Fotta v. Trustees UMWA

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
12-21-1998
Fotta v. Trustees UMWA
Precedential or Non-Precedential:
Docket 97-3619,97-3663
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Recommended Citation
"Fotta v. Trustees UMWA" (1998). 1998 Decisions. Paper 279.
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Filed December 18, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 97-3619
ABRAHAM FOTTA, individually and on behalf of
all other persons similarly situated,
Appellant/Cross-Appellee
v.
TRUSTEES OF THE UNITED MINE WORKERS OF
AMERICA, HEALTH AND RETIREMENT FUND OF 1974;
MICHAEL H. HOLLAND; DONALD E. PIERCE; ELLIOTT A.
SEGAL; JOSEPH STAHL, II,
No. 97-3663
ABRAHAM FOTTA, individually and on behalf of
all other persons similarly situated,
v.
TRUSTEES OF THE UNITED MINE WORKERS OF
AMERICA, HEALTH AND RETIREMENT FUND OF 1974;
MICHAEL HOLLAND; DONALD PIERCE; ELLIOTT SEGAL;
JOSEPH STAHL, II,
TRUSTEES OF THE UNITED MINE WORKERS OF
AMERICA 1974 PENSION TRUST; MICHAEL HOLLAND;
DONALD PIERCE; ELLIOTT SEGAL and JOSEPH STAHL,
Appellees/Cross-Appellants
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No.: 97-cv-00566)
Argued September 15, 1998
Before: SLOVITER, SCIRICA and ALITO, Circuit Judges
(Filed: December 18, 1998)
Peter M. Suwak (Argued)
Washington, PA 15301
Attorney for Appellant/Cross-
Appellee
Glenda S. Finch
Deputy General Counsel
Christopher F. Clarke (Argued)
Assistant General Counsel
UMWA Health and Retirement
Funds
Office of the General Counsel
Washington, D.C. 20008
Attorneys for Appellees/Cross-
Appellants
OPINION OF THE COURT
SLOVITER, Circuit Judge.
This appeal calls upon us to decide whether the
beneficiary of an employee plan may bring an action under
the Employee Retirement Income Security Act, 29 U.S.C.
S 1001 et seq. ("ERISA") against the plan to recover interest
on benefits the plan paid after some delay, but without the
beneficiary's having sued under ERISA for the benefits.
Relying on both ERISA and state-law theories, Abraham
Fotta brought such an action against the Trustees of the
United Mine Workers of America Health and Retirement
Fund of 1974 ("the Trustees"). The district court dismissed
the ERISA count for failure to state a claim upon which
relief may be granted and dismissed the pendent state
claims without prejudice. Fotta appeals the dismissal of the
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ERISA count and the Trustees cross-appeal to have the
state claims dismissed with prejudice.
I.
Fotta's complaint alleges the following: While employed as
a miner, Fotta was covered by a United Mine Workers-
administered pension plan that provided, among other
things, disability insurance. Fotta suffered a work-related
injury on July 24, 1984, rendering him totally and
permanently disabled. A considerable time after the injury,
and only after the Pennsylvania Supreme Court upheld the
causal relationship between Fotta's work and his disability
under the Pennsylvania Workmen's Compensation Act,
Fotta v. Workmen's Compensation Appeal Board, 626 A.2d
1144, 1147 (Pa. 1993), the Trustees granted Fotta disability
benefits, with an effective date of September 1, 1993. The
Trustees, however, later revised this effective date and
granted Fotta disability benefits effective August 1, 1984.
Accordingly, Fotta received a lump-sum back payment of
$21,600 reflecting disability benefits from August 1, 1984,
to September 1, 1993. Fotta then demanded interest on
this back payment, which the Trustees refused.
Fotta sued the Trustees in the district court for the
Western District of Pennsylvania. The three-count
complaint seeks recovery under ERISA and, alternatively,
under state-law theories of breach of contract and unjust
enrichment. The Trustees moved to dismiss, arguing that
the first count failed to state a claim under ERISA and that
the remaining state-law counts were preempted by S 514(a)
of ERISA, 29 U.S.C. S 1144(a). The district court dismissed
the ERISA count for failure to state a claim and then
dismissed the remaining state-law counts without prejudice
under 28 U.S.C. S 1367, stating that there was no longer
federal jurisdiction over the case. We exercise plenary
review over the district court's grant of a motion to dismiss.
