Custer v. Sweeney

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ROBERT D. CUSTER, as a Participant
of and Trustee for the Sheet Metal
Workers' National Pension Fund,
Plaintiff-Appellant,
v.
RAYMOND J. SWEENEY,
Defendant-Appellee,
and
No. 95-1077
HARRY HUGE; KRISTA FOGLEMAN;
ROGOVIN, HUGE & SCHILLER;
DONOVAN, LEISURE, NEWTON &
IRVINE; SHEA & GOULD,
Defendants.
HARRY HUGE; ROGOVIN, HUGE &
SCHILLER,
Amici Curiae.
ROBERT D. CUSTER, as a Participant
of and Trustee for the Sheet Metal
Workers' National Pension Fund,
Plaintiff-Appellee,
v.
RAYMOND J. SWEENEY,
Defendant-Appellant,
and
No. 95-1079
HARRY HUGE; KRISTA FOGLEMAN;
ROGOVIN, HUGE & SCHILLER;
DONOVAN, LEISURE, NEWTON &
IRVINE; SHEA & GOULD,
Defendants.
HARRY HUGE; ROGOVIN, HUGE &
SCHILLER,
Amici Curiae.
Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Albert V. Bryan, Jr., Senior District Judge.
(CA-94-910-A)
Argued: December 4, 1995
Decided: July 22, 1996
Before HALL and NIEMEYER, Circuit Judges, and BUTZNER,
Senior Circuit Judge.
_________________________________________________________________
Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Judge Hall and Senior Judge Butzner joined.
_________________________________________________________________
2
COUNSEL
ARGUED: William Willis Carrier, III, TYDINGS & ROSENBERG,
Baltimore, Maryland, for Appellant. James J. McGuire, MAYER,
BROWN & PLATT, New York, New York, for Appellee. ON
BRIEF: J. Hardin Marion, Lawrence J. Quinn, TYDINGS &
ROSENBERG, Baltimore, Maryland; William L. Stauffer, Jr.,
Kurt C. Rommel, R. Grant Decker, STAUFFER & ABRAHAM,
Vienna, Virginia, for Appellant. Nicholas W. Lobenthal, Richard E.
Rosberger, MAYER, BROWN & PLATT, New York, New York, for
Appellee. John Rounsaville, Jr., Roger W. Yoerges, Anne D. Bolling,
Steven P. Finizio, WILMER, CUTLER & PICKERING, Washington,
D.C.; Michael C. Montavon, MICHAEL C. MONTAVON, P.C.,
Fairfax, Virginia, for Amici Curiae.
_________________________________________________________________
OPINION
NIEMEYER, Circuit Judge:
Robert D. Custer, a trustee of and participant in the Sheet Metal
Workers' National Pension Fund, an employee benefit plan regulated
by the Employee Retirement Income Security Act of 1974 (ERISA),
29 U.S.C. § 1001 et seq., sued the plan's attorneys, alleging breach
of ERISA fiduciary duties and legal malpractice. The district court
dismissed Custer's ERISA claim on the ground that the attorney
named in the ERISA count was not a plan fiduciary and declined to
exercise jurisdiction over the malpractice claims, allowing Custer to
prosecute those claims in state court. The court also denied a defen-
dant's motion for attorneys fees.
Custer appeals the dismissal of his ERISA claim, and Raymond J.
Sweeney, one of the defendant attorneys, cross-appeals, contending
that the district court erred in failing to dismiss Custer's malpractice
claims with prejudice as preempted by ERISA. Sweeney also cross-
appeals the district court's refusal to award him attorneys fees. We
now affirm.
I
Until his resignation in mid-1993, the late Edward J. Carlough
served as chairman of the Sheet Metal Workers' National Pension
3
Fund and president of the Sheet Metal Workers' International Associ-
ation, the pension plan's affiliated union. While holding those posi-
tions, Carlough allegedly squandered millions of dollars of the
pension plan's assets (1) to subsidize the lease of a private jet primar-
ily for his personal use and (2) to purchase, improve, furnish, operate,
and reside at a lavish mansion under the guise that it was needed as
a second conference center. Sweeney, Carlough's nephew, served as
legal counsel to the pension plan and to the two trustee committees
that oversaw the airplane and conference center transactions.
In July 1994, Custer filed this action against Sweeney and the pen-
sion plan's other attorneys, alleging (1) that Sweeney breached fidu-
ciary duties imposed by ERISA by making the arrangements for
Carlough to consummate the airplane and conference center transac-
tions and (2) that Sweeney and the other legal counsel to the pension
plan committed legal malpractice in their representation of the plan.
Custer predicated federal jurisdiction over the legal malpractice
claims on diversity of citizenship, 28 U.S.C. § 1332, and supplemen-
tal jurisdiction, 28 U.S.C. § 1367.
