Hatteberg v. Red Adair Co Inc

United States Court of Appeals
Fifth Circuit
F I L E D
November 6, 2003
In the
Charles R. Fulbruge III
United States Court of Appeals Clerk
for the Fifth Circuit
_______________
m 00-51109
_______________
ANDREA D. HATTEBERG,
Plaintiff-Appellant,
VERSUS
RED ADAIR COMPANY INCORPORATED EMPLOYEES’ PROFIT SHARING PLAN
AND ITS RELATED TRUST;
ADAIR ENTERPRISES, INC.;
FULBRIGHT & JAWORSKI, LIMITED LEGAL PARTNERSHIP;
STEWART W. GAGNON; JONATHAN GOLDHOR; DONALD M. JANSEN;
JOY M. SOLOWAY; LISA HARBOR; JERYL GOLUB;
JOETTA JANCZAK; JAMES RICHARD HATTEBERG,
Defendants-Appellees.
_________________________
Appeal from the United States District Court
for the Western District of Texas
m MO-97-CV-209
_________________________
Before JOLLY, SMITH, and the Plan administrator and a fiduciary to plain-
EMILIO M. GARZA, Circuit Judges. tiff, as well as Adair Enterprises employee Jo-
etta Janczak, the law firm of Fulbright & Ja-
PER CURIAM:* worski (“Fulbright”), several Fulbright attor-
neys serving as James Hatteberg’s divorce
Andrea Hatteberg (“plaintiff”) appeals a counsel, and several Fulbright attorneys who
summary judgment in this dispute over various advised the plan administrator. Plaintiff claims
employee benefit plans. Finding no error, we the administrator refused to supply requested
affirm. information about the plan and that various
defendants breached their fiduciary duty,
I. interfered with protected rights, engaged in
Plaintiff and James Hatteberg were parties prohibited transactions, and committed vio-
to a contentious divorce in 1992. Among the lations of the Employee Retirement Income
community property divided between them Security Act of 1974 (“ERISA”).
were the assets owed to James Hatteberg un-
der the Red Adair Profit Sharing Plan; Adair To “bring focus” to the case, the district
Enterprises, Inc., was the plan administrator. court appointed two special masters with ex-
In 1992, a state court entered a qualified do- pert ise in the intricacies of ERISA law. The
mestic relations order (“QDRO”) regarding masters produced reports helpful to the court
James Hatteberg’s accrued benefits under the in its final determinations. Later, at the court’s
plan. This first QDRO entitled plaintiff to a request, plaintiff and defendants filed respec-
small portion of the plan’s assets, so she ap- tive motions for summary judgment. The
pealed. The method of calculation of her en- court found the bulk of plaintiff’s claims to be
titlements remained a matter of dispute and deficient.
litigation until 1997, when all parties reached
a mediated settlement respecting the substance The court observed that the first claim,
and general form of a final QDRO, recognizing based on alleged violations of 29 U.S.C.
a larger entitlement for plaintiff. In 1998, § 1132’s requirement that plan administrators
under a second QDRO obtained pursuant to supply certain information to beneficiaries, had
the settlement, plaintiff was paid, from the merit. The court, however, in the absence of
plan’s trust account, the amount owed her un- a federal limitations period for such a claim,
der the settlement. applied the limitations period of an analogous
Texas state law claim and found that plaintiff’s
She was not completely satisfied, however. claim fell outside the two-year period.
She sued the instant defendants in federal
court, asserting claims arising from the prior The court also put aside plaintiff’s claims of
dispute. The defendants include Adair Enter- breaches of fiduciary duty. She had argued
prises, Inc. (hereinafter “Adair”), which was that the plan administrator breached its fidu-
ciary duty to her in five ways: first, by failing
to distribute the plan benefits to her on
*
Pursuant to 5TH CIR. R. 47.5, the court has November 14, 1994, the date of distribution to
determined that this opinion should not be pub- other plan participants; second, by making a
lished and is not precedent except under the limited passthrough amendment, which provided that
circumstances set forth in 5TH CIR. R. 47.5.4.
