HSC Hospitality Inc v. Sun Life Assurance

• Court: Court of Appeals for the Fifth Circuit
• Decided: March 15, 2002
• Docket: 01-10581
• Status: Unpublished

Opinion

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 01-10581

HSC HOSPITALITY, INC.

Plaintiff,

v.

SUN LIFE ASSURANCE COMPANY OF CANADA,

Defendant-Third Party Plaintiff-Appellee,

GAVIN GRIFFITH,

Third Party Defendant- Appellant.

Appeal from the United States District Court for the Northern District of Texas (3:00-CV-717) March 14, 2002

Before ALDISERT*, DAVIS, and PARKER, Circuit Judges.

PER CURIAM:**

* Circuit Judge of the Third Circuit Court of Appeals, sitting by designation. ** Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except Gavin Griffith appeals from a district court order denying

his Motion and Application for Attorney’s Fees and Costs (the

“Motion”) incurred in defending against Sun Life Assurance

Company of Canada’s claim for declaratory relief. This appeal

requires us to decide whether the district court erred in denying

Appellant his request for attorney’s fees on the theory that it

lacked jurisdiction to entertain his request.

This dispute arises from litigation brought by Appellant’s

employer, HSC Hospitality, Inc., against Sun Life, that sought an

enforcement of a group life insurance policy it had purchased to

cover its employees. Allegedly, HSC failed to make timely

premium payments to Sun Life, which resulted in a deactivation of

the policy. HSC began paying premiums about two months later. A

few weeks later, Appellant was diagnosed with AIDS. Sun Life

refused to cover Appellant’s expenses, claiming that the policy

had not been reinstated in time.

HSC sued Sun Life in Texas state court to enforce the terms

of the insurance contract. Sun Life removed the case to federal

court based upon diversity and federal question jurisdiction.

Sun Life then filed a motion to bring a third-party complaint

against Appellant, an Arizona resident. The district court

granted the motion. Sun Life’s third-party complaint sought a

declaratory judgment against Appellant to clarify its rights

under the limited circumstances set forth in 5TH CIR. R. 47.4.

2 under the contract as to Appellant. The complaint alleged

subject matter jurisdiction pursuant to diversity, federal

question, and the Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. § 1132(f). The complaint claimed that

personal jurisdiction was appropriate under ERISA’s grant of

nationwide service of process. 29 U.S.C. § 1132(e)(2).

Appellant moved to dismiss for lack of personal jurisdiction and

forum non conveniens.

In the meantime, HSC filed for bankruptcy, and its original

third-party complaint against Sun Life was dismissed. After

extensive negotiation, the parties agreed that Sun Life would

dismiss its third-party complaint against Appellant without

prejudice, and Appellant would file an action against Sun Life in

an Arizona federal court. The agreement expressly stated that

Appellant would seek attorney’s fees.

Appellant then sought attorney’s fees and costs in the

district court in Texas pursuant to ERISA’s fee-shifting rule.

29 U.S.C. § 1132(g). The district court denied Appellant’s

motion because it found that Sun Life did not have standing to

bring an action against Appellant under ERISA. This appeal

follows.

I.

Sun Life’s third-party complaint against Appellant was based

on the theory that it did not owe Appellant benefits because the

3 group life insurance policy maintained by his employer, HSC, had

terminated because of HSC’s failure to make timely premium

payments. In addition, Sun Life asserted that Appellant was not

part of an eligible class under the terms of the policy, that he

did not make a proper application for coverage and that he failed

to submit evidence of insurability.

The magistrate judge dismissed Sun Life’s third-party

complaint because it was not a “participant, beneficiary, [or]

fiduciary” under 29 U.S.C. § 1132(e). It is quite clear that

only plan participants and beneficiaries may maintain a

declaratory judgment action to clarify their rights under an

ERISA plan. TransAmerica Occidental Life Ins. Co. v. Di

Gregorio, 811 F.2d 1249, 1251-1253 (9th Cir. 1985). ERISA

defines “participant” and “beneficiary” as follows:

The term “participant” means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.

The term “beneficiary” means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.

29 U.S.C. §§ 1002(7) and (8).

The magistrate judge concluded that because Sun Life lacked

standing to bring an action against Appellant under ERISA, the

court lacked jurisdiction to consider Appellant’s claim for

4 attorney’s fees. Considering the unusual factual scenario this

case presents--in which Appellant was pulled into this case,

kicking and screaming by virtue of ERISA’s nationwide service

provision and as a consequence, incurred attorney’s fees and

costs, and is now told he may not even seek them because Sun

Life, as a third-party plaintiff, lacked proper standing to

institute the law suit against him–-it would seem that a denial

of a right to claim attorney’s fees is somewhat draconian.