The district court granted the defendants' Rule 12(b)(6) motion to
dismiss Custer's suit on the ground that Custer's allegations failed to
establish that Sweeney, as counsel to the pension plan, qualified as a
fiduciary under ERISA. The court, however, granted Custer leave to
amend his complaint to allege sufficient "indicia of fiduciary posi-
tion." The court also dismissed without prejudice Custer's malpractice
claims. It found an absence of complete diversity and declined to
exercise its discretionary supplemental jurisdiction over the malprac-
tice claims.
Custer filed an amended complaint, reasserting in more detail his
ERISA claim against Sweeney. He alleged that Sweeney not only had
exercised "de facto control over [the] arrangements for leasing the
[a]irplane and the acquisition, build-out, furnishing, operation, and
maintenance" of the conference center, but also had authorized expen-
ditures and approved payments for those purposes from pension plan
funds. Custer appended dozens of documents that purported to illus-
trate Sweeney's discretionary control over plan assets and manage-
ment. In the amended complaint, Custer predicated federal subject
matter jurisdiction over his malpractice claims against Sweeney and
4
the other former counsel to the pension plan solely on the court's sup-
plemental jurisdiction.
Again the defendants moved to dismiss the complaint. While
Sweeney argued that he was not an ERISA fiduciary, all of the defen-
dants argued that Custer's malpractice claims were preempted by
ERISA and failed to establish their duty to monitor the pension plan's
airplane and conference center investments for compliance with
ERISA. Sweeney also requested attorneys fees under both Federal
Rule of Civil Procedure 11(c) and ERISA § 502(g), 29 U.S.C.
§ 1132(g), on the ground that Custer lacked a good faith basis for his
claims.
The district court dismissed Custer's ERISA claim against
Sweeney with prejudice, concluding that Custer's second attempt to
plead Sweeney's fiduciary status under ERISA was"at best hopeless
or at worst contrived." It dismissed the legal malpractice claims with-
out prejudice, declining to exercise supplemental jurisdiction over
them. Finally, the court denied Sweeney's motion for attorneys fees
because it did "not believe that there [was] a sufficient inference of
bad faith" on Custer's part.
Custer appeals the district court's dismissal of his ERISA claim,
and Sweeney cross-appeals the district court's failure to dismiss the
malpractice claim with prejudice as preempted by ERISA. Sweeney
also contends that the district court abused its discretion in refusing
to award him attorneys fees.*
II
We begin with Custer's contention that the district court erred in
dismissing his ERISA claim against Sweeney for breach of fiduciary
duty. After affording Custer the opportunity to replead that claim, the
district court observed that Custer's amended complaint still alleged
"that Sweeney was at most an attorney and consultant who took care
_________________________________________________________________
*None of the fund's other counsel is a party to this appeal. But Harry
Huge and his former law firm, Rogovin, Huge & Schiller, have filed an
amicus brief arguing that ERISA substantively preempts Custer's mal-
practice claims.
5
of the ministerial, day-to-day payment of bills, securing of funds with
which to meet Fund obligations, and monitoring the progress of con-
struction and operations on Fund property." Concluding that such
activities "completely fail[ed] to establish the exercise of the type of
discretion or control necessary to hold Sweeney liable as an ERISA
fiduciary," the court dismissed Custer's ERISA claim with prejudice.
Whether the district court acted properly thus depends on whether
Sweeney qualifies as a "fiduciary" under ERISA.
"[T]he concept of a fiduciary under ERISA is broader than the
common law concept of a trustee." Custer v. Pan Am. Life Ins. Co.,
12 F.3d 410, 418 n.3 (4th Cir. 1993). It includes not only those
"named [as fiduciaries] in the plan instrument, or who, pursuant to a
procedure specified in the plan, [are] identified as . . . fiduciar[ies],"
29 U.S.C. § 1102(a)(2), but any individual who de facto performs
specified discretionary functions with respect to the management,
assets, or administration of a plan. According to§ 3(21)(A) of
ERISA:
[A] person is a fiduciary with respect to a plan to the extent
(i) he exercises any discretionary authority or discretionary
control respecting management of such plan or exercises
any authority or control respecting management or disposi-
tion of its assets, (ii) he renders investment advice for a fee
or other compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any authority
or responsibility to do so, or (iii) he has any discretionary
authority or discretionary responsibility in the administra-
tion of such plan.
29 U.S.C. § 1002(21)(A).
While an attorney's duty to his client is that of a fiduciary, see F.H.
Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1259 (2d
Cir. 1987), the mere fact that an attorney represents an ERISA plan
does not make the attorney an ERISA fiduciary because legal repre-
sentation of ERISA plans rarely involves the discretionary authority
or control required by the statute's definition of"fiduciary." Accord-
ing to the regulations promulgated by the Department of Labor--the
agency charged with enforcing ERISA--an attorney or other profes-
6
sional service provider who represents an ERISA plan will not qualify
as an ERISA fiduciary so long as he "performs purely ministerial
functions . . . within a framework of policies, interpretations, rules,
practices and procedures made by other persons." 29 C.F.R.