2
all future expenses of the plan’s administration III.
were to be paid out of plan assets; third, by Irrespective of whether plaintiff established
failing to replace the Fulbright attorneys advis- the elements of a claim under 29 U.S.C.
ing the plan when it learned that other § 1132(c)(1) for Adair’s failure to provide re-
Fulbright attorneys were representing James quested information to her as a beneficiary of
Hatteberg as divorce lawyers; fourth, that the the trust, the district court was correct in con-
administrator failed to operate the plan in ac- cluding that her claim is barred by a two-year
cordance with plan documents by improperly statute of limitations. ERISA does not
requiring any domestic relations order to be explicitly provide a statute of limitations
final before it could be qualified; and fifth, by period for actions under § 1132(c). Because
engaging in prohibited transactions with Ful- there was no Fifth Circuit authority on the
bright attorneys through unreasonable issue, the district court looked to analogous
compensation for legal services “unnecessary” Texas state law to determine the relevant
to the administration of the plan. limitations period. See McClure v. Zoecon,
Inc., 936 F.2d 777, 778 (5th Cir. 1991).
The district court rejected each of the five
theories and plaintiff’s other ERISA-based Plaintiff argued that the court should have
theories of prohibited party-in-interest applied either the Texas four-year statute of
transactions, deliberate deception, and limitations for fraud actions or the residual
interferences with protected ri ghts. four-year period for actions for which no other
Accordingly, the court denied plaintiff’s limitations period applies. The district court
motion, and granted defendant’s motion. It was correct in observing that a violation of
taxed the cost of the special masters to Adair § 1132 is not analogous to fraudSSwithout
and ordered the parties otherwise to bear their more, the withholding of information from a
own costs. beneficiary is quite unlike defrauding a
beneficiary. Despite plaintiff’s assertions, the
II. evidence does not support the conclusion that
We review a summary judgment de novo the plan administrators engaged in bad faith in
and affirm if there is no genuine issue of ma- withholding the information plaintiff had re-
terial fact and the movant is entitled to quested. The district court also declined to
judgment as a matter of law. Ramirez v. City apply the Texas residual statute of limitations,
of San Antonio, 312 F.3d 178, 181 (5th Cir. adopting instead the state statute of limitations
2002). An issue of fact is material only if its for an action for breach of fiduciary dutySSan
outcome would affect the outcome of the case. action similar to that described in § 1132.1
Id. We draw all reasonable inferences in favor
of the nonmoving party, who in this case is the Plaintiff also has argued that the four-year
plaintiff. Id. We review the district court’s
procedural decisions for abuse of discretion.
Celestine v. Petroleos de Venezuela, S.A., 266 1
In Texas, there are two different limitations
F.3d 343, 349 (5th Cir. 2001). periods that might apply, but this court has adopted
the line of cases applying a two-year tort period for
claims of breach of fiduciary duty. Kansa
Reinsurance Co. v. Stewart Title Co., 20 F.3d
1373, 1374 (5th Cir. 1994).
3
limitations period of TEX. CIV. PRAC. & REM. not dependent on her actual functions with
CODE § 16.004(a)(5) should apply. That stat- respect to the plan,” the district court correctly
ute, regarding breach of fiduciary duty, noted that this court has held that the “actual
became effective on August 30, 1999, some authority which a person exercises over a
eighteen months after plaintiff filed the instant plan” is a more important factor than their
suit. Accordingly, that statute’s limitations organization title with respect to a plan. See
period is inapplicable here. Donovan v. Mercer, 747 F.2d 304, 308-09
(5th Cir. 1984).
There is no evidence that plaintiff made any
request for information after August 30, 1995; The key, then, is the factual matter of
she sued on December 12, 1997. Accordingly, whether Janczak was more than a “merely
her claim is barred by the two-year statute of ministerial” member of the plan committee.
limitations, and we need not address the Plaintiff notes that Janczak was extremely
district court’s ruling limiting recovery to $1 knowledgeable about the plan, sent letters di-
per day of violation. recting distributions from the plan, and often
communicated with the Fulbright attorneys
IV. about the plan. These facts, however, do not
It is undisputed that Adair was plaintiff’s suggest that Janczak exercised a level of dis-
fiduciary, but she argues that a number of cretion that should be characterized as control
other persons should also be considered her or authority. To the contrary, these facts are
fiduciaries. Among these is Joetta Janczak, a quite consistent with the duties and knowledge
member of the administration committee that that should be expected of a “ministerial”
managed the Plan. The district court declined member of the plan committee. Janczak’s tes-
to consider her a fiduciary of plaintiff’s, based timony and other evidence support the
on evidence that she exercised no controlling conclusion that her duties did not relate to the
authority over the plan and undertook only substance of the management of the plan. The
ministerial functions with respect to it. district court reasonably concluded that she
was not plaintiff’s fiduciary.
