Court Opinion

ID: 2996805
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:31:33.433948+00
Date Added: 2024-06-11T12:38:15.261504
License: Public Domain

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 man-
aging 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 employ-
ment 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 dis-
covery 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 enti-
tled 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 de-
fendants’ 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 ex-
cused 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 consider-
able 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 pro-
vision 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 subsid-
iary). 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 pro-
vision 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 cor-
porations 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[.]” Further-
more, 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 proce-
dures.
  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 inter-
nal 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 deci-
sion. 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, posi-
tions calcify.
   Given the elaborate exhaustion requirements in the sev-
erance 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 bene-
fits. 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 administra-
tive 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 reme-
dies.
  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 defen-
dants 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 par-
ticipated 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 under-
standing.” 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 “sub-
stantially 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 vigor-
ously 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 circum-
stance 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 lit-
tle—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 plain-
tiff’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 re-
quest 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 submis-
sions self-serving and “precipitously close to being insuffi-
cient.” The defendants were saved on this issue by state-
ments 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