§ 2509.75-8 (D-2); see also 29 C.F.R.§ 2509.75-5 (D-1) (applying
ERISA's definition of "fiduciary" to attorneys); Useden v. Acker, 947
F.2d 1563, 1577 (11th Cir. 1991) (holding that law firm was not
ERISA fiduciary because it did not "depart[ ] from the usual functions
of a law firm or otherwise effectively or realistically control[ ] the
[ERISA] Plan"), cert. denied , 508 U.S. 959 (1993); Nieto v. Ecker,
845 F.2d 868, 870 (9th Cir. 1988); Yeseta v. Baima, 837 F.2d 380,
385 (9th Cir. 1988); F.H. Krear, 810 F.2d at 1259-60. Moreover, neg-
ligence in the provision of professional services does not create
ERISA fiduciary status. See Pappas v. Buck Consultants, Inc., 923
F.2d 531, 538 (7th Cir. 1991); Nieto, 845 F.2d at 870-71. ERISA's
careful allocation of fiduciary liability is consonant with the statute's
"clear purpose" of ensuring ERISA plans "access to ordinary legal
advice." Useden, 947 F.2d at 1578.
But merely because a person serves as legal counsel to a pension
plan does not automatically preclude a finding that the attorney is also
an ERISA fiduciary, at least as to some activities. Fiduciary status
under ERISA is not "an all-or-nothing concept." Coleman v. Nation-
wide Life Ins. Co., 969 F.2d 54, 61 (4th Cir. 1992), cert. denied, 113
S. Ct. 1051 (1993). As we explained in Coleman , "the inclusion of the
phrase ``to the extent' in [ERISA's definition of ``fiduciary'] means
that a party is a fiduciary only as to the activities which bring the per-
son within the definition." Id.; see also F.H. Krear, 810 F.2d at 1259.
Therefore, to determine whether Custer has sufficiently alleged
Sweeney's status as an ERISA fiduciary, we must discern from Cus-
ter's amended complaint the functions that Sweeney allegedly per-
formed.
Conceding that the pension plan's documents do not expressly con-
fer ERISA fiduciary status on Sweeney, Custer argues only that his
amended complaint sufficiently pled Sweeney's de facto fiduciary
status by alleging that Sweeney's activities "transcended the normal
legal services rendered by plan counsel." Custer contends that his
amended complaint reveals that Sweeney "caused the Fund to enter
into, and continue with," both the airplane and conference center
7
transactions by (1) exercising discretionary decisionmaking authority
over "all aspects" of those transactions and (2) "withh[olding] vital
information [from] and actively deceiv[ing]" the pension plan's trust-
ees. Sweeney argues, on the other hand, that the district court properly
dismissed Custer's ERISA claim because his amended complaint "al-
lege[s] not one fact tending to show that Mr. Sweeney exercised con-
trol or authority specifically over the decisions to acquire and retain
[the conference center] or the [a]irplane." He maintains that, to the
contrary, the substance of the complaint's allegations support the con-
clusion that Sweeney "performed purely ministerial functions." And,
according to Sweeney, Custer's assertions that Sweeney usurped the
other plan fiduciaries' decisionmaking authority over the airplane and
conference center transactions amount to no more than allegations of
negligence in the performance of ordinary professional services.
Having carefully reviewed the amended complaint de novo, accept-
ing all of Custer's well-pleaded allegations as true and construing
them in the light most favorable to Custer, see Mylan Lab., Inc. v.
Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993), cert. denied, 114 S. Ct.
1307 (1994), we agree with Sweeney. While Custer's amended com-
plaint is replete with assertions of Sweeney's "discretionary authority,
control, and responsibility over the management of the Fund and cer-
tain assets of the Fund," it nevertheless lacks any specific allegations
capable of demonstrating that Sweeney transcended his role as legal
counsel. See 5A Charles A. Wright & Arthur R. Miller, Federal Prac-
tice and Procedure § 1357, 317-18 (2d ed. 1990) (noting that court
need not accept plaintiff's "``unwarranted deductions,' ``footless con-
clusions of law,' or ``sweeping legal conclusions cast in the form of
factual allegations'" (footnotes omitted)); see also Randall v. United
States, 30 F.3d 518, 522 (4th Cir. 1994), cert. denied, 115 S. Ct. 1956(1995). The amended complaint discloses that the trustee subcommit-
tees that Sweeney represented made only non-binding recommenda-
tions to the pension plan's board of trustees, who ultimately decided
to enter into the airplane and conference center transactions and
retained authority over spending the pension plan's funds. And the
documents appended to Custer's amended complaint illustrate that
Sweeney performed only ministerial functions for the pension plan,
such as soliciting bids for contracting work and approving the pay-
ment of bills, and that he lacked check-writing authority. See Useden,
947 F.2d at 1577 (affirming summary judgment for law firm on
8
ground that firm was not ERISA fiduciary where plaintiff alleged that
"law firm deeply penetrat[ed] the governance of the Plan" by, inter
alia, "drafting . . . amendments to the Plan on its own initiative" and
providing "hybrid business-legal . . . advice").