Plaintiff contends that Janczak is a “named
fiduciary” under 29 U.S.C § 1102(a)(2) and Plaintiff also argues that Adair’s Fulbright
that the district court erred in accepting Jan- attorneys should be considered her fiduciaries.
czak’s testimony that her duties were “merely She alleges something approaching a conspira-
ministerial.” ERISA deems a person a plan torial relationship among them, to hijack the
fiduciary to the extent that he or she “exercises plan and loot its assets through their control
any discretionary authority or discretionary over the plan administrators. The key issue in
control respecting management of [the] plan or determining whether the Fulbright attorneys
exercises any authority or control respecting were fiduciaries is the level of control the law-
management or disposition of its assets,” or yers exercised over the decisionmaking. Id.;
“has any discretionary authority or 29 C.F.R. § 2509.75-5. The district court held
discretionary responsibility in the that “there is no evidence that any Fulbright &
administration of [the] plan.” 29 U.S.C. Jaworski attorney exercised control or
§ 1002(21)(A)(i), (ii). Though plaintiff claims authority over the plan at any time.”
that Janczak’s “fiduciary status and liability are
4
Plaintiff contends the district court ignored attorneys. As the district court observed,
evidence in her favor. Particularly, she says however, James Hatteberg should not be
the plan committee relied only on the advice of considered a fiduciary. Although he
Fulbright lawyer Goldhor regarding the re- improperly requested that the plan
quirement of finality before payment. Ful- administrator not disclose certain information
bright lawyer Jansen, she says, had authority to to the plaintiff, his request was not tantamount
determine whether the Hatteberg QDRO’s to control, even if the plan administrators
were qualified under ERISA. eventually failed to disclose the requested
information because of their mistaken
Certainly, Goldhor, Jansen, and other Ful- understanding of ERISA’s requirements.
bright lawyers gave advice to the plan
committee, and doubtless their advice at time As to the fiduciary status of Janczak, the
caused the committee to act in ways it various other Fulbright lawyers, and James
otherwise would not have. But these activities Hatteberg, there remains no genuine issue of
are consistent with a normal relationship material fact to be resolved. The district
between lawyer and clientSSthe committee court’s conclusions are well reasoned.
would not have solicited the aid of attorneys if
it did not intend to act on their advice. It is V.
unwarranted to infer from the fact that the A.
Fulbright lawyers shaped the committee’s view The district court found no basis to believe
of their legal obligations that they became the that the plan fiduciaries managed assets so as
de facto controllers of the plan assets, and we to use them as a litigation weapon in the state
see no indication that the attorneys formulated court proceedings, in violation of ERISA’s
any sort of scheme to loot the plan of its “exclusive purpose” and “anti-inurement” pro-
assets. visions. The record shows that the
administrators did not illicitly “profit” from the
Plaintiff also maintained that Fulbright di- funds, or were unreasonable administrative
vorce attorneys who represented James Hatte- expenses were deducted from plan assets.
berg should be considered fiduciaries, on the Retaining the Fulbright attorneys to give
theory that they were part of the larger advice on complex and obscure ERISA issues
conspiracy among Fulbright attorneys to was reasonable. To support her arguments,
control the plan and loot its assets for their plaintiff provides little more than allegations of
own use. Again, there is no evidence to such conspiratorial behavior. There remains
support this conclusion. Accordingly, the no genuine issue of material fact.
district court acted properly in denying that the
Fulbright divorce attorneys were plaintiff’s B.
fiduciaries. Plaintiff claims the plan administrators
breached their fiduciary duty of prudence by
Finally, plaintiff insists that James Hatteberg failing to establish and follow reasonable
was one of her fiduciaries, again by virtue of QDRO procedures as required by 29 U.S.C.
exercising “de facto discretionary control and § 1056(d)(3). Particularly, she complains that
authority over the Plan’s management . . .” Adair improperly delayed recognition of the
while working in concert with the Fulbright disputed family court DRO as a QDRO,
5
preventing her timely receipt of benefits. cusation, so there is no genuine issue of mate-
rial fact.
