In the

United States Court of Appeals

For the Seventh Circuit

____________

Nos. 02-3751, 02-4058, 03-1481 & 03-2655

F. JOHN STARK III,

Plaintiff-Appellant,

v.

PPM AMERICA, INC., PPM HOLDINGS, INC., and the

AMENDED AND RESTATED PPM HOLDINGS, INC. CHANGE

OF CONTROL SEVERANCE PLAN, PLAN NO. 503,

Defendants-Appellees.

____________

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 01 C 1494—William J. Hibbler, Judge.

____________

ARGUED OCTOBER 27, 2003—DECIDED JANUARY 9, 2004

____________

Before RIPPLE, DIANE P. WOOD, and EVANS, Circuit

Judges.

EVANS, Circuit Judge. F. John Stark III filed this suit

seeking a substantial award under a “change of control”

provision in a benefits plan governed by the Employee

Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.

§ 1001 et seq. He also sought what he sees as earned

compensation in the form of a bonus. The district court

granted summary judgment for the defendants and gave

them a sizeable attorney fees award of $261,529. Stark

appeals.
2 Nos. 02-3751, 02-4058, 03-1481 & 03-2655

Stark began working for PPM America, Inc. (PPMA) in

1990 as vice-president and counsel. PPMA is part of an

umbrella of multinational and diversified entities organized

under the British holding company Prudential plc. PPM

Holdings (PPMH) is the direct parent of PPMA and the

sponsor of the ERISA plan at issue.

While at PPMA, Stark had the responsibility for managing the portfolio of Jackson National Life Insurance

Company, an affiliate of PPMA and Prudential’s United

States insurance company. In January 2000, PPMA hired

Lori Seegers as its general counsel and shifted Stark to the

position of general counsel for PPMA’s special investments.

Throughout his time at PPMA, Stark reported to Russell

Swanson, who was PPMA’s president until November 2000,

when Leandra Knes became president.

On December 5, 2000, Seegers and Knes met with Stark

to tell him he had lost their trust and was being relieved of

his job responsibilities. Knes presented Stark with a draft

of a separation agreement which provided that his employment would continue until June 30, 2001, that he would be

paid his base salary of $307,000 per year, and after his

departure he would receive a lump sum payment of

$500,000 but no bonuses for the years 2000 and 2001. Two

weeks later, the offer was withdrawn because of the discovery of alleged misconduct by Stark. On January 5, 2001,

Stark notified Knes that he believed his employment with

PPMA had been constructively terminated.

Stark retained attorneys who negotiated with PPMA,

but his demands were not met. Rather than proceeding

through the administrative process for filing a claim, Stark

filed this action in the United States District Court for the

Northern District of Illinois, contending that he was entitled to severance pay and a bonus under the PPMH change

of control severance plan. He says his failure to exhaust his

administrative remedies must be excused because it would

have been futile to go that route.
Nos. 02-3751, 02-4058, 03-1481 & 03-2655 3

The district court denied Stark’s motion for summary

judgment in which he argued that exhaustion would be

futile. In the same order, the district court granted the defendants’ motion for summary judgment, finding that there

was no basis for severance pay or a bonus. Following that

order, Stark filed a motion for clarification in which he, as

defendants put it, “proposed an absurdity.” He argued that

the district court was powerless to reach the merits on his

claim because he had failed to exhaust his administrative

remedies. He asked the judge to send the case back to the

plan administrator for the exhaustion of administrative

remedies. Confronted with this about-face, the judge then

issued an order saying that the failure to exhaust was excused because “the record clearly establishes that plaintiff

cannot prevail on his benefits claim.” We review the district

court’s grant of summary judgment de novo. See Thiele v.

Norfolk & W. Ry. Co., 68 F.3d 179, 181 (7th Cir. 1995).

At the outset, we mention briefly that there is considerable doubt whether the change of control severance plan

is applicable in the circumstances before us. It is, as the

name implies, only applicable if there is, in fact, a change

in control of the employer-company. Stark relies on a provision in the plan which says that a change of control occurs

if the ultimate parent (in this case Prudential plc) sells 50

percent of the stock or assets of an employer (i.e., a subsidiary). In December 1999, Prudential plc restructured its

subsidiaries. Before the restructuring, PPMH was a wholly

owned subsidiary of Prudential Portfolio Managers Ltd.

(PPML). In 1999, PPML transferred its stock in PPMH to

Prudential plc, which then transferred the shares down to

other existing Prudential plc entities: Prudential One

Limited, Prudential Two Limited, and Prudential Three

Limited. Then PPMH shares were transferred to Holborn

Delaware Partnership, in which Prudential One, Prudential

Two, and Prudential Three were partners. Finally, on
4 Nos. 02-3751, 02-4058, 03-1481 & 03-2655

March 31, 2000, PPMH shares were transferred to Brooke

Holdings, Inc. which wholly owns Holborn Delaware. Stark

contends that these transfers constitute a change of control

as set out in the plan.

