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Underwood v. Carpenters Pension Trust Fund

United States District Court, E.D. Michigan, Southern Division

February 17, 2017

THOMAS E. UNDERWOOD, individually and on behalf of all others similarly situated, Plaintiff,



         This ERISA class action is before the Court pursuant to Federal Rule of Civil Procedure 23 for final approval of a proposed class action settlement and for class counsel's motion for attorneys' fees, costs and expenses, and incentive awards for the named plaintiffs (R. 117). The Court has reviewed the many filings relevant to these determinations, including two objections filed by unnamed class members, and the Court conducted a fairness hearing on February 15, 2017. For the reasons that follow, the Court will approve the settlement agreement and grant in part the motion for attorneys' fees.



         The Court has described the case's facts in detail in prior orders. But in short, the Carpenters Pension Trust Fund-Detroit and Vicinity, a multiemployer benefits plan subject to the Employee Retirement Income Security Act (“the Plan”), had an amendment procedure stating that “no amendment of this Plan shall be permitted to reduce . . . the benefits of any person who is already receiving benefits.” In August 2013, the Plan's trustees amended the Plan, reducing the “disability retirement benefits” (DRB) that the class members had already started to receive. One of those DRB recipients, Thomas Underwood, sued, and the Court certified a class consisting of “[a]ll persons who commenced receiving disability benefits from Carpenters Pension Trust Fund-Detroit & Vicinity Pension Plan on or after September 1, 2008, and who were receiving those disability benefits on August 1, 2013.” See Underwood v. Carpenters Pension Trust Fund-Detroit & Vicinity, No. 13-CV-14464, 2014 WL 4602974, *11 (E.D. Mich. Sept. 15, 2014). The Court also appointed Hertz Schram, P.C. as class counsel. Id.

         In September 2014, the Court granted Underwood's motion for summary judgment, holding that to the extent that the August 2013 Amendment reduced the benefits that Underwood and other class members had already started to receive on the date the amendment became effective, it violated the Plan and was unenforceable. Underwood v. Carpenters Pension Trust Fund--Detroit & Vicinity, No. 13-CV-14464, 2014 WL 9866416, *13 (E.D. Mich. Sept. 15, 2014).

         Nonetheless, after the Court's order, in October 2014, the trustees amended the Plan's amendment provision to permit the very type of amendment that the Court had just held to be unenforceable under the prior version of that provision: amendments that reduce the benefits of participants already receiving them. Defendants also backdated the October 2014 Amendment to apply prior to the August 2013 Amendment.

         Later, in April 2015, Underwood filed an amended complaint adding a second count related to a group of individuals whom the Court will refer to as the “early converts.” (R. 62.) By way of background, the Plan allowed for certain participants to elect to receive a reduced “early retirement benefit” (ERB) in lieu of waiting for the full unreduced benefit available to them at age 62. (R. 62, PID 1419.) According to the amended complaint, because of the August 2013 Amendment's benefits reductions, some class members opted to take the reduced ERB early instead of continuing to receive their amendment-reduced DRB. (R. 62, PID 1420-21.) Count II of the amended complaint requests “appropriate equitable relief” under ERISA § 502(a)(3) to restore these class members to the positions they would have been in absent the amendments. The Court later granted an unopposed motion appointing Donald Lee as co-class representative to represent the early converts. (R. 84.)

         The Court also allowed the parties to brief whether the October 2014 Amendment, like the prior August 2013 Amendment, violated the Plan's terms. And in September 2015, the Court held that it did, granting Underwood's motion for summary judgment. See Underwood v. Carpenters Pension Trust Fund-Detroit & Vicinity, No. 13-CV-14464, 2015 WL 5655838, *7 (E.D. Mich. Sept. 25, 2015). But this left Count II unresolved-including whether the subclass of early converts could prevail under their claim for equitable relief under ERISA § 502(a)(3).

