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September 24, 1990


The opinion of the court was delivered by: Larimer, District Judge.


The ten named plaintiffs commenced this suit in 1987 against Buffalo Brass Company (Brass) and Atlantic Richfield Company (ARCO). Pursuant to a stipulation of settlement entered August 10, 1989, all substantive claims have been settled among the parties. The only issues that remain, pursuant to the stipulation of settlement, concern plaintiffs' application for attorneys fees and prejudgment interest as well as a counterclaim by defendants for damages for breach of a covenant not to sue by some of the plaintiffs. As not infrequently happens, the litigation concerning these ancillary issues has been at least as contentious as the prosecution of the substantive claims. Unfortunately, "like Frankenstein's monster" the fee application has taken on a life of its own. See Chambless v. Masters, Mates & Pilots Pension Plan, 885 F.2d 1053, 1054 (2d Cir. 1989) (Chambless II). This dispute over severance benefits was ultimately settled in August 1989 with a total net payment of approximately $200,000.00 to be shared by the ten plaintiffs. This was only about $50,000.00 more than the plaintiffs had been offered by Brass when they were fired four years earlier in 1985. Nevertheless, this case has spawned numerous motions and cross-motions relating to fees and sanctions so that plaintiffs now seek a total award of $150,000 total attorneys fees for the action which includes approximately $47,000 for attorneys fees and costs incurred in connection with litigating the fee application. Plaintiffs also request approximately $70,000.00 prejudgment interest on the settlement amount.


In 1985, defendant Brass purchased certain assets of defendant ARCO. Pursuant to this sale, plaintiffs, all of whom had been ARCO employees, were transferred to Brass. Within days after the sale, however, all ten plaintiffs were terminated by Brass.

Brass offered plaintiffs benefits under its severance plan, which provided for, among other things, the payment of two weeks' salary per year of service with Brass and its predecessor. The minimum benefit payable under the plan was two weeks' salary. Brass prepared benefit packages totalling approximately $145,000.00 for the ten employees.

In contrast, the ARCO severance plan provided for three weeks' salary per year of service, with a minimum benefit of thirteen weeks' salary. Basically, it was this difference in severance benefits that precipitated this litigation.


1. Cefali Plaintiffs' RICO Action

On February 18, 1986, the Cefali plaintiffs began an action in this district (Civ. No. 86-157C). The suit was based on the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO") and a state law claim for breach of contract. The RICO claim was essentially predicated on the theory that defendants conspired to defraud plaintiffs in order to deny them severance and other benefits to which they were entitled. Defendants' motions to dismiss were granted on October 8, 1986, on the ground that plaintiffs had failed to allege a pattern of racketeering activity under the RICO statute. Plaintiffs did not appeal that order of dismissal.

2. Niles Plaintiffs' RICO Action

The Niles plaintiffs filed a suit similar to the Cefali RICO action on October 7, 1986 (Civ. No. 86-947C). In light of the dismissal of the Cefali RICO suit, on October 31, 1986, this case was dismissed on plaintiffs' own motion.

3. State Court Suits

In separate actions instituted on October 2, 1986, the Cefali and Niles plaintiffs sued defendants in Erie County Supreme Court, asserting various state law claims. These actions were commenced while the federal RICO action was still pending. After the instant lawsuit was commenced four months later, the state cases were stayed on February 13, 1987 on the agreement of the parties. Both suits were later dismissed as a result of the settlement of the instant case.

4. ERISA Action

In the case at bar, all ten plaintiffs sued under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA"), as well as several pendent state law theories. This action was commenced on February 3, 1987. In the ERISA claims, plaintiffs sought severance benefits under the ARCO plan. Plaintiffs originally sought to bring the suit as a class action, but the class certification motion was denied. Summary judgment was also granted in favor of Brass on all claims by the Niles plaintiffs because they had signed releases and had received benefits, as well as on Brass' counterclaim against the Niles plaintiffs for breach of covenant not to sue. In addition, both defendants were granted summary judgment as to all the pendent state claims.

The case was settled when plaintiffs eventually filed claims for benefits directly with ARCO, and ARCO agreed to pay benefits under its severance plan. ARCO's total net benefit package and other payments totalled approximately $200,000. Under an agreement between Brass and ARCO, Brass partially reimbursed ARCO for the benefits paid. Pursuant to the settlement, the case was dismissed on August 10, 1989, except for the claims that were reserved.

