Senese, Lucien G. v. Chicago Area Pension ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 99-3666, 00-1211
Lucien G. Senese,
Plaintiff-Appellant, Cross-Appellee,
v.
Chicago Area I. B. of T. Pension Fund,
Defendant-Appellee, Cross-Appellant.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 382--Warren K. Urbom, Judge./*
Argued October 25, 2000--Decided January 16, 2001
Before Coffey, Diane P. Wood, and Williams, Circuit
Judges.
Williams, Circuit Judge. After a car bombing left
him disabled, Lucien G. Senese sought disability
retirement benefits from the Chicago Area I. B.
of T. Pension Fund ("the Fund"). The Fund awarded
him some, but not all, of the benefits that
Senese claims are due, so he sued the Fund under
Section 502(a)(1)(B) of ERISA. Senese now appeals
the district court’s decision granting judgment
to the Fund on his claim for benefits, which we
affirm. The Fund appeals the court’s decision
denying its motion for Rule 11 sanctions and for
attorneys’ fees under the fee shifting provision
of ERISA, which we affirm in part and reverse in
part.
I
Senese’s injuries occurred in 1990, while he
was employed as secretary-treasurer of Teamsters
Local 703 ("the Local") and as the Fund’s plan
manager and trustee. Despite his injuries, he
continued on the payroll of the Local and the
Fund until December 31, 1991. According to
Senese, he then began the application process for
his disability pension in March 1992 with the
first of many written requests to the Fund for a
pension application form, requests that Senese
says were ignored.
In the meantime, in order to maintain his
health and pension benefits, Senese secured part-
time employment with the Austin J. Merkel
Company, working eight hours a month from June
1992 through February 1993. The Fund trustees
initially determined that the Merkel job did not
qualify as covered employment under the
collective bargaining agreement, and returned the
contributions that Merkel had made on Senese’s
behalf. But after Senese presented evidence that
his job with Merkel qualified as covered
employment, the Fund reversed its position and
accepted Merkel’s contributions.
Senese eventually received a pension application
from the Fund in May 1993, which Senese claims he
promptly completed and returned to the Fund.
However, the Fund says it had no record of
receiving Senese’s application until sixteen
months later--September 1994--and awarded him
benefits beginning the following month. Senese
requested a review of this decision, insisting
that he was entitled to benefits beginning
January 1992, the month after he left his job
with the Local. Senese also asserted that,
because the Fund delayed sending him an
application, his application date should be
considered to be March 1992, when he first
requested the form.
After conducting a review, the Fund trustees
determined that Senese did not actually retire
for purposes of his pension until the Merkel job
ended in February 1993. However, because Senese
could have submitted a completed application form
in May 1993 (when the Fund first sent him the
form), the trustees adjusted his effective date
from October 1994 to June 1993 and awarded him
benefits for an additional sixteen months.
Not satisfied with this adjustment, Senese filed
suit, claiming an improper denial of benefits
under sec. 502(a) (1)(B) of ERISA, 29 U.S.C. sec.
1132(a)(1)(B). In his Second Amended Complaint,
Senese claimed that he was owed retirement
benefits and interest for the five months in 1992
after he retired from the Local and before he
began the Merkel job (January through May of
1992). He also claimed interest on the additional
sixteen months of benefits that the Fund awarded
him after it adjusted his application date to May
1993.
The Fund responded with a draft Rule 11 motion
for sanctions, asserting that the Second Amended
Complaint was unsupported by the facts or a
reasonable investigation of the facts and law, in
part because Senese’s 1992 employment with Merkel
precluded his claim for earlier benefits. Senese
declined to withdraw the complaint, but after
discovery, and two weeks before trial, Senese
abandoned any claim for benefits before his
retirement from Merkel. Instead, in his proposed
pretrial order, he claimed benefits for March,
April, and May 1993--the period between the time
that he left the Merkel job and the adjusted
eligibility date determined by the trustees. This
claim was based on his theory that his delayed
application should not foreclose earlier benefits
because his 1992 letters requesting application
forms should have been counted for determining
his application date, or alternately, that when
an application is delayed, both the plan and the
summary plan description provide automatic
retroactive benefits.
