No Automatic Fee-Shifting After Bad-Faith Trusteeships: Seventh Circuit Reaffirms Highly Deferential Review of Equitable Attorneys’ Fees Awards

Introduction

In Raza Siddiqui v. National Association of Broadcast Employees & Technicians – Communications Workers of America, No. 24-2315 (7th Cir. Mar. 24, 2025), the Seventh Circuit addressed whether a district court must award attorneys’ fees when a local union’s members successfully invalidate a trusteeship imposed by their national union, and when the district court finds both (1) bad faith in the imposition of the trusteeship and (2) common benefits flowing from the litigation. The case arose from a post-election intervention by the national union (NABET-CWA) into Local 41’s affairs, which the district court preliminarily enjoined as having been imposed in bad faith. The parties resolved the merits via a consent judgment dissolving the trusteeship and requiring reimbursement to the Local of about $26,000 in trusteeship costs. The sole remaining dispute was whether the plaintiffs were entitled to recover attorneys’ fees.

The district court denied fees. On appeal, the Seventh Circuit (Judge Kirsch, joined by Judges Hamilton and Maldonado) affirmed, holding that:

The threshold decision whether to award fees under the American Rule’s equitable exceptions is reviewed for abuse of discretion, not de novo.
Both the bad-faith and common-benefit exceptions are permissive, not mandatory; even explicit findings of bad faith and common benefit do not compel fee-shifting absent “overriding” equitable considerations.
A district court’s non-dispositive musings about the contemporary status of the common benefit doctrine (Hall v. Cole) do not amount to legal error where the court applies controlling precedent correctly.

Summary of the Opinion

The Seventh Circuit affirmed the denial of attorneys’ fees. The court emphasized the American Rule’s presumption against fee shifting and the broad, highly deferential standard that governs review of equitable fee awards. Although the district court found that the national union imposed the trusteeship in bad faith and that the litigation produced common benefits (vindication of local governance and recovery of about $26,000 in trusteeship costs), it reasonably concluded those findings did not present an “overriding need” to shift fees. The district court credited the parties’ good-faith litigation conduct, viewed the dispute as a hyperlocal political fight without institutionally significant impact, and deemed the monetary benefit modest. The appellate court held these determinations were within the district court’s equitable discretion and supported by the record.

Analysis

Precedents Cited and Their Influence

Hall v. Cole, 412 U.S. 1 (1973):
Hall recognized the “common benefit” exception to the American Rule in a union context, allowing fee awards when a member’s suit confers a substantial institutional benefit on an ascertainable class (e.g., protecting LMRDA free speech rights), with fees paid from the union treasury. The district court here applied Hall, finding some common benefit, but judged it insufficiently substantial to warrant fees. The Seventh Circuit approved that application and clarified that Hall’s exception remains permissive, not mandatory.
Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240 (1975):
Alyeska reaffirmed the American Rule: prevailing litigants ordinarily may not recover attorneys’ fees absent statute or narrow equitable exceptions. This decision anchors the presumption against fee shifting, emphasizing judicial restraint in expanding judge-made exceptions. The Seventh Circuit’s opinion stays true to Alyeska by treating both bad-faith and common-benefit doctrines as discretionary tools of equity.
Chambers v. NASCO, Inc., 501 U.S. 32 (1991):
Chambers confirmed courts’ inherent power to award fees as a sanction for bad-faith conduct. Here, the district court found the trusteeship was imposed in bad faith but that subsequent litigation was conducted in good faith. That nuance supported the court’s refusal to treat the bad-faith finding as automatically triggering fees.
Goodyear Tire & Rubber Co. v. Haeger, 581 U.S. 101 (2017):
Goodyear clarified that fee awards as sanctions must be compensatory and causally tethered to the bad-faith conduct. While the court did not calculate causation-based fee amounts (because it denied fees entirely), Goodyear’s compensatory principle bolsters the district court’s logic: where the litigation itself was in good faith, the equitable case for shifting all attorneys’ fees weakens considerably.
Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970):
Mills articulated that equitable fee awards should be reserved for “situations in which overriding considerations indicate the need.” The district court expressly applied this lens and found no such overriding need, a conclusion the Seventh Circuit deemed reasonable.
Standard-of-review authorities:
The Seventh Circuit cited a line of its own cases underscoring the “highly deferential” abuse-of-discretion review in fee disputes, including Paz v. Portfolio Recovery Assocs., Estate of Borst v. O’Brien, Pickett v. Sheridan Health Care Ctr., Ustrak v. Fairman, and Vega v. Chicago Park District. It also cited In re Stericycle Sec. Litig. for the distinction between legal questions (reviewed de novo) and discretionary determinations, and Aaron v. Mahl for the specific proposition that the threshold decision whether to award fees is itself reviewed for abuse of discretion. This body of precedent collectively shaped the Seventh Circuit’s deference to the district court’s equitable judgment.

