Free Response - District Court of Arizona - Arizona

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Quarles & Brady Streich Lang LLP
Firm State Bar No. 00443100 Renaissance One Two North Central Avenue Phoenix, Arizona 85004-2391
TELEPHONE 602.229.5200

Attorneys for Plaintiffs Richard K. Walker (#004159) ([email protected]) Eric B. Johnson (#020512) ([email protected]) IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Plumbing and Air Conditioning Contractors of Central and Northern Arizona, et al., Plaintiffs, vs. Plumbing and Air Conditioning Contractors of Arizona, Tucson Area, et al., Defendants. Norm Record, Sr., Nancy Record, Norm Record, Jr., George Michels and Michael L. Collins, Counterclaim Plaintiffs, vs. Steven Baker and William Crowe, Counterclaim Defendants. Pursuant to Local Rule 54.2, Plaintiffs Plumbing and Air Conditioning Contractors of Central and Northern Arizona, Steven Baker and William Crowe ("Plaintiffs"), hereby submit their Response in Opposition to Defendants Arizona Pipe Trades Health and Welfare Trust Fund and Arizona Pipe Trades Defined Contribution Trust Funds' ("Defendant Funds") Motion for Attorneys' Fees and Related Non-Taxable Expenses.
NO. CIV 03-1684-PHX-FJM RESPONSE IN OPPOSITION TO DEFENDANT TRUST FUNDS APPLICATION FOR ATTORNEYS' FEES

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1 DATED this 19th day of August, 2005. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 I. FACTUAL BACKGROUND In this lawsuit, Plaintiffs alleged four causes of action against Defendants Plumbing and Air Conditioning Contractors of Arizona--Tucson Area, Local Unions 469 and 741 of the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada, Norm Record, Sr., Nancy Record, Norm Record, Jr., George Michels, Michael Collins, Ray Carter and Wayne Bryant ("Defendants"). In particular, Plaintiffs alleged the following: Count 1 (Violation of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.); Count 2 (Violation of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 186(c)(5)); Count 3 (Violation of ERISA, 29 U.S.C. § 1001 et seq.); and Count 4 (Violation of Arizona Common Law of Trusts). Defendants/Counterclaimants also Though none of the QUARLES & BRADY STREICH LANG LLP Two North Central Avenue Phoenix, AZ 85004-2391 By s/Eric B. Johnson Richard K. Walker Eric B. Johnson Attorneys for Plaintiffs MEMORANDUM OF POINTS AND AUTHORITIES

asserted a counterclaim alleging a violation of ERISA.

aforementioned causes of actions were brought specifically against Defendant Funds, they had to be named as parties in order for the Court to provide the requested relief sought by Plaintiffs. Trial was held on May 10-12, 2005. Pursuant to the Court's Order filed May 31, 2005, judgment was granted in favor of Defendants on Plaintiffs' remaining claims and in favor of Plaintiffs/Counterdefendants on the counterclaim. In particular, the Court found

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that while Plaintiffs did not bring their claims in bad faith, there was not "substantial evidence" presented at trial to support their claims. Plaintiffs respectfully disagree with the Court's ruling and have filed a notice of appeal with the Ninth Circuit. In particular, Plaintiffs believe that they did present substantial evidence in support of their claims and a brief summary of some of the evidence Plaintiffs believe support their claims is attached as Exhibit A. As explained below, though Plaintiffs were unsuccessful on their claims, an award of attorneys' fees against the Plaintiffs is not proper in this case. II. ARGUMENT AND LAW. A. DEFENDANTS ARE NOT ENTITLED TO ATTORNEYS' FEES. 1. Because No Causes of Action Were Alleged Against Defendant Funds, the Application Should Be Denied.

As noted above, none of the causes of action in this lawsuit (nor even any wrongdoing) was alleged against the Defendant Funds in this action. The only reason the Funds were named as parties was because the relief requested by Plaintiffs arguably would not have been able to be effectuated if the Defendant Funds had not been parties to the litigation. Furthermore, had Plaintiffs failed to name the Trust Funds, their claims arguably would have been susceptible to dismissal for failure to join an indispensable party. In particular, Plaintiffs sought to reform the Trust Agreements governing the Defendant Funds to cure structural defects in the Agreements. Given the Trust Funds' clear interest in their governing documents and the fact that Plaintiffs sought, as an alternative form of relief, to have the Trust Funds split, it was regrettable, but necessary, that they be joined as parties. Despite the fact that none of the Plaintiffs' claims were asserted against the Defendant Funds, they contend that they prevailed on the three claims supposedly lodged against them (Counts 1, 2 and 4) and that they are therefore entitled to attorney's fees.

