Sedlack v. Braswell Services , 134 F.3d 219 ( 1998 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ROBERT E. SEDLACK,
Plaintiff-Appellant,
v.
No. 96-2650
BRASWELL SERVICES GROUP,
INCORPORATED, a/k/a Braswell Group
Inc.,
Defendant-Appellee.
ROBERT E. SEDLACK,
Plaintiff-Appellee,
v.
No. 96-2651
BRASWELL SERVICES GROUP,
INCORPORATED, a/k/a Braswell Group
Inc.,
Defendant-Appellant.
Appeals from the United States District Court
for the District of South Carolina, at Charleston.
David C. Norton, District Judge.
(CA-95-674-2-18)
Argued: October 29, 1997
Decided: January 12, 1998
Before WIDENER and ERVIN, Circuit Judges, and
PHILLIPS, Senior Circuit Judge.
_________________________________________________________________
Affirmed by published opinion. Senior Judge Phillips wrote the opin-
ion, in which Judge Widener and Judge Ervin joined.
_________________________________________________________________
COUNSEL
ARGUED: Annette Roney Drachman, LADDAGA & DRACHMAN,
P.A., Charleston, South Carolina, for Appellant. Robert Thomas
Lyles, Jr., OGLETREE, DEAKINS, NASH, SMOAK & STEWART,
P.C., Charleston, South Carolina, for Appellee. ON BRIEF: Linda C.
Garrett, LADDAGA & DRACHMAN, P.A., Charleston, South Caro-
lina, for Appellant.
_________________________________________________________________
OPINION
PHILLIPS, Senior Circuit Judge:
This case arose out of Braswell Group's ("Braswell") handling and
denial of Robert E. Sedlack's claims for benefits under an ERISA
employee benefit plan sponsored and administered by Braswell ("the
Plan"). Sedlack, a former Braswell employee, sued Braswell alleging
wrongful denial of benefits, breach of fiduciary duty, failure to pro-
vide requested Plan information, and unreasonable claims practices.
After a bench trial, the district court found for Braswell on all claims
except Sedlack's claim for failure to provide requested Plan informa-
tion, as to which the court found Braswell liable and awarded a statu-
tory penalty. The court then denied Sedlack's motion for attorney's
fees. Sedlack appealed, Braswell cross-appealed and we affirm on
both the appeal and the cross-appeal.
I
The case originated in Sedlack's allegations of an injury he claimed
to have sustained on April 16, 1991, from a slip and fall on a set of
stairs on the vessel SNELL where he was working for Braswell.
Claiming injury from the incident, Sedlack filed for benefits under the
Longshore and Harbor Worker's Compensation Act ("LHWCA").
When Braswell disputed Sedlack's version of the incident, the claim
2
was presented for decision to an Administrative Law Judge ("ALJ").
Among the issues before the ALJ was "[whether] an injury occurred
on April 16, 199[1]." On directly conflicting evidence as to whether
any slip and fall injury occurred as claimed by Sedlack, the ALJ
denied benefits, finding "that the alleged accident did not occur as
stated by [Sedlack]."
On September 15, 1994, Sedlack's attorney requested a copy of the
Plan from Braswell. A copy was only provided on February 29, 1996.
In the meantime, Sedlack had filed with Braswell a claim for benefits
under the Plan based upon the injury allegedly sustained in the
April 16, 1991 accident. Braswell administratively denied the claim,
relying on Sedlack's assertion that the accident was work-related and
the Plan's exclusion of benefits for work-related claims. Sedlack then
brought this ERISA action under 29 U.S.C. § 1132 claiming that
Braswell had (1) wrongfully denied his claims; (2) breached its fidu-
ciary duty to Sedlack; (3) failed to comply with Sedlack's request for
a copy of the Plan ("§ 1132(c) claim"); and (4) engaged in unreason-
able claims practices. The action was tried to the district court without
a jury and the district court found against Sedlack on all claims except
the § 1132(c) claim; on that claim, the trial court ordered Braswell to
pay penalties of $20 per day for the 531 days between September 15,
1994 (when Sedlack requested the Plan) and February 29, 1996 (when
Braswell made the Plan available). Following entry of judgment, the
district court denied Braswell's motion for reconsideration and
Sedlack's motion for attorney's fees.