Weiner v. Quaker Oats Co., 129 F.3d 310, 315 (3d Cir.
1997).
II.
This appeal raises an issue of first impression for this
court: whether a beneficiary who has been able to receive
his or her benefits due under an ERISA plan only after
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considerable delay, but without resorting to litigation to
recover that payment, has a cause of action under ERISA.
None of the other circuits has yet addressed the issue
either. The district courts that have addressed the question
are divided: two have held such claims for interest non-
cognizable under ERISA, see Devito v. Pension Plan of Local
819 I.B.T. Pension Fund, 975 F. Supp. 258 (S.D.N.Y. 1997);
Scott v. Central States Pension Plan, 727 F. Supp. 1095
(E.D. Mich. 1989), and one has ruled that ERISA does
provide a cause of action for interest, see Hizer v. General
Motors Corp., 888 F. Supp. 1453 (S.D. Ind. 1995).
Fotta invokes two of ERISA's civil-enforcement provisions,
sections 502(a)(1)(B) and 502(a)(3)(B), codified at 29 U.S.C.
SS 1132(a)(1)(B) and 1132(a)(3)(B) respectively. The first of
these provisions, section 502(a)(1)(B), is the means by
which an ERISA plan beneficiary is authorized to sue to
recover benefits under the plan. This subsection states in
relevant part: "A civil action may be brought . .. by a
participant or beneficiary . . . to recover benefits due to him
under the terms of his plan [or] to enforce his rights under
the terms of the plan . . . ." The second of these provisions,
ERISA section 502(a)(3)(B), permits a plan beneficiary "to
obtain other appropriate equitable relief (i) to redress
[violations of ERISA or of the terms of an ERISA plan] or (ii)
to enforce any provisions of this subchapter or the terms of
the plan."
The Trustees emphasize, and Fotta acknowledges, that
Congress has not explicitly provided a cause of action for
interest on delayed benefits payments. The parties further
agree that no provision in the plan itself specifically
establishes Fotta's entitlement to interest. The Trustees
contend that because neither the statute nor the plan
expressly provides for the relief that Fotta seeks, Fotta's
claim must fail.
A.
We disagree with the Trustees' contention that the lack of
an express provision for interest in ERISA is necessarily
fatal to Fotta's claim. In enacting ERISA, Congress intended
for the judiciary to develop a body of federal law"to deal
with issues involving rights and obligations under private
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welfare and pension plans." Pilot Life Ins. Co. v. Dedeaux,
481 U.S. 41, 56 (1987) (quoting 120 Cong. Rec. 29,942
(1974) (statement of Sen. Javits)). This is, of course, not a
boundless grant of authority; the development of federal
common law under ERISA is appropriate only when
"necessary to fill in interstitially or otherwise effectuate the
statutory pattern enacted in the large by Congress."
Bollman Hat Co. v. Root, 112 F.3d 113, 118 (3d Cir. 1997)
(quotation marks and citation omitted). Accordingly, we
must first determine whether recognition of a cause of
action for interest under one of ERISA's enforcement
provisions is a proper exercise of the court's power to
develop the law of remedies under ERISA.
It is of considerable moment that we have previously
recognized that a beneficiary may seek prejudgment
interest in a suit to recover benefits due, notwithstanding
the lack of an express directive from Congress to that effect.
In Schake v. Colt Industries Operating Corp. Severance Plan
for Salaried Employees, 960 F.2d 1187, 1192 n.4 (3d Cir.
1992), we acknowledged, albeit in passing, that
prejudgment interest was available in actions to recover
benefits under ERISA (although we ultimately found that
the claimant's failure to timely request such interest
deprived the court of jurisdiction to award interest). We
reiterated and amplified this ruling in Anthuis v. Colt
Industries Operating Corp., 971 F.2d 999, 1010 (3d Cir.