Stark recognizes that an exclusion to the pertinent provision of the plan says there is no change of control under

these circumstances if the ultimate parent retains direct

control of the business. However, using the definitions in

the plan, which may arguably contemplate ownership by

corporations only, Stark contends that, for purposes of

the plan, the exclusion does not apply because the chain

of control was broken when partnerships rather than corporations entered the ownership chain. We are skeptical

about this argument, but we will assume the plan applies

and proceed to the more basic issue of exhaustion of

administrative remedies.

Despite the fact that the change of control severance plan

is very clear that exhaustion is required, Stark failed to

proceed through administrative process. Appendix B to the

plan, titled “Administration,” sets out the procedures for

handling claims. Paragraph 2 provides for a committee

which has the power “to compute or cause to be computed

the amount of benefits which shall be payable to any person

in accordance with the provisions of the Plan[.]” Furthermore, under paragraph 4, the committee has the “sole

discretion” to determine, among other things, eligibility for

benefits under the plan. However, this section also says

that the decisions of the committee “shall not be entitled to

any presumptive validity and, in the event of any dispute

between any Employer and a Participant, be subject to de

novo review by a court.” Although a participant can receive

de novo review of a committee decision in court, there are

some steps he must take first. Paragraph 14 states clearly

that the claimant must submit a claim for benefits to the

plan administrator. Paragraph 15 provides for the review

by the committee of the plan administrator’s denial of a
Nos. 02-3751, 02-4058, 03-1481 & 03-2655 5

claim. Prior to taking those steps, the participant “shall

have no right to seek review of a denial of benefits, or to

bring any action in any court to enforce a Claim, prior to his

filing a Claim and exhausting his rights to review . . . .” If

the claimant does not request review by the committee, he

“shall have no right to obtain such a review or to bring an

action in any court and the denial of the Claim shall become

final and binding on all Persons for all purposes.” Although

the plan requires exhaustion prior to filing a lawsuit, it also

provides for de novo review in court. The claimant has

nothing to lose and everything to gain by using the procedures.

Exhaustion of plan remedies is favored because “the

plan’s own review process may resolve a certain number of

disputes; the facts and the administrator’s interpretation of

the plan may be clarified for the purposes of subsequent

judicial review; and an exhaustion requirement encourages

private resolution of internal employment disputes.” Ames

v. American Nat’l Can Co., 170 F.3d 751, 756 (7th Cir.

1999). However, it is also true that we have recognized

two circumstances in which a failure to exhaust may be

excused. One is if there is a lack of meaningful access to

review procedures, and the other applies if pursuing internal remedies would be futile. Robyns v. Reliance Standard

Life Ins. Co., 130 F.3d 1231 (7th Cir. 1997). The decision to

require exhaustion before a plaintiff may proceed with a

federal lawsuit is a matter within the discretion of the trial

court. We will disturb a district court’s decision “only when

there has been a clear abuse of discretion.” Powell v.

A.T.&T. Communications, Inc., 938 F.2d 823, 825 (7th Cir.

1991).

Stark claims that pursuing the internal remedies would

be futile in his situation because the person who terminated

him, Knes, would have participated in the ultimate decision. He also points out that the settlement negotiations

were unsuccessful and the defendants have taken the
6 Nos. 02-3751, 02-4058, 03-1481 & 03-2655

position in this litigation that he is not entitled to benefits.

But if claimants were allowed to skip the administrative

procedure, it is hard to imagine that these factors would not

be present in almost all cases. Once battle is joined, positions calcify.

Given the elaborate exhaustion requirements in the severance plan and the rather complex provisions in the plan

regarding when a change of control occurs, we find this to

be a situation particularly well-suited for private resolution

of the dispute. There is no evidence that either the plan

administrator or the committee would have failed to fulfill

their duty to consider his claim. There also is no evidence

that Knes, in her capacity as a member of the committee,

would not have fairly considered Stark’s request for benefits. We noted in Ames how bizarre it would be to find that

a plan’s “price for prevailing on the exhaustion argument is

that it is estopped from urging the interpretation of the

plan that it believes is correct.” At 756. Put otherwise, when

a claimant ignores the administrative remedies and

proceeds directly to federal court, he cannot be allowed to

justify his choice by the fact that the plan defended itself in

the lawsuit. In short, we find no reason to waive the

exhaustion requirement. This is one of those rare cases in

which waiver of the exhaustion requirement was an abuse

of discretion. At this point, the proper remedy is dismissal

of the case. Stark cannot be allowed to skip the administrative procedure, cause the defendants to incur litigation

costs, and then, after losing, be allowed to exhaust his

remedies. We, therefore, affirm the district court’s judgment

dismissing the claim for severance benefits on the alternate

basis that Stark did not exhaust his administrative remedies.