         Further developments happened after the Court's September 2015 opinion and order invalidating the October 2014 Amendment. In March 2016, the Court granted in part Underwood's request for an award of prejudgment interest and statutory attorneys' fees and costs under ERISA § 502(g)(1). See Underwood v. Carpenters Pension Trust Fund-Detroit & Vicinity, No. 13-CV-14464, 2016 WL 806707, at *1 (E.D. Mich. Mar. 2, 2016). On June 9, 2016, the Court entered final judgment on Count I, awarding the class $13, 496, 131.63, including past due DRB benefits, prejudgment interest, and costs and fees awarded under § 502(g)(1). (R. 101.) The parties filed cross notices of appeal shortly thereafter. (R. 103, 106.) While the parties pursued their appeal, they reached a proposed settlement agreement, so the United States Court of Appeals for the Sixth Circuit remanded the case to this Court to conduct a fairness hearing regarding the proposed settlement under Federal Rule of Civil Procedure 23(e)(2). (R. 115.)


         The following summarizes the settlement agreement's key terms. To start, several provisions are relevant to the class members' recovery. Section 6.1.1 of the agreement contemplates that the Plan will pay the class a sum of $14, 135, 860[1] for past damages. (R. 116-2, PID 2545.) This includes interest of 2.74% calculated on a “stream of benefits” basis. See Caffey v. Unum Life Ins. Co., 302 F.3d 576, 585 (6th Cir. 2002) (endorsing that method for use in calculating prejudgment interest and describing it as “calculat[ing] the interest due on each monthly payment of disability benefits beginning with the date that each payment was due”). This sum does not include the restoration of future benefits, something covered by other provisions. Section 6.1.1 also provides that the Plan will pay class counsel a portion of class counsel's fees directly, $716, 199. (R. 116-2, PID 2545-46.)

         The circumstances of each class member dictate the specific relief provided under the agreement. Section 7.2.1 applies to the vast majority of class members-those who did not elect to convert their DRB to a reduced ERB before the age of 62. (See R. 116-2, PID 2547-48.) The agreement restores these class members to 95% of their DRB-both financially and in terms of the criteria for receiving DRB (e.g., not having to prove disability to the Social Security Administration). This restoration applies retroactively to August 1, 2013 (when the August 2013 Amendment became effective) and going forward for each class member until age 62. At age 62, a class member's DRB will convert to a full unreduced ERB under the Plan's terms prior to August 1, 2013 and continue at that level going forward. Any past benefits restored under this arrangement will accrue interest at 2.74% under a “stream of benefits” method of calculation and will be paid to each class member in a lump sum. The class's share of the attorneys' fees will reduce the lump sum for past benefits but will not affect future benefits.

         The remaining provisions for relief apply to the “early converts”-those who elected to convert early to a reduced ERB in lieu of taking their reduced DRB under the August 2013 Amendment. Again, the early converts are the subject of Count II of the amended complaint, which remains unresolved.

         Section 7.2.2 applies to class members who converted their DRB to an ERB before age 62 and whose current ERB is less than 95% of their original DRB. (R. 116-2, PID 2549.) These class members get a deal similar to non-early converts. For past benefits owed, they will receive a lump sum representing 95% of the difference between their reduced ERB and their original DRB (plus interest but less attorneys' fees). Going forward they will receive 95% of their original DRB benefit until the age of 62, at which point they will be eligible for unreduced ERB benefits.

         Section 7.2.3 applies to the 12 class members who converted their DRB to a reduced ERB before age 62 but whose current reduced ERB is more than 95% of their original DRB. (R. 116-2, PID 2551.) These class members will return to DRB status at their current benefit level until age 62. Because they have received (and will continue to receive until age 62) a benefit reflecting more than 95% of their original DRB, they will repay the excess once they turn 62 via monthly credits to their ERB benefits. Once the excess is made up by these credits, their post-age-62 benefits will increase to their full unreduced ERB. Thus, like the other class members, they will be better off in the long run-again eligible for their full unreduced ERB going forward. Moreover, to the extent any of these class members had a period of time before they converted their DRB to the reduced ERB, they will be entitled to a lump sum for that period, computed under Section 7.1.1.

