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August 25, 1999


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


On January 14, 1998, an order was entered confirming the stipulation of settlement and dismissal of this action, but leaving the question of attorney's fees and costs to be determined. Items 26 and 28. The application for attorney's fees and costs arose out of a lawsuit which began on July 23, 1997, by plaintiff Peter G. Apple. Mr. Apple brought suit against his son, Steven L. Apple; his former wife, Mary L. Apple; Apple Rubber Products, Inc.; and Apple Rubber Products, Inc., Profit Sharing Plan ("the Plan"). In the action, Peter Apple sought relief from the defendants' refusal to grant his application for the distribution of his pension benefits from Principal Financial Group ("Principal"), the administrator of the Plan. On January 14, 1998, after six months of litigation, defendants agreed to permit Principal to turn over to Peter his pension benefits.

In order to understand how this lawsuit developed without detailing the complete litigation history, a brief note should be made of the relationships between the parties. Peter and Mary were the founders of Apple Rubber Products and were quite successful. They divorced in 1994 after almost 47 years of marriage. In the late 1980s and early 1990s, disputes arose about the management of the company among Peter, Steven, and Mary Apple. Litigation followed over Peter's removal as director and employee of the corporation and the transfer of Peter's shares to his son Steven. Peter filed lawsuits seeking to rescind the parties' former share-purchase agreement. Eventually, the parties agreed to settle. Peter is no longer a director, officer, or employee of the company, and control remains with Steven and Mary. However, Peter retains an interest in the pension plan administered by Principal, which became the subject of this action. Peter filed a suit for divorce, which was eventually settled by the filing of a decree for divorce and a matrimonial settlement agreement.*fn1

Article X of the separation agreement provides:

    As and for consideration of the Wife waiving her
  right to an equal division of the parties' profit
  sharing plans . . ., the Husband does agree to
  specifically name the Wife as a death beneficiary in
  connection with his profit sharing plan in the amount
  of two hundred fifty thousand dollars ($250,000)
  and/or name the Wife beneficiary in his Last Will and
  Testament in the sum of two hundred fifty thousand
  dollars ($250,000). Should the husband not make
  provisions as provided above for the benefit of the
  Wife in the amount of $250,000.00, then the Wife
  shall have a claim against the Husband's estate for
  the difference between the sum stated above and the
  actual amount provided by the Husband at the time of
  his death.

Item 28, Exh. I, p. 48 (emphasis added).


The basis for this lawsuit was the denial of Peter's application by Steven, the trustee of the plan, for approval of a cash distribution/rollover of the approximately $1,375,000.00 in his 401K Plan administered by Principal. Confusion arose as to whether he was seeking a rollover or a complete cash distribution of the fund. He made the claim on or about April 22, 1997, by sending an election form to Principal seeking a "Cash Distribution-Direct Rollover." Item 41, Exh. B. A copy of the form was not sent to Steven, and there is a dispute as to whether Apple Rubber received a copy. See Items 41 and 43. His claim was denied by a letter from Principal dated May 2, 1997. Principal advised Nelson Zakia, Esq., who was Peter's matrimonial attorney, that either Steven or Mary, trustees of the Plan, must sign off on the release of funds before there could be a transfer of funds to Peter's account. Item 28, Exh. B, and Item 41. On May 5, 1997, Mr. Zakia sent a copy of this letter to Peter Fiorella, Esq., Steven's matrimonial attorney. The letter indicated that Peter was seeking a rollover of his 401K plan. Item 41.

On May 15, 1997, Principal wrote to Apple Rubber, with a copy to Steven and Peter, stating that Peter Apple "wishes to receive a cash distribution of the funds allocated in his name. . . ." Item 32, Exh. C. Steven claims that he understood that this language meant that Peter was seeking a cash withdrawal of the fund. Principal said that it was its understanding that Apple Rubber was "unwilling to sign the PBC form authorizing the distribution to [Peter] Apple." Id. Principal also advised Apple Rubber and Steven that although it could not provide legal advice, it wanted to make Apple Rubber aware of E.R.I.S.A. and the Department of Labor Regulations, which address claim procedures which the trustee must follow when an application for withdrawal is made. Principal stated that the trustee must set forth specific reasons for denial with reference to plan provisions supporting the decision to deny. Item 28, Exh. C.

On June 9, 1997, Peter's counsel, Arthur A. Marrapese, Esq., of Damon & Morey, LLP, wrote to James Gresens, Esq., the attorney for Steven Apple, about Peter's application for a distribution of his 401K Plan. In this letter, he advised that "unless we hear from you or the Plan Administrator within 10 days of your receipt of this letter, we intend to file a lawsuit . . . for benefits due under the Plan." Item 28, Exh. D.

On June 23, 1997, Steven responded with a letter to Principal and a copy to Peter. At that time, Peter's matrimonial attorney, Mr. Fiorella, had been advised by Mr. Zakia's letter of May 5 that Peter was seeking a "rollover" of his account. Steven stated in his letter that as Trustee of the Plan, he "must deny Peter's request for a cash distribution," giving as a reason that his "[primary] . . . concern lies in the record of Peter Apple's own claims of mental impairment." Item 28, Exh. E. He stated that he was aware that Peter had suffered from a "diminished mental capacity" and "mental illness," and that he was "personally aware that Peter has made bizarre investment decisions in the past which have resulted in substantial loses [sic]." Id. Later, in making submissions in this case, he stated that in prior litigation, "he and his current attorneys aggressively and persistently alleged that Peter was mentally incompetent. . . ." Item 32, ¶ 12. He argued that he was afraid that a cash distribution would have serious tax ramifications for Peter.

In his letter in support of his reason for denial of Peter's application, Steven cited a portion of a letter written by one of Peter's doctors, David A. Gross, M.D., who diagnosed Peter as suffering from "bipolar mood disorder." Steven wrote:

  I am also on notice that one of Peter Apple's
  doctors, David A. Gross, M.D., has diagnosed Peter
  Apple as suffering from a "bipolar mood disorder."
  Dr. Gross has written the following concerning his
  patient, Peter Apple:
    Bipolar disorder (also know as manic-depressive
    illness) is characterized by severe changes in
    mood. These changes can lead to marked impairment
    of cognition, behavior and judgement. A person in a
    manic state can make very bad business decisions,
    lose control of behavior and at times become
    violent and irrational. Depressive episodes can be
    very severe, leading to total incapacitation,
    inability to function ...

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