Sedlack then appealed from those portions of the judgment that
rejected his wrongful denial of benefits, breach of fiduciary duty and
unreasonable practices claims and that denied his motion for attor-
ney's fees. Braswell cross-appealed from the portion of the judgment
allowing the § 1132(c) claim and imposing the penalty as remedy.
II
We review the district court's conclusions of law de novo, its fac-
tual findings under the clearly erroneous standard, and its imposition
of penalties and refusal to award attorney's fees for abuse of discre-
tion. See West v. Clarke Murphy, Jr. Self Employed Pension Plan, 99
F.3d 166, 167 (4th Cir. 1996); Glocker v. W.R. Grace & Co., 974 F.2d
3
540, 544 (4th Cir. 1992) (penalties); Quesinberry v. Life Ins. Co. of
N. Am., 987 F.2d 1017, 1028 (4th Cir. 1993) (fees).
A
Braswell denied Sedlack's claims for benefits on the grounds that
they were excluded by the Plan's work-related claims exclusion. That
provision excludes "[c]harges arising out of or in the course of any
occupation for wage or profit, or for which the Covered Person is
entitled to benefit under any Worker's Compensation or Occupational
Disease Law, or any such similar law."
The parties agree that although Braswell had authority to interpret
the Plan, it was acting under a conflict of interest and that its decision
to deny benefits should therefore be reviewed under a modified abuse
of discretion standard. See Firestone Tire & Rubber Co. v. Bruch, 489
U.S. 101, 115 (1989) ("[I]f a benefit plan gives discretion to an
administrator or fiduciary who is operating under a conflict of inter-
est, that conflict must be weighed as a facto[r] in determining whether
there is an abuse of discretion.") (quotation omitted).
The district court noted that throughout the LHWCA litigation and
this case, Sedlack had consistently alleged that he was injured while
working for Braswell aboard the SNELL. On that basis, the court con-
cluded that Sedlack's own allegations established the applicability of
the work-related claims exclusion. Sedlack challenges that ruling
arguing that collateral estoppel bars operation of the work-related
claims exclusion to defeat his claim, because the adverse decision in
his LHWCA proceeding determined that his alleged injury was not
work-related. We disagree.
Collateral estoppel forecloses "the relitigation of issues of fact or
law that are identical to issues which have been actually determined
and necessarily decided in prior litigation in which the party against
whom [issue preclusion] is asserted had a full and fair opportunity to
litigate." Ramsay v. INS, 14 F.3d 206, 210 (4th Cir. 1994) (quotation
omitted). For collateral estoppel to apply, the proponent must estab-
lish that: (1) the issue sought to be precluded is identical to one previ-
ously litigated; (2) the issue must have been actually determined in
the prior proceeding; (3) determination of the issue must have been
4
a critical and necessary part of the decision in the prior proceeding;
(4) the prior judgment must be final and valid; and (5) the party
against whom estoppel is asserted must have had a full and fair oppor-
tunity to litigate the issue in the previous forum. See id.
Sedlack's invocation of issue preclusion fails on the "identity of
issues" and "actually determined" requirements. The dispositive issue
in the LHWCA proceeding before the ALJ was not whether the acci-
dent was work-related, but rather, "[whether] an injury occurred on
April 16, 199[1]." Sedlack argues that the ALJ's finding that the acci-
dent did not occur as alleged by Sedlack was a finding that the acci-
dent was not work-related. The ALJ, however, made no findings as
to the work-related or non-work-related nature of the alleged accident.
