DocketNumber： 96-1542
Filed Date： 11/19/1996
Status： Precedential
Modified Date： 9/21/2015
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT
_________________________
No. 96-1542
ARTHUR T. COTTRILL,
Plaintiff, Appellant,
v.
SPARROW, JOHNSON & URSILLO, INC., ET AL.,
Defendants, Appellees.
_________________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ernest C. Torres, U.S. District Judge] ___________________
_________________________
Before
Selya, Cyr and Lynch,
Circuit Judges. ______________
_________________________
Jeffrey S. Brenner, with whom Corrente, Brill & Kusinitz, ___________________ ____________________________
Ltd. was on brief, for appellant. ____
Edward C. Roy, with whom Roy & Cook was on brief, for _______________ ___________
appellees.
_________________________
November 19, 1996
_________________________
SELYA, Circuit Judge. We are summoned again to survey SELYA, Circuit Judge. _____________
the battleground on which plaintiff-appellant Arthur T. Cottrill
has been struggling to recover his beneficial interest in a
profit-sharing plan maintained by his former employer, Sparrow,
Johnson & Ursillo, Inc. (SJU).1 In our first visit to the war
zone we determined that Cottrill was not a fiduciary within the
contemplation of the Employee Retirement Income Security Act
(ERISA), 29 U.S.C. 1001-1461 (1994), and specifically, 29
U.S.C. 1002(21)(A). See Cottrill v. SJU, 74 F.3d 20, 22 (1st ___ ________ ___
Cir. 1996). We therefore reversed the district court's contrary
ruling and remanded for the entry of judgment in Cottrill's
favor. See id. ___ ___
The entry of judgment did not end the hostilities.
Cottrill appeals anew, this time contending that the district
court abused its discretion by (1) miscalculating prejudgment
interest, and (2) denying him attorneys' fees. We affirm.
I. I. __
Setting the Stage Setting the Stage _________________
We refrain from rehearsing the facts for two reasons.
First, they are adequately stated in our earlier opinion. See ___
id. at 21. Second, the questions that Cottrill now raises do not ___
pertain directly to the merits of his cause, but concern only
embellishments to the judgment. Thus, after pausing to elucidate
____________________
1The defendants in this case are SJU, its profit-sharing
plan (the Plan), and Steven J. Ursillo (SJU's chief executive
officer and the Plan's trustee). For simplicity's sake, we refer
to them collectively as "the trustee" or "the defendants."
2
the standard of review, we proceed immediately to the appellant's
asseverational array.
Both prejudgment interest and attorneys' fees are
available, but not obligatory, in ERISA cases. See Quesinberry ___ ___________
v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1030 (4th Cir. 1993) ________________________
(en banc) (discussing prejudgment interest); 29 U.S.C.
1132(g)(1) (discussing attorneys' fees). An appellate court
reviews the grant or denial of prejudgment interest in ERISA
cases solely for abuse of discretion. See Smith v. American ___ _____ ________
Int'l Life Assurance Co., 50 F.3d 956, 957 (11th Cir. 1995); __________________________
Anthuis v. Colt Indus. Operating Corp., 971 F.2d 999, 1002 (3d _______ ____________________________
Cir. 1992). The same standard of review obtains in connection
with rulings granting or denying applications for attorneys' fees
under 29 U.S.C. 1132(g)(1). See Thorpe v. Retirement Plan of ___ ______ ___________________
the Pillsbury Co., 80 F.3d 439, 445 (10th Cir. 1996); Gray v. New _________________ ____ ___
Eng. Tel. & Tel. Co., 792 F.2d 251, 259 (1st Cir. 1986). _______________________
Consequently, we will disturb such rulings only if the record
persuades us that the trial court "indulged a serious lapse in
judgment." Texaco P.R., Inc. v. Department of Consumer Affairs, _________________ _______________________________
60 F.3d 867, 875 (1st Cir. 1995); accord Lutheren Med. Ctr. v. ______ ___________________
Contractors, Laborers, Teamsters & Eng'rs Health & Welfare Plan, ________________________________________________________________
