Defendants denied an award of reasonable attorney’s fees although it was the prevailing party

Certain provisions of law allow for the collection of reasonable attorney’s fees to the prevailing party. These cases are important because, often times, the parties who take advantage of these fee shifting provisions would not be able to secure counsel without such a statutory scheme. Additionally, the fee shifting provisions provide a deterrent to Defendants to settle lawsuits to which there is no defense/limited likelihood of success for Defendants to prevail.

Here, Plaintiffs sued under, inter alia, Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a)(3), seeking restitution of overpaid benefits in the amount of $140,400. Plaintiffs lost and Defendants prevailed. Certain statutory schemes, like ERISA, FLSA and 42 U.S.C. § 1988, allow for a recovery of attorney’s fees to the Plaintiff in certain circumstances if the Plaintiff(s) is successful. Here, “Defendants now move for attorneys' fees against plaintiff, arguing that they prevailed on the merits and that the factors enunciated in Chambless v. Masters, Mates & Pilots Pension Plan, 815 F.2d 869 (2d Cir. 1987) favor an award of fees.”

"The general rule in our legal system is that each party must pay its own attorney's fees and expenses." Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 550 (2010). ERISA, however, provides that "the court in its discretion may allow a reasonable attorney's fee and costs of action to either party." Trustees of the N.Y. City Dist. Council of Carpenters v. American Concrete Solutions, Inc., No. 13-CV-4714 (RA), 2014 WL 7234596, at *5 (S.D.N.Y. Dec. 18, 2014) (quoting 29 U.S.C. § 1132(g)(1)).

Under Hardt, the question of success on the merits is the only factor the court is required to consider. See Donachie, 745 F.3d at 46 ("After Hardt, whether a plaintiff has obtained some degree of success on the merits is the sole factor that a court must consider in exercising its discretion."). Hardt made clear, however, that a court may additionally, in its discretion, consider five other factors, see 560 U.S. at 249, known in this Circuit as the Chambless factors, which are:

(1) the degree of opposing parties' culpability or bad faith; (2) ability of opposing parties to satisfy an award of attorneys' fees; (3) whether an award of attorneys' fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorneys' fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties' positions.

Chambless, 815 F.2d at 872.

In reviewing the matter, the Court elaborates on each of these factors but puts great emphasis on the first factor, specifically finding that the lawsuit was not brought in bad faith. The Court finds that the legal arguments pursued in this matter were done with good faith and comport with its fiduciary duties. Indeed, “a party that has raised potentially meritorious claims in good faith will generally not be deemed culpable.” See, e.g., Hanley v. Kodak Ret. Income Plan, 663 F. Supp. 2d 216, 219 (W.D.N.Y. 2009) ("I find that there is insufficient culpable conduct on plaintiff's part, and that the case was not sufficiently frivolous, to justify an award of attorneys [sic] fees to defendants."); Aramony v. United Way of Am., 28 F. Supp. 2d 147, 175 (S.D.N.Y. 1998) ("In light of UWA's non-frivolous legal arguments, I cannot find that it acted in bad faith or with an unusual degree of culpability."); aff'd in part, rev'd in part sub nom. Aramony v. United Way Replacement Benefit Plan, 191 F.3d 140 (2d Cir. 1999) (affirming denial of attorneys' fees). The Court holds that Plaintiff "advanced colorable legal arguments" regarding the proper interpretation of the Plan Document, and the Court cannot conclude that raising them made plaintiff sufficiently culpable to support an award of fees under the first Chambless factor. Id. (citing Sigmund, 804 F. Supp. at 496; see also, e.g., Hanley, 663 F. Supp. 2d at 219; Aramony, 28 F. Supp. 2d at 175).

“In short, the Court concludes that the Chambless factors weigh against an award of attorneys' fees, especially in light of plaintiff's minimal culpability and the possible chilling effect an award would have on potentially meritorious lawsuits brought to protect beneficiaries' interests.”

The case is District Photo Inc. v. Pyrros, No. 13-CV-4285 (JFB)(SIL), (E.D.N.Y. May 30, 2017).