Court Opinion

ID: 2998803
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:47:22.646056+00
Date Added: 2024-06-11T11:25:19.403847
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                       ____________

No. 04-4169
GARY L. BENDER and RENEE BENDER,
                                         Plaintiffs-Appellees,
                             v.

GRETCHEN M. FREED,
                                         Defendant-Appellee,
                            and

BERGQUIST COMPANY EMPLOYEE HEALTH PLAN,
                                               Defendant,
                          Third/Party Plaintiff-Appellant,
                             v.

PHILLIP TODRYK and TODRYK LAW OFFICE,
                       Third/Party Defendants-Appellees.
                       ____________
         Appeal from the United States District Court
            for the Western District of Wisconsin.
           No. 04 C 10—John C. Shabaz, Judge.
                       ____________
    ARGUED JUNE 7, 2005—DECIDED FEBRUARY 2, 2006
                    ____________

 Before EASTERBROOK, KANNE, and SYKES, Circuit Judges.
2                                              No. 04-4169

  SYKES, Circuit Judge. The Bergquist Company Health
Plan prevailed on an ERISA-based reimbursement claim in
the district court and sought attorneys’ fees pursuant
to ERISA, 29 U.S.C. § 1132(g), and also under 28 U.S.C.
§ 1927, which permits the district court to award attorneys’
fees as a sanction against an attorney who “multiplies the
proceedings in any case unreasonably and vexatiously.” The
district court denied the request for fees, holding that the
ERISA fees motion was untimely and the alleged vexatious
conduct by counsel predated the present litigation and
therefore was not covered by § 1927. We affirm.

                     I. Background
  Plaintiff Gary Bender’s health insurance was provided
through the Bergquist Company Health Plan (“the Plan”),
an employee welfare benefit plan for purposes of ERISA, 29
U.S.C. § 1002(1). In December 2002 Bender was in-
jured when his car collided with a vehicle driven by defen-
dant Gretchen Freed. The Plan paid some $23,000 for
Bender’s medical expenses related to the accident; under
the terms of the plan, it retained a subrogated interest
in any damages Bender might later recover.
  Believing the accident was Freed’s fault, Bender retained
an attorney, third-party defendant Phillip Todryk, who
presented a claim to Freed’s liability insurer. Prior to
any litigation, Freed’s insurance company settled Bender’s
claim for its policy limit of $50,000. Bender and Todryk
apparently divvied up the money and did not inform the
Plan that Freed’s insurer had paid a settlement.
  In November 2003 Bender and his wife, represented by
Attorney Todryk, commenced the present action against
Freed and the Plan in Wisconsin state court. The complaint
sought additional damages against Freed and a declaration
that the Plan was not entitled to reimbursement for the
payments it made for Bender’s medical treatment. The Plan
No. 04-4169                                                  3

removed the case to federal court under the auspices of
ERISA, counterclaimed for reimbursement of the medical
payments, and added Todryk to the case as a third-party
defendant on the theory that he was in possession of a
portion of the $50,000 already received in the settlement
with Freed’s insurer.
  The Plan moved for summary judgment on its counter-
claim for reimbursement and requested attorneys’ fees
pursuant to 29 U.S.C. § 1132(g), which authorizes the court
to award fees, in its discretion, to the prevailing party in an
ERISA action. The court granted summary judgment to the
Plan on the reimbursement claim but declined to award fees
because the Plan “failed to demonstrate why it is entitled to
attorneys’ fees.” The Benders then settled with Freed for
$65,000, ending the substantive portion of the case.
  Final judgment was entered in favor of the Plan on its
reimbursement claim on August 24, 2004. Thirty-four days
later, on September 27, 2004, the Plan filed a second motion
seeking attorneys’ fees from Bender and Todryk under
§ 1132(g) and added a claim for fees against Todryk pursu-
ant to 28 U.S.C. § 1927, which authorizes the district court
to award attorneys’ fees as a sanction against an attorney
who unreasonably and vexatiously multiplies the proceed-
ings before it.
  The district court denied the Plan’s motion for fees. With
respect to the 29 U.S.C. § 1132(g) claim, the court held that
the motion was untimely under FED. R. CIV. P. 54(d)(2)(B),
which requires such motions to be filed within 14 days after
entry of judgment. The court also held that § 1927 did not
apply because the Plan’s allegations against Todryk related
solely to his prelitigation conduct in failing to inform the
Plan of the original $50,000 insurance settlement, not a
vexatious “multiplication” of federal court proceedings that
would be sanctionable under the statute.
4                                                No. 04-4169

                      II. Discussion
A. Applicability of Rule 54(d)(2)
  The Plan first claims that the district court erred in
applying the 14-day time limit of Rule 54(d)(2)(B) to its
claim for fees made pursuant to ERISA. The applicable
section of ERISA, 29 U.S.C. § 1132(g)(1), provides: “In any
action under this subchapter[,] . . . the court in its discre-
tion may allow a reasonable attorney’s fee and costs of
action to either party.” The pertinent text of FED. R. CIV. P.
54(d) provides:
    (2) Attorneys’ Fees
        (A) Claims for attorneys’ fees and related non-
        taxable expenses shall be made by motion unless
        the substantive law governing the action provides
        for the recovery of such fees as an element of dam-
        ages to be proved at trial.
        (B) Unless otherwise provided by statute or order of
        the court, the motion must be filed no later than 14
        days after entry of judgment . . . . (emphasis added)
  The Plan argues that Rule 54(d)(2) does not apply to
claims for attorneys’ fees made pursuant to ERISA because
the fee provision contained in § 1132(g) is part of the
“substantive law governing the action” rather than an
element of “costs.” This argument ignores certain qualifying
language in the rule as well as case law in this cir-
cuit holding Rule 54(d)(2) applicable to attorneys’ fees
motions in ERISA cases.
  Rule 54(d)(2) requires that claims for attorneys’ fees shall
be made by motion filed within 14 days after entry
of judgment unless (1) a statute or order of the court
provides a different deadline, or (2) the “substantive law
governing the action provides for the recovery of such fees
as an element of damages to be proved at trial.” Neither
exception applies here. The Plan has not identified any
No. 04-4169                                                 5