Custer's allegations that Sweeney usurped trustee decisionmaking
authority by controlling information relevant to the propriety of the
airplane and conference center transactions also fail to state an ERISA
claim. If true, the assertions establish at most that Sweeney violated
legal duties arising from his representation of the ERISA plan. But
they do not satisfy the requirement that Sweeney caused the plan's
trustees "to relinquish [their] independent discretion in investing the
plan's funds and follow the course [he] prescribed." Schloegel v.
Boswell, 994 F.2d 266, 271-72 (5th Cir.), cert. denied, 114 S. Ct. 440(1993).
The amended complaint that the district court dismissed represents
Custer's second attempt to plead Sweeney's ERISA fiduciary status
and impose on Sweeney personal liability under ERISA for his role
in advising the Sheet Metal Workers' National Pension Fund. Given
the district court's explicit instructions to Custer to allege in his
amended complaint all that he could properly allege about Sweeney's
role and the inadequacy of Custer's latest attempt, we affirm the dis-
trict court's dismissal with prejudice of Custer's ERISA claim against
Sweeney.
III
In his cross-appeal, Sweeney contends that the district court erred
in dismissing Custer's malpractice claim without prejudice for lack of
jurisdiction, rather than with prejudice as substantively preempted by
ERISA. Sweeney argues that even though Custer's malpractice claim
is pleaded as a state common law claim, it arises under ERISA
because (1) ERISA completely preempts the claim and (2) the claim
necessarily presents questions of federal law substantial enough to
create federal-question jurisdiction.
Before we can address Sweeney's argument, we must decide the
threshold issue of whether Sweeney has standing to appeal that deci-
sion. Relying on our decision in HCA Health Services v. Metropolitan
9
Life Ins. Co., 957 F.2d 120 (4th Cir. 1992), Custer suggests that
Sweeney "may not be sufficiently aggrieved by the district court's
decision" to present a justiciable issue.
It is a well-established rule of "federal appellate practice . . .
derived from the statutes granting appellate jurisdiction and the his-
toric practices of the appellate courts" that"[o]rdinarily, only a party
aggrieved by a judgment or order of a district court may exercise the
statutory right to appeal therefrom." Deposit Guar. Nat'l Bank v.
Roper, 445 U.S. 326, 333 (1980). This court accords "the party
``aggrieved' concept . . . a practical rather than hypertechnical mean-
ing." Department of Defense v. Federal Labor Relations Auth., 879
F.2d 1220, 1222 (4th Cir. 1989). A party may be aggrieved by a dis-
trict court decision that adversely affects its legal rights or position
vis-a-vis other parties in the case or other potential litigants, but a "de-
sire for better precedent does not by itself confer standing to appeal."
HCA Health Services, 957 F.2d at 124. Thus, in HCA Health Services,
we held that the appellant, who had prevailed in the district court on
its interpretation of state law, lacked standing to appeal the district
court's failure to reach its ERISA preemption defense where there
was merely a "hypothetical possibility" that the issue would again
arise in a suit against the appellant "sometime in the future." Id. at
125.
In this case, however, because Custer has already filed a legal mal-
practice claim against Sweeney in Virginia state court, which has
been stayed pending resolution of this appeal, HCA Health Services
is inapposite. The district court's dismissal order presents a certainty,
rather than a mere hypothetical possibility, that Sweeney will be
forced to incur considerable expense relitigating Custer's malpractice
claim in state court. Accordingly, we conclude that Sweeney has
standing to cross-appeal the district court's refusal to exercise federal
jurisdiction over Custer's malpractice claim.
IV
We turn next to whether the district court was required to exercise
federal-question jurisdiction over Custer's malpractice claim or
whether it could exercise the discretionary authority of supplemental
jurisdiction to dismiss it without prejudice. See United Mine Workers
10
v. Gibbs, 383 U.S. 715, 726 (1966). This issue reduces to whether
Custer's malpractice claim independently "arises under" the ERISA
statute, creating federal-question jurisdiction. See 28 U.S.C. § 1331("The district courts shall have original jurisdiction of all civil actions
arising under the Constitution, laws, or treaties of the United States").
If it does, the district court could not have declined to exercise juris-
diction over the malpractice claim. See id.; Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 817 (1976) (recog-
nizing "virtually unflagging obligation of the federal courts to exer-
cise the jurisdiction given them"); McLaughlin v. United Va. Bank,
955 F.2d 930, 934 (4th Cir. 1992).
As noted, Sweeney advances two independent arguments for his
position that Custer's malpractice claim arises under ERISA. First, he
contends that Custer's legal malpractice claim is in essence an ERISA
claim because it is completely preempted by ERISA. Alternatively, he
maintains that even if Custer's malpractice claim is not created by
ERISA, it still arises under federal law within the meaning of 28
U.S.C. § 1331 because its resolution requires the interpretation of
substantial ERISA issues.