At trial, however, Senese added a twist to his
theory about retroactive benefits, arguing for
the first time that there was a direct conflict
between the plan and summary plan descriptions on
this issue. According to Senese, when an
application is delayed, the summary plan
description provides for automatic retroactive
benefits. And although the underlying plan
document had been amended years earlier to add a
"good cause" requirement for the payment of
retroactive benefits, the summary plan
description was not updated to reflect that
amendment. Thus, Senese argued that because of
this direct conflict, the summary controlled, and
he was entitled to retroactive benefits for
March, April, and May 1993 without any showing of
good cause for his delay in submitting an
application.
At the close of Senese’s evidence, the Fund
moved for judgment as a matter of law, which the
district court granted. The court held that the
trustees were not arbitrary or capricious in
determining that, because Senese did not actually
file an application until May 1993, he was
eligible for benefits no earlier than June 1993.
As to Senese’s claim that the summary plan
provision overrode the pension plan provision on
the issue of retroactive benefits, the court held
that this theory was not properly before the
court because it was not raised in any pleadings
or approved pretrial order before the court, and
because it had not been raised before the Fund
trustees. The court also held that, even had the
issue properly been before it, it would not have
found a direct conflict between the plan and
summary plan descriptions. Finally, the court
held that, because the plan did not provide for
interest, Senese was not entitled to interest on
the sixteen additional months of benefits that
were paid after the Fund adjusted his application
date. The court then denied the Fund’s motions
for sanctions against Senese and his attorney
under Rule 11 of the Federal Rules of Civil
Procedure and for attorneys’ fees and costs under
the fee shifting provision of ERISA, 29 U.S.C.
sec. 1132(g)(1). Both parties appealed.
II
A. Senese’s appeal
Senese’s principal argument on appeal is that
the district court erred in determining that
there was no conflict between the plan and
summary plan descriptions regarding a
beneficiary’s entitlement to retroactive benefits
when an application is delayed. Senese also
asserts that his failure to present this theory
to the Fund trustees is not fatal because, he
argues, ERISA requires only claim exhaustion, not
issue exhaustion.
However, Senese ignores the district court’s
alternate ground for rejecting Senese’s argument
about the summary plan description--that this
theory was not properly before the court because
it was not contained in his pleadings or any
approved pretrial order. Senese’s failure to
advance on appeal any arguments with respect to
this alternate ground means that any challenge to
that ground is waived, see Williams v. Leach, 938
F.2d 769, 772-73 (7th Cir. 1991), and because
affirmance of the district court’s alternate
ground is dispositive of his appeal, see id.;
Kauthar SDN BHD v. Sternberg, 149 F.3d 659, 667-
68 (7th Cir. 1998); Cook v. Navistar Int’l
Transp. Corp., 940 F.2d 207, 214-15 (7th Cir.
1991), we decline to explore the merits of
Senese’s arguments regarding ERISA exhaustion
requirements or the purported conflict between
the plan and summary plan descriptions./1
Accordingly, we affirm the district court’s
decision granting judgment to the Fund on
Senese’s claim for benefits.
B. The Fund’s appeal
The Fund argues on appeal that the district
court erred in denying its motions for Rule 11
sanctions and for attorneys’ fees under ERISA,
asserting that Senese had no legal or factual
basis for his claim for 1992 benefits or for
interest on unpaid and delayed benefits, and that
the lawsuit was filed for an improper purpose--
namely, to obtain an advantage in the Local’s
elections in favor of candidates supported by
Senese.
1. Rule 11 sanctions
Rule 11 authorizes a district court to impose
sanctions on lawyers or parties (or both) for
submissions that are filed for an improper
purpose or without a reasonable investigation of
the facts and law necessary to support their
claims. See Fed. R. Civ. P. 11(b), (c); Fries v.
Helsper, 146 F.3d 452, 458 (7th Cir. 1998); Mars
Steel Corp. v. Continental Bank N.A., 880 F.2d
928, 932-33 (7th Cir. 1989) (en banc). We review
the district court’s determination on Rule 11
sanctions for an abuse of discretion. Mars Steel,
880 F.2d at 933. However, deferential review does
not mean automatic affirmance. In re Excello
Press, Inc., 967 F.2d 1109, 1112 (7th Cir. 1992);
Mars Steel, 880 F.2d at 933. "While we must
afford deference to the district court’s
’substantial familiarity . . . with the
proceedings,’ we must also find a fair
relationship between the record and the district
court’s perception of the proceedings." In re
Ronco, Inc., 838 F.2d 212, 218 (7th Cir. 1988)
(citations omitted). A denial of sanctions based
on a clearly erroneous assessment of the evidence
is an abuse of discretion. See Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 405 (1990); Katz v.