25 F.3d 616, 623-24 (8th Cir. 1994).
II. II. ___
Analysis Analysis ________
A. A. __
Prejudgment Interest Prejudgment Interest ____________________
3
In ERISA cases the district court may grant prejudgment
interest in its discretion to prevailing fiduciaries,
beneficiaries, or plan participants. This judicial discretion
encompasses not only the overarching question whether to award
prejudgment interest at all but also subsidiary questions that
arise after the court decides to make an award, including matters
such as the period and rate to be used in calculating interest.
See, e.g., Smith, 50 F.3d at 958. ___ ____ _____
In this instance, the district court awarded
prejudgment interest, but, in Cottrill's estimation, the court
chose an unrealistic accrual date (thereby truncating the period
for which it allowed interest) and then compounded the error by
selecting too miserly an interest rate. We address each of these
complaints in turn.
1. The Date of Accrual. Ordinarily, a cause of action 1. The Date of Accrual. ___________________
under ERISA and prejudgment interest on a plan participant's
claim both accrue when a fiduciary denies a participant benefits.
See, e.g., Larsen v. NMU Pension Trust, 902 F.2d 1069, 1073 (2d ___ ____ ______ __________________
Cir. 1990); Paris v. Profit Sharing Plan for Employees of Howard _____ ___________________________________________
B. Wolf, Inc., 637 F.2d 357, 361 (5th Cir.), cert. denied, 454 _____________ _____ ______
U.S. 836 (1981); Algie v. RCA Global Communications, Inc., 891 F. _____ _______________________________
Supp. 875, 899 (S.D.N.Y. 1994), aff'd, 60 F.3d 956 (2d Cir. _____
1995). Setting the accrual date in this manner not only advances
the general purposes of prejudgment interest, see West Virginia ___ _____________
v. United States, 479 U.S. 305, 310 (1987), but also serves ______________
ERISA's remedial objectives by making a participant whole for the
4
period during which the fiduciary withholds money legally due.
See Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, ___ ______ __________________________________
286 (2d Cir. 1992). Figuring the accrual date in this way also
prevents unjust enrichment. See Sweet v. Consolidated Alum. ___ _____ ___________________
Corp., 913 F.2d 268, 270 (6th Cir. 1990); Short v. Central _____ _____ _______
States, Southeast & Southwest Areas Pension Fund, 729 F.2d 567, _________________________________________________
576 (8th Cir. 1984).
Cottrill asserts that his cause of action accrued on
December 12, 1990, when the lawyer who was handling his divorce
sent a letter to the Plan inquiring into the availability and
value of Cottrill's beneficial interest. The district court saw
matters differently; it found that the cause of action accrued on
December 31, 1991, when the trustee erroneously declared
Cottrill's funds forfeit.
The district court's reasoning is persuasive. The
attorney's letter cannot reasonably be construed as a demand for
funds. It was an inquiry for the purpose of providing
information necessary to the divorce pavane no more, no less.
The defendants' response to this letter confirms our assessment.
Neither in language nor in tone does it presume to deny any
application for benefits, but, rather, merely indicates the
amounts involved and when particular assets would be available
for distribution.
Once past the lawyer's letter, the district court's
determination that the defendants did not deprive Cottrill of his
benefits until they offset his account on December 31, 1991
5
(ostensibly to recoup losses that he occasioned, see Cottrill, 74 ___ ________
F.3d at 21) is virtually inevitable.2 Hence, the court acted
well within its discretion in finding that prejudgment interest
began to accrue on that date.
2. The Rate of Interest. ERISA provides for postjudgment 2. The Rate of Interest. ____________________
interest to be calculated at the federal rate, 28 U.S.C.