A
For his "complete preemption" argument, Sweeney contends that
Custer's malpractice claim falls "squarely within" ERISA's civil
enforcement provision, § 502, 29 U.S.C. § 1132, because, even if
prosecuted against non-fiduciaries, the claim "purports to remedy
harm arising out of breaches of ERISA fiduciary duties." Relying on
the Supreme Court's decision in Metropolitan Life Ins. Co. v. Taylor,
481 U.S. 58 (1987), Sweeney maintains that Custer's malpractice
claim is, therefore, completely displaced by federal law for purposes
of establishing federal-question jurisdiction.
As an initial matter, we recognize that the "well-pleaded complaint
rule" ordinarily directs us to look no farther than the plaintiff's com-
plaint in determining whether a lawsuit raises issues of federal law
capable of creating federal-question jurisdiction under 28 U.S.C.
§ 1331. See Gully v. First Nat'l Bank, 299 U.S. 109, 112-13 (1936);
Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 152 (1908).
The well-pleaded complaint rule enforces the principle that the plain-
11
tiff is the master of his complaint and generally permits plaintiffs to
"avoid federal jurisdiction by exclusive reliance on state law."
Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987).
The complete preemption doctrine, however, is "an independent
corollary of the well-pleaded complaint rule," Franchise Tax Bd. v.
Construction Laborers Vacation Trust, 463 U.S. 1, 22 (1983), and
trumps the plaintiff's characterization of his claim by "convert[ing] an
ordinary state common law complaint into one stating a federal
claim." Taylor, 481 U.S. at 65; see also Franchise Tax Bd., 463 U.S.
at 24 ("[I]f a federal cause of action completely preempts a state cause
of action any complaint that comes within the scope of the federal
cause of action necessarily ``arises under' federal law"). The complete
preemption doctrine recognizes that "Congress may so completely
pre-empt a particular area that any civil complaint raising this select
group of claims is necessarily federal in character." Taylor, 481 U.S.
at 63-64; see also Caterpillar, 482 U.S. at 393. Underlying the com-
plete preemption doctrine is the notion that the federal policies impli-
cated by a federal statute are sufficiently important to override the
plaintiff's effort to rely on state law. Although federal preemption
defenses do not ordinarily permit federal courts to exercise subject
matter jurisdiction over claims that a plaintiff predicates on state law,
the complete preemption doctrine confers federal-question jurisdic-
tion over such claims. Taylor, 481 U.S. at 63-64.
In applying the complete preemption doctrine, courts generally
look first to the preemptive scope of the federal statute and second to
its preemptive force. See, e.g., Taylor, 481 U.S. at 62-63; Kramer v.
Smith Barney, 80 F.3d 1080, 1083-84 (5th Cir. 1996); Rosciszewski
v. Arete Assoc., Inc., 1 F.3d 225, 229-33 (4th Cir. 1993). A statute's
preemptive force is measured by the extent to which it precludes state
court consideration of claims falling within the statute's preemptive
scope. In Taylor, for example, the Supreme Court reasoned that
ERISA completely preempted the plaintiff's claim for improper pro-
cessing of a benefits claim under an ERISA employee benefits plan
because (1) such claims fell within the scope of ERISA's express pre-
emption provision, and (2) ERISA's language and legislative history
evinced a clear legislative intent to imbue ERISA with a preemptive
force so extraordinary as to displace state law claims, converting them
into claims arising under ERISA. Only where the federal statute's
12
preemptive scope is sufficiently broad to reach a purported state law
claim and its preemptive force is sufficiently powerful to convert that
particular claim into a federal claim will the complete preemption
doctrine apply.
Following that analytical sequence, we consider first whether Cus-
ter's malpractice claim falls within the scope of ERISA's preemption
provision, § 514(a), 29 U.S.C. § 1144(a). Custer maintains that his
legal malpractice claim relies entirely on state common law and that
ERISA's preemptive scope does not reach such a claim. He argues
that his malpractice claim does not "relate to" ERISA within the
meaning of § 514(a) because it arises under a state "law of general
applicability" and involves "an area traditionally the subject of state
regulation." Because professional negligence and malpractice claims
against third-party service providers to an ERISA plan do not impli-
cate "the essential functions of an employee benefit plan, such as
funding, benefits, reporting, and administration," Custer insists that
Congress did not intend ERISA's preemptive scope to reach such
claims.
Section 514(a) of ERISA provides that ERISA preempts"any and
all State laws" that "relate to" an ERISA plan. 29 U.S.C. § 1144(a).
For ERISA preemption purposes, "State law" includes both statutory
and common law. 29 U.S.C. § 1144(c)(1). The Supreme Court and
this court have given the phrase "relate to" in § 514(a) its "broad
common-sense meaning." See Metropolitan Life Ins. Co. v.
Massachusetts, 471 U.S. 724, 739 (1985); Custer v. Pan Am. Life Ins.