Household Int’l, Inc., 36 F.3d 670, 673 (7th Cir.
1994).
With these standards in mind, we turn now to
the Fund’s three arguments in support of Rule 11
sanctions: (1) that Senese and his counsel knew
or should have known that his claim for 1992
benefits was unsupported by evidence; (2) that
Senese’s claim for interest on delayed and unpaid
benefits was objectively unreasonable; and (3)
that the lawsuit was brought for an improper
purpose. First, with respect to the claim for
1992 benefits, the district court held that it
"was not prepared to conclude that at the time
the second amended complaint was filed in this
litigation, the plaintiff or his attorney had
reason to believe that the allegations were not
supported by evidence." We think the court’s
assessment of the evidence was clearly erroneous.
Under the plan and summary plan documents, a
beneficiary is eligible for retirement benefits
no earlier than (1) the "complete cessation" of
covered employment and (2) his receipt of Social
Security disability benefits. If these
requirements are met, benefits are payable the
month following the Fund’s receipt of the
beneficiary’s application (although retroactive
benefits may be available for delayed
applications). Senese was no stranger to these
plan requirements; he was plan manager and
trustee for several years before his injury. And
Senese had to know that the Merkel job was
covered employment for purposes of pension
eligibility because he successfully waged a
battle with the trustees to have the Merkel job
so classified. Accordingly, there can be no doubt
that Senese knew that he had not completely
ceased covered employment, and that, therefore,
he did not meet the plan requirements for the
period claimed in the complaint.
In his briefs on appeal, Senese completely
fails to address the question of how he could
have been entitled to retirement benefits for a
period before he retired./2 Instead, he argues
that he had a good-faith basis for his theory
that his delayed application should not have
foreclosed his receipt of 1992 benefits because
of the Fund’s delay in sending the application
and because the summary plan description mandated
retroactive benefits. But all of this is
irrelevant given our conclusion that he had to
have known that his continued work in covered
employment independently barred his claim for
1992 benefits.
Based on the facts known to Senese (and with
reasonable investigation, should have been known
to his lawyer), neither Senese nor his lawyer
could have reasonably believed, at the time the
Second Amended Complaint was filed, that the
evidence supported Senese’s claim to 1992
benefits. The district court’s conclusion to the
contrary was clearly erroneous, and under these
circumstances, sanctions were warranted.
The Fund next complains that Senese lacked a
reasonable basis for his claim, under sec.
502(a)(1)(B) of ERISA, 29 U.S.C. sec.
1132(a)(1)(B), for interest on the sixteen months
of benefits that were eventually awarded by the
trustees after they adjusted his eligibility date
to June 1993. According to the Fund, this claim
was frivolous because the plan did not provide
for interest on delayed benefits. Under ERISA
sec. 502(a)(1)(B), which authorizes suits for
unpaid benefits, plan participants or
beneficiaries may not recover "extracontractual
damages," but instead are limited to recovering
only the benefits specified in the plan. See
Harsch v. Eisenberg, 956 F.2d 651, 655 (7th Cir.
1992) (citing Mass. Mut. Life Ins. Co. v.
Russell, 473 U.S. 134, 144 (1985)); Clair v.
Harris Trust & Savings Bank, 190 F.3d 495, 497
(7th Cir. 1999). Accordingly, in Clair, we held
that a claim solely for interest on delayed
benefits could not be pursued under sec.
502(a)(1)(B) if the plan did not provide for
interest, but we also held that such a claim
could be brought under sec. 502(a)(3)(B) of
ERISA, which allows equitable relief to address
plan violations. 190 F.3d at 497-99. The Fund’s
complaint, therefore, is that Senese sued under
the wrong section of ERISA.
However, merely invoking the wrong statutory
section or legal theory would not have been fatal
to Senese’s complaint. See Teumer v. General
Motors Corp., 34 F.3d 542, 545 (7th Cir. 1994);
Tolle v. Carroll Touch, Inc., 977 F.2d 1129, 1134
(7th Cir. 1992); Bartholet v. Reishauer A.G., 953
F.2d 1073, 1078 (7th Cir. 1992). And at the time
the Second Amended Complaint was filed, there was
at least some uncertainty about the viability of
a claim for interest on delayed benefits under
sec. 502(a)(1)(B). See Fotta v. Trs. of the
United Mine Workers of Am., 165 F.3d 209, 213 n.1
(3d Cir. 1998) (declining to rule out such a
claim). Of course, once that uncertainty was
removed in this circuit in Clair, the claim for
interest on delayed benefits under sec.
