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.
Plaintiffs were told that to receive severance benefits,
they would have to execute releases in favor of Brass. The
releases said nothing about plaintiffs' rights, if any, with
respect to ARCO. After consulting with their attorney, Willard
M. Pottle, Jr., Esq. ("Pottle"), six of the plaintiffs (the
"Cefali plaintiffs") either refused to sign the releases or
signed them "under protest." Brass refused to accept the
releases signed under protest. The Cefali plaintiffs
consequently received no benefits. The other four plaintiffs,
Niles, Paa, Schabio and Siarkowski, (the "Niles plaintiffs")
signed the releases and did receive benefits. Subsequent to
these events, plaintiffs instituted a number of lawsuits in
state and federal court against defendants, which are outlined
B. HISTORY OF THE 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.
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.
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.
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
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
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.
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
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
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. § 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 ...