The ALJ found simply "that the alleged accident did not occur as
stated by [Sedlack]." Accordingly, the issue whether the injury was
work-related was neither before the ALJ nor decided in the LHWCA
litigation; collateral estoppel, therefore, cannot bar application of the
work-related claims exclusion.1
Next, Sedlack argues that judicial estoppel bars Braswell from
claiming that he suffered a work-related injury."Judicial estoppel pre-
cludes a party from adopting a position that is inconsistent with a
stance taken in prior litigation," John S. Clark Co. v. Faggert & Frie-
den P.C., 65 F.3d 26, 28 (4th Cir. 1995), and is designed to prevent
a party from "playing fast and loose" with the courts and "protect the
essential integrity of the judicial process." Allen v. Zurich Ins. Co.,
667 F.2d 1162, 1166 (4th Cir. 1982). Although "[c]ourts have had dif-
ficulty in formulating a specific test for determining when judicial
estoppel should be applied," at least three elements must always be
satisfied. Lowery v. Stovall, 92 F.3d 219, 223-24 (4th Cir. 1996), cert.
denied, 117 S. Ct. 954 (1997). First, the party sought to be estopped
must assert a position inconsistent with that taken in prior litigation
and the position must be one of fact rather than law or legal theory.
Id. at 224. Second, the prior inconsistent position must have been
accepted by the court. Id. And third, the party sought to be estopped
must intentionally have misled the court to gain unfair advantage. Id.
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1 Braswell further argues that collateral estoppel may not be used to
modify the terms of an ERISA plan. Since we find that the elements of
collateral estoppel are not met, we need not address this issue.
5
Here, our inquiry need go no further than the first element. In the
LHWCA case, Braswell argued that the accident did not occur. In this
litigation, Braswell argued that if the accident occurred, it was work-
related. Since these positions are not inconsistent, judicial estoppel
cannot apply.
Finally, Sedlack argues that Braswell "failed to establish a causal
connection between the loss claimed and the exclusion being
applied." According to Sedlack, in order for the work-related claims
exclusion to apply, Braswell must prove that Sedlack's injury was
caused by a work-related accident. Even if such a requirement existed
generally, it could not apply where, as here, Sedlack himself alleges
his injury was work-related.
B
29 U.S.C. § 1104(a) sets forth the obligations of plan fiduciaries,
requiring them to act "solely in the interest of the participants and
beneficiaries" and "for the exclusive purpose of . . . providing benefits
to participants and their beneficiaries." 29 U.S.C. § 1104.2 Sedlack
contends that Braswell breached its fiduciary duty by advising its
Claims Supervisor not to pay his claims. Since adherence to an
ERISA controlled plan is not a breach of fiduciary duty, see Dzinglski
v. Weirton Steel Corp., 875 F.2d 1075, 1080 (4th Cir.), cert. denied,
493 U.S. 919 (1989), Braswell did not breach its fiduciary duty by
denying Sedlack's claims pursuant to a Plan exclusion.
Sedlack also contends that Braswell breached its fiduciary duty by
(1) denying his claims "based on [Sedlack's] statements and on testi-
mony that he had been injured in the course of his employment" and
ignoring its own investigation which revealed Sedlack was not injured
on the job and by (2) misrepresenting the fact that it had denied
Sedlack's claims. As Braswell points out, however, even if these alle-
gations are supported by the facts and the acts alleged constitute
breaches of fiduciary duty, Sedlack's action still must fail. As found
above, Sedlack's claims are excluded by the work-related claims
exclusion. Since he is not entitled to benefits, there is no causal link
_________________________________________________________________
2 Braswell concedes it was a plan fiduciary.
6
between Braswell's alleged breaches of fiduciary duty and the harm
for which Sedlack seeks to recover. See Hein v. FDIC, 88 F.3d 210,
224-25 (3d Cir. 1996), cert. denied, 117 S. Ct. 683 (1997).3
C
Sedlack alleged that Braswell violated 29 U.S.C.§ 1133 and
engaged in unreasonable claims practices by failing to notify him of
its reasons for denying his claims. He further alleged that "through its
unreasonable claims practice" Braswell "directly and proximately
injured the Sedlack . . . in the amount of unpaid medical bills." (Id.)