502(a)(1)(B) was no longer viable. However, it
appears that neither party was aware of our
decision in Clair until the eve of trial (less
than a month after Clair), and under these
circumstances, we think the district court was
within its discretion in declining to impose
sanctions.
We reach the same conclusion with respect to
the Fund’s argument that Senese’s request for
prejudgment interest on his claim for three
months of unpaid benefits was also frivolous. The
Fund asserts, without analysis, that because
interest is not provided for in the plan, this
request under sec. 502(a)(1)(B) is also
frivolous. But Clair did not address a request
for prejudgment interest accompanying a claim for
unpaid benefits, and a plausible argument could
be made that there is a distinction for purposes
of sec. 502(a)(1)(B) between an award of
prejudgment interest on denied benefits and an
independent action solely to recover interest on
delayed benefits. See Ford v. Uniroyal Pension
Plan, 154 F.3d 613, 618 (6th Cir. 1998) ("Awards
of prejudgment interest pursuant to sec.
1132(a)(1)(B) . . . simply compensate a
beneficiary for the lost interest value of money
wrongly withheld from him or her."); Cefali v.
Buffalo Brass Co., 748 F. Supp. 1011, 1025
(W.D.N.Y. 1990) (noting the distinction between
prejudgment interest and interest on delayed
benefits); DeVito v. Pension Plan of Local 819
I.B.T. Pension Fund, 975 F. Supp. 258, 272
(S.D.N.Y. 1997) (same); but see Hizer v. General
Motors Corp., 888 F. Supp. 1453, 1461 (S.D. Ind.
1995) (concluding that there appears to be "no
rationale for drawing a distinction between
prejudgment interest and interest on delayed
payment"). Whatever the merits of this argument,
it is not so obviously frivolous so as to require
reversal of the district court’s decision that
sanctions were unwarranted. See TMF Tool Co. v.
Muller, 913 F.2d 1185, 1191 (7th Cir. 1990)
(because position was not contrary to controlling
authority from this court, it was not
sanctionable as a mater of law)./3
Finally, the Fund asserts that Senese filed
this lawsuit to harass the Fund and to gain a
political advantage in union elections. Rule 11
may be violated when, even if the claims are well
based in fact and law, parties or their attorneys
bring the action for an improper purpose. Burda
v. M. Ecker Co., 2 F.3d 769, 773-74 (7th Cir.
1993); Mars Steel, 880 F.2d at 931-32. In support
of its claim of bad faith, the Fund asserts that
Senese deposed only the potential witnesses that
had the most knowledge of union-related political
matters, asked many questions in those
depositions that sought political information
unrelated to this lawsuit, and used information
from those depositions to advance his political
ends. The district court, which is in a better
position than we are to judge Senese’s motives,
rejected the Fund’s argument that Senese brought
the lawsuit for an improper purpose. And while we
might have drawn a contrary conclusion, the
Fund’s evidence is insufficient to convince us
that the district court’s finding was clearly
erroneous.
2. Attorneys’ fees
Under ERISA, the district court may in its
discretion award attorneys’ fees to either party.
29 U.S.C. sec. 1132 (g)(1). There is a "modest
presumption" in favor of awarding fees to the
prevailing party, but that presumption may be
rebutted. Harris Trust & Sav. Bank v. Provident
Life & Accident Ins. Co., 57 F.3d 608, 617 (7th
Cir. 1995). An award of fees to a successful
defendant may be denied if the plaintiff’s
position was both "substantially justified"--
meaning something more than non-frivolous, but
something less than meritorious--and taken in
good faith, or if special circumstances make an
award unjust. Id. at 616-17 & n.4; see also
Trustmark Life Ins. Co. v. Univ. of Chicago
Hosps., 207 F.3d 876, 884 (7th Cir. 2000)./4 We
review the district court’s determination for an
abuse of discretion, and will affirm if the
determination has a basis in reason. Bowerman v.