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None of these claims, however, asserted any wrongdoing on the part of the Defendant Funds. Indeed, the Plaintiffs' primary purpose of the lawsuit was to benefit the Defendant Funds by getting the Trust Agreements reformed and thereby removing any doubt as to the Trust Funds' legality, and by obtaining injunctive and legal remedies that would have benefited only the Trust Funds for what the Plaintiffs believed to be breaches of fiduciary duty by the Tucson Trustees in failing to pursue delinquent Tucson contractors diligently. Thus, the Defendant Funds could just as easily have been named as plaintiffs (as opposed to defendants) in this lawsuit and would have clearly benefited from a result favorable to Plaintiffs on any one or all of their claims. Certainly , had Plaintiffs prevailed on all their claims in this lawsuit, there would have been absolutely no basis on which they could have sought fees from the Defendant Funds, as the outcome of the litigation did not depend upon any determination involving any action (or inaction) by the Defendant Funds themselves. Indeed, counsel representing the Trust Funds were repeatedly at pains to inform the Court that the only issue they wished to address in the litigation was the question of whether the alternative relief sought by Plaintiffs of splitting the Funds would be appropriate. See, e.g.,Tr. at 78, ll. 15-20; Response of Defendants Arizona Pipe Trades Health and Welfare Trust Fund and Arizona Pipe Trades Defined Contribution Trust Fund To Plaintiffs' Motion for Partial Summary Judgment (Dkt. No. 124). This being the case, it is difficult to see how the Trust Funds can legitimately contend that they are entitled to an award of fees as a prevailing party. Given the Trust Funds' narrowly circumscribed role, the necessity for an astonishing total of 1,050 hours of attorney time to be invested on behalf of the Trust Funds at a cost of over $229,000 is, any event, anything but obvious. It is clear that the Trust Funds have sought to recover fees for work done in relation to claims that did not arise under ERISA and for time that was excessive or charged unnecessarily to this case.

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It is also apparent that the rate charged by one of the Trust Funds' counsel cannot be justified. 2. Even If the Defendant Funds Could Legitimately Claim a Right to Seek Fees, the Hummell Factors Weigh In Favor of Plaintiffs and Compel Denial of the Trust Funds' Petition.

Even assuming arguendo that the Defendant Trust Funds were in a position to seek fees pursuant to 29 U.S.C. § 1132(g)(1), their petition for fees and nontaxable costs must be denied in its entirety for the same reasons set forth in Plaintiffs' Response to the fee and costs application of Defendants Plumbing and Air Conditioning Contractors of Arizona--Tucson Area, Local Unions 469 and 741 of the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada, Norm Record, Sr., Nancy Record, Norm Record, Jr., George Michels, Michael Collins, Ray Carter and Wayne Bryant. In this regard, Plaintiffs hereby

incorporate by reference the arguments set forth at pages 3 to 9 of their Response In Opposition to Defendants' Application For Attorney's Fees, explaining why, under the prevailing law of the Ninth Circuit, fees and nontaxable costs cannot properly be awarded against the Plaintiffs in the circumstances of this case. It is notable that Defendant Funds do not even attempt to explain how they satisfy the factors as set forth in Hummell v. S.E. Rykoff & Co., 634 F.2d 446, 453 (9th Cir. 1980) for an award of attorneys' fees pursuant to 29 U.S.C. § 1132(g)(1), contenting themselves with simply declaring that such factors have been satisfied. Such self-serving statements, however, do not establish a valid basis for an award of attorney's fees. For the same reasons as set forth in Plaintiffs' Response In Opposition to Defendants' Application, the Hummell factors undeniably weigh against any award of Defendant Trust Funds' fees and nontaxable costs. These include: (1) the fact that there has been no showing of bad faith on the part of the Plaintiffs and their claims were not frivolous; (2) the fact that an award of substantial fees would create a crushing financial burden on these

