McPherson v. Emply'ees Pension Plan of Am. Re-Ins. Co. ( 1994 )

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
8-22-1994
McPherson v. Emply'ees Pension Plan of Am. Re-
Ins. Co.
Precedential or Non-Precedential:
Docket 93-5482
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Recommended Citation
"McPherson v. Emply'ees Pension Plan of Am. Re-Ins. Co." (1994). 1994 Decisions. Paper 121.
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
N0. 93-5482
PAUL F. MCPHERSON
Appellant
v.
EMPLOYEES' PENSION PLAN OF AMERICAN RE-INSURANCE COMPANY, INC.;
PENSION COMMITTEE OF EMPLOYEES' PENSION PLAN
On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civil Action No. 90-05019)
Argued March 4, 1994
BEFORE: STAPLETON and SCIRICA, Circuit Judges, and
VAN ANTWERPEN, District Judge*
(Opinion Filed August 23, 1994)
Earl M. Bennett (Argued)
Glenn R. Gordon
William T. Knox, IV
HEROLD and HAINES
25 Independence Boulevard
Warren, New Jersey 07059
Attorneys for Appellant
Edward R. Gallion (Argued)
Alexandre A. Montagu
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
Attorneys for Appellees
* Honorable Franklin S. Van Antwerpen, United States District
Judge for the Eastern District of Pennsylvania, sitting by
designation.
OPINION OF THE COURT
STAPLETON, Circuit Judge:
Attorneys' fees may be awarded to prevailing parties in
actions brought under the Employee Retirement Income Security Act
of 1974 ("ERISA"). The statute, however, provides no standard
for a fee award, stating only that "the court in its discretion
may allow a reasonable attorney's fee and costs of action." 29
U.S.C. § 1132(g)(1). To guide district courts as they exercise
their discretion in connection with such fee applications, we
have set forth five factors that must be considered:
(1) the offending parties' culpability
or bad faith;
(2) the ability of the offending parties
to satisfy an award of attorneys' fees;
(3) the deterrent effect of an award of
attorneys' fees against the offending
parties;
(4) the benefit conferred on members of
the pension plan as a whole; and
(5) the relative merits of the parties'
position.
Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir. 1983).1 We
have further instructed that there is no presumption that a
successful plaintiff in an ERISA suit should receive an award in
the absence of exceptional circumstances. Ellison v. Shenango,
Inc. Pension Bd., 956 F.2d 1268, 1273 (3d Cir. 1992). Finally,
we have directed that a district court, when ruling on an
application for attorneys' fees in an ERISA case, should
articulate its analysis and conclusions as it considers each of
the five Ursic factors. See Anthuis v. Colt Indus. Operating
Corp., 971 F.2d 999, 1012 (3d Cir. 1992). This appeal requires
us to further discuss the standard for awarding attorneys' fees
in ERISA cases.
I.
American Re-Insurance Company ("the Company") fired its
comptroller, Paul F. McPherson, on July 29, 1983. McPherson's
last day of work was August 12, 1983, although his salary and
benefits continued through February 16, 1984. McPherson
attributes his dismissal to personal differences with two senior
executives.
McPherson had worked at the Company since 1959 and was
a vested participant in the Employees' Pension Plan of American
1
. See also Anthuis v. Colt Indus. Operating Corp., 971 F.2d
999, 1011 (3d Cir. 1992); Schake v. Colt Indus. Operating Corp.
Severance Plan, 960 F.2d 1187, 1193 (3d Cir. 1992); Bell v.
United Princeton Properties, Inc., 884 F.2d 713, 724-25 (3d Cir.
1989); Monkelis v. Mobay Chemical, 827 F.2d 935, 936 (3d Cir.
1987); Groves v. Modified Retirement Plan, 803 F.2d 109, 119-20
(3d Cir. 1986).
Re-Insurance Company ("the Plan"), a single-employer defined-
benefit plan, which was qualified under 26 U.S.C. § 401(a).
McPherson had various options for receiving his Plan benefits,
among which was a lump-sum distribution of $182,837 when he
turned 55 on January 8, 1987. Lump-sum distributions needed the
approval of the Pension Committee of Employees' Pension Plan
("the Committee"), which was required by § 6.4 of the Plan to
evaluate requests in "a uniform and nondiscriminatory manner."
McPherson wrote a letter to a member of the Committee
in October 1986, in which he asked whether "the lump sum option
is available to me." McPherson was told in a letter dated
November 5, 1986, that "a lump sum is available to eligible
participants" and that "[e]ligibility includes proof of good
health, financial stability, etc." McPherson wrote back on
December 11, 1986, offering to provide any necessary information.