1992). What is even more significant, we did so while
acknowledging that ERISA does specifically provide for
prejudgment interest in another class of actions--lawsuits
to recover delinquent employer contributions under 29
U.S.C. S 1132(g)(2)(B). Id. at 1009. "In recognizing the
availability of a discretionary award of prejudgment interest
in Schake and Anthuis, we embraced the Eighth Circuit's
reasoning in Stroh Container Co. v. Delphi Industries, Inc.,
783 F.2d 743 (8th Cir. 1986), and Short v. Central States
Pension Fund, 729 F.2d 567 (8th Cir. 1984). In the latter
case, the court set forth the rationale for the recognition of
prejudgment interest: "To allow the Fund to retain the
interest it earned on funds wrongfully withheld would be to
approve of unjust enrichment. Further, the relief granted
would fall short of making [the claimant] whole because he
has been denied the use of money which was his." Short,
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729 F.2d at 576. Adopting these precepts, we held in
Schake, and reiterated in Anthuis, that "prejudgment
interest typically is granted to make a plaintiff whole
because the defendant may wrongfully benefit from use of
plaintiff's money." Schake, 960 F.2d at 1192 n.4; Anthuis,
971 F.2d at 1009.
The Trustees do not take issue with the holdings in these
cases. On the contrary, they approve the cases where the
courts have awarded prejudgment interest when tied to an
underlying judgment on the merits, notwithstanding the
lack of explicit statutory authority for such interest.
Instead, the Trustees seek to distinguish the award of
prejudgment interest in the circumstance where benefits
have been recovered from that where the beneficiary brings
an independent action solely to recover the interest,
arguing that the claim for benefits is expressly provided in
section 502(a)(1)(B). This was essentially the position of the
district courts in Devito and Scott.
We believe the distinction is unpersuasive. The principles
justifying prejudgment interest also justify an award of
interest where benefits are delayed but paid without the
beneficiary's having obtained a judgment. The concerns
animating our decisions in Schake and Anthuis--viz.,
making the claimant whole and preventing unjust
enrichment--are not diminished merely because the plan
has paid the overdue benefits without the claimant having
resorted to litigation to secure payment. A late payment of
benefits effectively deprives the beneficiary of the time value
of his or her money whether or not the beneficiary secured
the overdue benefits through a judgment as the result of
ERISA litigation.
Unjust enrichment principles also apply with equal force
in this setting. To hold that the absence of a judgment
deprives the injured beneficiary of the time value of his or
her money would create a financial incentive for plans to
delay payment and thus retain interest that rightfully
belongs to the beneficiary. Accord Hizer, 888 F. Supp. at
1461.
B.
We are also unpersuaded by the Trustees' argument that
Fotta's claim for interest is not cognizable because it is one
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that seeks "extracontractual damages" within the
contemplation of the Supreme Court's opinion in
Massachusetts Mutual Ins. Co. v. Russell, 473 U.S. 134,
144 (1985). Indeed, Russell was the principal basis for the
district court's denial of interest in this case. To be sure,
the Russell Court rejected a beneficiary's effort to invoke
ERISA's fiduciary obligations as a means of recovering
damages arising from delayed benefits. In so doing,
however, the Russell Court held no more than that the civil-
enforcement provision relating to breaches of fiduciary duty
does not provide the claimant with a cause of action for
consequential and punitive damages. The court expressly
reserved the issue whether any of ERISA's other civil-
enforcement provisions might authorize the kind of relief
sought in Russell: "Because respondent relies entirely on
S 409(a), and expressly disclaims reliance onS 502(a)(3)
[permitting an action for "other appropriate equitable
relief "], we have no occasion to consider whether any other
provision of ERISA authorizes recovery of extracontractual
damages." 473 U.S. at 139 n.5.
Moreover, we do not find that an interest claim is
"extracontractual" within the intendment of the Russell
opinion. Unlike the plaintiff in Russell, Fotta is not seeking
consequential or punitive damages. Fotta's complaint,
accepted as true for present purposes, seeks interest as a
compensatory remedy--that is, to compensate him fully for
the Trustees' several-year-long delay in discharging their
contractual responsibility to Fotta. Interest for late payment
has long been regarded as an implicit part of a contractual
obligation to pay money. This principle was recognized by
the Supreme Court more than a century ago: "Every one
who contracts to pay money on a certain day knows that,
if he fails to fulfill his contract, he must pay the established
rate of interest as damages for his nonperformance. Hence
it may correctly be said that such is the implied contract of
the parties." Spalding v. Mason, 161 U.S. 375, 396 (1896)
(internal quotation marks omitted). And more recently, the
Court noted that "prejudgment interest traditionally has
been considered part of the compensation due plaintiff."