Co., 12 F.3d 410, 418 (4th Cir. 1993). A state law falls within
ERISA's preemptive scope "if it has a connection with or reference
to" an ERISA plan. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97
(1983). State laws may be preempted even if consistent with ERISA's
substantive provisions, see Metropolitan Life , 471 U.S. at 739, and
not specifically designed to affect ERISA plans, Shaw, 463 U.S. at 98.
The absence of a particular remedy under ERISA, moreover, has no
bearing on whether a state law falls within the scope of § 514. Custer,
12 F.3d at 418-19.
Though broad, ERISA's preemption provision does have limits.
"Some state actions may affect employee benefit plans in too tenuous,
remote, or peripheral a manner to warrant a finding that the law
13
``relates to' the plan." Shaw, 463 U.S. at 100 n.21. In Mackey v. Lanier
Collection Agency & Service, Inc., 486 U.S. 825 (1988), for example,
the Supreme Court held that ERISA did not bar a state-law garnish-
ment action against an ERISA employee welfare benefit plan. The
Court explained that ERISA does not preempt "run-of-the-mill state-
law claims such as unpaid rent, failure to pay creditors, or even torts
committed by an ERISA plan" even though such claims "obviously
affect[ ] and involv[e] ERISA plans and their trustees." Id. at 833; see
also Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987) (state law
requiring companies to make lump-sum severance payments when
closing plant not preempted by ERISA); Aetna Life Ins. Co. v.
Borges, 869 F.2d 142 (2d Cir.) (state escheat law not preempted by
ERISA), cert. denied, 493 U.S. 811 (1989); Drinkwater v. Metropoli-
tan Life Ins. Co., 846 F.2d 821 (1st Cir.), cert. denied, 488 U.S. 909(1988) (spouse's claim for emotional distress from husband's denial
of benefits not preempted by ERISA); Firestone Tire & Rubber Co.
v. Neusser, 810 F.2d 550 (6th Cir. 1987) (municipal ordinance impos-
ing income tax of general application on employees' contributions to
benefit plans not preempted by ERISA).
Whether ERISA preempts legal malpractice claims against attor-
neys representing ERISA plans is a question of first impression for
the federal circuit courts, although several federal district courts have
addressed the issue, uniformly concluding that ERISA does not pre-
empt such claims. See, e.g., Sullivan v. Lampf, Lipkind, Prupis, Peti-
grow & Labue, 1994 WL 669624, at *9-*10 (D.N.J. Nov. 21, 1994)
(unpublished); Anoka Orthopaedic Associates, P.A. v. Mutschler, 773
F. Supp. 158, 164, 168 (D. Minn. 1991). Moreover, the various circuit
and district courts that have faced the preemption question in cases
involving professional negligence or malpractice claims against other
service providers to ERISA plans have declined to read ERISA's pre-
emptive scope so broadly. See, e.g., Painters of Phila. Dist. Council
No. 21 Welfare Fund v. Price Waterhouse, 879 F.2d 1146, 1153 n.7
(3d Cir. 1989) ("ERISA does not generally preempt state professional
malpractice actions"); Airparts Co. v. Custom Benefit Services of Aus-
tin, Inc., 28 F.3d 1062, 1065 (10th Cir. 1994) (consultant); Bourns,
Inc. v. KPMG Peat Marwick, 876 F. Supp. 1116, 1122 (C.D. Cal.
1994) (auditor); Berlin City Ford, Inc. v. Roberts Planning Group,
864 F. Supp. 292, 296 (D.N.H. 1994) (consultant); Mertens v. Kaiser
Steel Retirement Plan, 829 F. Supp. 1158, 1162 (N.D. Cal. 1992)
14
(actuary); Richards v. Union Labor Life Ins. Co. , 804 F. Supp. 1101,
1103-04 (D. Minn. 1992) (actuary); Carl Colteryahn Dairy, Inc. v.
Western Pa. Teamsters & Employers Pension Fund, 785 F. Supp.
536, 543 (W.D. Pa. 1992) (accountants and actuaries); Framingham
Union Hosp., Inc. v. Travelers Ins. Co., 721 F. Supp. 1478, 1490 (D.
Mass. 1989) (accountant); Isaacs v. Group Health, Inc., 668 F. Supp.
306, 312-13 (S.D.N.Y. 1987) (actuary). Indeed, Sweeney has not
cited a single decision holding that ERISA preempts a malpractice or
professional negligence claim against a service provider to an ERISA
plan.
We now join this unanimous body of federal law and conclude that
Custer's legal malpractice claim against Sweeney does not fall under
ERISA's preemptive umbrella. We do so because we do not believe
that Congress intended ERISA to preempt state law malpractice
claims involving professional services to ERISA plans. ERISA does
not evince a clear legislative purpose to preempt such traditional
state-based laws of general applicability, and permitting Custer's
claim would not undermine the congressional policies that underlie
ERISA.