1961(a) (1994), but it contains no explicit provision for
prejudgment interest. Here, the district court employed the
federal statutory rate for that purpose. The appellant argues
that the court should have used the (somewhat more munificent)
rate available under Rhode Island law. See R.I. Gen. Laws 9- ___
21-10 (1985) (stipulating a flat rate of 12% per annum). We do
not think that the district court exceeded its discretion in
choosing the federal rate.
____________________
2The appellant disputes the district court's finding that,
prior to year's end, the appellant's money continued to earn
interest. We have two reactions. First, the finding is
unnecessary to the result, for it is the fact that the account
remained untouched, coupled with the absence of a meaningful
turnover demand at an earlier time, that renders the December 31,
1991 date defensible. Second, the court relied upon the
representations of SJU's counsel (uncontradicted by Cottrill's
lawyer) in making this ore tenus finding and invited Cottrill to ___ _____
seek to modify the order if these representations were erroneous.
Cottrill never accepted the invitation. Therefore, he cannot
complain of the finding here. See Dow v. United Bhd. of ___ ___ ________________
Carpenters & Joiners, 1 F.3d 56, 61-62 (1st Cir. 1993) (holding ____________________
that a party who eschewed the court's invitation to seek
discovery if needed waived any subsequent objection to lack of
discovery); Reilly v. United States, 863 F.2d 149, 168 (1st Cir. ______ _____________
1988) (upholding denial of discovery request where supposedly
aggrieved party did not accept the magistrate's invitation to
renew it at a later date); cf. United States v. Schaefer, 87 F.3d ___ _____________ ________
562, 570 n.9 (1st Cir. 1996) (explaining that defendant's failure
to file a motion for reconsideration undercut his later objection
to district court's suppression order).
6
As a general rule, federal law governs the scope of
remedies available when a claim arises under a federal statute,
and this doctrine extends to the rate of prejudgment interest.
See Colon Velez v. Puerto Rico Marine Mgmt., Inc., 957 F.2d 933, ___ ___________ ______________________________
941 (1st Cir. 1992). Of course, if the particular federal
statute is silent, courts have discretion to select an
appropriate rate, and they may look to outside sources, including
state law, for guidance. See id. Because ERISA is inscrutable ___ ___
on the subject, a court that elects to award prejudgment interest
in an ERISA case has broad discretion in choosing a rate. See ___
Hansen v. Continental Ins. Co., 940 F.2d 971, 983-85 (5th Cir. ______ ____________________
1991). In such a situation, equitable considerations should
guide the exercise of judicial discretion. See, e.g., Kinek v. ___ ____ _____
Paramount Communications, Inc., 22 F.3d 503, 514 (2d Cir. 1994); ______________________________
Anthuis, 971 F.2d at 1009. _______
The appellant insists that the lower court departed
from "clear federal appellate court precedent" favoring the use
of state prejudgment interest rates in ERISA cases. He is wrong.
Although federal courts sometimes have looked to state rates for
guidance, see, e.g., Hansen, 940 F.2d at 983-84, they have done ___ ____ ______
so as a matter not of compulsion, but of discretion. Indeed, the
appellant's argument conveniently overlooks numerous ERISA cases
in which federal appellate and district courts have approved use
of the federal statutory rate for prejudgment interest. See, ___
e.g., Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1331 (8th Cir. ____ _______ _________________
1995); Sweet, 913 F.2d at 270; Blanton v. Anzalone, 760 F.2d 989, _____ _______ ________
7
992-93 (9th Cir. 1985); United States v. Mason Tenders Dist. ______________ ____________________
Council, 909 F. Supp. 891, 895 (S.D.N.Y. 1995). _______
We need not tarry. The law confers discretion on the
trial judge, not on the court of appeals. In this instance the
judge chose to use the federal statutory rate in computing
prejudgment interest. Utilizing this rate promotes uniformity in
ERISA cases. Furthermore, the federal rate is an objective
measure of the value of money over time, and the record makes
manifest that, in selecting it, the district judge considered
both the rationale of full compensation and ERISA's underlying
goals. We note, too, that the federal rate is especially
appropriate in this case because the Plan's funds were initially
invested in Treasury bills. See, e.g., Algie, 891 F. Supp. at ___ ____ _____
899 (finding the federal rate appropriate when it more closely
approximated the likely return on the funds withheld). Mindful
of these realities, we do not think that equity demands the use
of a higher rate.
