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JONES v. O'HIGGINS

May 14, 1990

ALLEN T. JONES, PLAINTIFF,
v.
MICHAEL B. O'HIGGINS, DEFENDANT.



The opinion of the court was delivered by: McCURN, Chief Judge.

MEMORANDUM-DECISION AND ORDER

I. BACKGROUND

This is a motion by the defendant, Michael O'Higgins, to recover legal fees and costs which he incurred in the course of successfully defending against claims brought by the plaintiff under the Employee Retirement Income Security Act of 1974 ("ERISA"). Defendant's motion is based on 29 U.S.C. § 1132(g)(1) and Rule 54(d) of the Federal Rules of Civil Procedure.

At the end of a two-day non-jury trial, plaintiff withdrew from consideration all but two of the ERISA claims. Plaintiff also withdrew his claim for punitive damages. The two claims remaining for consideration after trial were: (1) whether the defendant failed to diversify the pension plan's investment portfolio so as to minimize the risk of large losses under 29 U.S.C. § 1104(a)(1)(C), and (2) whether defendant breached his fiduciary obligation to act as a "prudent man" by failing to take appropriate steps to avoid the large drop in the value of the pension plan, 29 U.S.C. § 1104(a)(1)(B). On September 1, 1989, this court issued a memorandum-decision and order (hereinafter "Decision") which held in favor of the defendant on all counts.

With respect to the diversification claim pursuant to section 1104(a)(1)(C), this court held that the plaintiff had at least made out a prima facie case. This was so because "[t]he concentration of over 90%, of the fund's assets into three stocks during the period of March to December of 1986, along with the heavy losses incurred over that time, standing alone, would permit a court to find a failure on the part of the defendant to fulfill his fiduciary obligation." Decision at 13. However, the court held further, that the defendant had come forward with sufficient convincing evidence and testimony to sustain his burden that the concentration of the investments "under the circumstances [was] clearly prudent." Decision at 14.

The court rejected plaintiff's other "prudent man" cause of action on the grounds that: (1) the defendant put forward credible evidence that his "contrarian" investment strategy was "both independently prudent and within the standards and practice of the investment industry;" (2) it appeared to the court that plaintiff, rather than the defendant, decided to sell the stocks at a low price; and (3) plaintiff had failed to provide significant proof, through expert testimony or otherwise, that the defendant had not performed within industry standards. Decision at 18-19. It should be noted that the court's determination, as to who made the decision to sell the stock at a low price, was a credibility determination which was made after a consideration of the conflicting testimony of the plaintiff and witnesses for the defendant. Decision at 8.

II. DISCUSSION

A. Legal Standard

The defendant has moved for attorney's fees pursuant to 29 U.S.C. § 1132(g)(1) which states in applicable part:

  In any action under this subchapter . . . 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 decision on whether to award legal costs is generally based on five factors:

  (1) the degree of the offending party's
  culpability or bad faith, (2) the ability of the
  offending party to satisfy an award of attorney's
  fees, (3) whether an award of fees would deter
  other persons from acting similarly under like
  circumstances, (4) the relative merits of the
  parties' positions, and (5) whether the action
  conferred a common benefit on a group of pension
  plan participants.

Miles v. New York State Teamsters Conference, Pension and Retirement Fund Employee Pension Benefit Plan, 698 F.2d 593, 602 n. 9 (2nd Cir.) cert. denied, 464 U.S. 829, 104 S.Ct. 105, 78 L.Ed.2d 108 (1983); see Chambless v. Masters, Mates & Pilots Pension Plan, 815 F.2d 869, 871 (2nd Cir. 1987); Ford v. New York Central Teamsters Pension Fund, 506 F. Supp. 180, 183 (W.D.N.Y. 1980) aff'd, 642 F.2d 664 (2nd Cir. 1981) (per curiam). "The five factor standard is the appropriate one to be applied regardless of which party prevails." Gray v. New England Tel. and Tel. Co., 792 F.2d 251, ...


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