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Kifafi v. Hilton Hotels Retirement Plan

United States District Court, D. Columbia.

November 18, 2013

JAMAL J. KIFAFI, individually and on behalf of all others similarly situated, Plaintiff,
v.
HILTON HOTELS RETIREMENT PLAN, et al., Defendants

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For JAMAL J. KIFAFI, individually, and on behalf of all others similarly situated, Plaintiff: Stephen Robert Bruce, LEAD ATTORNEY, Allison C. Pienta, STEPHEN R. BRUCE LAW OFFICES, Washington, DC.

For HILTON HOTEL RETIREMENT PLAN, HILTON HOTELS CORPORATION, Defendants: Andrew M. Lacy, SIMPSON THACHER & BARTLETT, LLP, Washington, DC; Jonathan K. Youngwood, PRO HAC VICE, SIMPSON THACHER & BARTLETT LLP, New York, NY; Thomas C. Rice, PRO HAC VICE, COOLEY LLP, San Francisco, CA.

For JAMES M. ANDERSON, members of the Hilton Hotels Retirement Plan Committee, MATTHEW J. HART, members of the Hilton Hotels Retirement Plan Committee, BARRON HILTON, DIETER HUCKESTEIN, members of the Hilton Hotels Retirement Plan Committee mem, SAM D. YOUNG, JR., members of the Hilton Hotels Retirement Plan Committee, Defendants: Andrew M. Lacy, SIMPSON THACHER & BARTLETT, LLP, Washington, DC; Jonathan K. Youngwood, PRO HAC VICE, SIMPSON THACHER & BARTLETT LLP, New York, NY; Thomas C. Rice, PRO HAC VICE, COOLEY LLP, San Francisco, CA.

For EDNA OGBONNA, FANNY CANAR, MARC TOUSSAINT, Movants: Stephen Robert Bruce, LEAD ATTORNEY, STEPHEN R. BRUCE LAW OFFICES, Washington, DC.

OPINION

COLLEEN KOLLAR-KOTELLY, UNITED STATES DISTRICT JUDGE.

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MEMORANDUM OPINION

This action was brought by Plaintiff Jamal J. Kifafi, on behalf of himself and similarly situated individuals, to recover for violations of the Employee Retirement Income Security Act (" ERISA" ) of 1974, as amended, 29 U.S.C. § § 1001 et seq., in the Hilton Hotels Retirement Plan (the " Plan" ). Defendants are the Plan, the individual members of the Committee of the Plan, the Hilton Hotels Corporation, and individual Hilton officers or directors (collectively, " Defendants" or " Hilton" ). On May 15, 2009, this Court granted-in-part Plaintiff's motion for summary judgment, finding that Defendants had violated ERISA's anti-backloading provision, 29 U.S.C. § 1054(b)(1), and had violated the Plan's vesting provisions with respect to the rights of four certified subclasses. See Kifafi v. Hilton Hotels Retirement Plan, 616 F.Supp.2d 7 (D.D.C. 2009). Presently before the Court is the Plaintiff's [308] Motion for Attorneys' Fees and Incentive Award. Upon consideration of the pleadings, the affidavits submitted by the parties, [1] and the entire record herein, the Court GRANTS IN PART and DENIES IN PART the Plaintiff's [308] Motion for Attorneys' Fees and Incentive Award for the reasons explained below.

I. BACKGROUND

A. Factual and Procedural Background

The history of the case is thoroughly laid out in the Court's prior opinions, most significantly its opinion on summary judgment, see Kifafi v. Hilton Hotels Retirement Plan, 616 F.Supp.2d 7 (D.D.C. 2009), and its opinions regarding equitable remedies, see Kifafi v. Hilton Hotels Retirement Plan, 736 F.Supp.2d 64 (D.D.C. 2010) (initial remedial order); Kifafi v. Hilton Hotels Retirement Plan, 826 F.Supp.2d 25 (D.D.C. 2011) (final remedial order); Kifafi v. Hilton Hotels Retirement Plan, 825 F.Supp.2d 298 (D.D.C. 2011) (order on amendments to remedial plan). The Court assumes familiarity with these opinions. Nevertheless, the Court shall review the facts of this case insofar as they are relevant to the issues discussed herein.

The Hilton Hotels Retirement Plan (the " Plan" ) is a defined benefit pension plan subject to ERISA. On June 17, 1998, Jamal Kifafi, a former employee of the Capital Hilton eligible to receive a pension, brought suit against the Plan alleging the Plan failed to properly credit years of service and violated ERISA's provision that prohibits employers from " backloading" benefits, i.e., using a benefit accrual formula that postpones the bulk of an employee's accrual to his later years of service. See 616 F.Supp.2d at 15. In order to prevent backloading, ERISA requires defined benefit

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plans to satisfy one of three alternative minimum accrual rules, known as the " 3% rule," the " 133 1/3% rule," and the " fractional rule." Id. at 11-12; see 29 U.S.C. § 1054(b)(1). Initially, Hilton defended the Plan as having complied with the 133 1/3% rule. Id. at 15. However, shortly after Kifafi moved for class certification in November 1998, Hilton amended the Plan's benefit accrual formula " for the purpose of eliminating any controversy regarding the propriety [sic] of the rate of benefit accruals under the Plan," and specifically referenced this lawsuit. Id. at 16. Hilton's new formula sought to comply with the fractional rule. Id. The 1999 amendment (" 1999-1 Amendment" ) also changed two unrelated aspects of the Plan that lowered benefits for participants. Id.