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Plaintiffs and, in the case of the individual Plaintiff Trustees, on their families [See, Affidavits of Steven Baker and William Crowe, Exhibit B, ¶¶ 4-6, 10 and Exhibit C, ¶¶ 26, 11, respectively.];1 (3) the fact that an award of fees here would tend to deter future fiduciaries from vigorously carrying out the mandate of Congress set forth in ERISA §405(a)(1) and (a)(3), 29 U.S.C. §1105(a)(1) and (a)(3) to take action against breaches by co-fiduciaries of their fiduciary duty or to take action to rectify defects in their plans; and (4) the fact that the Plaintiffs brought their action seeking to advance the interests of the Trust Funds and their participants and beneficiaries. [See, Exhibit B, ¶ 7; Exhibit C, ¶ 7.] Individually and cumulatively, these are compelling reasons to deny the Trust Funds' application for fees and nontaxable costs in its entirety. B. Even If An Award Of Fees Were Otherwise Appropriate, The Fees Sought By Defendant Trust Funds Are Excessive In Several Respects. 1. Defendant Funds Have Not Delineated the Alleged Fees Incurred for the Claims Asserted in the Litigation.

As with Defendants' application for fees and costs, the sole basis asserted for the Defendant Trust Funds' request for an award of fees is 29 U.S.C. § 1132(g)(1). As noted above and in Plaintiffs' Response In Opposition to Defendants' application, the prerequisites for a discretionary award of attorney's fees under this Section have not been met by Defendants or Defendant Funds. But even if an award of fees to Defendant Trust Funds could be justified, only one of the three claims that the Trust Funds claim (albeit incorrectly) were brought against them arose under ERISA. Despite this, the Trust Funds make no effort to delineate between work that was required to "defend" against that single ERISA claim and the other claims, as to which 29 U.S.C. §1132(g)(1) confers upon the

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In regard to ability to pay, it should be noted that the attorneys' fees of the Defendant Funds have already been paid by their insurance carrier. As such, placing unnecessary (and potentially devastating) financial burdens upon Plaintiffs is not supported or appropriate under Hummell.

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courts no authority to make fee awards. Indeed, the Defendant Trust Funds have not offered any statutory or other basis for seeking fees under Section 1132(g)(1) for claims not arising under ERISA, and they are therefore precluded from seeking fees on such claims. In the absence of clear evidence to the contrary, it must be presumed that they are entitled to recover, at most, no more than one third of the amount they seek. This reduces the Trust Funds maximum recoverable fees from $229,174.78 to $76,390.83. Review of the Defendant Trust Funds' task based billing records, submitted with their Memorandum In Support, it is clear that their counsel have not sought, in their descriptions of work performed, to make any differentiation between work on ERISA issues and work on issues relating to claims not sounding in ERISA. This is perhaps not surprising in light of the fact that none of Plaintiffs' claims were brought against, or sought any relief from, the Defendant Trust Funds. 2. The Defendant Funds Have Not Itemized Their Time Entries.

Local Rule 54.2 provides that the itemized statement of billing submitted with a fee application must "describe the services rendered so that the reasonableness of the charge can be evaluated . . . If the time descriptions are incomplete or, or if such descriptions fail to adequately describe the service rendered, the court may reduce the award accordingly." Local Rule 54.2(e)(2). While the time records submitted by the Defendant Trust Funds do provide taskbased itemization on some days, numerous time records contain several descriptions of multiple tasks in a single time entry. This "lumping" of time makes it impossible for the Court to determine how much time was spent on each task and whether the time spent was reasonable under the circumstances. Accordingly, the failure of Trust Funds counsel to record much of their time in such a way as to permit the itemized review contemplated by the Local Rule 54.2(e)(2) renders fees for all such time unrecoverable. Local Rule 54.2 also provides various examples for proper time entries describing

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services rendered, including entries involving telephone conferences, legal research, preparation of pleadings and other papers and travel time. As set forth in Exhibits D and E, because numerous time entries submitted by the Defendant Trust Funds do not comply with the Rule as they contain multiple entries, fail to identify the parties (and/or subject matter) of telephone or other conferences and fail to accurately describe any legal work performed (in order for Plaintiffs to even be able to challenge the propriety of such work), such entries must be disallowed.2 The lack of compliance with Local Rule 54.2 by itself warrants a reduction of fees in the amount of $39,220. [See, Exhibits D and E and fn 2, supra.] 3. The Rates Sought by the Grimwood Law Firm Are Excessive.