Section 1133 requires that every plan "provide adequate notice in
writing to any participant or beneficiary whose claim for benefits
under the plan has been denied, setting forth the specific reasons for
such denial, written in a manner calculated to be understood by the
participant." 29 U.S.C. § 1133(1). Although the district court found
that Braswell's notices were defective, it held that Sedlack could not
recover for unreasonable claims practices because a breach of section
1133 does not provide a claimant with any new substantive rights.
"Where, as here," the district court concluded, "Sedlack's claim is not
covered, Braswell's breach of section 1133 would not entitle him to
benefits or to an award of damages." This reasoning is sound and sup-
ported by persuasive judicial authority. See Ashenbaugh v. Crucible
Inc., 1975 Salaried Retirement Plan, 854 F.2d 1516, 1532 (3d Cir.
1988) (noting "general principle" that "an employer's or plan's failure
to comply with ERISA's procedural requirements does not entitle a
claimant to a substantive remedy"), cert. denied, 490 U.S. 1105
(1989); Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1096 (9th Cir.
1985) ("A substantive remedy would be appropriate only if the proce-
dural defects caused a substantive violation or themselves worked a
substantive harm.").
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3 Although Sedlack's complaint sought "equitable or remedial relief"
on his breach of fiduciary duty claim, it is unclear what equitable relief
would be appropriate. In the course of this litigation, Sedlack seems to
have focused his efforts exclusively on obtaining monetary relief in the
amount of the benefits allegedly due him.
7
D
29 U.S.C. § 1024(b)(4) provides that a plan administrator "shall,
upon written request of any participant or beneficiary, furnish a copy
of the latest updated summary plan description, plan description, and
the latest annual report, any terminal report, the bargaining agree-
ment, trust agreement, contract, or other instruments under which the
plan is established or operated." 29 U.S.C. § 1132(c) provides that if
the administrator fails to supply the requested information within
thirty days, he may be liable to the participant in the amount of up to
$100 per day.
Finding that Braswell had not complied with counsel's request for
Plan information, the district court imposed a penalty on Braswell in
the amount of $20.00 per day for five hundred thirty-one days. Bras-
well challenges the district court's imposition of a penalty citing
Firestone, 489 U.S. 101 (1989), and arguing that Sedlack was not a
"participant" within the meaning of 29 U.S.C.§ 1002(7) and thus was
not entitled to receive the requested Plan information.4
Section 1002(7) defines a "participant" as"any employee or former
employee of an employer . . . who is or may become eligible to
receive a benefit of any type from any employee benefit plan which
covers employees of such employer." 29 U.S.C.§ 1002(7). Under
Firestone, a former employee is a "participant" entitled to plan infor-
mation only if the claimant has a "reasonable expectation of returning
to covered employment" or "a colorable claim that (1) he or she will
prevail in a suit for benefits, or that (2) eligibility requirements will
be fulfilled in the future." Firestone, 489 U.S. at 118-19 (quotation
omitted). The requirement that a claim be colorable"is not a stringent
one" and is satisfied if the claim "is arguable and nonfrivolous,
whether or not it would succeed on the merits." Davis v.
Featherstone, 97 F.3d 734, 737-38 (4th Cir. 1996) (quotation omit-
ted).
Here, although Sedlack's claim for benefits was ultimately unsuc-
cessful, it was not entirely frivolous. The ALJ's statement of the issue
_________________________________________________________________
4 Sedlack does not argue that he was a plan "beneficiary."
8
before him and the phrasing of his ultimate conclusion gave Sedlack
room to make a colorable collateral estoppel argument. Furthermore,
Braswell has pointed to no case law directly supporting its argument
that collateral estoppel (if applicable) could not be used to bar it from
contending that the work-related claims exclusion applies.
Braswell argues that even if Sedlack was a "participant," the cir-
cumstances of the case do not warrant the imposition of a penalty.
Two factors guide a district court's discretion in determining whether
to impose penalties under section 1132: prejudice to the plaintiff and
the administrator's conduct in responding to the request for informa-
tion. See id. at 738. Although prejudice is a "pertinent" factor, "it is
not a prerequisite to imposing a penalty." Id.