Stark also argues that he is entitled to a bonus. He says

the plan mandated a bonus. But his failure to exhaust the

plan procedures precludes our consideration of this claim

under that theory. He also says that he has a claim under
Nos. 02-3751, 02-4058, 03-1481 & 03-2655 7

the Illinois Wage Payment and Collection Act (IWPCA). 820

ILCS 115/1 et seq. But he did not assert this claim in his

complaint, despite amending it twice. More importantly, the

IWPCA requires a right to compensation pursuant to an

employment contract or agreement. 820 ILCS 115/2. Stark

has no employment contract setting out the terms of his

bonus. He claims that past practice constitutes a contract.

However, like the plaintiff in Brines v. XTRA Corp., 304

F.3d 699 (7th Cir. 2002), what Stark is trying to do is to use

the employer’s practice “not to explicate a contract but to

create one.” At 703.

Stark also relies on a theory of promissory estoppel. He

says it was well-understood that a bonus was part of the

compensation package and, furthermore, he received his

full bonus or an almost full bonus every year. The defendants say that bonuses were discretionary, that other

employees who left PPMA for poor performance did not

receive a bonus, that Stark himself exercised discretion in

recommending bonuses for his subordinates, that he participated in discussions with senior management in which

the discretionary nature of bonuses was confirmed, and that

Stark told job applicants that there was no guaranteed

bonus. The undisputed facts show that bonuses, as the

name implies, were not guaranteed. In Brines, we compared

severance pay with bonuses and said that “[t]he normal

understanding of severance pay (when not provided for in

a written plan), as of bonuses, is that it is at the discretion

of the employer; there is nothing here to upset that understanding.” At 704. Neither is there anything in the case

before us to upset the normal understanding of a bonus.

Finally, Stark appeals the award of attorney fees to the

defendants. Under ERISA’s fee-shifting statute, 29 U.S.C.

§ 1132(g)(1), a district court may, in its discretion, “allow a

reasonable attorney’s fee and costs of action to either

party.” Under ERISA, “there is a ‘modest presumption’ in
8 Nos. 02-3751, 02-4058, 03-1481 & 03-2655

favor of awarding fees to the prevailing party, but that

presumption may be rebutted.” Senese v. Chicago Area I.B.

of T. Pension Fund, 237 F.3d 819, 826 (7th Cir. 2001).

Although we have articulated two tests for analyzing the

propriety of a fee request, Quinn v. Blue Cross and Blue

Shield Ass’n, 161 F.3d 472, 478 (7th Cir. 1998), both

formulas essentially ask the same question, i.e., “was the

losing party’s position substantially justified and taken in

good faith, or was that party simply out to harass its

opponent?” Bowerman v. Wal-Mart Stores, Inc., 226 F.3d

574, 593 (7th Cir. 2000) (citation omitted). In other words,

because ERISA’s remedial purpose is to protect, rather than

penalize participants who seek to enforce their statutory

rights, an award of fees to a successful defendant will be

denied “if the plaintiff’s position was both ‘substantially

justified’—meaning something more than nonfrivolous, but

something less than meritorious—and taken in good faith,

or if special circumstances make an award unjust.” Senese,

237 F.3d at 826.

The district judge awarded fees based on a number of

factors. He found that Stark made no effort to recover

benefits under the plan’s internal remedies. Furthermore,

he found that Stark was evasive—his theories kept shifting,

and he was unable at the time he claimed benefits to show

that a change of control under the plan occurred. The judge

also rejected Stark’s claims of poverty—i.e., the inability to

pay the fees. The judge’s conclusion was that Stark’s

pursuit of benefits was not substantially justified so an

award of attorney fees was proper.

In this case, the district judge did not abuse his discretion

when he concluded that Stark’s position was not “substantially justified.” He in fact made no attempt to exhaust

his plan remedies by following the claims procedures it

requires. Then, when the defendants’ motion for summary

judgment was granted, Stark argued that the order should

be set aside so he could exhaust his plan remedies, certainly
Nos. 02-3751, 02-4058, 03-1481 & 03-2655 9

a strange request from one who proclaimed loudly that

exhaustion would be futile.

Then there is the issue of “which change of control.” It

took Stark a good deal of time to settle on a basis for his

claim for benefits. During the period from December 2000

to March 2001, he and his employer engaged in settlement

negotiations, but during that period, Stark did not request

benefits based on a change of control as defined in the plan.

When his lawsuit was filed in March 2001, he still had not

identified a specific change of control which would trigger

benefits. At one point, he relied on a proposed merger of

Prudential and American General Corporation. This merger

did not happen, and Stark changed his theory. He looked

back 2 years to settle on the restructuring of the Prudential

companies we discussed earlier as a basis for his claim.