Legal Reasoning

The opinion proceeds in three steps: (1) standard of review, (2) the nature of the American Rule exceptions, and (3) application to the record.

Standard of Review: The court rejected the appellants’ contention that de novo review applies to the “entitlement” phase of fee decisions. It drew a critical distinction: pure legal framework questions are reviewed de novo, but whether to award fees on a given record—even the threshold entitlement decision—is reviewed for abuse of discretion. Citing Aaron v. Mahl, the court confirmed that district judges’ fee determinations receive “significant deference” and “wide latitude,” due in part to their superior grasp of the litigation’s nuances and the institutional interest in avoiding a “second major litigation” over fees.
American Rule and Two Equitable Exceptions: The court underscored that fee-shifting is exceptional. Both the bad-faith and common-benefit exceptions are permissive, arising from the court’s inherent equitable power. The governing test—rooted in Mills—asks whether “overriding considerations” indicate the need for fees. That framework means even proven bad faith or demonstrated common benefit does not automatically compel fee-shifting.
Application to the Record:
- Bad faith exception: The district court found the national union imposed the trusteeship in bad faith but concluded the ensuing litigation was conducted in good faith by both sides. It reasoned that deterrence of improper trusteeships was adequately achieved by dissolving the trusteeship and entering a permanent injunction. In light of the good-faith litigation conduct and the absence of an “overriding need,” it declined to shift fees. The Seventh Circuit deemed this reasoning legally sound and well within equitable discretion.
- Common benefit exception: The district court recognized two benefits: (a) vindication of local governance principles and (b) reimbursement of approximately $26,000 in trusteeship costs. Yet it characterized the dispute as “hyperlocal” politics, lacking the kind of broad institutional interest vindication that animated Hall. It also considered the monetary benefit modest and was unpersuaded that not shifting fees would unjustly enrich other members or that fee-shifting was necessary to incentivize such suits. The Seventh Circuit held these determinations were reasonable exercises of discretion.

Finally, the court rejected the argument that the district judge’s skeptical remarks about the modern vitality of Hall’s common-benefit doctrine required reversal. The judge openly acknowledged controlling precedent, applied it, and explicitly found benefits—just not ones compelling fee-shifting. The Seventh Circuit treated the judge’s comments as non-dispositive observations and found no legal error.

Impact and Implications

The opinion’s principal contribution is not a doctrinal reworking but a clarifying reinforcement of existing tenets within the Seventh Circuit:

