. at 918. The Court held that "upon determining the language was a mistake, the Committee should have sought to reform the plan document in court" subject to de novo judicial review. Id.

In Phase II, Defendants counterclaimed for reformation of the Plan to eliminate the second reference to the Transition Factor multiplication. The Court then conducted a bench trial to evaluate Plaintiff's claims under the de novo standard of review and to decide Defendants' counterclaim for reformation. Young II, 667 F. Supp. 2d 850.

Following completion of the Phase II trial, the Court entered its final judgment. On the Discount Rate Issue (Counts I and II), the Court entered judgment in favor of Defendants, finding the correct interpretation of the Plan required a participant's opening account balance at 120% of the PBGC rate. Id. at 906. On the Transition Factor Issue (Counts III and IV), the Court entered judgment in favor of Plaintiff to the extent Defendants abused their discretion by unilaterally disregarding the plain language of the plan. Id. at 906-07. The Court then entered judgment in favor of Defendants on their counterclaim for reformation and reformed § 16.5.1(a)(2) of the 1996 and 1997 Cash Balance Plan to eliminate the second reference to a Transition Factor. Id. at 907. The Court found that Defendants committed "profound negligence" for failing to discover the mistake in 1997, but that negligence is not a bar to reformation. Id. at 905-06. Therefore, the Court held the Plaintiff class members were not entitled to additional Plan benefit distributions by reason of this litigation. Id. at 907.

Following this Court's judgment, both parties appealed to the Seventh Circuit. Plaintiff filed an appeal from this Court's rulings on the Discount Rate Issue in Phase I and on the judgment for Defendants in Phase II. Defendants cross-appealed on the judgment for Plaintiff on the Transition Factor Issue in Phase I. The Seventh Circuit affirmed this Court's ruling on all counts. Young III, 615 F.3d at ...


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