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Stephen G. Lingis, Donald L. Smith, and Peter D. White, On Behalf of v. Motorola

June 1, 2012


The opinion of the court was delivered by: Hon. Rebecca R. Pallmeyer


This case is again before the court for resolution of a lingering dispute concerning allocation of costs incurred in an unsuccessful ERISA class action brought against the Motorola Profit Sharing Plan. The action arose from a drop in the value of Motorola's shares that Plaintiffs attribute to the disclosure of material information concerning approximately $2 billion in high-risk loans Motorola made to Telsim Mobil Telekomunikasyon Hizmetleri A.S. ("Telsim"), a Turkish telecommunications company. Telsim ultimately defaulted on the loans, which were secured only by a pledge of Telsim stock. At the same time, Telsim tripled the number of its outstanding shares, thus substantially diluting Motorola's collateral. This debacle spawned a series of lawsuits, including an action by Motorola against the family that controlled Telsim, Motorola Credit Corp. v. Uzan, 274 F. Supp. 2d 481 (S.D.N.Y. 2003), aff'd in part, vacated in part, 388 F.3d 39 (2d Cir. 2009); a securities class action brought by shareholders against Motorola in this court, In re Motorola Sec. Litig., 505 F. Supp. 2d 501 (N.D. Ill. 2007); and this ERISA "stock drop" case. In this action, Motorola employees who held Motorola stock in their individual retirement accounts brought suit against the Motorola 401(k) Plan, alleging that Defendants (Plan fiduciaries and Motorola officials), breached their fiduciary duty to Plan participants by continuing to offer Motorola stock as an investment option when they knew that problems with the Telsim deal made that option imprudent. Plaintiffs also alleged that Defendants misrepresented Motorola's financial health to Plan participants, and failed to adequately appoint, monitor, and inform Plan fiduciaries.

In it first summary judgment ruling, this court entered judgment in favor of Defendants on the ground that claims brought by the original named Plaintiff, Bruce G. Howell, were barred by a waiver and release that Howell signed at the end of his employment. See Howell v. Motorola, Inc., No. 03 C 5044, 2005 WL 2420410 (N.D. Ill. Sept. 30, 2005), aff'd, 633 F.3d 552 (7th Cir. 2011); cert. denied sub nom. Lingis v. Dorazil, 132 S. Ct. 96 (2011). Plaintiffs Stephen Lingis, Donald Smith, and Peter White ("Plaintiffs") were then substituted for Howell, and the court certified the case for class treatment on September 28, 2007. (Order [256].) On motions for summary judgment, the court again granted judgment in favor of Defendants, ruling that they had not breached a duty imposed by ERISA and that they could rely on the "safe harbor" established by section 404(c) of the Act, 29 U.S.C. § 1104(c). See Lingis v. Motorola, Inc., 649 F. Supp. 2d 861 (N.D. Ill. 2009), aff'd sub nom. Howell v. Motorola, Inc., 633 F.3d 552; cert. denied sub nom. Lingis v. Dorazil, 132 S. Ct. 96.

While Howell's appeal was pending before the Seventh Circuit and Plaintiffs' class claim was pending before this court, Defendants filed a timely bill of costs for $4,694.70 related to Howell's action, pursuant to Federal Rule of Civil Procedure 54(d). At the time the court decided that motion, Rule 54(d) provided, "Except when express provision therefor is made either in a statute of the United States or in these rules, costs other than attorneys' fees shall be allowed as of course to the prevailing party unless the court otherwise directs . . . ." FED. R. CIV. P. 54(d)(1) (2006) (emphasis added). The court concluded that section 502 of ERISA-pursuant to which "the court in its discretion may allow a reasonable attorney's fee and costs of action to either party," 29 U.S.C. § 1132(g)(1)-constituted an express exception to the application of Rule 54(d). (Order [203], at 5-6.) Applying § 1132(g)(1), the court denied Defendants' petition for costs on March 12, 2007, on the grounds that Defendants did not challenge Plaintiff Howell's good faith or argue that his position was not substantially justified. (Id. at 6.) The court further observed that Plaintiff Howell had survived a "hard-fought motion to dismiss and, although the court concluded Howell himself lack[ed] standing, his arguments to the contrary were not insubstantial." (Id.)