Wal-Mart Stores, Inc., 226 F.3d 574, 592 (7th
Cir. 2000); Little v. Cox’s Supermarkets, 71 F.3d
637, 644 (7th Cir. 1995).
The district court denied the Fund’s motion for
attorneys’ fees based on its finding that
Senese’s claims were substantially justified and
were not pursued in bad faith. We find no abuse
of discretion in the court’s conclusion that
there was no bad faith, and that Senese’s claims
for interest were not entirely groundless.
However, as we discussed above, we conclude that
Senese’s claim for 1992 benefits was frivolous,
and because, with respect to this claim, the
basis of the court’s decision on fees was clearly
erroneous, it was an abuse of discretion./5
III
Accordingly, we Affirm the district court’s
decision granting judgment to the Fund on
Senese’s claim for benefits and interest. We Affirm
in part and Reverse in part the court’s decision
denying the Fund’s motion for Rule 11 sanctions,
and Affirm in part and Reverse in part the court’s
decision denying the Fund’s motion for attorneys’
fees under sec. 502(g)(1) of ERISA. We Remand for
further consideration of the various fees and
sanctions issues on which we reverse. To ensure
an expeditious resolution of these issues, and
because the district judge does not sit in this
circuit, Circuit Rule 36 will apply on remand.
/* The Hon. Warren K. Urbom, United States District
Judge for the District of Nebraska, sitting by
designation.
/1 In any event, Senese’s arguments on the merits of
his claim regarding the summary plan description
are unpersuasive. Even if there was a sufficient
direct conflict between the plan and summary plan
descriptions on the question of retroactive
benefits (an issue we do not decide), the former
controls because Senese has not alleged (or
identified any evidence of) reliance on the
latter. See Clair v. Harris Trust & Sav. Bank,
190 F.3d 495, 499 (7th Cir. 1999); Health Cost
Controls of Ill., Inc. v. Washington, 187 F.3d
703, 711 (7th Cir. 1999). His failure to allege
or offer evidence of reliance comes as no
surprise given that Senese was plan manager at
the time the plan was amended to include the
purportedly conflicting provision.
/2 At oral argument, Senese’s counsel suggested that
Senese thought he was entitled to some sort of
temporary benefits in the interim between his
work for the Local and his work for Merkel, but
counsel has identified no provision in the plan
warranting such an expectation. Her client’s
subjective belief in the righteousness of his
cause is insufficient to satisfy Rule 11; counsel
must make an investigation to determine whether
that subjective belief is reasonably supported by
the facts and law. Mars Steel, 880 F.2d at 932.
/3 Because Senese’s claim for 1992 benefits was
frivolous, the fact that we decline to reverse
the district court’s conclusion on the interest
claims does not get Senese or his counsel off the
hook for Rule 11 purposes. "A litigant cannot
expect to avoid all sanctions under Rule 11
merely because the pleading or motion under
scrutiny was not entirely frivolous." Retired
Chicago Police Ass’n v. Firemen’s Annuity &
Benefit Fund of Chicago, 145 F.3d 929, 935 (7th
Cir. 1998) (quoting Melrose v. Shearson/Am.
Express, Inc., 898 F.2d 1209, 1215 (7th Cir.
1990)); Hill v. Norfolk & W. Ry. Co., 814 F.2d
1192, 1200 (7th Cir. 1987); Frantz v. U.S.
Powerlifting Fed’n, 836 F.2d 1063, 1067 (7th Cir.
1987).
/4 Courts in this circuit may also use a multi-
factored test to determine whether to award
attorneys’ fees. Brewer v. Protexall, Inc., 50
F.3d 453, 458 (7th Cir. 1995). That test
examines: (1) the degree of the offending party’s
culpability or bad faith; (2) the offending
party’s ability to satisfy an award of fees; (3)
whether the award of fees would deter other
persons under similar circumstances; (4) the
amount of benefit conferred on members of the
plan as a whole; and (5) the relative merits of
the parties’ positions. Id.; Harris Trust, 57
F.3d 608, 617 n.5. But because the district court
applied the "substantially justified" test, we
examine its exercise of discretion under that
standard.
/5 The district court made no finding with respect
to special circumstances that might make an award
of fees unjust, and therefore on remand, the
court may take any such circumstances into
account in fixing the amount of attorneys’ fees.
See Little, 71 F.3d at 644-45.