Participants fail to provide evidence to support demands for penalties and fees after notice violations

Although it was not disputed that participants in ERISA defined benefit (DB) and profit-sharing plans had failed to receive required notices from an employer, including a notice regarding the DB plan’s newly “frozen” status, the district court did not abuse its discretion when it awarded significantly lower penalties and attorney fees than requested by the participants, the U.S. Court of Appeals in St. Louis (CA-8) has ruled. The participants failed to produce sufficient evidence to support the damage award they sought.

Over a 25-year period, a husband and wife operated two businesses and served as trustees for three ERISA plans: two DB plans and a profit-sharing plan. During that period, the first DB plan was merged into the profit-sharing plan. Some years later, the second DB plan was created and then subsequently its benefit accruals were stopped, “freezing” the plan.

With the conviction for tax evasion of the owners’ attorney, it was revealed that multiple ERISA disclosure violations had occurred, including a failure to provide a notice to affected participants of the termination of benefit accruals in the second DB plan.

Twelve participants filed suit alleging ERISA violations. They requested $878 million in civil penalties, with each participant to receive an award ranging from $24 million to $160 million. They also requested nearly $700,000 in attorney’s fees and over $25,000 in costs.

The district court granted summary judgment to the participants on three counts alleging failure to inform and failure to provide notice. However, the judge recommended that participants who were entitled to penalties were entitled to amounts ranging from $100 to $5,000. The court awarded about $23,000 in attorney’s fees and $18,000 in costs.
The appellate court ruled the district court did not abuse its discretion when it awarded much lower penalties and fees than requested by the participants. The participants and their counsel simply failed to develop a record that would support the award of the requested penalty amounts.

Regarding the fee award, the district court reviewed the culpability of the defendants, the extent of the plaintiffs’ success on the merits, and the relative merits of the parties’ positions. The district court determined that the hourly rate for attorneys handling ERISA cases in the Eastern and Western Districts of Arkansas ranged between $165 and $275, not the $300 per hour the participants’ attorney requested.

Finally, regarding additional benefits under the plan that the participants claimed were due them, the appellate court rejected their contention that company owners had failed to provide the information necessary to calculate benefits due the participants. The record showed that the owners had provided sufficient information in the discovery process but that the participants’ counsel had failed to provide her ERISA experts with that information.

Source: McDowell v. Price, individually and as Trustee for Bud Price’s Excavating Service, Inc. Profit Sharing Plan (CA-8).

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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