As noted in Defendant Funds' fee application, the firm of Jennings, Strouss & Salmon, P.L.C. ("Jennings Strouss") billed Defendant Funds between $150-$180 per hour for work performed by attorneys and between $135-$140 per hour for work performed by paralegals. The Grimwood Law Firm ("Grimwood Firm") restricted billing to the

Defendant Funds to two partners at the rate of $235 per hour. As a preliminary matter, as explained in Plaintiffs' Memorandum In Response to Defendants' Fee Application, based upon the reputation and experience of Mr. Overholt (and, by virtue of his experience in handling ERISA work in Arizona, his presumed knowledge of the market for such services in this area), the rates charged by him and his firm provide a very good benchmark for a reasonable market rate for similar services in the Phoenix metropolitan area. Indeed, as explained in Balcor Real Estate Holdings, Inc. v. Walentas-Phoenix Corp., 73 F.3d 150, 153 (7th Cir. 1996):
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A summary of non-itemized fee entries is not provided for the law firm of Ward, Keenen & Barrett, P.C., as virtually every time entry is deficient. The entries do not identify the subject matter of the fees (other than alleging that they concern "lawsuit"). Because such entries are deficient, Plaintiffs seek to have all entries submitted by Ward, Keenen & Barrett for reimbursement ($11,565) rejected.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Courts award fees at the market rate, and the best evidence of the market value of legal services is what people pay for it. Indeed, this is not "evidence" about market value; it is market value. Although courts interpolate the word `reasonable' into clauses of this kind, the best guarantee of reasonableness is willingness to pay. Id. at 153. Because Mr. Overholt's extensive experience in providing services on ERISA matters in the Phoenix market, the rates charged by Jennings Strouss are entitled to a presumption that they reflect market forces bearing on this sort of work in this area, and Plaintiffs do not contest their reasonableness. The rates charged by the Grimwood Firm are, however, substantially higher (fully $55/hr. or over 31% higher than Mr. Overholt's rate), and the Trust Funds have offered nothing that would support a rate for Ms. Grimwood, in particular, that is higher than that charged by Mr. Overholt. According to the Declarations submitted by Mr. Overholt and Ms. Grimwood with their Memorandum In Support of the Trust Funds' fee petition, the differences in their respective careers would appear to justify, if anything, a rate for Mr. Overholt that would be higher than the rate that could be justified for Ms. Grimwood. Mr. Overholt has been in practice for 23 years and has practiced primarily "in the areas of pension/benefits, corporate, tax, labor, and construction law, including representing of trustees of TaftHartley employee benefit plans, including pension, annuity, health and welfare, vacation and apprenticeship trust funds." Overholt Dec. at ¶3(a), Exh. 4 to Defendants Arizona Pipe Trades Health & Welfare Trust Fund and Arizona Pipe Trades Defined Contribution Trust Fund's Memorandum of Points and Authorities In Support of Motion for Attorney's Fees and Related Non-Taxable Expenses Pursuant to Fed. R. Civ. P. 54(b) ("Trust Funds Mem. In Support"). While Ms. Grimwood, it seems, has been in practice for a couple of years longer than Mr. Overholt, she acknowledges that it has only been in the past five

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years that "my practice has emphasized employment and ERISA litigation, commercial litigation and accountants' liability." Grimwood Dec. at ¶4, Exh. 8 to Trust Funds Mem. In Support. And it is certainly the case that Mr. Overholt is better known in this market for his experience and expertise in the ERISA area than is Ms. Grimwood. [See, Affidavit of Richard K. Walker, attached hereto as Exhibit F.] At the most, therefore, a reasonable rate for Ms. Grimwood would be $180 per hour. This is especially true where the Defendant Funds were not active participants in the litigation (though counsel for Defendant Funds billed fees as if they were). In addition, every single task that was performed by the Grimwood Firm was charged by partners billing their time at the rate of $235 per hour. There is no viable explanation as to why every such task had to be performed by a partner level attorney, let alone at the rate of $235 per hour. As with every other litigation, a very substantial portion of the work done on all sides could have competently been done by associates at lower billing rates. If the Grimwood firm's fees are adjusted based upon a reasonable rate of $180 per hour, the maximum fees awarded based on their work should not exceed $62,964 (349.80 hours x $180). 4. The Hours Expended by Counsel for the Defendant Trust Funds Are Excessive.

