Court: Retirees Can't Get Bankruptcy Court Legal Fees

December 9, 2004 (PLANSPONSOR.com) - A federal appeals court has upheld a lower court ruling that pension/K plan participants aren't entitled to their legal costs if they have to go into a bankruptcy court to get payment on their benefits.

>The US 3 rd Circuit Court of Appeals agreed with US District Judge Maurice Cohill Jr. that the plaintiffs shouldn’t have gotten attorneys’ fees and costs after they had to file a bankruptcy claim in the pending case involving their former employer.

>According to  the ruling written by Circuit Judge D. Michael Fisher, the legal fees requested in the plaintiffs’ lawsuit weren’t “appropriate equitable relief” so they were not permitted under the Employee Retirement Income Security Act (ERISA).   In addition, Cohill found that the retirees were not entitled to attorneys’ fees and costs under ERISA Section 502(g), which provides for recovery of fees and costs incurred in actions brought under ERISA. The retirees “seek recovery of the fees and costs they incurred in prosecuting in the Bankruptcy Court under the bankruptcy code. These proceedings were not initiated ‘under’ ERISA,” Fisher pointed out.

>The employer, J & L Structural Inc., filed its bankruptcy reorganization case in June 2000, after two retirees had requested trustees of its 401(k) plan and pension plan issue payouts on their vested benefits. According to Fisher’s decision, the trustees deposited the vested benefits in J & L’s bank account and then issued company checks to the retirees, which the firm’s bank refused to honor because of the bankruptcy filing. Plaintiffs George Michaels and Robert Lewis eventually got paid after filing bankruptcy court claims.

>The retirees then sued the trustees, claiming they breached their ERISA fiduciary duties by depositing the checks with J & L and asked for their legal fees. Cohill refused and threw out the suit. The retirees appealed.

>The case is Michaels v. Breedlove, 3d Cir., No. 03-4891.

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