Osterneck v. Ernst & Whinney, 489 U.S. 169, 175 (1989).
Consequently, we find that a cause of action for interest
on delayed benefits payments is not foreclosed by either the
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terms of ERISA or the terms of the plan. We further
conclude that section 502(a)(3)(B) of ERISA--allowing a
beneficiary to sue for "other appropriate equitable relief . . .
to enforce any provisions of this subchapter or the terms of
the plan"--is the appropriate vehicle for such a cause of
action. This conclusion is consistent with our holding in
Anthuis that the awarding of prejudgment interest under
ERISA is within the district court's discretion, "given in
response to considerations of fairness and denied when its
exaction would be inequitable." 971 F.2d at 1009 (alteration
and quotation marks omitted). Indeed, prejudgment interest
is generally recognized as an equitable remedy in other
legal contexts. See Liberty Lincoln-Mercury v. Ford Motor
Co., 134 F.3d 557, 574 (3d Cir. 1998) (Prejudgment interest
is an equitable remedy under New Jersey law.); Hughes v.
Consol-Pennsylvania Coal Co., 945 F.2d 594, 616 (3d Cir.
1991) ("When deciding whether to award prejudgment
interest to a party, a court must consider `whether
countervailing equitable considerations militate against
such a surcharge.' ").
Hence, Fotta's claim for interest is appropriately raised
under Section 502(a)(3)(B), the civil-enforcement provision
relating to equitable relief.1 In this regard, the Trustees'
argument that an interest award cannot be equitable
because it is an award of money (as opposed to an
injunction) misses the mark. As noted above, the awarding
of interest where benefits have been unjustifiably delayed
not only ensures full compensation, but also serves to
prevent unjust enrichment. Restitution--the traditional
remedy for unjust enrichment--is widely, if not universally,
regarded as a tool of equity. See Chauffeurs, Teamsters &
Helpers, Local No. 391 v. Terry, 494 U.S. 558, 570 (1990)
(Money damages are considered equitable when "they are
restitutionary."); Porter v. Warner Holding Co., 328 U.S.
395, 402 (1946) (differentiating, under the Emergency Price
Control Act of 1942, between statutory damages at law and
restitutionary relief falling within the statutory grant of
equity jurisdiction).
_________________________________________________________________
1. Although we do not reject section 502(a)(1)(B) as providing a possible
statutory bases for such a claim, we need not reach the issue in light of
our decision.
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In reaching this conclusion, we are mindful that the
Supreme Court has shown an "unwillingness to infer
causes of action in the ERISA context, since that statute's
carefully crafted and detailed enforcement scheme provides
`strong evidence that Congress did not intend to authorize
other remedies that it simply forgot to incorporate
expressly.' " Mertens v. Hewitt Associates, 508 U.S. 248,
254 (1993) (quoting Russell, 473 U.S. at 146-147). But in
recognizing that an action for interest may be maintained
as an action for "other appropriate equitable relief "under
ERISA, we do not run afoul of this caution. To be sure,
section 502(a)(3)(B) "does not . . . authorize `appropriate
equitable relief' at large, but only`appropriate equitable
relief' for the purpose of `redress[ing any] violations or ...
enforc[ing] any provisions' of ERISA or an ERISA plan."
Mertens, 508 U.S. at 253 (brackets in original). As we noted
above, payment for the time value of money, when
appropriate, is an implicit term of the underlying
contractual obligation. Therefore, an award of interest is an
equitable remedy enforcing an ERISA plan provision, albeit
an implied one, within the meaning of section 502(a)(3)(B).
In sum, by permitting this action to go forward, we are
not "engraft[ing] a remedy on a statute . .. that Congress
did not intend to provide." Russell, 473 U.S. at 145
(internal quotation marks omitted). Rather, we effectuate
ERISA's objectives by recognizing, under principles of
equity, that beneficiaries should be fully compensated and
that any unjust enrichment of plans at beneficiaries'
expense should be avoided.