Clearly, had Appellant sued Sun Life on a claim for coverage, he

would have standing under ERISA as a statutory beneficiary. In

addition, had he taken some minimal action in the form of a

counterclaim, the court would have been able to adjudicate it as

if it were an original claim notwithstanding Sun Life’s lack of

standing.1 This does smack of injustice.

We are reminded of Learned Hand’s experience with Justice

Oliver Wendell Holmes, Jr.:

I remember once I was with him; it was a Saturday when the Court was about to confer. It was before we had a motor car, and we jogged along in an old coupé. When we got down to the Capitol, I wanted to provoke a response, so as he walked off, I said to him: “Well, sir, goodbye. Do justice!” He turned quite sharply and he said: “Come here. Come here.” “I answered: “Oh, I know, I know.” He replied: “That is

1 “The dismissal of a plaintiff's complaint for lack of jurisdiction requires dismissal of a defendant's counterclaim unless the counterclaim presents independent grounds of jurisdiction.” Kuehne & Nagel (AG & Co.) v. Geosource, Inc., 874 F.2d 283, 291 (5th Cir. 1989) (citations omitted). “However, if a compulsory counterclaim rests on an independent ground of federal jurisdiction, it may be adjudicated despite the dismissal of the plaintiff's complaint.” Id. (citations omitted).

5 not my job. My job is to play the game according to the rules.”2

Likewise, we have decided to play the game according to the

rules and refer to another statute that has relevance here in

addition to ERISA. Sun Life successfully sought removal to the

federal court, partially based on ERISA’s jurisdictional

provisions, but exclusively relying on ERISA’s grant of nation-

wide service upon Appellant, a resident of Arizona. Where there

is a remand to the state court after an improper removal,

Congress has explicitly provided for an award of just costs to

include attorney’s fees and actual expenses, incurred as a result

of the removal:

A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal under section 1446(a). If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded. An order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.

28 U.S.C. § 1447(c).

We now inquire into the applicability of both statutes to

the case at bar. Our analysis recognizes that in Cliburn v.

Policy Jury Ass’n of Louisiana, Inc., 165 F.3d 315, 316 (5th Cir.

2 Learned Hand, A Personal Confession. Printed in Continuing Legal Education for Professional Competence and Responsibility, the Report on the Arden House Conference, December 16-19, 1958, at 116-123.

6 1999), we held that attorney’s fees cannot be awarded under 29

U.S.C. § 1132(g) where the case involves a plan over which there

is no ERISA jurisdiction.

That is not the case here. Both parties agree that ERISA

governs the insurance plan. The questions we must now resolve

are whether: (1) ERISA’s denial of standing to insurance

companies precludes Appellant from seeking attorney’s fees in an

action brought by an insurance company against him, a beneficiary

of an ERISA plan, and (2) Appellant may rely on the remand

statute for relief.

II.

Appellant seeks $7,896.39 in attorney’s fees and $461.07 in

costs incurred in defending the third-party complaint filed

against him. Appellant asserts his claim pursuant to ERISA’s

fee-shifting provision, which provides:

(1) In any action under this subchapter . . . by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.

29 U.S.C. § 1132(g)

Sun Life contests this claim for fees, arguing that when the

district court lacks subject matter jurisdiction over an ERISA

claim, the district court also lacks jurisdiction to award

attorney’s fees pursuant to the ERISA fee-shifting statute. Sun

Life’s contention is supported by case law in this court and

other Courts of Appeals.

7 Furthermore, given that ERISA is inapplicable to Cliburn's claims, it is inconsistent to conclude that either Cliburn or the Police Jury Association is "a participant, beneficiary, or fiduciary" eligible to invoke § 1132(g)(1). Given that the district court lacked jurisdiction to hear Cliburn's claims under ERISA, it logically follows that the court lacked jurisdiction to entertain the Police Jury Association's request for fees, costs, and expenses under ERISA.

Cliburn, 165 F.3d at 316.

It may be that the teachings of Cliburn would prevent

Appellant from sustaining a claim for fees under 29 U.S.C.

§ 1132(g)(1). Yet it could be argued that the facts here are

significantly different. Unlike Cliburn, where the plan did not

come under the purview of ERISA, the parties before us agree that

the HSC plan does so qualify. Thus, the sole flashpoint of

controversy is standing to sue. Whether this is a distinction

without a difference is not a question that we are inclined to

decide here, because the attorney’s fee provision of the remand

statute may be pertinent to our determination. We now turn to 28

U.S.C. § 1447(c).