Defendants now bring a timely bill of costs in connection with the court's second summary judgment order, the one dismissing the class action brought by Plaintiffs Lingis, Smith, and White on its merits. Defendants seek recovery of $84,214.02 in costs pursuant to Rule 54(d). Plaintiffs filed an objection for reasons mirroring this court's 2007 ruling declining to tax costs against Howell. More recently, Defendants filed Notice of Supplemental Authority in support of their bill of costs. Defendants claim this authority, Loomis v. Exelon Corp., 658 F.3d 667 (7th Cir. 2011), undermines the reasoning in this court's previous order. For the reasons explained below, the court sustains Plaintiffs' objection to an award of costs.


I. Applicable Cost Provision

Rule 54(d) creates a presumption in favor of awarding costs to the prevailing party-unless another statute creates an exception. In support of their argument that § 1132(g)(1) is not a statutory exception within the meaning of Rule 54(d), Defendants note that Rule 54(d) was amended in 2007. That rule now provides, in relevant part, "Unless a federal statute, these rules, or a court order provides otherwise, costs-other than attorney's fees-should be allowed to the prevailing party." FED. R. CIV. P. 54(d)(1). Defendants see a change in this amendment; they argue that because § 1132(g)(1) does not prohibit the award of costs, it does not "provide otherwise." Defendants' attempt to leverage the amended language is misplaced. As the Advisory Committee's note makes plain, the changes were part of a "general restyling of the Civil Rules" and "are intended to be stylistic only." FED. R. CIV. P. 54(d) advisory committee's note to 2007 Amendments. Courts within this district have rejected similar arguments predicated on the stylistic changes. See George v. Kraft Foods Global, Inc., No. 07-1713, 2010 WL 1976826, at *2 (N.D. Ill. May 14, 2010) (Schenkier, Mag. J.) (rejecting the argument that Seventh Circuit precedent recognizing § 1132(g)(1) as an express exception under Rule 54(d)(1) is no longer applicable after that rule's amendment); Brieger v. Tellabs, Inc., 652 F. Supp. 2d 925, 927 (N.D. Ill. 2009) (Kennelly, J.) (same). To the extent that the amended language might support legal arguments that diverge from the pre-amendment Rule 54(d) jurisprudence, the court remains bound by precedent.

As this court noted in its 2007 Order denying costs, the Seventh Circuit decision that most directly addresses the issue is Nichol v. Pullman Standard, Inc., 889 F.2d 115 (7th Cir. 1989). In Nichol, the district court had dismissed the plaintiff's ERISA claim because he had signed a severance agreement relinquishing his rights to long-term disability benefits, but the court denied the defendant's petition for costs and attorneys' fees. Id. at 116. The Seventh Circuit affirmed. Id. at 122. Quoting the exception in Rule 54(d) for cases where a "express provision" is made by federal statute, the Seventh Circuit observed that § 1132(g)(1) was "such an express provision." Id. at 121.

The Seventh Circuit has not applied the Nichol precedent consistently, however. In several cases, the court has applied Rule 54(d) to ERISA actions without discussing whether § 1132(g)(1) displaces Rule 54(d). See, e.g., White v. Sundstrand Corp., 256 F.3d 580, 585-86 (7th Cir. 2001); McIlveen v. Stone Container Corp., 910 F.2d 1581, 1584 (7th Cir. 1990). In other cases, the Seventh Circuit has applied § 1132(g)(1) without commenting on that provision's relationship to Rule 54(d). See, e.g., Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574, 592-93 (7th Cir. 2000); Little v. Cox's Supermarkets, 71 F.3d 638, 644 (7th Cir. 1995); Anderson v. Flexel, Inc., 47 F.3d 243, 250-51 (7th Cir. 1995). In yet another case, the court appeared to apply § 1132(g)(1) in affirming a district court's denial of an attorneys' fee petition, but affirmed the district court's grant of costs under Rule 54(d). See Quinn v. Blue Cross & Blue Shield Ass'n, 161 F.3d 472, 478-79 (7th Cir. 1998). In a more recent case, the court affirmed an award of costs without referencing Rule 54(d) or § 1132(g)(1). See Hecker v. Deere & Co., 556 F.3d 575, 591 (7th Cir. 2009) (Hecker I), reh'g denied, 569 F.3d 708 (7th Cir. 2009) (Hecker II). Defendants' brief relies heavily on Hecker, but that case is not particularly helpful because the parties appeared to dispute what types of costs should be allowed, not whether an award of costs was appropriate in the first place.

