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Bender v. Xcel Energy, Inc.: US District Court : FEES | ERISA - no plaintiff bad faith thinking what defendant's own people, counsel thought

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
James Bender, Roy R. Hewitt,
Craig Mataczynski, John Noer,
and David Peterson,
Plaintiffs,
MEMORANDUM OPINION
v. AND ORDER
Civil No. 04-3117 ADM/FLN
Xcel Energy, Inc., in its corporate
capacity and as plan sponsor and
administrator of the Xcel Energy,
Inc., Deferred Compensation Plan,
Defendant.
______________________________________________________________________________
M. William OBrien and Kelly A. Jeanetta, Miller OBrien Cummins, PLLP, Minneapolis, MN,
argued on behalf of Plaintiffs.
Timothy R. Thornton, Esq., Briggs & Morgan, P.A., and Daniel A. R. Shoemaker, Esq., Xcel
Energy, Inc., argued on behalf of Defendant.
______________________________________________________________________________
I. INTRODUCTION
On February 26, 2008, the undersigned United States District Judge heard oral argument
on Defendant Xcel Energy, Inc.s (Xcel) Motion For an Award of Attorneys Fees [Docket
No. 101]. For the reasons set forth below, Xcels Motion is denied.
II. BACKGROUND
The factual and procedural background of this matter is thoroughly set forth in the Eighth
Circuits opinion in Bender v. Xcel Energy, Inc., 507 F.3d 1161 (8th Cir. 2007), and in this
Courts May 17, 2006, Order (the Second Summary Judgment Order) [Docket No. 84]
granting Xcels Second Motion for Summary Judgment [Docket No. 57]. Therefore, an
abbreviated recitation of the facts is provided here.
2
Plaintiffs James Bender (Bender), Roy R. Hewitt (Hewitt), Craig Mataczynski
(Mataczynski), John Noer (Noer), and David Peterson (Peterson) (collectively referred to
as Plaintiffs) are former senior officers of NRG Energy Inc. (NRG). Prior to June 2000,
NRG was a wholly owned subsidiary of Northern States Power Company (NSP). All
Plaintiffs except Bender worked for NSP for several years before beginning employment at NRG
at various times between 1989 and 2000. Bender began his employment with NRG in 1994. In
June 2000, NSP spun off NRG in an initial public offering. NSP retained approximately
seventy-four percent of the outstanding shares of NRG. In August 2000, NSP merged with New
Century Energies, Inc., to form Xcel.
Following turmoil in the energy market in 2001 and 2002, NRG experienced severe
financial difficulties. In May 2002, Xcel bailed out NRG by purchasing the publicly held stock
and merging NRG with a wholly-owned Xcel subsidiary. In June 2002, NRG terminated
Plaintiffs employment. When Plaintiffs did not receive their severance benefits, they forced
NRG into involuntary bankruptcy. The proceeding was resolved when Plaintiffs agreed to
accept half their severance benefits. On November 24, 2003, a bankruptcy judge in a second
bankruptcy proceeding issued an order confirming NRGs bankruptcy plan under Chapter 11 of
the Bankruptcy Code. The confirmation order released Xcel from certain claims except for any
claims against Xcel . . . under the Employee Matters Agreement. Basting Aff. [Docket No. 24]
Ex. N at Ex. F. The Employee Matters Agreement provided that Xcel would maintain
responsibility for payment of certain amounts to NRG employees under the Xcel Nonqualified
Deferred Compensation Plan and the Xcel Nonqualified Pension Plan (collectively, the
NQRPs) that were legally allocable to Xcel because of an individuals prior service with Xcel
1 Judge Lebedoff retired from the bench in September 2005.
3
or NSP (such individuals are the NRG NQRP Participants). Sanford Aff. [Docket No. 25]
Ex. T.