Review posture, clarified: The Seventh Circuit squarely confirms that the threshold entitlement decision on equitable fee requests is reviewed for abuse of discretion. Litigants should expect deferential appellate review unless they can identify a clear legal error or an irrational application of the facts.
No automatic fees upon bad faith or common benefit: This decision forecloses arguments that a district court must award fees once it finds bad faith in the underlying conduct or a common benefit to a class. Both exceptions remain tools of equity, not entitlements. The court’s emphasis on “overriding considerations” re-centers the inquiry on the overall equitable balance, including litigation conduct and the scale and character of the benefit.
Union-governance disputes: In the LMRDA trusteeship context, even where a trusteeship is dissolved for bad faith, fee awards will depend on whether the case produced substantial, institutionally significant benefits or whether extraordinary considerations justify shifting fees. Local or “hyperlocal” disputes about governance mechanics may not suffice.
Practical litigation strategy:
- Parties seeking fees under the bad-faith exception should develop a record linking the opposing party’s bad-faith conduct to the fees incurred (Goodyear’s causation principle) and show why sanctions (i.e., fee-shifting) are necessary beyond the merits relief to deter or compensate.
- Parties invoking the common-benefit doctrine should quantify and articulate the institutional breadth and significance of the benefit and why spreading the costs across the benefited class avoids unjust enrichment and furthers the statute’s policies (as in Hall).
- Consider building fee-shifting provisions into settlement agreements or consent judgments when statutory fee provisions are absent, to avoid dependence on discretionary equitable awards.
Judicial candor about doctrine: The panel’s acceptance of the district court’s dicta about Hall signals that judicial commentary—without departure from controlling authority—does not itself invite reversal. That said, district courts must continue to apply Hall unless and until the Supreme Court says otherwise.

Complex Concepts Simplified

American Rule: In U.S. litigation, each side typically pays its own attorneys’ fees. Fee-shifting requires a statute or a narrow equitable exception.
Bad-Faith Exception: Courts can award attorneys’ fees when a party acts “vexatiously, wantonly, or for oppressive reasons.” This can include pre-litigation misconduct, but fee awards are compensatory and usually limited to the fees caused by the bad-faith conduct.
Common-Benefit Exception: If a lawsuit confers a substantial benefit on an identifiable class (e.g., union members or shareholders), a court may shift fees to the benefited group so costs are shared proportionately and unjust enrichment is avoided.
Abuse of Discretion Review: A deferential appellate standard. The appellate court will not reverse unless the district court applied the wrong legal standard or reached a decision no reasonable jurist could reach on the record.
“Overriding considerations”: A phrase from Mills signaling that equitable fee awards are reserved for exceptional circumstances where fee-shifting is truly necessary to accomplish fairness, deterrence, or compensation beyond the merits relief.
Consent Judgment: A court order embodying the parties’ agreed resolution. It can include injunctive or monetary terms, but it does not automatically entitle a party to attorneys’ fees in the absence of a statutory basis or express agreement.

What This Opinion Does—and Does Not—Decide

Does:
- Reaffirm that the threshold entitlement decision on equitable fee requests is reviewed for abuse of discretion.
- Reiterate that the bad-faith and common-benefit exceptions are permissive and must be justified by “overriding considerations.”
- Approve denial of fees despite findings of bad faith and common benefits where the benefits are localized/modest and litigation conduct was in good faith.
Does Not:
- Repudiate Hall v. Cole or curtail the common-benefit doctrine; rather, it applies Hall and confirms its viability pending Supreme Court action.
- Set a quantitative threshold for what constitutes a “substantial” common benefit.
- Hold that fees can never be awarded in bad-faith trusteeship cases; it underscores that awards depend on the totality of equitable considerations in each case.

Conclusion

Siddiqui underscores that equitable fee-shifting remains the exception, not the rule. The Seventh Circuit reinforces three core propositions. First, district courts’ decisions whether to award fees—even at the threshold—are reviewed for abuse of discretion and receive extraordinary deference. Second, findings of bad faith in the underlying conduct and common benefits from the litigation are not self-executing triggers for fee awards; courts must still find “overriding considerations” that justify shifting costs. Third, judges may acknowledge doubts about the boundaries of judge-made fee doctrines, but so long as they adhere to controlling precedent (as the district court did here with Hall), such reflections are not reversible error.

For practitioners, the opinion signals that success on the merits—here, dissolving a bad-faith trusteeship and securing reimbursement—will not, standing alone, yield attorneys’ fees in the absence of statutory authorization. Parties seeking equitable fees should marshal a record demonstrating substantial, institutionally meaningful benefits or a compelling compensatory or deterrent need for fee-shifting that the merits relief alone cannot satisfy. Absent that, the American Rule prevails.