A Committee member sent a letter to McPherson on December 29,
1986, which specified the proof of health and financial stability
that the Committee would require, but cautioned "that a lump sum
benefit has never been granted to anyone under the age of sixty-
two." McPherson submitted the requested documentation to the
Committee on January 19, 1987.
McPherson's request to the Committee for a lump-sum
distribution was the tenth since 1974; the Committee had approved
the nine others. In considering the nine previous requests for
lump-sum distributions, the Committee had sometimes looked to two
criteria: good health and financial stability on the part of the
applicant. The good health requirement was said to be designed
to prevent a selection pattern that might undermine the financial
stability of the Plan -- a pattern in which terminally ill
participants would request distributions on their deathbeds while
healthy participants would not request distributions and continue
to receive benefits throughout their lengthy retirements. The
financial stability requirement aimed to ensure that
beneficiaries had sufficient sophistication to manage a lump-sum
distribution.
The Committee informed McPherson in a letter dated
April 10, 1987, that it had denied his request for a lump-sum
distribution. The Committee explained that "lump sum benefits
will only be granted to those qualified participants at the time
of retirement from active employment," and McPherson was thus
ineligible because he still held the job that he had taken after
the Company fired him in 1983.
McPherson renewed his request for a lump-sum
distribution on June 29, 1990. The Committee denied his request
on October 23, 1990, saying that lump-sum distributions were
available only to employees who retired directly from the Company
when they were older than 55.
McPherson brought suit in district court under ERISA
against the Plan and the Committee to obtain a lump-sum
distribution on December 18, 1990, and was granted summary
judgment on October 16, 1992. The district court concluded that
the denial of McPherson's request for a lump-sum distribution was
"arbitrary and capricious" and not "supported by a rational
explanation." As the district court later wrote:
[D]efendants. . . provided [the court
with] essentially three reasons for the
Committee's decision denying . . . plaintiff
from receiving lump sum benefit payments
. . . : (1) the potentially destabilizing
effect on Plan assets; (2) . . . allowing
more employees to receive lump sums would
undermine the Plan's investment strategy; and
(3) . . . allowing "non-retiring" employees
to receive their benefits in lump sums would
contravene the primary purpose of the Plan
which was to provide post-retirement income.
Th[is] Court concluded that the
Committee's concerns regarding the Plan's
solvency and investment strategy were
unsupported when viewing the overall size and
financial soundness of the Plan. Th[is]
Court also found that the Committee's goal of
providing post-retirement income would not be
undermined by providing lump sum benefits to
retirement aged participants who had left the
company earlier in their careers.
McPherson sought attorney's fees and costs. After
setting forth the five Ursic factors, the district court denied
McPherson's motion with the following comments:
There is no indication that the
Committee acted in bad faith in denying
plaintiff's lump sum benefit request, thus
there appears to be no need to deter such
conduct by defendants. Although the Court's
inquiry into the Committee's decision-making
process revealed that its decision was
unsupported by the record, that inquiry did
not reveal any sinister motive which led to
the Committee's improper determination.
It also appears that plaintiff's success
was neither intended to benefit other Plan
members, nor will it do so in the future.
Subsequent to plaintiff requesting a lump sum
benefit, the section of the Plan governing
lump sum payments was amended, thus (1)
restricting lump sum payments to employees
who "retire directly" from the Company . . .;
and (2) removing the discretion of the
Committee to approve or reject such requests.
Furthermore, the Committee's decision,
made in response to a novel situation, was
not so clearly lacking in merit to warrant
the imposition of fees.
Although it is clear that defendants
could easily pay plaintiff's attorneys' fees,
that lone factor does not justify such an
award.
The district court thus concluded that the sole Ursic factor
favoring an award was the ability of the defendants to pay; the
other fours factors counseled against an award.
McPherson now appeals. Subject matter jurisdiction
exists under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e) and
appellate jurisdiction under 28 U.S.C. § 1291. "An award of
. . . attorneys' fees to a prevailing plaintiff in an ERISA case
is within the discretion of the district court and may only be
reversed for abuse of discretion." Schake v. Colt Indus.
Operating Corp. Severance Plan, 960 F.2d 1187, 1190 (3d Cir.
1992). "Our review of the legal standards a district court
applies in the exercise of its discretion is, however, plenary."