Plaintiffs continued to pursue benefits from Xcel. In July 2004, after exhausting their
administrative remedies, Plaintiffs filed this action under the Employee Retirement Income
Security Act of 1974 (ERISA), 29 U.S.C. 1132(a) and 1140. Plaintiffs alleged that Xcel
denied benefits due to them under the NSP Deferred Compensation Plan (the Top Hat Plan)
and that Xcel interfered with Plaintiffs exercise of their ERISA rights. Bender and Mataczynski
also claimed Xcel owed them stock benefits under a separate severance plan. Plaintiffs alleged
that during the administrative appeals process, they requested that Xcel provide copies of
documents applicable to the Top Hat Plan. Compl. 29. Plaintiffs asserted that Xcel provided
copies of the following documents: (1) NSPs Deferred Compensation Plan, restated as amended
through January 1, 1992 (the 1992 Restatement); (2) NSPs Nonqualified Deferred
Compensation Plan, first effective January 1, 2000 (the 2000 Statement); and (3) Xcels
Nonqualified Deferred Compensation Plan, as restated effective January 1, 2002 (the 2002
Restatement). Compl. 30-31, Exs. A1-A2. The 2002 Restatement was dated January 6,
2003, after NRG had terminated Plaintiffs employment. Compl. Ex. A1. Plaintiffs attached
copies of the 1992 Restatement, the 2000 Statement, and the 2002 Restatement as Exhibits A1
and A2 to their Complaint. In its Answer, Xcel admitted that Exhibits A1 and A2 are copies of
the Plan documents. Answer [Docket No. 7] 21; Am. Answer [Docket No. 30] 21.
On November 15, 2004, Magistrate Judge Jonathan G. Lebedoff,1 issued a Pretrial
Scheduling Order [Docket No. 16] establishing November 1, 2005, as the deadline for discovery.
4
On January 18, 2005, more than nine months before the discovery deadline, Xcel filed its First
Motion for Summary Judgment [Docket No. 21]. The main issue raised by Xcels First Motion
for Summary Judgment was whether NRG or Xcel was responsible if any payments were owed
to Plaintiffs.
In support of its motion, Xcel submitted the affidavit of Kelly Sanford (Sanford),
Xcels director of compensation. Sanford explained that because some matters referenced in his
Affidavit predated his employment with Xcel, which began on March 11, 2002, his statements
were based on personal knowledge, reasonable inquiry, or review of documents. Sanford Aff.
1. Significantly, Sanford stated that the Top Hat Plan was established in 1980, and was revised
three times by the 1992 Restatement, the 2000 Statement, and the 2002 Restatement. Id. 11.
In opposing Xcels First Motion for Summary Judgment, Plaintiffs relied on language in
the 2000 Statement that arguably allowed them to recover deferred compensation benefits from
Xcel. Plaintiffs contended that Xcel could not retroactively apply the 2002 Restatement, which
was created after Plaintiffs discharge. The parties agreed that if the 2002 Restatement applied,
Plaintiffs could not recover the disputed benefits from Xcel.
On July 26, 2005, this Court issued an Order (the First Summary Judgment Order)
[Docket No. 50] granting Xcels First Motion for Summary Judgment on all claims except
Plaintiffs ERISA denial-of-benefits claim. The Court concluded there was a genuine issue of
material fact regarding whether the bankruptcy discharge barred Plaintiffs claims because
Plaintiffs, with the exception of Bender, appeared to qualify as NRG NQRP Participants who
may still be owed money by Xcel.
After the completion of discovery, Xcel filed a Second Motion for Summary Judgment.
5
Plaintiffs also filed a Motion for Summary Judgment [Docket No. 59]. On May 17, 2006, this
Court granted Xcels Second Motion for Summary Judgment and denied Plaintiffs Motion
based on evidence and arguments that were not raised when the Court denied in part Xcels First
Motion for Summary Judgment. In particular, Xcel presented indisputable evidence that when
Plaintiffs transferred their employment from NSP to NRG, NSP transferred the deferred
compensation balances and made payments for each Plaintiff to NRG. Based on this evidence,
Plaintiffs claims were barred by the bankruptcy discharge because they were not NRG NQRP
Participants who were owed money by Xcel.
