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Sunday, August 15, 2004

Meritless, but not frivolous. Metropolitan Life Insurance Company converted from an old-fashioned mutual insurance company to a modern stock insurance company in 2000. The conversion affected policyholders' interest in the company, converting them to cash, policy credits or stock in the new company, MetLife, Inc. The conversion was done in compliance with the pertinent law and was approved by the New York superintendent of Insurance after a hearing. Ninety-three percent of the voting policyholders supported the conversion.

Nevertheless, there were some disgruntled policyholders who sued, claiming that the conversion violated their constitutional rights under the Takings Clause, the Due Process Clause, the Commerce Clause and the Contracts Clause. The complaint, which sought relief under section 1983, claimed that MetLife acted under color of state law by receiving the sanction of the superintendent of Insurance and by reorganizing pursuant to New York Insurance Law 7312.

MetLife moved to dismiss. The District Court granted the motion, and the plaintiffs filed a notice of appeal.

MetLife, as the prevailing party, moved for attorneys' fees, pursuant to 42 U.S.C. 1988(b). Its motion was made seven days beyond the 14-day deadline set by Rule 54(d)(2)(B) of the Federal Rules of Civil Procedure. The Court denied the motion without prejudice to renewing it after the disposition of the appeal. While noting that the motion was untimely, the Court directed that any renewed motion should be filed no later than 14 days after the entry of the Second Circuit's mandate on the District Court's docket.

The Second Circuit affirmed and issued its mandate. MetLife made its renewed motion within 14 days of the entry of the mandate on the docket, seeking only attorneys' fees incurred in the District Court.

The plaintiffs argued that the Court did not have jurisdiction over the initial application because a notice of appeal had already been filed, the initial motion was untimely and the action was not frivolous and did not warrant an award of attorneys' fees.

The District Court, however, rejected the plaintiff's arguments and granted the motion. MetLife was awarded $30,000 in attorneys' fees. The plaintiffs appealed this award.

The Second Circuit agreed with the District Court with respect to that Court's power to entertain the motion, however, it agreed that a showing of excusable neglect was required to extend the deadline. It did not remand for a factual finding on this issue because it reversed the award on another ground.

The other ground was that the Second Circuit found that the plaintiffs' claims were not frivolous. The Court noted that there was case law that tended to support the plaintiffs' state action theory, albeit weak authority. In sum, the Court stated: "Hindsight proves that plaintiffs' allegation of state action was very weak, but it was not completely without foundation. Accordingly, the district court abused its discretion by awarding attorneys' fees to MetLife."

The decision can be found here.


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