We reject the Trustees' argument that we are without
authority to recognize Fotta's claim. To the contrary, ERISA
requires that we develop the law of ERISA so as to define
the proper remedial scope of the statute. See Russell, 473
U.S. 134, 157 (Brennan, J., concurring) ("ERISA was not so
`carefully integrated' and `crafted' as to preclude further
judicial delineation of appropriate rights and remedies; far
from barring such a process, the statute explicitly directs
that courts shall undertake it."); Teamsters Pension Trust
Fund of Philadelphia & Vicinity v. Littlejohn, 155 F.3d 206,
208 (3d Cir. 1998) ("In a situation where the statute does
not provide explicit instructions, it is well settled that
9
Congress intended that the federal courts wouldfill in the
gaps by developing, in light of reason, experience, and
common sense, a federal common law of rights and
obligations imposed by the statute.").
We therefore hold that a beneficiary of an ERISA plan
may bring an action for interest on delayed benefits
payments under section 502(a)(3)(B) of ERISA, irrespective
of whether the beneficiary also seeks to recover unpaid
benefits. Because the remedy we recognize here is equitable
in nature, its award involves an exercise of judicial
discretion. And, like other equitable remedies, it is subject
to equitable defenses such as laches, an issue the district
court did not consider as it dismissed the complaint on
motion. As this case will be remanded for the district court
to exercise its discretion, we note that this court has held
in other contexts that there is a presumption in favor of
awarding interest. See Brock v. Richardson, 812 F.2d 121,
127 (3d Cir. 1997) (holding that award of pre-judgment and
post-judgment interest is presumptively granted in back-
pay cases under the FLSA). In Stroh Container Co., the
Eighth Circuit applied that presumption in an ERISA case,
stating that interest "should ordinarily be granted unless
exceptional or unusual circumstances exist making the
award of interest inequitable." 783 F.2d at 750. That
statement was quoted approvingly by this court in Anthuis.
971 F.2d at 1010. We now make explicit that interest is
presumptively appropriate when ERISA benefits have been
delayed.
III.
In their cross-appeal, the Trustees urge that the district
court erred in dismissing Fotta's state-law claims without
prejudice for lack of subject matter jurisdiction. The
Trustees contend that the court continued to have federal
question jurisdiction over those claims by virtue of the
"complete preemption" doctrine. See Dukes v. U.S.
Healthcare, Inc., 57 F.3d 350, 354 (3d Cir. 1995)
(explaining complete preemption). Furthermore, the
Trustees urge that the state-law counts should be
dismissed with prejudice because they are preempted by
section 514(a) of ERISA, 29 U.S.C. S 1144(a). The Trustees'
arguments may have merit. But because Fotta conceded at
10
oral argument that he will not pursue his state-law claims
in the event that his first count is found cognizable under
ERISA, we need not decide these issues.
IV.
For the foregoing reasons, we will reverse the judgment of
the district court and remand the case for further
proceedings consistent with this opinion.
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ALITO, Circuit Judge, concurring:
I am in general agreement with the opinion of the court.
Under Section 502(a)(3) of ERISA, 29 U.S.C. S 1132(a)(3), an
ERISA beneficiary may bring a civil action "to obtain other
appropriate equitable relief . . . to redress" a violation of the
plan. If the plaintiff in this case can establish that the
trustees violated the plan by failing to pay his benefits on
time, an award of interest would constitute "appropriate
equitable relief." Such an award is recognized as
appropriate equitable relief in comparable circumstances
under the law of trusts. See Restatement (2d) of Trusts
S 207 at 470 (1959); 3 Austin Wakeman Scott and William
Franklin Fratcher, The Law of Trusts S 207.1 at 262-63 (4th
ed. 1987); Nedd v. United Mine Workers of America, 556
F.2d 190, 207 (3d Cir. 1977); Toombs v. Daniels, 361
N.W.2d 801, 810 (Sup.Ct.Minn. 1985). Thus, this is not a
case like Massachusetts Mutual Ins. Co. v. Russell, 473 U.S.
134 (1985), in which we are asked to supplement the
remedies specified in the statute.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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