As has been previously pointed out, the Defendant Trust Funds were named in this lawsuit solely in order to ensure that all the parties were before the Court who would be necessary for the Court to be able to grant the relief requested by Plaintiffs. In fact, the only real participation in this litigation by the Defendant Trust Funds was in connection with their position that the funds should not be split. Indeed, it should be recalled that the participation of counsel for the Trust Funds in this litigation was minimal until after the hearing on Plaintiffs' Application for Temporary Restraining Order, some 13 months after the lawsuit was commenced, because of an inability of a majority of Trustees to agree

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upon instructions to be given to the Trust Funds' counsel. See Motion of Jennings, Strouss & Salmon, P.L.C. to Withdraw a Attorneys of Record for Defendant Trust Funds (Dkt. No. 76); Motion of the Grimwood Law Firm, P.L.C. to Withdraw as Attorneys of Record for Defendant Trust Funds (Dkt. No. 78). Nonetheless, Mr. Overholt billed over 60 hours in attending depositions in this case (some of which were in Tucson). [See, Exhibit G.] Even assuming that either of the Defendant Funds needed to be present for virtually aspect of the litigation, there is no justification as to why both Mr. Overholt and Ms. Grimwood had to each attend such depositions. At a minimum, only one attorney needed be present and there is no

explanation as why the Defendant Funds had to bill for travel time to depositions when they could have been attended telephonically (which was the case for at least some of the depositions). Ultimately, the time charged and properly recorded as required by Local Rule 54.2 by counsel for the Defendant Trust Funds for their work in relation to the issue of whether Plaintiffs' alternative form of relief of splitting the Funds was, at most, the amount of time they spent attending trial (or 47.5 hours based upon their combined time entries). If the Defendant Trust Funds had a viable claim for an award of fees at all, the total amount they could seek would be $8,550 (47.5 hours x $180). This amount would represent the maximum number of hours and fees that they should be able to recover . B. DEFENDANT TRUST FUNDS ARE NOT ENTITLED TO RECOVER THE NONTAXABLE COSTS THAT THEY HAVE REQUESTED.

Defendant Trust Funds seek reimbursement for costs in the total amount of $15,929.28. Neither of the firms that provided representation for the Trust Funds in this litigation have complied with the provisions of Local Rule 54.2(e)(3) in connection with their attempt to recover such costs. Pursuant to the Rule, "In a separate portion of the itemized statement, identify each related non-taxable expense with particularity. Counsel

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should attach copies of applicable invoices, receipts and/or disbursement instruments. Failure to itemize and verify costs may result in their disallowance by the Court." Local Rule 54.2(e)(3). For several of the costs requested by the Defendant Funds, nothing more than a general statement is made concerning the costs allegedly incurred. Some of the requests include such nonrecoverable items such as a "snack" purchased by Ms. Grimwood during the preparation of a witness. Beyond this, none of the amounts sought are recoverable, as the Defendant Trust Funds have failed to comply with the clear requirements of Local Rule 54.2(e)(3) by not providing copies of any applicable invoices, receipts and/or disbursement instruments. Accordingly, no portion of Defendant Trust Funds' alleged costs can properly be awarded. III. CONCLUSION. Based on the foregoing, Plaintiffs respectfully request that Defendant Funds motion for attorney's fees and costs be denied in its entirety. In the event that the Court determines that it can justify some award to the Defendant Trust Funds, the maximum permitted would be one-third of the requested fees, or $76,390.93. This amount would then have to be reduced by $39,220, the amount billed by Defendant Funds in a nonitemized format, leaving a total of $37,110. Further excessive fees, such as for those duplicating tasks (i.e., having counsel for both funds attend depositions and other matters) would then have to be reduced, along with the excessive rate charged by the Grimwood law firm. As such, even if any fees could be awarded, the amount of fees would

necessarily have to be minimal. .... .... .....

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 By s/Eric B. Johnson Richard K. Walker Eric B. Johnson Attorneys for Plaintiffs CERTIFICATE OF SERVICE
XX__ I hereby certify that on the 19th day of August, 2005, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing for the following CM/ECF registrants:

DATED this 19th day of August, 2005. QUARLES & BRADY STREICH LANG LLP Two North Central Avenue Phoenix, AZ 85004-2391

Michael J. Farrell ([email protected] Helen Grimwood ([email protected] Newton Grimwood ([email protected]) David J. Ouimette ([email protected]) Keith F. Overholt ([email protected]) A copy of this document was provided to by United States mail to: Hon. Frederick J. Martone United States District Court Sandra Day O'Connor U.S. Courthouse, Suite 526 401 West Washington Street, SPC 62 Phoenix, Arizona 85003-2158
XX I hereby certify that on the 19th day of August, 2005, I served the attached document by United States mail on the following, who are not registered participants of the CM/ECF System:

Tom J. Hagen 1 E.Camelback Road, #550 Phoenix, AZ 85012 Charles W. Gilligan, Esquire John M. McIntire, Esquire O'Donoghue & O'Donoghue, LLP 4748 Wisconsin Avenue, NW Washington, DC 20016

By s/Brenda St. Clair Brenda St. Clair

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