The opinion of the court was delivered by: James C. Francis IV United States Magistrate Judge
Current and former participants in four employee benefit plans sued the plans' fiduciaries, among others, charging violations of the fiduciary provisions of the Employee Retirement Income Security Act ("ERISA"). The case was ultimately settled. The parties reserved for my decision the question of whether ERISA permits benefit plans to indemnify defendant fiduciaries for attorneys' fees in cases where the parties settle before the question of the fiduciaries' liability is judicially determined. Several of the defendants now seek an award of attorneys' fees. For reasons discussed below, I find that ERISA allows indemnification in this case, and I award fees and costs to those defendants who have submitted applications to the Court.
On March 19, 2001, participants in four union benefit funds operated jointly by the International Brotherhood of Teamsters (the "IBT") Local 815 and the Allied Trades Council (the "ATC") sued the officers of the ATC, the trustees of the benefit plans, and companies acting as third-party administrators. See Bona v. Barasch, No. 01 Civ 2289, 2003 WL 1395932, at *1, *15 (S.D.N.Y. March 20, 2003). According to the plaintiffs, the defendants manipulated the third-party administrators' services contracts in order to enrich themselves.
In addition to the ATC officers, the specific defendants in the underlying action included the trustees of the Union Mutual Fund Pension Plan (the "UMF"); the trustees of the Allied Welfare Fund (the "AWF"); the trustees of the Vacation Fringe Benefit Fund (the "VFBF"); the trustees of the Union Mutual Medical Fund (the "UMM"); Financial Administrators, Inc. ("Financial"), the third-party administrator of the UMF; Churchill Administrators, Inc. ("Churchill"), the third-party administrator of the AWF, the VFBF, and the UMM; George Barasch, a founder of both IBT Local 815 and the ATC; his daughter and son-in-law, Linda Barasch Glazer and Richard Glazer, who were principal officers of Financial; Mr. George Barasch's son, Stephen Barasch, who was the principal officer of Churchill.
The plaintiffs are individuals who had been members of the ATC when the litigation began (the "ATC plaintiffs"), and George Miranda. Mr. Miranda is a trustee of the UMF, the AWF, and the VFBF, the only trustee of those plans named as a plaintiff instead of as a defendant in the suit.
The plaintiffs charged all of defendants with violating the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the fiduciary provisions of ERISA. They further charged the ATC officers with violating section 501(a) of the Labor-Management Reporting and Disclosure Act (the "LMRDA") by, among other things, accepting gifts from Barasch-controlled entities in exchange for payments of union money to a Barasch foundation and business. Mr. Miranda joined in the ERISA claims only. (Second Amended Verified Complaint, ¶¶ 57-91, attached as Exhibit B to Declaration of Steven
C. Russo dated Sept. 12, 2005 ("Russo Decl.")).
Chief Judge Michael B. Mukasey presided over litigation of the substantive claims. On March 20, 2003, Judge Mukasey held that the plaintiffs had standing to seek monetary damages under ERISA on behalf of the funds but, not on behalf of themselves, dismissed the RICO claims, and dismissed the claims against the Union Mutual Medical Fund. Bono v. Barasch, 2003 WL 1395932 at *9-12, *13-14, *23-24. In three subsequent decisions, Judge Mukasey denied the plaintiffs' motion for partial summary judgment, denied class certification to the ATC plaintiffs, and dismissed the LMRDA claim on standing grounds because the ATC plaintiffs did not maintain their memberships in ATC throughout the pendency of the action.*fn1 On October 5, 2005, after the parties reached settlement, Judge Mukasey dismissed the remaining claims.*fn2
There are three distinct settlement agreements in this case. On December 14, 2004, Mr. Miranda entered into an agreement with the trustees of the UMF ("UMF Agreement," attached as Exh. E to Declaration of George Miranda dated Oct. 21, 2005 ("Miranda Decl.")), and on December 23, 2004 he entered and into a separate agreement with Financial and the principals of Financial. ("Financial Agreement," attached as Exh. F to Miranda Decl.). On April 19, 2005, Mr. Miranda, together with the ATC plaintiffs, entered into the third agreement with trustees of the AWF and the VFBF (together, the "Benefit Funds") and Churchill and Stephen Barasch (the "Benefit Funds Agreement"). (Settlement Agreement attached as Exh. G to Miranda Decl.).
All three agreements expressly state that the defendants deny any liability, breach of fiduciary duty, or wrongful conduct. (UMF Agreement at 2; Financial Agreement at 2; Benefit Funds Agreement at 2-3). The agreements require all of the defendants to immediately terminate their relationships with the funds, and require the Barasches and their companies to forego administrative contracts with the funds forever. (UMF Agreement, ¶¶ 4, 5; Financial Agreement, ¶¶ 2, 4-5; Benefit Funds Agreement, ¶¶ 2, 4).
Two of the agreements reserve for the Court the determination of attorneys' fees and legal costs. In provisions that are nearly identical in the UMF Agreement and the Benefit Funds Agreement the parties state that the Court "will make a determination on the propriety, under ERISA, of [the plans] reimbursing the [defendants] for the legal fees and disbursements that they incurred in defending against this Action." (UMF Agreement, ¶ 6; Benefit Funds Agreement, ¶ 10 (a)).*fn3 The parties also agree that no one will be deemed a "prevailing party" as that term is used in ERISA or other statutes governing the award of attorneys' fees. (UMF Agreement, ¶ 1; Benefit Funds Agreement, ¶ 9). The Benefit Funds Agreement provides that the Churchill defendants "shall not seek more than $125,000 in legal fees." (Benefit Funds Agreement, ¶ 10(a)).
Pursuant to the agreements, the AWF and VFBF trustees, who are represented by Proskauer Rose LLP, have submitted an application for indemnification by the AWF and the VFBF for legal fees and costs of $125,426.99. The Churchill defendants, who are represented by Sive, Paget, Riesel, P.C., seek indemnification by the AWF and the VFBF for $125,000. And the UMF trustees, who are represented by Epstein Becker Green, P.C., have submitted a memorandum of law arguing in favor of an award but have not included a request for a specific amount.
The defendants seek attorneys' fees on the basis of contractual indemnification rights created by the plans. The AWF and VFBF trustees point to clauses in the funds' trust agreements. Those clauses require the funds (1) to pay "all expenses deemed by the Trustees necessary or appropriate for the administration of the FUND[,]" including legal fees, and (2) to relieve the trustees of liability for "any loss, damage, or depreciation in connection with the performance of their duties hereunder or the exercise of their judgment or discretion hereunder, except the same be due to the willful conduct of such Trustee[.]" (Allied Welfare Fund Amended Trust Indenture dated Sept. 19, 1988 (the "AWF Trust Indenture"), attached as Exh. N to Affidavit of Katharine H. Parker dated Sept. 13, 2005 ...