Plaintiffs subsequently moved against both defendants for attorney's fees under ERISA, 29 U.S.C. § 1132(g), and for sanctions against Brass under Fed.R.Civ.P. 11. Plaintiffs also seek an award of prejudgment interest on the amount they received under the settlement. In addition, Brass has moved for attorneys' fees on plaintiffs' class action motion and for a determination of damages in connection with its counterclaim against the Niles plaintiffs. ARCO has not moved for fees.


1. Brass's Motion for Attorneys' Fees as to the Class Certification Motion*fn1

In this motion, Brass requests an award of fees against all plaintiffs and/or their attorney under 28 U.S.C. § 1927 and Fed.R.Civ.P. 11. Brass alleges that plaintiffs' class certification motion was frivolous and untimely, and that the only supporting papers consisted of two incompetent and irrelevant affidavits. Brass states that it incurred $15,097.50 in fees opposing the motion.

Section 1927 provides that an attorney whose conduct unreasonably and obviously multiplies the proceedings in a case may be required to pay excess costs, expenses and attorneys' fees reasonably incurred because of the attorney's conduct. Similarly, Rule 11 allows the court to require an attorney or a party to pay to an opposing party the amount of the reasonable expenses incurred because of the filing of a pleading, motion, or other paper signed in violation of the Rule.

I find that the class certification motion, though it proved meritless, was not so unreasonable or obviously groundless as to warrant the imposition of attorneys' fees under either § 1927 or Rule 11. The record does not show that the motion was made in bad faith, which is a prerequisite to an award under § 1927. Oliveri v. Thompson, 803 F.2d 1265, 1273 (2d Cir. 1986), cert. denied, 480 U.S. 918, 107 S.Ct. 1373, 94 L.Ed.2d 689 (1987). Keeping in mind the Second Circuit's admonition that "the court is to avoid hindsight and resolve all doubts in favor of the signer," id. at 1275, the court is also not convinced that when the motion was made, it was so patently clear that it had absolutely no chance of success that Rule 11 sanctions are mandated. Eastway Construction Corp. v. City of New York, 762 F.2d 243 (2d Cir. 1985). Brass's motion is therefore denied.

2.  Brass's Motion for Attorneys' Fees as to the Niles

Brass also has moved for fees against the Niles plaintiffs and/or their attorney under 29 U.S.C. § 1132, 28 U.S.C. § 1927, and Rule 11. Brass contends that the Niles plaintiffs' claims against Brass were baseless and made in bad faith, because those plaintiffs had already released Brass from liability and received benefits from Brass. Brass allegedly incurred $23,022.52 in fees defending against these claims.

As Brass acknowledges in its brief, it is also seeking attorneys' fees as damages on its counterclaim against the Niles plaintiffs for breach of the covenant not to sue. Brass states that its motion for fees is not intended to obtain a double recovery, but to provide alternative legal theories in support of its attempt to recover fees spent in defense of the Niles plaintiffs' claims. Although the court has fully considered Brass's arguments made in support of this motion, its claims regarding the Niles plaintiffs are adequately addressed by the court's decision on Brass' counterclaim for damages, infra. Even if I were to grant Brass' motion, I would award no more on the motion than I would on the counterclaim. Therefore, Brass's motion is denied.

3. Plaintiffs' Motion for Sanctions and Costs

In opposition to Brass's motions for attorneys' fees, plaintiffs contend that the only issues that were supposed to remain in the case after it was settled were plaintiffs' claims for fees and interest, and the issue of damages on Brass's counterclaim against the Niles plaintiffs. Therefore, plaintiffs argue, by moving for attorneys' fees, defendants are violating the dismissal order, and are acting in bad faith in order to pressure plaintiffs to drop or compromise plaintiffs' claims. Plaintiffs accordingly ask for Rule 11 sanctions and costs in defending these motions, in an amount to be determined by the Court.

In response, Brass contends that the only issues that have been settled are those relating to plaintiffs' substantive claims, and that there was no settlement of any claims Brass has against plaintiffs. Therefore, Brass argues, the dismissal has not deprived the court of jurisdiction over Brass's attorneys' fees claims, because the case has only been partially dismissed.

I find that sanctions are not warranted on this claim. The stipulation of dismissal dismissed the claims of all plaintiffs except their claims for attorney's fees and interests. As to Brass, however, the stipulation merely said that the "Court shall retain jurisdiction over the Counterclaim of American Brass" against the Niles plaintiffs. The stipulation did not state whether Brass could bring any other claims for attorneys' fees or sanctions. There was, then, no express provision barring Brass's motion.