Ellison v. Shenango Inc. Pension Bd., 956 F.2d 1268, 1273 (3d
Cir. 1992).
II.
Both McPherson and the Plan agree that the second Ursic
factor -- "the ability of the offending parties to satisfy an
award of attorneys' fees" -- favors an award. As for the fourth
Ursic factor -- "the benefits conferred on members of the pension
plan as a whole" -- the district court quite properly regarded
this factor as weighing against McPherson. The fourth factor
requires consideration of the benefit, if any, that is conferred
on others by the court's judgment. Before McPherson began his
lawsuit, the Plan was amended to limit lump-sum distributions to
participants who retired directly from the Company and to
eliminate the Committee's discretion to approve or deny lump-sum
distributions. McPherson's suit thus held out no possibility of
benefit to other similarly situated Plan members because there
were, and would be, no other similarly situated Plan members.
III.
We thus find no fault with respect to the district
court's application of the second and fourth Ursic factors.
There is an error of law, however, that infects the remainder of
the district court's analysis. As we read the district court's
comments, they appear to reflect a view that the first, third,
and fifth factors cannot favor an award in the absence of a
finding that the defendants have acted with a "sinister motive,"
i.e., that they have acted in "bad faith." We conclude that this
view is inconsistent with the analysis contemplated by Ursic and
that a proper Ursic analysis in this case might result in an
award to McPherson.
The district court concluded that the first Ursic
factor -- "the offending parties' culpability or bad faith" --
did not favor an award of attorneys' fees because "[t]here is no
indication that the Committee acted in bad faith in denying
plaintiff's lump sum benefit request." McPherson insists that
the district court applied an incorrect legal standard: under
Ursic, attorneys' fees may be awarded where there was
"culpability or bad faith," but the district court only
considered whether there was bad faith. We agree.
The first Ursic factor favors an award to the
prevailing party not only in cases involving "bad faith" but in
other cases as well. As the district court recognized, bad faith
normally connotes an ulterior motive or sinister purpose. Ford
v. Temple Hosp., 790 F.2d 342, 347 (3d Cir. 1986). A losing
party may be culpable, however, without having acted with an
ulterior motive. In a civil context, culpable conduct is
commonly understood to mean conduct that is "blameable;
censurable; . . . at fault; involving the breach of a legal duty
or the commission of a fault. . . . Such conduct normally
involves something more than simple negligence. . . . [On the
other hand, it] implies that the act or conduct spoken of is
reprehensible or wrong, but not that it involves malice or a
guilty purpose." Black's Law Dictionary (6th ed. 1990). Thus,
in Vintilla v. United States Steel Corp. Plan, 642 F. Supp. 295,
296-97 (W.D. Pa. 1986), aff'd, 815 F.2d 697 (3d Cir. 1987), cert.
denied, 484 U.S. 847 (1987), for example, the court concluded
with respect to the first Ursic factor: "While we cannot ascribe
bad faith to plaintiffs' efforts, we do find certain elements of
culpability attributable to plaintiffs." Indeed, this court in
Groves v. Modified Retirement Plan, Inc., 803 F.2d 109 (3d Cir.
1986), found an award of counsel fees to be appropriate in an
ERISA case without finding that the defendants had acted with an
ulterior or sinister purpose.
A party is not culpable merely because it has taken a
position that did not prevail in litigation. Nevertheless, if
the district court in this case had asked both whether the
Committee had acted in bad faith and whether it had acted with
culpability, we believe it might have concluded that the first
prong of Ursic favored an award to McPherson.
Two members of the Committee testified in depositions
that they denied McPherson's lump-sum distribution because they
feared that it would threaten the Plan's financial stability. If
this testimony did not reflect bad faith, it at least reflected a
breach of the Committee's fiduciary duty to remain informed
concerning the financial condition of the Plan. The Plan in fact
was overfunded and easily could have accommodated McPherson's
request and the requests of others similarly situated. As the
district court found:
[A]t the end of 1987, the year plaintiff's
initial request was rejected, the total
accrued benefits owed to all participants was
$17,940,000, while the Plan's assets stood at
$43,782,134. Indeed, when plaintiff
submitted his lump sum request during 1987
his $182,382 benefit amount constituted only
.53% of the Plan's assets as of the beginning
of the year. As for the potential for paying
other lump sums to similarly situated
participants, the Plan could have immediately
paid lump sums to all vested terminated
participants, whether or not they had reached
age 55, and used less than one-half of the
Plan's $2,524,941 of interest and dividend
income for 1990 or about 2.7% of the Plan's
assets.