B. B. __
Counsel Fees Counsel Fees ____________
The appellant also challenges the denial of counsel
fees. Congress declared that, in any ERISA claim advanced by a
"participant, beneficiary, or fiduciary, the court in its
discretion may allow a reasonable attorney's fee" to the
prevailing party. 29 U.S.C. 1132(g)(1). Unlike other fee-
shifting statutes, however, ERISA does not provide for a
virtually automatic award of attorneys' fees to prevailing
8
plaintiffs. Instead, fee awards under ERISA are wholly
discretionary. See Gray, 792 F.2d at 259. ___ ____
This discretion is not standardless. To channel its
exercise, this court has cited five basic factors that
customarily should be weighed in the balance: (1) the degree of
culpability or bad faith attributable to the losing party; (2)
the depth of the losing party's pocket, i.e., his or her capacity
to pay an award; (3) the extent (if at all) to which such an
award would deter other persons acting under similar
circumstances; (4) the benefit (if any) that the successful suit
confers on plan participants or beneficiaries generally; and (5)
the relative merit of the parties' positions. See id. at 257-58. ___ ___
Other courts of appeals have compiled strikingly similar lists.
See Eddy v. Colonial Life Ins. Co., 59 F.3d 201, 206 n.10 (D.C. ___ ____ _______________________
Cir. 1995) (collecting cases). The circuits agree that such
compendia are exemplary rather than exclusive. See id. at 206; ___ ___
Quesinberry, 987 F.2d at 1029. An inquiring court may indeed, ___________
should consider additional criteria that seem apropos in a
given case. See Anthuis, 971 F.2d at 1012. In a word, the test ___ _______
for granting or denying counsel fees in an ERISA case is
"flexible." Gray, 792 F.2d at 258. ____
1. Eschewing Presumptions. Several courts of appeals 1. Eschewing Presumptions. ______________________
have declined to adopt a mandatory presumption that attorneys'
fees will be awarded to prevailing plaintiffs in ERISA cases
absent special circumstances. See Eddy, 59 F.3d at 206-07; ___ ____
Florence Nightingale Nursing Serv., Inc. v. Blue Cross/Blue ____________________________________________ _______________
9
Shield, 41 F.3d 1476, 1485-86 (11th Cir.), cert. denied, 115 S. ______ _____ ______
Ct. 2002 (1995); McPherson v. Employees' Pension Plan of Am. Re- _________ __________________________________
Ins. Co., 33 F.3d 253, 254 (3d Cir. 1994); Custer v. Pan Am. Life ________ ______ ____________
Ins. Co., 12 F.3d 410, 422 (4th Cir. 1993); Armistead v. _________ _________
Vernitron Corp., 944 F.2d 1287, 1302 (6th Cir. 1991); Iron ________________ ____
Workers Local #272 v. Bowen, 624 F.2d 1255, 1265-66 (5th Cir. __________________ _____
1980); see also Note, Attorney's Fees Under ERISA: When Is an ___ ____ __________________________________________
Award Appropriate?, 71 Cornell L. Rev. 1037, 1049-55 (1986) ___________________
(arguing against a mandatory presumption). There is, however,
some conflicting authority. See Landro v. Glendenning Motorways, ___ ______ ______________________
Inc., 625 F.2d 1344, 1356 (8th Cir. 1980) (applying mandatory ____
presumption used under civil rights statutes in favor of
prevailing plaintiffs in ERISA cases); see also Bittner v. Sadoff ___ ____ _______ ______
& Rudoy Indus., 728 F.2d 820, 830 (7th Cir. 1984) (adapting ________________
presumption used in Equal Access to Justice Act cases to ERISA
milieu).3
We share the majority view. We hold that, in an ERISA
case, a prevailing plaintiff does not, merely by prevailing,
create a presumption that he or she is entitled to a fee-shifting
award. Our holding flows naturally from the importance of
preserving flexibility in this area of the law. Our holding is,
moreover, adumbrated by our earlier decision in Gray. There, we ____
____________________
3We do not place Smith v. CMTA-IAM Pension Trust, 746 F.2d _____ ______________________
587 (9th Cir. 1984), in this category. Although Smith quotes _____
liberally from a civil rights case, see id. at 589, the opinion ___ ___
does not suggest the use of a mandatory presumption, but merely
applies the five basic factors in light of ERISA's remedial
purposes. See Eddy, 59 F.3d at 207 (reaching the same ___ ____
conclusion).