other applicable statutory or court-imposed deadline, nor
does it contend that attorneys’ fees under § 1132(g) are
an “element of damages to be proved at trial.” Arguing that
attorneys’ fees under ERISA are “substantive” and “not
costs” adds nothing to the analysis.1 Moreover, this
court has previously held that “an attorney’s fee award
under section 1132(g)(1) should be sought . . . by filing a
motion under Rule 54(d).” Bittner v. Sadoff & Rudoy Indus.,
728 F.2d 820, 828 (7th Cir. 1984). The Plan does not argue
that Bittner is distinguishable or should be revisited.
  The Plan’s fallback position is that even if the motion was
untimely under Rule 54, the district court should have
considered it anyway because “all parties were well
aware of the Plan’s intention to file a motion for attor-
neys’ fees long before the entry of judgment,” and that
discussions during a telephonic pretrial conference “left
no room for doubt that the Motion would be filed post-
judgment.” This is not a legal argument; it is an appeal to
fairness based upon an asserted absence of prejudice, but
without a corresponding claim that compliance with the
deadline imposed by Rule 54(d)(2) was impossible or
impracticable or that the Plan’s noncompliance was for
some reason excusable. We are not persuaded. The Plan
missed the deadline under Rule 54(d)(2) and offers no
reason for having done so. The fact that the parties
were “well aware” that the Plan intended to file a fees
motion at some indeterminate date in the future does not
excuse noncompliance with the applicable procedural rules.
The district court properly held that the Plan’s motion for
fees pursuant to § 1132(g) was untimely under Rule
54(d)(2).

1
  We note the Advisory Committee Notes for the 1993 amend-
ment that added subdivision (d)(2) to Rule 54 state, “This new
paragraph establishes a procedure for presenting claims for
attorneys’ fees, whether or not denominated as ‘costs.’ ”
6                                               No. 04-4169

B. Sanctions for Vexatious Litigation
  The Plan also sought an award of attorneys’ fees against
Todryk under the authority of 28 U.S.C. § 1927, which
provides that “[a]ny attorney . . . who so multiplies the
proceedings in any case unreasonably and vexatiously
may be required by the court to satisfy personally the
excess costs, expenses, and attorney’s fees reasonably
incurred because of such conduct.” This statute is inapplica-
ble here because the alleged “unreasonable and vexatious”
conduct by Todryk—namely, his failure to inform the Plan
about the original settlement from Freed’s
insurer—occurred well before this litigation was com-
menced.
  By its terms, § 1927 permits the district court to award
attorneys’ fees as a sanction against an attorney who
unreasonably and vexatiously “multiplies the proceedings in
any case.” It applies, therefore, to misconduct by
an attorney in the course of “proceedings” in a “case” before
the court, not misconduct that occurs before the case
appears on the federal court’s docket. That is, the statute
provides a discretionary sanction against attorneys who
abuse the judicial process, not those who engage in im-
proper conduct in the runup to litigation. “To be liable
under section 1927, counsel must have engaged in ‘serious
and studied disregard for the orderly process of justice.’ ”
Knorr Brake Corp. v. Harbil, Inc., 738 F.2d 223, 226 (7th
Cir. 1984) (quoting Overnight Transp. Co. v. Chi. Indus.
Tire Co., 697 F.2d 789, 795 (7th Cir. 1983) (in turn quoting
Kiefel v. Las Vegas Hacienda, Inc., 404 F.2d 1163, 1167 (7th
Cir. 1968), cert. denied, 395 U.S. 908 (1969))).
  The Plan argues that Trodyk’s conduct should be
sanctionable under § 1927 because it constituted a violation
of a professional duty imposed by the Rules of Professional
Conduct governing attorneys in Wisconsin. The Plan cites
Wisconsin Supreme Court Rule 20:1.15(d)(1), which re-
No. 04-4169                                                  7

quires an attorney who receives funds in which a client or
a third person has an interest to “promptly notify the client
or third person in writing” and to “promptly deliver to the
client or third person any funds . . . that the client or third
person is entitled to receive.” But § 1927 does not provide a
generalized substantive remedy for attorney misconduct
wherever and in whatever context it may occur. It provides
a remedy for bad faith misconduct by an attorney in the
pursuit of a case in court. See TCI Ltd. v. Needler & Assocs.,
Ltd., 769 F.2d 441, 445-46 (7th Cir. 1985). “The principle
underlying § 1927, Rule 11, and the bad faith exception to
the American Rule is that in a system requiring each party
to bear its own fees and costs, courts will ensure that each
party really does bear the costs and does not foist ex-
penses off on its adversaries.” Id. at 446.
  Here, the Plan’s claim against Todryk under § 1927 is
premised entirely on his failure to notify it of the
prelitigation insurance settlement. This conduct oc-
curred before litigation was commenced and did not
“multipl[y] the proceedings” in this case. The district court
correctly concluded that the fee-shifting sanction of § 1927
does not apply.
  The judgment of the district court is AFFIRMED.
8                                        No. 04-4169

A true Copy:
      Teste:

                   ________________________________
                   Clerk of the United States Court of
                     Appeals for the Seventh Circuit

               USCA-02-C-0072—2-2-06