         Section 7.2.4 applies to the early converts who are now over the age of 62. (R. 116-2, PID 2552.) Their past benefits owed and future benefits will be calculated under Sections 7.2.1, 7.2.2, or 7.2.3, depending on which category they fall into, i.e., whether and when they converted early to a reduced ERB, and whether their ERB is more or less than 95% of their original DRB.

         Some other provisions are worth noting as well. For one, various sections operate to impose on class members a sweeping release of any and all claims against Defendants in any way related to the claims in this case (other than claims arising out of the settlement agreement). (See R. 116-2, Sec. 3.2-3.4.) Additionally, Section 9.1 provides that Defendants agree not to oppose any fee request or request for incentive awards made by class counsel. (R. 116-2, PID 2555.)


         On December 22, 2016, the Court preliminarily approved the proposed class-action settlement. (R. 121.)

         Class members were provided a detailed notice of the proposed settlement, which indicated that the proposed settlement would include a “lump sum payment to each Class member of 95% of all back benefits owed less the Class member's share of attorneys' fees, costs and expenses, and incentive awards to the Named Plaintiffs awarded by the Court.” (R. 116-3, PID 2565.) The notice indicated that class counsel had requested fees in the amount of 28% of the past benefits common fund, costs and expenses in an amount less than $50, 000, and incentive awards of $15, 000 for Underwood and $7, 500 for Lee. (Id.) The notice also explained the release. (R. 116-3, PID 2565.) And it provided instructions for class members who wished to object. (R. 116-3, PID 2574.) Only two objections from class members followed. (R. 122, 123.)

         The Court conducted a fairness hearing on February 15, 2017 and made findings that the settlement agreement was fair, reasonable and adequate. The Court also granted class-counsel's motion for attorneys' fees, costs and expenses, and granted in part incentive awards for Underwood and Lee (R. 117). This opinion memorializes the oral rulings.


         The Court begins with approval of the settlement agreement. “[B]y way of background, class-action settlements affect not only the interests of the parties and counsel who negotiate them, but also the interests of unnamed class members who by definition are not present during the negotiations.” Shane Grp., Inc. v. Blue Cross Blue Shield of Michigan, 825 F.3d 299, 309 (6th Cir. 2016) (internal quotation marks and citation omitted). As such, “there is always the danger that the parties and counsel will bargain away the interests of unnamed class members in order to maximize their own.” Id. This is “not an indictment of any parties or counsel in particular; it is merely a recognition of the adverse incentives at work in class-action settlements.” Id. Thus, it is this Court's responsibility to “carefully scrutinize whether the named plaintiffs and counsel have met their fiduciary obligations to the class, and whether the settlement itself is ‘fair, reasonable, and adequate.'” Id. (quoting Fed.R.Civ.P. 23(e)(2)).

         “Several factors guide the inquiry: (1) the risk of fraud or collusion; (2) the complexity, expense and likely duration of the litigation; (3) the amount of discovery engaged in by the parties; (4) the likelihood of success on the merits; (5) the opinions of class counsel and class representatives; (6) the reaction of absent class members; and (7) the public interest.” Int'l Union, United Auto., Aerospace, & Agr. Implement Workers of Am. v. Gen. Motors Corp., 497 F.3d 615, 631 (6th Cir. 2007) (citation omitted). Courts also consider other factors, including “whether the settlement gives preferential treatment to the named plaintiffs while only perfunctory relief to unnamed class members.” Vassalle v. Midland Funding LLC, 708 F.3d 747, 755 (6th Cir. 2013) (internal quotation marks and citation omitted).