Following briefing on summary judgment, on May 15, 2009, this Court held that the pre-amendment Plan failed to comply with any of the three minimum accrual rules and that the pre-amendment Plan was required to comply with the 133 1/3% rule. Id. at 24. The Court concluded that " the Plan's participants are entitled to receive the benefits they would have accrued had the Plan complied with the 133 1/3% rule." Id. at 25. The Court also concluded that the 1999-1 Amendment to the Plan did not moot the ERISA violation. Id. at 25-28. The Court's ruling applies to a certified class of current and former Hilton employees (the " benefit-accrual class" ). [2]

The Court also found that Defendants had violated ERISA with respect to the vesting of benefits under the Plan, i.e., the time of service required for an employee to obtain a right to his or her accrued benefits. Id. at 29-32. The Court found that Defendants had violated the Plan's vesting provisions with respect to four certified subclasses: (1) they failed to credit employees' union service for purposes of vesting; [3] (2) they failed to properly apply the 1000 hours standard because they kept inadequate records; (3) they failed to credit employees' leaves of absence; and (4) they failed to count the year in which employees became participants in the Plan for vesting purposes. Id. at 29. Accordingly, the Court ruled that the members of these vesting subclasses should be awarded the vesting credit to which they are entitled.

On August 31, 2011, the Court issued an Order requiring Defendants to (1) amend the Plan's benefit accrual formula by capping the Social Security offset, thereby bringing the Plan into retroactive compliance with the 133 1/3% rule, and (2) administer a claim procedure for crediting participants' years of union service for vesting purposes. 8/31/11 Order, ECF No. [258], at 5-7. Defendants appealed the Court's liability and remedial orders to the D.C. Circuit Court of Appeals and sought a stay pending appeal, which the Court granted. On December 14, 2012, the Court of Appeals

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affirmed the Court's liability and remedial orders. See Kifafi v. Hilton Hotels Retirement Plan, 701 F.3d 718, 403 U.S.App. D.C. 156 (D.C. Cir. 2012). Before the Court of Appeals, the Defendants' primary argument had been that the 1999-1 Amendment mooted Kifafi's backloading claims. The Court of Appeals, however, found the case was not mooted because Hilton could not meet its burden of showing there was no reasonable likelihood of future backloading. Id. at 725. In addition, the Court of Appeals affirmed the Court's remedial order, finding that Hilton's prospective compliance with ERISA's anti-backloading mandate through the 1999-1 Amendment did not " circumscribe[] [the district] court's remedial options in the face of past violations." Id. at 727-28.

B. Present Motion for Attorney Fees, Expenses, and Incentive Award

The Plaintiff now petitions the Court for attorneys' fees to be awarded as a percentage of the common fund, as well as expenses totaling $603,000 and a $50,000 class representative incentive award for Jamal Kifafi. The Defendants do not appear to oppose the Plaintiff's request that attorney fees be awarded as a percentage of the common fund, nor his request for expenses and an incentive award. See Def.s' Opp'n, at 1-2 & n.3. The parties do disagree, however, about what benefits should be included in the common fund for the purposes of determining attorneys' fees, the monetary value of these benefits, and the percentage of the common fund Class Counsel should receive. The Plaintiff argues that Class Counsel should be awarded 15% of the common fund, which he contends includes the benefits from the backloading remedy as well as the benefit increases resulting from Hilton's 1999-1 Amendment for a total of $152 million. The Plaintiff also argues that the common fund should include the value of accrued benefits the Defendants recently " created" for 978 Plan participants, increasing the total of the common fund to $230 million. In the event the Court were to include these benefits in the common fund, the Plaintiff decreases his request to a 10% award of the common fund.

The Defendants argue that the common fund should only include the benefits from the backloading remedy because the increased benefits from the 1999-1 Amendment were a result of the Defendants' " voluntary actions, outside the court's jurisdiction." Def.s' Opp'n at 11. Furthermore, the Defendants contend that the " new" benefits for the 978 Plan participants were already recognized--and in some cases already paid--by the Defendants under the original Plan and the recent appearance of these benefits in Hilton's database is due primarily to a database error, not to Class Counsel's litigation efforts. The Defendants also contend that Class Counsel overvalues the common fund and that the fund is worth $103.9 million, or, if the benefits from the 1999-1 Amendment, are included $139.1 million. Finally, the Defendants maintain that a 15% award for Class Counsel is unreasonably high given the large size of the common fund.

On June 13, 2013, the Court ordered the parties to notify each member of the plaintiff class of the increase in his or her retirement benefit and Class Counsel's request for attorneys' fees, expenses, and a class representative incentive award. See 06/13/13 Order, ECF No. [358]. The Notice specifically included the amount of the class member's original retirement benefit, the increase in the benefit due to the present litigation, and the class member's new total retirement benefit. Importantly, the increase in the benefit included any increase due to the class members from the 1999-1 Amendment, if the 1999-1 Amendment

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benefit had not yet been put in pay status or paid out to the class member. See id. The Notice also indicated that Class Counsel requested an attorneys' fee based on 15% of the increased benefits and stated that the attorneys' fee would result in a 15% reduction in each class member's benefit increase. See id. Finally, the Notice ...


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