In addition, Brass does not appear to have been precluded as a matter of law for moving for fees and sanctions following entry of the dismissal order. In Cooter & Gell v. Hartmarx Corp., ___ U.S. ___, 110 S.Ct. 2447, 110 L.Ed.2d 359 (U.S. 1990), the Supreme Court held that a voluntary dismissal under Rule 41(a)(1)(i) does not deprive a district court of jurisdiction over a Rule 11 motion. The Court reasoned that the imposition of a Rule 11 sanction is not a judgment on the merits of the action, but requires the determination of a collateral issue, which may be made after the principal suit has been terminated. Id. ___ U.S. ___, 110 S.Ct. at 2455.

Though the Court in Cooter did not address itself to cases involving dismissals under Rule 41(a)(1)(ii), its rationale applies a fortiori to such cases. That view is reinforced by the Second Circuit's holding in Barr Laboratories, Inc. v. Abbott Laboratories, 867 F.2d 743 (2d Cir. 1989), in which the Court of Appeals held that in order to encourage plaintiffs to discontinue untenable actions in the very early stages of the action, the filing of a notice of dismissal under Rule 41(a)(1)(i) deprives a court of all jurisdiction over an action, including the authority to impose sanctions. That holding, of course, was implicitly overruled in Cooter. Significantly, however, the court in Barr observed that when a case has been dismissed by stipulation pursuant to Rule 41(a)(1)(ii), "the policy of encouraging the early dismissal of meritless actions cannot then be served." Id. at 747. The court suggested, therefore, that sanctions could be imposed following a stipulated dismissal. The subsequent Cooter decision consequently leaves little room for doubt that Rule 11 sanctions may be sought after a dismissal under Rule 41(a)(1)(ii).

There is no apparent reason why this rule should not also apply to motions under 28 U.S.C. § 1927. Like Rule 11, § 1927 involves a collateral matter not directly involving the merits of an action. The only difference between the two provisions is that Rule 11 "deals with the signing of particular papers in violation of the implicit certification invoked by the signature," whereas § 1927 imposes "a continuing prohibition against dilatory litigation . . ." Oliveri, 803 F.2d at 1274. Just as a litigant should not be allowed to "purge his violation of Rule 11 merely by taking a dismissal," Cooter, ___ U.S. ___, 110 S.Ct. at 2457, so a party who engages in dilatory tactics should not be permitted to escape the possibility of sanctions under § 1927 by agreeing to a settlement, especially since those very tactics might have driven the other party to the settlement table.

Accordingly, I find that Brass is not subject to sanctions for having moved for fees and costs after the stipulation of dismissal was entered. Plaintiffs' motion is therefore denied.

4. Plaintiffs' Motion for Attorney's Fees

In this motion, plaintiffs request $150,000 in attorney's fees and disbursements under 29 U.S.C. § 1132. The Cefali plaintiffs have made this motion against both defendants, and the Niles plaintiffs have moved against ARCO only.

Included in this request is an application for approximately $47,000 for fees incurred in litigating the fee issue. Plaintiffs seek approximately $23,000 for attorney Pottle, $21,000 for Mitchell Williams, Esq., the attorney hired by Pottle in December 1989 to prosecute the fee application as well as expert witness fees and disbursements of approximately $2,750.

Plaintiffs take the position that had it not been for their lawsuits, they would not have received benefits from ARCO. Plaintiffs argue that since their claims were eventually paid, they are "prevailing parties" in this case even though the case was settled. The Niles plaintiffs also contend that any amount they are required to pay on Brass's counterclaim should be added to the costs imposed on ARCO, so that in effect, ARCO would end up paying Brass.

In response to plaintiffs' motions, Brass argues that plaintiffs did not "prevail" against it, since only ARCO paid plaintiffs directly under the settlement agreement. Brass adds that even if plaintiffs prevailed on the ERISA claim, they can be assessed fees on their unsuccessful claims. Brass asserts that plaintiffs should not get fees for all the time their attorney spent representing them, but, if they are to receive any fees at all, they must distinguish between representation on the ERISA claims and on the unrelated, unsuccessful claims, such as the RICO claims.

Brass also argues that plaintiffs should have distinguished between fees incurred on behalf of the Cefali plaintiffs and fees incurred on behalf of the Niles plaintiffs, since the latter had no claim against Brass.

ARCO has not moved for fees, and takes no position on Brass's motion. As to plaintiffs' motion for fees and interest, ARCO contends that plaintiffs are not entitled to either, because ARCO is not an "offending" party under 29 U.S.C. ยง 1132. ARCO ponts out that it was Brass, not ARCO, that actually terminated plaintiffs. ARCO claims that the lawsuits against it were based on the erroneous notion that ARCO had singled plaintiffs out for termination even before plaintiffs were transferred to Brass. ARCO concedes that plaintiffs were entitled to benefits from ARCO, but states ...

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