         Starting with the first factor, the Court sees minimal risk of fraud or collusion. “Courts presume the absence of fraud or collusion unless there is evidence to the contrary.” IUE-CWA v. Gen. Motors Corp., 238 F.R.D. 583, 598 (E.D. Mich. 2006) (citing cases). Here, the Court is aware of no direct evidence of fraud or collusion. And the years of contested litigation and motion practice are strong evidence of the absence of fraud or collusion. See Moulton v. U.S. Steel Corp., 581 F.3d 344, 351 (6th Cir. 2009) (finding that the “duration and complexity of the litigation . . . undermine[d] the objectors' suspicions” of collusion because “[t]he parties litigated for almost four years before reaching a settlement agreement”). Class counsel's time records also reflect extensive negotiations leading up to the settlement. (See R. 117-2.) Still, the risk of collusion, even if remote here, warrants scrutiny of two provisions in the settlement agreement.


         The first provision at issue is Section 9.1 of the agreement, which states, “The Plan and the Trustees agree not to contest or take any position with respect to any such application [for attorneys' fees], which shall not be deemed as participating in the determination of the reasonableness of such fees or representing the Settlement Class with respect thereto.” (R. 116-2, PID 2555.) To recap, the agreement provides that Defendants will pay class counsel a $716, 199 slice of the fees directly, while each class members' lump sum payment for past due benefits will be reduced by a proportional share of common fund attorneys' fees, which class counsel has requested at a level of 28%.

         Defendants' agreement to not contest the fee request is akin to a “clear sailing” provision, one “where the party paying the fee agrees not to contest the amount to be awarded by the fee-setting court so long as the award falls beneath a negotiated ceiling.” Gooch v. Life Inv'rs Ins. Co. of Am., 672 F.3d 402, 425 (6th Cir. 2012) (citation omitted).

         Courts have recognized two dangers with clear sailing provisions: (1) “the likelihood that plaintiffs' counsel, in obtaining the defendant's agreement not to challenge a fee request within a stated ceiling, will bargain away something of value to the plaintiff class” and (2) “the lawyers might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment on fees.” See Gooch, 672 F.3d at 425 (citations omitted). Thus, while “clear sailing provisions . . . have [n]ever been held to be unlawful per se, . . . courts have recognized that their inclusion gives the district court a heightened duty to peer into the provision and scrutinize closely the relationship between attorneys' fees and benefit to the class.” Gascho v. Glob. Fitness Holdings, LLC, 822 F.3d 269, 291 (6th Cir. 2016) (internal quotation marks and citations omitted).

         The Court finds no evidence of collusion in the inclusion of this provision here. It is hard to imagine what class counsel could have bargained away in exchange for this provision given the near-total relief the class will obtain. For the same reason, this is not a case where class counsel agreed to a low settlement amount in exchange for “red carpet treatment” on fees. Finally, even in the absence of the provision, Defendants would have no reason to contest the common fund fee award here, as the requested percentage-of-fund fee request has no impact on Defendants' total exposure under the agreement.


         The second provision that warrants consideration in connection with the danger of collusion is the release.

         Under Section 3.1.1 of the agreement, the class members “absolutely and unconditionally” release Defendants “from all Claims . . . that Named Plaintiffs and/or the Settlement Class directly, indirectly, derivatively, or in any other capacity have or had . . . in consideration for the payment of the Class Settlement Amount, the sufficiency of which the Named Plaintiffs acknowledge.” (R. 116-2, PID 2541.) The agreement defines “Claims” broadly, including:

any and all claims of any nature whatsoever, including any statutory and common law claims, any and all losses, damages, attorneys' fees, disgorgement of fees, fines and penalties, and claims for contribution or indemnification, whether accrued or not, in law or equity, civil or criminal, seeking damages, attorneys' fees, litigation costs, injunctive, contractual, extra-contractual, declaratory or any other relief, or brought by way of demand, complaint, cross-claim, counterclaim, third-party claim or otherwise, arising out of or in any way related to any or all of the acts, omissions, facts, matters, transactions, or occurrences ...

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