Nor was it an abuse of discretion to conclude that Stark

was able to pay a fee award, even though he argued vigorously that he was not. He argued the point, but he did not

submit documentation such as tax returns, W-2 statements,

or bank statements which would have supported his

argument. Regarding Stark’s ability to pay, certain facts

can be gleaned from the record. His annual salary at PPMA

was over $300,000 per year; prior to 2000, he received

approximately two and a half times his salary as an annual

bonus. He remains an investor in several funds managed by

PPMA. In fact, in December 2000, he received a payment of

$711,000 on funds managed by PPMA. The district judge

was not way off base when he found that Stark failed to

establish that his financial situation was a special circumstance protecting him from an order to pay fees.

Which brings us to the amount of the fee award. The

defendants requested a total of $493,470 in attorney fees.

They were awarded $261,529. The issue before us is

whether the award was reasonable. Stark, of course, thinks
10 Nos. 02-3751, 02-4058, 03-1481 & 03-2655

it was too much; the defendants think it was too little—though they did not appeal the issue. We find that it

was reasonable.

As required, the district judge calculated the “lodestar”;

that is, the product of an attorney’s reasonable hourly rate

and the number of hours reasonably expended. See Hensley

v. Eckerhart, 461 U.S. 424 (1983); Mathur v. Bd. of Tr. of S.

Ill. Univ., 317 F.3d 738 (7th Cir. 2003). Hours spent are not

reasonably expended if they are excessive, redundant, or

otherwise unnecessary. Further, the hours claimed can be

reduced by the number of hours spent litigating claims on

which the party did not succeed to the extent they were

distinct from claims on which the party did succeed. Spegon

v. Catholic Bishop of Chicago, 175 F.3d 544 (7th Cir. 1999).

The district judge calculated the lodestar to include

the time the defendants’ attorneys spent on the issue after

Stark identified the change of control on which he was

relying. We see no reason this time should not have been

included. The judge also rejected a number of the plaintiff’s other objections, such as his objection to an award of

fees for drafting motions for attorney fees and the time

spent on post-judgment motions. Like the district judge, we

see no reason to exclude those hours. Stark also objected to

the request for travel time for out-of-town attorneys.

However, inclusion of that time was proper; travel time and

expenses are compensable. Maurice v. Kozel, 69 F.3d 830

(7th Cir. 1995). The district judge did, however, properly

reduce the defendants’ fee request by 20 percent for time

spent defending claims which were not ERISA claims.

Stark also contended in the district court that the fee request must be reduced to reflect the defendants’ level of

success. Ironically, he argues that the defendants did not

prevail on their exhaustion of remedies defense. Of course,

now they have. But that aside, the exhaustion of remedies
Nos. 02-3751, 02-4058, 03-1481 & 03-2655 11

defense was but one of the paths which could lead to the

defendants’ ultimate victory.

We also note that the district judge, on his own, reviewed

the request for fees with an eye toward eliminating hours

that were excessive, duplicative, or unnecessary. Because so

many entries on the fee request were particularly vague,

the judge reduced the hours by 30 percent, or 425 hours.

This review was accomplished without significant help from

Stark, and the district judge’s care should be commended.

Next is the issue of whether the hourly rate found by

the district judge is reasonable. An attorney’s market rate

is the rate that lawyers of similar ability and experience

in the community normally charge their paying clients

for the kind of work in question. People Who Care v.

Rockford Bd. Of Educ., Sch. Dist. No. 205, 90 F.3d 1307

(7th Cir. 1996). The burden of proving the market rate is on

the applicant. McNabola v. Chicago Transit Auth., 10 F.3d

501 (7th Cir. 1993); however, once the attorney provides

evidence of the market rate, the burden shifts to the

opposing party to show why a lower rate should be

awarded. In this case, the defendants presented affidavits

from attorneys in the law firms involved in this case

regarding their rates. The district judge found the submissions self-serving and “precipitously close to being insufficient.” The defendants were saved on this issue by statements by the defendant-companies that they paid their

attorneys in full for the services rendered and by Stark’s

failure to adequately contest the issue. We have previously

stated that the best evidence of the market value of legal

services is what people will pay for it. Balcor Real Estate

Holding, Inc. v. Walentas-Phoenix Corp., 73 F.3d 150 (7th

Cir. 1996). We cannot fault the district judge’s conclusion

that the rates were reasonable. We therefore find that the

district judge did not abuse his discretion in awarding

attorney fees and setting the amount at $261,529.

The judgment of the district court is AFFIRMED.
12 Nos. 02-3751, 02-4058, 03-1481 & 03-2655

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—1-9-04