In Loomis v. Exelon Corp., the supplemental authority Defendants brought to the court's attention, the Seventh Circuit declined to resolve these inconsistencies, but included dicta strongly indicating that § 1132(g)(1) does supplant Rule 54(d) in ERISA cases. The court noted that only one Court of Appeals has accepted the argument that "§ 1132(g)(1) does not 'provide otherwise' than Rule 54(d) because [§ 1132(g)(1)] never forbids an award of costs"-the exact argument Defendants make in this case. Loomis, 658 F.3d at 674 (citing Quan v. Computer Sciences Corp., 623 F.3d 870, 888-89 (9th Cir. 2010)). The court was skeptical of the Ninth Circuit's conclusion, observing that even if a statute did not forbid an award to the prevailing party, the statute would "be otherwise" if it "established a presumption against an award of costs," in contrast to Rule 54(d)'s presumption in favor of such an award, or if the statute established the opposite presumption, in favor of the winner paying the loser's costs. Id.

As the Seventh Circuit suggested, Rule 54(d) and § 1132(g) differ on the degree to which an award of costs is presumptive. A court's discretion to deny costs under Rule 54(d) is subject to a "strong presumption that the prevailing party will recover costs." Mother & Father v. Cassidy, 338 F.3d 704, 708 (7th Cir. 2003) (emphasis added). The Seventh Circuit has recognized only two narrow exceptions, involving the misconduct of the prevailing party or the indigence of the losing party. See id.; see also Rivera v. City of Chicago, 469 F.3d 631, 636 (7th Cir. 2006) (describing the indigence exception as "a narrow one" and noting that the losing party still bears the burden of overcoming the presumption). Prior to the 2007 amendments, the court identified the textual support for this presumption in Rule 54(d)(1)'s direction that courts award costs "as of course." Cassidy, 338 F.3d at 708. Although that language is absent in the amended version, the use of the normative phrase "should be allowed" can be read to give rise to the same presumption, even if it is less exhortative than the phrase "shall be allowed" in the prior version. In any event, as mentioned above, the 2007 amendments are intended to generate no substantive change.

Section 1132(g)(1), which provides for an award of costs and fees, is less firm. Instead, under that statute, a court "may allow a reasonable attorney's fee and costs of action to either party," suggesting that courts have greater discretion to award or deny costs. Though an award of costs is therefore not mandatory under § 1132(g)(1), such an award is more broadly available under that section: The Supreme Court has interpreted § 1132(g)(1) as allowing award of fees and costs to "partially prevailing parties"-parties that have achieved some degree of success on the merits-a more generous standard than Rule 54(d). Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149, 2157 (2010) (quoting Ruckelshaus v. Sierra Club, 436 U.S. 680, 688 (1983)); cf. Smart v. Local 702 Int'l Bhd. of Elec. Workers, 573 F.3d 523, 525 (7th Cir. 2009) ("A party prevails for purposes of Rule 54(d) when a final judgment awards it substantial relief."). While the Seventh Circuit has recognized that § 1132(g)(1) creates a presumption in favor of awarding costs and fees to the prevailing party, the court has characterized that presumption as "modest" and "rebuttable." Hess v. Reg-Ellen Mach. Tool Corp., 367 F. App'x 687, 690 (7th Cir. 2010); see also Jackman Fin. Corp. v. Humana Ins. Co., 641 F.3d 860, 866 (7th Cir. 2011); Laborers' Pension Fund v. Lay-Com, Inc., 580 F.3d 602, 615 (7th Cir. 2009); Herman v. Cent. States, Se. & Sw. Areas Pension Fund, 423 F.3d 684, 695-96 (7th Cir. 2005). As discussed more fully below, the Seventh Circuit has affirmed the denial of costs under § 1132(g)(1) where the losing party's positions, while unsuccessful, were made in good faith and were "substantially justified." See, e.g., Jackman Fin. Corp., 641 F.3d at 866.

Public policy concerns also militate in favor of applying § 1132(g)(1)'s less presumptive cost-and-fee-shifting provision in cases where defendants seek costs from plaintiffs. In crafting ERISA's remedial scheme, Congress chose to provide for a private right of action, empowering plan participants and beneficiaries to act as "private attorneys general" to vindicate the Act's regulatory objectives. See Marquardt v. N. Am. Car Corp., 652 F.2d 715, 720 n.6 (7th Cir. 1981). Applying Rule 54(d)'s stronger presumption in favor of awarding costs to prevailing defendants would upset the ...

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