The Committee also misrepresented to McPherson its past
experience with applications for lump-sum distributions. In a
letter dated December 29, 1986, McPherson was told that "a lump-
sum benefit has never been granted to anyone under the age of
sixty-two"; the district court found that two plan participants
had received lump-sum distributions when they were 58. In a
letter dated April 10, 1987, McPherson was informed that "lump
sum benefits will only be granted to those qualified participants
at the time of retirement from active employment"; in 1984, the
Committee approved a lump-sum distribution to a participant who
had left the Company for another job.
One Committee member attributed his opposition to
McPherson's request to the Plan's terms, which he incorrectly
understood to ban lump-sum distributions to participants who had
not retired. Although § 6.2 of the Plan required the Committee
to evaluate requests for lump-sum distributions in "a uniform and
nondiscriminatory manner," a Committee member admitted in a
deposition that the Committee had no written rules on lump-sum
distributions and sometimes used different criteria to evaluate
requests for lump-sum distributions. Three Committee members
admitted in deposition that they were hostile to all lump-sum
distributions, despite the Plan's explicit provision for them.
All but one Committee member who participated in the 1987
decision to deny McPherson's request did not vote in person or
send a written proxy, as § 9.2 of the Plan required. After the
Committee denied McPherson a lump sum distribution in 1987, it
failed to inform him of his right to appeal, as 29 U.S.C. § 1133
required. All members of the Committee had a fiduciary duty to
be aware of the provisions of the Plan and to administer it in
accordance with its terms.
Finally, we note that this case does not appear to
involve a simple lapse of judgment or care on the part of the
defendants. McPherson's two requests for lump-sum distributions
and his lawsuit provided the defendants with repeated
opportunities over a six year period to formulate and reevaluate
their position in light of the terms of the Plan and its
financial condition. Each opportunity, however, appears to have
produced nothing more than new rationales for their ultimately
unsustainable conclusion. Considerable evidence, then, suggests
that the defendants may have been guilty of culpable conduct when
they repeatedly denied McPherson's request for a lump-sum
distribution. If so, the first Ursic factor weighs to some
degree in favor of an award of attorneys' fees. The weight to be
given this factor in the overall Ursic analysis will, of course,
depend on the district court's appraisal of how wrongful any
culpable conduct was.
IV.
A similar difficulty exists with the district court's
analysis of the third Ursic factor -- "the deterrent effect of an
award of attorneys' fees against the offending party." The
district court concluded that "there appears to be no need to
deter such conduct by the defendants" because "[t]here is no
indication that the Committee acted in bad faith." We find this
reasoning flawed.
We believe it will further the objectives of ERISA if
fee awards are employed to deter behavior that falls short of bad
faith conduct. See Kann v. Keystone Resources, Inc. Profit
Sharing Plan, 575 F. Supp. 1084, 1096-97 (W.D.Pa. 1983) (in case
in which "culpability . . . has been shown," fee award will make
plan "less likely and not so quick to deny benefits to other
participants" and thus be "a deterrent factor"). Even if the
Committee did not act in bad faith, the district court should
have considered whether it would serve the objectives of ERISA to
award counsel fees in an effort to deter conduct of the kind in
which the Committee engaged.
The district court's failure to distinguish between
culpability and bad faith also may have affected its analysis of
the fifth Ursic factor -- "the relative merits of the parties'
positions." The district court opinion can be read to reflect a
view that the fifth Ursic factor weighs in favor of an award only
in those situations where the positions taken by the defendants
in the litigation have been so meritless as to evidence bad
faith. As with the first Ursic factor, the fact that the
defendants' positions have not been sustained does not alone put
the fifth factor in the column favoring an award. Nevertheless,
we believe there will be cases in which the relative merits of
the positions of the parties will support an award even in the
absence of bad faith litigating.
V.
We express no opinion as to whether attorneys' fees
should be awarded to McPherson. That will be for the district
court to decide on remand based upon the sound exercise of its
discretion. We hold only that the district court used an
incorrect legal standard to evaluate McPherson's request for
attorneys' fees. When analyzing the first Ursic factor, it
considered only whether the defendants acted in bad faith, not
whether they acted culpably, and, if so, what was the degree of
their culpability. Similar misunderstandings appear to have
infected the district court's analysis of the deterrent effect of
an award of attorneys' fees and its evaluation of the relative
merits of the parties' positions.
We will reverse the district court's order denying
attorneys' fees and costs and will remand for further proceedings
consistent with this opinion.