10
explicitly rejected the creation of a presumption in favor of
prevailing defendants. 792 F.2d at 258. We pointed out that 29
U.S.C. 1132(g)(1) speaks in discretionary terms, and that its
legislative history, unlike that of certain civil rights
statutes, does not support a presumption via- -vis counsel fees.
See Gray, 792 F.2d at 258-59. This rationale suggests to us that ___ ____
a presumption in favor of prevailing plaintiffs also would be
overkill; because the five basic factors have a built-in bias in
favor of prevailing plaintiffs, see id. (recognizing that the ___ ___
second, third, and fourth factors may favor prevailing plaintiffs
moreso than prevailing defendants), the superimposition of a
presumption seems unnecessary as a means of protecting the
legitimate interests of plan beneficiaries and participants.
2. Validity of the Order. Having declined to employ a 2. Validity of the Order. _____________________
mandatory presumption, we turn now to the district court's order.
The appellant contends that the court mishandled the five basic
factors. This contention lacks force.
In terms of the first factor culpability the record
contains no indication that the defendants exhibited bad faith;
they consulted with counsel and conducted a year-long
investigation before offsetting Cottrill's account. Thus, even
though the Plan was ultimately found liable under the statute,
the worst that can be said is that the defendants, confronted
with a sizeable loss attributable to the appellant's imprudence,
misjudged the Plan's legal rights.
The district judge made an additional point, referring
11
to his original finding that Cottrill was the person primarily
responsible for the Plan's substantial losses and deeming this
fact relevant to the issue of attorneys' fees.4 This is out of
the ordinary, for the traditional formulation of the first factor
suggests an inquiry into the bad faith or culpability only of the
losing party. Still, on the odd facts of this case, we cannot
say that the district court's emphasis on the prevailing party's
culpability constitutes an abuse of discretion. Cf. Armistead, ___ _________
944 F.2d at 1304 (finding no abuse of discretion in the absence
of a showing that consideration of other factors would have led
to a different result). At the very least, Cottrill's conduct is
germane as an additional and significant circumstance to be
considered under the flexible standard that governs ERISA fee
applications. See, e.g., Anthuis, 971 F.2d at 1012. ___ ____ _______
The second factor is a non-starter. While evidence
existed that the defendants had funds available and could have
afforded to pay the appellant's fees, this datum has little
relevance here. An inability to afford attorneys' fees may
counsel against an award, see Armistead, 944 F.2d at 1305, but ___ _________
the capacity to pay, by itself, does not justify an award, see ___
Thorpe, 80 F.3d at 445; Tiemeyer v. Community Mut. Ins. Co., 8 ______ ________ ________________________
F.3d 1094, 1102 (6th Cir. 1993), cert. denied, 114 S. Ct. 1371 _____ ______
(1994); Quesinberry, 987 F.2d at 1030. Consequently, the ___________
____________________
4This finding had been made at trial and, although we
reversed the judgment, our decision in no way questioned the
finding of culpability. See Cottrill, 74 F.3d at 21 (chronicling ___ ________
the conduct which informed the lower court's assessment of
culpability).