There is no requirement under ERISA, or
under the plan, that an order be final before it D.
is qualified. Though plaintiff became a Plaintiff argues that because the plan
fiduciary upon entry of the First QDRO, it was documents provided to her did not address
not established how much of the plan assets whether plan expenses were to be deducted
she was entitled to receive until the entry of from plan assets, the administrators were
the final QDRO in 1997. As the district court prohibited from making expense deductions.
concluded, Adair’s unnecessary delay in qual- Administrators are required under ERISA to
ifying the domestic relations order was in good operate a plan in accordance with its written
faith and, accordingly, did not constitute a terms. In this case, however, the plan was
breach of fiduciary duty. The record does not amended, as allowed under its original terms,
show otherwise, and there is no genuine issue so as to permit expense deductions.
of material fact. Accordingly, it was within the terms of the
Plan to deduct expenses from assets at the
C. time when the administrators did so.
Plaintiff alleges that the plan administrators
engaged in a prohibited transaction when they The district court also noted, convincingly,
hired Fulbright lawyers to advise the plan on that the passthrough amendment did not re-
various legal matters. Title 29 U.S.C. § 1106- duce plaintiff’s vested benefit account, so it
(a)(1)(c) prohibits a plan fiduciary from did not thereby violate the anti-cutback
causing a plan to engage in transactions that provisions of ERISA; the expenses were paid
allow the furnishing of services between the before earnings and losses were allocated to
plan and a party in interest. Reasonable individual accounts. Accordingly, there is no
arrangements for legal and other services genuine issue of material fact.
necessary to operate the plan are excepted,
however, if the compensation paid is VI.
reasonable. 29 U.S.C. § 1108(b)(2). A.
As we have said, plaintiff asserts defendants
The district court properly found that the engaged in transactions for parties-in-interest
$6,389.35 paid to the Fulbright attorneys by in violation of 29 U.S.C. § 1106(b). She also
the plan was a reasonable fee for legal research argues that even if James Hatteberg and the
services necessary to the operation of the plan. Fulbright attorneys advising the plan are not
Certainly, it does not seem an excessive fee, fiduciaries, she has a claim against them for
considering ERISA’s complexities. engaging in party-in-interest transactions under
§ 1132(a)(3).
As part of her claim of “prohibited
transactions” between the administrators and Again, plaintiff argues that the Fulbright di-
the Fulbright lawyers, plaintiff alleges that the vorce attorneys’ representation of James Hat-
Fulbright lawyers operated primarily to control teberg, while other Fulbright attorneys advised
the assets of the plan for their own interests. the plan, constitutes a transaction prohibited
There is no substantial evidence for this ac- by 29 U.S.C. § 1106. As noted, under 29
6
U.S.C. § 1108(b)(2), there is a safe harbor liability. Id. at 506. Plaintiff’s inference that
from § 1106 for provision of legal services, the plan’s fiduciaries and parties-in-interest
such as those provided by the Fulbright intentionally engaged in a plan of deception to
lawyers to the administrators, so long as no enrich themselves is not supported by
more than reasonable compensation is paid. evidence. Moreover, the Varity theory is
The district court observed that there was no inapplicable to any of the Fulbright attorneys
evidence of a legal or ethical conflict of or Janczak, because they were not plaintiff’s
interest in the administrators’ retention of the fiduciaries. See id. at 492. Accordingly, there
Fulbright attorneys, nor that unreasonable is no material issue of fact.
compensation was paid to them. Even if,
under Wildbur v. ARCO Chem. Co., 974 F.2d C.