In the alternative, the Court held that Plaintiffs ERISA denial-of-benefits claim failed
because the governing Top Hat Plan documents demonstrated that Plaintiffs could not recover
benefits from Xcel. This holding was based in part on the affidavit and deposition testimony of
Parker Newcomb (Newcomb), who was a senior attorney for NSP when the 2000 Statement
was created. Newcomb testified that, contrary to the statements in the Sanford Affidavit, the
2000 Statement created a stand-alone plan that covered individuals who were NSP employees
from January 2000 to January 2002. Because Plaintiffs were NRG employees during that time
period, they were not participants in the 2000 Statement. Additionally, Xcel for the first time
argued that the clear language of the 2000 Statement demonstrated that the 2000 Statement
created a new plan, and did not restate any other pre-existing plan. Based on Newcombs
testimony and the language of the 2000 Statement, Plaintiffs were not covered by the 2000
statement. Thus, either the 1992 Restatement or the 2002 Restatement applied to Plaintiffs
claims for benefits. Because neither the 1992 Restatement nor the 2002 Restatement allowed
Plaintiffs to recover benefits from Xcel, the Court granted Xcels Second Motion for Summary
6
Judgment on this alternative basis.
On appeal, the Eighth Circuit affirmed the First and Second Summary Judgment Orders.
The Court ruled: (1) the 2000 Statement was a stand-alone plan that did not apply to Plaintiffs,
and (2) Plaintiffs could not recover from Xcel under the 1992 Restatement or the 2002
Restatement. Bender, 507 F.3d at 1169-70. The appellate panel did not consider this Courts
holding that the bankruptcy discharge barred Plaintiffs claims. Id. at 1170.
III. DISCUSSION
Under the American Rule. . . each party normally bears the cost of the litigation unless
Congress provides otherwise . . . . Martin v. Blue Cross and Blue Shield, 299 F.3d 966, 971
(8th Cir. 2002). Section 502(g)(1) of ERISA provides that [i]n any action under this subchapter
. . . by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable
attorneys fee and costs of action to either party. 29 U.S.C. 1132(g)(1). The Eighth Circuit in
Lawrence v. Westerhaus, 749 F.2d 494 (8th Cir. 1984), held that in exercising its discretion, a
court should consider the following factors:
(1) the degree of the opposing parties culpability or bad faith; (2) the ability of
the opposing parties to satisfy an award of attorneys fees; (3) whether an award
of attorneys fees against the opposing parties could deter other persons acting
under similar circumstances; (4) whether the parties requesting attorneys fees
sought to benefit all participants and beneficiaries of an ERISA plan or to resolve
a significant legal question regarding ERISA itself; and (5) the relative merits of
the parties positions.
Id. at 495-96 (quoting Iron Workers Local No. 272 v. Bowen, 624 F.2d 1255, 1266 (5th Cir.
1980)). The Seventh Circuit, which applies the same factors, has held that a party is culpable for
the purpose of ERISA 502(g)(1) if the partys position was not substantially justified.
Bittner v. Sadoff & Rudoy Indus., 728 F.2d 820, 831 (7th Cir. 1984). To be substantially
7
justified, a claim must be something more than nonfrivolous, but something less than
meritoriousand taken in good faith. Stark v. PPM Am., Inc., 354 F.3d 666, 673 (7th Cir.
2004).
In the instant case, the analysis of the first and fifth Westerhaus factors is similar and
therefore they will be considered together. Xcel argues Plaintiffs acted culpably and in bad faith
because they advanced frivolous arguments to prolong this litigation. Xcel asserts that
[Plaintiffs] knowingly plied admitted errors gleaned from Sanfords affidavit to concoct a
retroactive amendment/procedural irregularity myth around the 2000 Statement and
[Plaintiffs] persisted in this complete and utter fiction after the undisputed facts about plan
history were revealed in discovery. Xcels Mem. in Supp. of Mot. for Attorneys Fees [Docket
No. 110].
Certainly a litigant should not knowingly take advantage of a mistaken admission by
another litigant. Therefore, if the record provided a solid basis for finding that Plaintiffs or their
counsel knew that Plaintiffs were not covered by the 2000 Statement, then an attorneys fees
award would be appropriate. However, the record does not support such a finding. Plaintiffs
alleged in their Complaint that during the administrative appeals process, Xcel provided the 2000
Statement and other documents in response to Plaintiffs request for the applicable plan
documents. Thus, even before this litigation began, Plaintiffs had grounds to believe that the
2000 Statement applied. In its Answer to the Complaint, Xcel again admitted the 2000
Statement was one of the applicable Top Hat Plan documents. Finally, the Sanford Affidavit
stated that the 2000 Statement was a restatement of the applicable Top Hat Plan. Based on
Xcels repeated admissions that the 2000 Statement was part of the applicable Top Hat Plan, this
8
Court cannot find that Plaintiffs are culpable for invoking the 2000 Statement.