The district court imposed the penalty, noting that Sedlack's Sep-
tember 15, 1994 request was made in writing to Braswell's General
Counsel, that Braswell did not respond to the request, and that
Sedlack did not obtain the documents until February 29, 1996. In
addition, the district court noted, Sedlack requested a copy of the Plan
during discovery and it was only after a hearing on his motion to
compel that Braswell finally made the Plan available.
Braswell challenges the penalty award, arguing that Sedlack
requested the information "only once" prior to initiating this action
and that his second request was not made until discovery was under-
way. This argument must fail as nothing in the statute requires that
more than one request be made before penalties may be imposed. See
29 U.S.C. § 1132(c).
Noting that the attorney who requested the information "had never,
to Braswell's knowledge, represented Sedlack," Braswell argues that
it declined to produce the information out of concern for "privacy
issues." Braswell offers no support for its suggestion that this "issue"
can excuse its failure to provide Plan information. Moreover, had
Braswell been genuinely concerned about this issue, it would have
been a simple matter to verify the attorney-client relationship.
We dismiss as wholly unpersuasive Braswell's argument that its
failure to provide the documents should be excused because it had
difficulty locating the information since the Plan had not been in
9
effect for two years. Assuming this fact is even relevant, Braswell has
produced no evidence establishing that it even looked for the docu-
ments.
Finally, Braswell asserts that contrary to the district court's conclu-
sion that it did not provide a copy of the Plan until February 29, 1996,
the opportunity to copy the Plan was made available to Sedlack no
later than January 29, 1996. The applicable regulations, however,
required Braswell to provide a copy of the Plan, not merely to make
it available for copying. See 29 C.F.R.§ 2520.104b-1(b)(2).5
We therefore conclude that the district court did not err in awarding
the challenged penalty.
E
The district court must consider five factors in deciding whether to
award attorney's fees under 29 U.S.C. § 1132(g)(1):6 (1) the degree
of opposing parties' culpability or bad faith; (2) the ability of oppos-
ing parties to satisfy a fee award; (3) whether a fee award against the
opposing parties would deter other persons acting under similar cir-
cumstances; (4) whether the parties requesting fees sought to benefit
all participants and beneficiaries of an ERISA plan or to resolve a sig-
nificant legal question regarding ERISA itself; and (5) the relative
merits of the parties' positions. See Quesinberry, 987 F.2d at 1029.
The five-factor test is not a rigid one, but rather provides "general
guidelines" for determining whether to award fees. Id. at 1029.
Sedlack argues that the district court failed to explain why the
Quesinberry factors weighed against a fee award. We disagree. Con-
trary to this suggestion, the district court did indicate why the relevant
factors required that the motion be denied. Furthermore, we note that
_________________________________________________________________
5 29 C.F.R. § 2520.104b-1(b)(2) provides that "materials furnished
upon written request, shall be mailed to an address provided by the
requesting [party] or personally delivered to the participant or benefi-
ciary."
6 Section 1132(g)(1) provides:"In any action under this subchapter . . .
by a participant, beneficiary, or fiduciary, the court in its discretion may
allow a reasonable attorney's fee and costs of action to either party."
10
the relief sought in this case was of a purely personal nature; Sedlack
did not seek to benefit all participants and beneficiaries of an ERISA
plan or to resolve a significant legal question regarding ERISA. Also,
while Braswell failed to provide Sedlack with Plan information, there
does not appear to be any evidence that it did so in bad faith. Finally,
although Sedlack prevailed on one claim, he lost on three; while we
found Sedlack's denial of benefits claim to be colorable, that is all it
was and the claim ultimately failed. Thus, at least three of the five
Quesinberry factors weigh against a fee award. Under these circum-
stances, the district court's decision to deny fees was not an abuse of
discretion.
III
For the above reasons, we affirm the judgment in all respects chal-
lenged by Sedlack's appeal and Braswell's cross-appeal.
SO ORDERED
11