631, 645 (5th Cir. 1992), plaintiff was one of Plaintiff presses a claim for “interference
Fulbright’s clients for purposes of providing with protected rights” under 29 U.S.C. §
ERISA advice to the plan, the record does not 1140. In a § 510 action, usually brought by an
support a finding of a conflict of interest. As employee against an employer, a plaintiff must
the district court noted, there services were show intent to discriminate. This court has ap-
very “limited” and the lawyers were not plied § 510 outside t he employer-employee
unreasonably compensated. There is no context since deciding Lynn v. Lynn, 25 F.3d
genuine issue of material fact. 280, 284 (5th Cir. 1994). A plaintiff must of-
fer evidence from which it can be inferred that
B. defendant intended to discriminate against him
Plaintiff alleges “deliberate deception” by a in realizing benefits under a plan. Id.
fiduciary under Varity v. Howe, 516 U.S. 489(1996), in which the Court held that an Plaintiff contended that Adair’s opposition
employer acted as a fiduciary and breached its to her interests during the contested state pro-
fiduciary duties when it made false ceedings surrounding the first QDRO
representations to participants in its ERISA constituted “discrimination against a
plan about the security of transferring their participant or beneficiary for exercising any
accounts. Plaintiff claims Varity is applicable right to which [she] is entitled under the
to the facts of this case. Varity, id. at 502-03. provisions of an employee benefit plan.” The
district court observed, however, that
The district court held that plaintiff had not throughout the litigation, plaintiff was not in
established that the plan administrators made fact forced to relinquish any rights, but was
misrepresentations to plaintiff to induce fully entitled to, and did avail herself of, the
material reliance. Plaintiff complains, state appellate system to challenge the trial
however, that a joint account was not created court’s calculation of her entitlements in the
and that plan administrators lacked knowledge first QDRO. Adair’s trial strategy in actively
about certain intricacies of the plan. opposing plaintiff’s motion and appeals in state
court litigation does not constitute a violation
If these facts are true and constitute of § 1140. As the district court noted, the
failings, they are not deliberate deceptions state court litigation process and settlement
under Varity, in which the court required negotiations are not topics properly reviewed
“lying” and “deceiving” in order to premise under ERISA. See Matassarin v. Lynch, 174
7
F.3d 549, 569 (5th Cir. 1999). were in some way suborned and insinuates that
the extensive redrafting of the masters’ report
VII. was undertaken at the improper urging of the
A. district court, which, she states, intended to
Plaintiff complains that her non-ERISA undermine the neutrality of the report. More
claims were severed from the other likely, the need to redraft was caused by the
proceedings, including her claims asserted difficulty of the ERISA issues in the case. It
under the Racketeer Influenced and was no abuse of discretion to appoint and rely
Corruption Organization Act and her claims on special masters here.
based on t heo ries of negligent
misrepresentation, legal malpractice, and abuse C.
of process. The court found that “these The district court made its inquiry
claims, while each relying on the same general concerning retention of counsel after the
facts, are separate and distinct from the masters’ report raised the possibility that
remaining claims asserted under” ERISA. plaintiff might prevail on some issues. Plaintiff
Indeed, they are. indicated a willingness to secure counsel at an
appropriate time, and the court directed her to
The non-ERISA claims are quite different do so. She asserted no opposition to the order
in purpose and content from the ERISA at the time and did indeed retain counsel. She
claims. In a case already complicated by di- eventually terminated counsel and resumed
verse and difficult issues of ERISA law, it was representing herself pro se after complaining
no abuse of discretion for the district court to that she was short of funds to support a
deal with plaintiff’s non-ERISA claims separate attorney.
separately.
Plaintiff avers that when she failed to object
B. to the order to retain legal counsel, she had
As the district court noted, this case been led to believe by the district court that
“involves a myriad of issues with each being she might succeed on some issues and that the
briefed in exhaustive detail by the parties.” To court intended to order mediation. That these
bring focus to the case, the court appointed hopes were disappointed apparently forms the
two special masters with expertise in ERISA basis of her objection to the order to retain
law, pursuant to FED. R. CIV. P. 53. counsel. The order, a reasonable response to
reports from the special masters, was no abuse
Plaintiff contends the appointment of spe- of discretion.
cial masters was unnecessary, because the
“facts and law on her ERISA claims were D.
clear,” and the appointment would lead to ERISA provides that in “any action . . . by
“unwarranted delay and expense.” But even a a participant, beneficiary, or fiduciary, the
short reading of the issues in the case reveals court in its discretion may allow a reasonable
that it revolves around difficult and unfamiliar attorney’s fee and costs of action to either
areas of law. party.” 29 U.S.C. § 1132(g)(1). Plaintiff ar-
gues that the refusal to allow her to recover
Plaintiff also avers that the special masters her attorneys’ fees was an abuse of discretion.
