Sacerdote v. Retirement Plan Committee

Background

The plaintiffs were participants in two retirement plans governed by the federal Employee Retirement Income Security Act (ERISA). They first sued New York University, alleging breaches of fiduciary duties involving plan fees, investments, and oversight.

After the court dismissed most claims in the earlier case and denied the plaintiffs’ request to add the Retirement Plan Committee and its members as defendants, the plaintiffs filed this second action. The second action initially named NYU Langone Hospitals, NYU School of Medicine, the Retirement Plan Committee, and individual Committee members. The plaintiffs later amended the complaint, removed NYU Langone Hospitals, and added Cammack Larhette Advisors, LLC, alleging that Cammack was a co-fiduciary and had breached ERISA duties.

The district court dismissed the second action as duplicative of the earlier case. The Second Circuit later vacated the dismissal as to Cammack, holding that Cammack and New York University were different parties and were not legally aligned closely enough for the rule against duplicative litigation to bar the claims against Cammack.

Motion for sanctions and fees

NYU School of Medicine sought sanctions under Federal Rule of Civil Procedure 11, 28 U.S.C. § 1927, and the court’s inherent power. Alternatively, it sought attorney’s fees and costs under ERISA § 502(g)(1). NYU School of Medicine argued that the plaintiffs had filed the second action to circumvent rulings in the earlier case.

Rule 11 requires a party seeking sanctions to give the opposing party specific notice and 21 days to withdraw or correct the challenged filing. The court held that the defendants’ one-page letter did not adequately identify the legal and factual grounds for the proposed sanctions motion, did not mention Rule 11, and did not provide the required specificity. The court also held that the defendants did not send a new notice after the plaintiffs filed their amended complaint.

Court’s reasoning

The court further held that the sanctions motion would fail even if the Rule 11 notice had been adequate. The plaintiffs had an objectively reasonable basis to believe that the Committee, its members, NYU School of Medicine, and Cammack might not be legally aligned with New York University for purposes of liability. The court noted that the evidence suggested New York University had delegated day-to-day plan responsibilities to the Committee, and that ERISA and existing case law could support an argument that New York University might not be liable for the Committee members’ conduct.

The court also concluded that the plaintiffs had a reasonable basis for suing Cammack separately. The Second Circuit had determined that Cammack and New York University were independent parties and that the plaintiffs were permitted to bring claims against Cammack in a separate action, even though the claims arose from the same underlying facts.

Sanctions under § 1927 or the court’s inherent power require clear evidence that the claims were entirely meritless and pursued for an improper purpose. The court found no bad faith. For the same reason, the court declined to award fees under ERISA § 502(g)(1), including because the plaintiffs had pursued a colorable claim and awarding fees could discourage beneficiaries from bringing good-faith ERISA suits.

Disposition

The court denied NYU School of Medicine’s motion for sanctions. It also declined to grant attorney’s fees and costs under ERISA § 502(g)(1), and declined to impose sanctions under § 1927 or the court’s inherent power. The Clerk of Court was directed to terminate the motion.