A presumption that ERISA does not preempt legal malpractice
claims arises because the law governing legal malpractice represents
a traditional exercise of state authority. See Mackey, 486 U.S. at 833;
Airparts, 28 F.3d at 1066-67; Painters, 879 F.2d at 1153 n.7;
Firestone, 810 F.2d at 555. Federalism concerns strongly counsel
against imputing to Congress an intent to displace"a whole panoply
of state law in this area" absent some clearly expressed direction.
Painters, 879 F.2d at 1153 n.7; see also Firestone, 810 F.2d at 555.
We are especially wary of finding ERISA preemption in this case
because the logic of such a holding would sweep into federal court
a wide range of professional malpractice claims, like Custer's, that
allege the provision of negligent advice about the requirements of fed-
eral law.
Moreover, we do not believe that permitting state law malpractice
claims against attorneys representing ERISA plans would in any way
compromise the policies that ERISA was designed to promote. In
enacting ERISA, Congress sought "to protect . . . the interests of par-
ticipants in employee benefit plans and their beneficiaries, . . . by
15
establishing standards of conduct, responsibility, and obligation for
fiduciaries . . . and . . . by providing for appropriate remedies, sanc-
tions, and ready access to the Federal courts." 29 U.S.C. § 1001(b).
A legal malpractice claim "does not affect the structure, the adminis-
tration, or the type of benefits provided by an ERISA plan." Rebaldo
v. Cuomo, 749 F.2d 133, 139 (2d Cir. 1984), cert. denied, 472 U.S.
1008 (1985); see also Airparts, 28 F.3d at 1066. Nor does such a
claim implicate "the relations among the traditional [ERISA] plan
entities[,] . . . [the] principals, the employer, the plan, the plan fidu-
ciaries, and the beneficiaries." Id. Thus, a legal malpractice claim
such as that at issue here does not fall within any of the categories of
laws that courts have generally held to be preempted by ERISA:
"laws . . . that provide an alternative cause of action to employees to
collect benefits protected by ERISA, refer specifically to ERISA
plans and apply solely to them, or interfere with the calculation of
benefits owed to an employee." Aetna Life Ins. Co., 869 F.2d at 146;
see also Airparts, 28 F.3d at 1064-65.
Sweeney argues that even if ERISA does not generally preempt all
legal malpractice claims, it preempts Custer's malpractice claim
because that claim depends upon proof that Sweeney negligently pro-
vided inaccurate legal advice concerning ERISA's fiduciary stan-
dards. Sweeney attempts to analogize this case to Ingersoll-Rand Co.
v. McClendon, 498 U.S. 133, 140 (1990), in which the Supreme Court
held that ERISA preempted a wrongful discharge claim brought under
Texas law, which required the plaintiff to prove that an ERISA plan
existed and that his employer "had a pension-defeating motive in ter-
minating the employment." Because "the existence of a pension plan
[was] a critical factor in establishing liability under the State's wrong-
ful discharge law," the Ingersoll-Rand Court concluded that the plain-
tiff's claim "relate[d] not merely to pension benefits, but to the
essence of the pension plan itself." Id. at 139-40.
In Ingersoll-Rand, however, the Court reasoned that permitting
"state based" wrongful discharge actions would subject plans and
their sponsors to "conflicting directives among States or between
States and the Federal Government," thereby imposing inefficient
"administrative and financial burden[s] . .. to the detriment of plan
beneficiaries." Id. at 142. Here, by contrast, Custer's claim affects
neither the core functions performed by ERISA plans nor the central
16
ERISA players, and, therefore, "there is no threat that, by allowing
this suit to go forward, conflicting regulations will emerge which will
destroy the structural unity of the ERISA scheme." Airparts, 28 F.3d
at 1066; see also Redall Indus., Inc. v. Wiegand , 876 F. Supp. 147,
152 (E.D. Mich. 1995) ("Even after the Ingersoll-Rand . . . deci-
sion[ ], courts have held that state common law claims based on pro-
fessional malpractice and negligence . . . do not``relate to' an ERISA
benefit plan and therefore are not preempted by ERISA"); Mertens,
829 F. Supp. at 1162 ("[T]he fact that professional malpractice claims
require some interpretation of ERISA law does not mean that these
claims are preempted by ERISA").
In light of our conclusion that Custer's legal malpractice claim is
not within ERISA's preemptive scope, we need not decide whether
ERISA's preemptive force would trump the well-pleaded complaint
rule and convert Custer's claim into one "arising under" ERISA. See,
e.g., Sullivan, 1994 WL 669624, at *10; Berlin City Ford, 864 F.
Supp. at 296.
B
As an alternative ground for arguing that the district court had
federal-question jurisdiction over Custer's malpractice claim and was
therefore required to address its merits, Sweeney contends that the
claim is "not a purely state law claim" because it raises "substantial
federal questions." Sweeney maintains that resolution of Custer's
malpractice claim would require the district court"to make findings
as to a number of ERISA-related issues, including, centrally, whether
[the conference center and airplane transactions] were improper under
ERISA." We find Sweeney's argument unpersuasive.