Xcel argues Plaintiffs are culpable because they must have known they were not
participants in the stand-alone plan documented by the 2000 Statement. However, although a
careful reading of the 2000 Statement reveals that it created a stand-alone plan, Sanfords
Affidavit, which Xcels counsel presumably reviewed, reached the contrary conclusion that the
2000 Statement was part of the Top Hat Plan applicable to Plaintiffs. If Sanford and Xcels
counsel mistakenly determined that the 2000 Statement was applicable to Plaintiffs, then it is
plausible that Plaintiffs and their counsel made the same mistake when Xcel provided the
document to Plaintiffs and erroneously admitted it was a revision of the Top Hat Plan.
Xcel also argues Plaintiffs argued in bad faith that the bankruptcy discharge did not bar
their claims. In the First Summary Judgment Order, this Court determined that an exception to
the bankruptcy discharge could apply because there was a genuine issue of material fact
regarding whether Plaintiffs were NRG NQRP Participants who were owed money by Xcel.
Although Xcel subsequently submitted accounting records demonstrating that it had satisfied
those obligations, the Court finds that Plaintiffs were not culpable for making Xcel prove its
assertion that the obligations were satisfied. Moreover, Xcel offers no explanation for its failure
to provide the accounting records in support of its First Motion for Summary Judgment.
Xcel also contends that even if Plaintiffs were not culpable when this litigation began,
Plaintiffs should not have pursued an appeal after this Court made its alternative summary
judgment holdings. Although Plaintiffs appeal was weak, this Court does not find that Plaintiffs
were culpable or exhibited bad faith for taking the appeal.
The lack of evidence of Plaintiffs bad faith or culpability, and the fact that Xcels
9
mistakes contributed to prolonging this litigation by giving Plaintiffs reason to believe that the
2000 Statement applied, weigh against awarding attorneys fees to Xcel under the first and last
Westerhaus factors.
Plaintiffs do not dispute that they are able to pay Xcels requested attorneys fees.
Therefore, the second Westerhaus factor weighs in favor of awarding attorneys fees.
The third Westerhaus factor is deterrence. Xcel argues that an attorneys fees award
would deter other corporate executives from bringing frivolous ERISA lawsuits. However,
given the unique facts of this case, particularly Xcels mistakes regarding the applicability of the
2000 Statement, the Court finds that Plaintiffs claims were substantially justified. Therefore, it
is unnecessary to deter conduct similar to Plaintiffs.
The fourth Westerhaus factor is whether the party requesting attorneys fees sought to
benefit all participants of an ERISA plan or to resolve a significant legal question. Xcel does not
argue that it sought to benefit all participants of an ERISA plan or to resolve a significant legal
question. Instead, Xcel focuses on Plaintiffs, arguing they brought this suit solely for their own
benefit. In response, Plaintiffs argue the fourth Westerhaus factor is neutral because it is
primarily relevant only to whether plaintiffs should be awarded attorneys fees. Marquardt v.
N. Am. Car Corp., 652 F.2d 715, 721 (7th Cir. 1981). The Court finds that the Fourth
Westerhaus factor has no effect on the attorneys fees analysis in this case.
After reviewing the record in light of the Westerhaus factors, the Court denies Xcels
Motion for Attorneys Fees. Although this litigation has shown that Plaintiffs claims were
without merit, Xcels discovery positions may have misled Plaintiffs into believing their claims
were substantially justified. On this record, the parties should pay their own attorneys fees.
10
IV. CONCLUSION
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Defendant Xcel Energy, Inc.s Motion For an Award of Attorneys
Fees [Docket No. 101] is DENIED.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: May 12, 2008.
 

 
 
 

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