12
district court did not blunder in finding that the second factor
lacked appreciable significance.
Citing the uniqueness of the situation, the district
court found the third factor generalized deterrence to be a
mixed bag. The court reasoned that an award of fees might deter
the wrongful withholding of accounts by fiduciaries, but that a
denial of fees might deter participants and beneficiaries from
acting recklessly in respect to the assets of employee benefit
plans. The appellant does not make any convincing counter-
argument. While we recognize the deterrent value of fee awards
against errant fiduciaries and attach considerable weight to such
deterrence, we discern no reason on these peculiar facts for
rejecting the district court's analysis of deterrence as an
element here. Given the trial court's superior vantage point,
its evaluative judgments about such case-specific matters are
entitled to substantial respect.
The fourth factor common benefit cuts against the
appellant. His situation is both exotic and fact-dependent;
thus, other participants do not stand to profit from the
appellant's success. This lack of other similarly situated
participants militates against a fee award. See Custer, 12 F.3d ___ ______
at 423.
Last but not least, we address the merits of the
underlying suit. We agree with the court below that the case
13
presented a close question.5 The very fact that an experienced
trial judge originally found in the defendants' favor argues for
a finding that the defendants had a reasonable basis for
contesting Cottrill's entitlement to the funds, even though this
court ultimately ruled against them. Cf. Sierra Club v. ___ ____________
Secretary of the Army, 820 F.2d 513, 519 (1st Cir. 1987) _______________________
(acknowledging in an EAJA case that a party's success in the
district court is some evidence that its position was justified);
Porter v. Heckler, 780 F.2d 920, 922 (11th Cir. 1986) (similar). ______ _______
The fifth factor, then, is something of a wash.
The bottom line is that the district court applied the
conventional five-factor test in an acceptable manner and added
idiosyncratic features to it in a reasonable way. The court
recognized that a successful plaintiff in an ERISA case more
often than not should recover attorneys' fees, but concluded for
reasons fully articulated in the record that this claim fell on
the other side of the border. If writing on a pristine page, we
might have weighed the mix of factors differently but that is
____________________
5In our prior opinion we wrote that "there was no possible
basis for the [district] court's conclusion that Cottrill was a
fiduciary." Cottrill, 74 F.3d at 22. The appellant seizes upon ________
this remark as proof that the merits were open and shut. But the
appellant wrests this statement from its contextual moorings.
Fairly read, the comment capped the preceding analysis which,
examined in context, illustrated the uncertainty of who is a
fiduciary under ERISA. This was a reasonably close case and,
just as we have warned that a judicial decision cannot be
transmogrified by placing overly great reliance on an awkward
locution contained in a trial court's opinion, see Dopp v. ___ ____
Pritzker, 38 F.3d 1239, 1244 n.5 (1st Cir. 1994); Lenn v. ________ ____
Portland Sch. Comm., 998 F.2d 1083, 1088 n.4 (1st Cir. 1993), so, ___________________
too, we are wary of a party's attempts to attach portentous
significance to an appellate court's use of isolated phraseology.
14
beside the point. Absent a mistake of law or a clear error in
judgment neither of which is evident here we must defer to
the trial court's first-hand knowledge and to its battlefield
determination that the specific facts of this case do not warrant
a fee award. See Florence Nightingale, 41 F.3d at 1485; Gray, ___ _____________________ ____
792 F.2d at 260.
III. III. ____
Conclusion Conclusion __________
We need go no further. The rulings of which the
appellant complains were well within the realm of the trial
court's discretion. The appellant, once victorious, is now
vanquished. He perhaps should have quit while he was ahead.
Affirmed. Affirmed. ________
15
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