8
She notes that she did prevail on her initial motion. It looked unfavorably on her
claim for clarification and enforcement of her arguments that the court was biased, noting
right to a qualified domestic relations order that she had “quoted isolated words and
and a distribution. Indeed, this issue was the phrases from various orders entered in this
core of the disagreement between her and the action to date, arguing the forceful language
defendants, though it was far less an issue in used by the Court shows bias or prejudice
federal district court than at the state level and against the subject matter of her claims,
throughout the mediation process. extreme favorable predisposition to the
Fulbright Defendants, and undeserved and
Defendants note that plaintiff’s few excessive bias against the Plaintiff.” Plaintiff
successes in the course of the litigation again quotes isolated words of the court,
occurred while she was working pro se, so where it characterized several of her factual
they urge that, as in Matassarin v. Lynch, 174 and legal arguments as “unnecessarily abusive
F.3d 549, 570 (5th Cir.1999), no attorneys and insulting,” “unsupported personal venom,”
fees should be due a pro se litigant. There was “disrespectful and unprofessional,” and
no abuse of discretion in denying fees. “outrageous, fri volous, and completely
unsupported.” Plaintiff seems especially
Plaintiff urges, however, that the district exercised that the court characterized her
court improperly failed to consider the five divorce proceedings as “bitter and ac-
“Bowen factors” to be applied in awarding fees rimonious” and urged her and James Hatteberg
in ERISA disputes. See Iron Workers Local to “put to rest the parties’ divorce” and avoid
No. 272 v. Bowen, 624 F.2d 1255, 1265-66 turning the proceedings into a “post-mortem”
(5th Cir. 1980). Plaintiff claims that of the divorce.
consideration of the Bowen factors is
mandatory in the Fifth Circuit. In Riley v. There is, however, no good evidence that
AMR Corp. Subsidiaries Supersaver 401(k) the court was biased against plaintiff or the
Capital Accumulation Plan, 209 F.3d 780, subject matter of her claims. Although the
781-82 (5th Cir. 2000), we wrote that a court court apparently showed irritation with a num-
“should consider and explicate the five Bowen ber of plaintiff’s arguments and accusations,
factors, and should do so without giving the court’s characterizations of her conduct
predominance or preclusive effect to any one had some foundation. The court lacked the
of them . . . .” Nothing in Bowen requires, “deep-seated favoritism and unequivocal an-
however, that a court must, in every case, tagonism that would render fair judgment im-
elaborately and explicitly run its fact pattern possible” and make recusal appropriate. Lite-
through the five factors in its written opinion, ky v. United States, 510 U.S. 540, 555 (1994);
especially where a litigant has achieved as little see also Matassarin, 174 F.3d at 571.
success as has this plaintiff. Furthermore,
plaintiff contributed substantially to the F.
prolongation of the litigation process by After lengthy discovery, the district court
aggressively pursuing appeals. concluded that there had been “more than ade-
quate time for discovery.” It overruled
E. plaintiff’s requests for unlimited discovery.
The district court denied plaintiff’s recusal She, however, still wanted documents relating
9
to the Fulbright attorneys’ legal advice to
James Hatteberg with respect to the divorce
proceedings. Plaintiff also sought assorted
other documents she insists were relevant to
appropriate statutory penalties under § 1132
and to her allegations of self-dealing, breaches
of fiduciary duty, and interferences with Hatte-
berg’s rights under ERISA. In short, she
argued that further discovery was necessary
with regard to the bulk of her case.
The district court was in a good position to
decide whether further discovery was needed.
The record is voluminous and detailed and is
additionally enriched by the analysis of the spe-
cial masters. The court was within its dis-
cretion to bring an end to discovery.
AFFIRMED.
10