To determine whether Custer's malpractice claim arises under
ERISA despite ERISA's failure to preempt it, we need look no farther
than the Supreme Court's decision in Merrell Dow Pharmaceuticals
Inc. v. Thompson, 478 U.S. 804 (1986). In Merrell Dow, the plaintiffs
brought an action in state court alleging, inter alia, that the manufac-
turer and distributor of the drug Benedictin had negligently failed to
warn consumers that the drug caused birth defects when ingested dur-
ing pregnancy. Although the plaintiffs did not allege that federal law
created their claim, they relied on the Federal Food, Drug, and Cos-
17
metic Act's definition of "misbranded," 21 U.S.C. § 301 et seq., to
create a rebuttable presumption of the defendant's negligence. The
defendant removed the case to federal court on the ground that the
plaintiffs' case was based in part on federal law.
The Supreme Court held that the case had been improperly
removed because it did not arise under federal law within the meaning
of 28 U.S.C. § 1331. While reaffirming "that federal-question juris-
diction is appropriate when ``it appears that some substantial, disputed
question of federal law is a necessary element of one of the well-
pleaded state claims,'" id. at 813 (quoting Franchise Tax Bd., 463
U.S. at 13), the Court cautioned that "the mere presence of a federal
issue in a state cause of action does not automatically confer federal-
question jurisdiction," id. Rather, the Merrell Dow Court explained,
the existence of federal question jurisdiction must be determined by
"principled, pragmatic distinctions" and "careful judgments about the
exercise of federal judicial power," id. at 813-14; only where the "fed-
eral interest at stake" is substantial will federal jurisdiction lie, id. at
814 n.12. In the "vast majority" of cases, therefore, federal-question
jurisdiction exists only where federal law creates the plaintiff's cause
of action. Id. at 808.
Because Sweeney concedes that ERISA does not provide a cause
of action for malpractice against legal counsel to ERISA funds, that
reason cannot establish that Custer's malpractice claim arises under
federal law. See Clark v. Velsicol Chem. Corp. , 944 F.2d 196, 198
(4th Cir. 1991), cert. denied, 502 U.S. 1096 (1992); Mulcahey v.
Columbia Organic Chemicals Co., 29 F.3d 148, 152 (4th Cir. 1994).
Moreover, the nature of the federal interest implicated by Custer's
malpractice claim demonstrates that Congress did not intend for
claims like Custer's to create federal subject matter jurisdiction. As
noted, Custer's claim does not implicate in any significant way the
federal policies that Congress sought to promote in enacting ERISA.
Thus, the possibility that state courts may incorrectly or inconsistently
interpret ERISA's fiduciary duty provisions in the context of malprac-
tice claims like Custer's does not militate in favor of the exercise of
federal subject matter jurisdiction in such cases. See Merrell Dow,
478 U.S. at 814-15 n.12; compare Smith v. Kansas City Title & Trust
Co., 255 U.S. 180 (1921) (upholding federal jurisdiction over share-
holder's bill to enjoin corporation from purchasing bonds issued
18
under Federal Farm Loan Act on ground that federal statute authoriz-
ing bonds' issuance was unconstitutional; claim implicated federal
government's ability to raise capital) with Moore v. Chesapeake &
Ohio Ry. Co., 291 U.S. 205 (1934) (finding no basis for federal juris-
diction over state statutory claim where plaintiff interposed defen-
dant's failure to comply with Federal Safety Appliance Acts in reply
to contributory negligence defense; because state statute only gov-
erned liability to employees who were injured while engaged in
intrastate commerce, claim under statute did not implicate federal
interests).
Accordingly, we conclude that the district court had discretion to
decline to exercise supplemental jurisdiction over Custer's legal mal-
practice claim after dismissing his ERISA claim because Custer's
legal malpractice claim is not completely preempted by ERISA and
does not incorporate federal law issues substantial enough to create
federal-question jurisdiction.
V
Finally, Sweeney challenges the district court's refusal to award
him attorneys fees under Federal Rule of Civil Procedure 11(c) and
ERISA § 502, 29 U.S.C. § 1132(g). We review a district court's
refusal to award attorneys fees for abuse of discretion. See Cooter &
Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990) (Rule 11);
Reinking v. Philadelphia Am. Life Ins. Co., 910 F.2d 1210, 1217
(ERISA).
Even though the district court dismissed Custer's ERISA claim
against Sweeney with prejudice, it denied Sweeney's motion for attor-
neys fees because it did "not believe that there[was] a sufficient
inference of bad faith on the part of [Custer]" in bringing that claim.
Having reviewed Custer's complaint and Sweeney's allegations of
bad faith, we cannot conclude that the district court abused its discre-
tion in denying Sweeney attorneys fees.
For the foregoing reasons, we affirm the judgment of the district
court.
AFFIRMED
19