III.

At the outset, we recognize that if the remand statute is

to be strictly construed in the abstract, its application would

be questionable because although there was improper removal to

the district court, there was no motion to remand the proceedings

to the state court. Instead, the parties agreed that Sun Life

would dismiss its third-party complaint against Appellant, and

8 that Appellant would subsequently file an action for attorney’s

fees in a district court in Arizona.

At the time the parties agreed to dismiss the third-party

complaint, Sun Life agreed that Appellant was entitled to bring a

claim for attorney’s fees in the district court. Had Sun Life

raised the standing issue at that time, thus defeating

Appellant’s claim under ERISA, Appellant would have had the

opportunity to attempt to remand the entire proceedings to the

original state court and thus come under the protection of 28

U.S.C. § 1447(c). The question then presented is whether,

considering the unusual circumstances present here, Sun Life

should be entitled to lie doggo and then later question

Appellant’s right to relief under § 1447(c).

Many courts have used § 1447(c) to award attorney’s fees to

parties in situations similar to that before us here.3 Although

3 See e.g., Township of Whitehall v. Allentown Auto Auction, 966 F. Supp. 385 (E.D. Pa. 1997) (holding that plaintiff was entitled to attorney’s fees incurred as a result of removal, where lack of jurisdiction was plain under law and would have been revealed to defendant's counsel with a minimum amount of research); S.M. v. Jones, 794 F. Supp. 638 (W.D. Tex. 1992) (holding that plaintiffs were entitled to reasonable attorney’s fees and expenses incurred as result of defendants' improper removal of case); Knudsen v. Samuels, 715 F. Supp. 1505 (D. Kan. 1989) (holding that defendants would be required to pay just costs and any actual expenses, including attorney’s fees, incurred as a result of improvident removal); In re Friedman & Shapiro, P.C., 185 B.R. 143 (S.D.N.Y. 1995) (holding that award of costs under statute providing for costs incurred as a result of improper removal of case is discretionary and does not require finding that removant acted in bad faith); Greenidge v. Mundo Shipping Corp., 60 F. Supp. 2d 10 (E.D.N.Y. 1999) (holding that

9 the reasoning in those cases implicated sub silentio the

venerable doctrine of estoppel, we have decided to be specific in

applying the doctrine here to preclude Sun Life from denying the

applicability of § 1447(c), even though there was no remand to a

state court. The doctrine is familiar:

The four elements of estoppel are: (1) that the party to be estopped was aware of the facts, and (2) intended his act or omission to be acted upon; (3) that the party asserting estoppel did not have knowledge of the facts, and (4) reasonably relied on the conduct of the other to his substantial injury.

Moosa v. INS, 171 F.3d 994, 1003 (5th Cir. 1999)4

All four factors are present here. Sun Life knew that

Appellant intended to petition for attorney’s fees and that

Appellant intended his attorney’s fee request to be acted on.

However, Appellant did not know that Sun Life planned to assert

lack of jurisdiction as a defense to his claim. Furthermore,

Appellant relied on Sun Life’s representation that he could

although defendant did not remove maritime case in bad faith, it was nonetheless an appropriate exercise of court's discretion to require defendant to pay reasonable costs and expenses for improper removal; while plaintiffs opted to litigate their relatively simple claims in state court, the removal greatly complicated the case, thus making it unfair to require either the plaintiffs or their counsel to absorb the cost of litigating the remand motion, and impropriety of the removal should have been clear to defendant, given that defendant's counsel was an experienced maritime firm). 4 To be sure, the cited case is a situation in which the government was a party, but as stated therein, “[t]o establish estoppel against the government, a party must prove affirmative misconduct by the government and also establish the four traditional elements of the doctrine.” Moosa, 171 F.3d at 1003.

10 properly present a claim for attorney’s fees. But for Sun Life’s

misdirection, Appellant would otherwise have had two viable

options to assert his right: (1) He could have counterclaimed on

the third-party ERISA complaint as a legitimate third-party

counter claimant who was a beneficiary under 29 U.S.C. § 1002(7)

and (8), or (2) he could have moved to remand to the state court

and presented a motion under 28 U.S.C. § 1447(c).

The classic elements of estoppel are present here, and Sun

Life is now estopped from denying Appellant’s right to proceed

for attorney’s fees and costs under § 1447(c).

* * * * *

In light of the unusual facts of this case, we therefore

conclude that the district court erred in dismissing Appellant’s

claim for lack of jurisdiction. The judgment is reversed and the

proceedings remanded for consideration of the merits of the claim

for attorney’s fees, costs and actual expenses under 28 U.S.C. §

1447(c).