Juan Rodriguez, Maria A. Rodriguez v. Meba Pension Trust, Lucille Hart, Administrator, (Two Cases)

956 F.2d 468

• Court: Court of Appeals for the Fourth Circuit
• Decided: February 10, 1992
• Docket: 91-2336, 91-2358
• Status: Published

Opinions

OPINION

PHILLIPS, Circuit Judge:

Juan Rodriguez appeals the district court’s denial of his application for attorney’s fees pursuant to § 502(g)(1) of the Employment Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. In Rodriguez’s earlier action for pension benefits against the Maritime Engineer Beneficial Association (MEBA), we found him entitled to an award of benefits. Rodriguez v. MEBA Pension Trust, 872 F.2d 69 (4th Cir.1989) (Rodriguez I). Rodriguez then applied in the district court for attorney’s fees, and the district court denied the application. The district court ruled without the benefit of briefing or argument on the recent decision of this court in Reinking v. Philadelphia Am. Life Ins. Co., 910 F.2d 1210 (4th Cir.1990). Because we believe Reinking tips the balance in favor of Rodriguez, we vacate and remand with directions to award him fees in an appropriate amount.

I

Rodriguez retired from his employment as a marine engineer in 1965, whereupon he received a monthly pension of $300 stemming from negotiations between MEBA and his former employer. In 1967, he began working as a port engineer for Sea-Land Services, Inc. At first, his position was non-unionized, but, in June of 1968, Sea-Land entered into a collective bargaining agreement with MEBA which covered Rodriguez’s position. Rodriguez wrote a letter to I.A. Lamy, Vice President of MEBA and Trustee of MEBA trust, notifying Lamy that Rodriguez was drawing a pension as a retired marine engineer and asking Lamy how this affected his “present status in the organization.” Lamy told Rodriguez that he must apply for reinstatement to union membership but that “membership will not interfere with your pension.”

Approximately six weeks later, on October 16, 1968, the MEBA Pension Trust Regulations were amended to afford persons in Rodriguez’s position “the option of suspending their pension checks and accruing further benefits or continuing to receive pension checks but foregoing further accruals.” This option was deemed so important that MEBA Vice Presidents personally delivered copies of the option to each port engineer affected, explained it to them, and received their written decisions. However, no copy of the option was delivered to Rodriguez, and Lamy never wrote Rodriguez to correct his earlier statements. In August of 1972, Rodriguez wrote Mildred Killough, then MEBA trust administrator, requesting clarification of his status with the trust. She responded in March of 1973 that he could have elected to suspend his pension benefits under the 1968 option, but since he elected to continue to receive benefits, he could accrue no further credits.

Rodriguez did not question his right to exercise the option at any time during the next twelve years. However, MEBA’s records indicate that the trust knew or should have known Rodriguez had not filed a written determination on the option, and trust administrators made no attempt to contact him. In 1975 and 1976, the trust reached agreement with three port engineers in Rodriguez’s position. Trust administrators allowed these three to exercise their options contingent upon the return of all pension benefits they had received. Two of the three, like Rodriguez, had never received notice of the option. The other had decided against exercising his option previously, but he was permitted to change his mind.

On January 25,1985, upon contemplating retirement, Rodriguez wrote the trust administrator to request information about receiving a lump sum payment of his benefits. He was told such a payment was unavailable because of his failure to suspend pension payments under the 1968 option. Rodriguez asked for a formal review of the denial of benefits. MEBA reviewed Rodriguez’s case three times and denied benefits on each occasion. In 1989, we ruled in Rodriguez I that the MEBA trust had breached its fiduciary duty by failing, in 1968 and 1973, to notify Rodriguez of his option to suspend benefits. The parties ultimately settled for a pension benefit of $225,194.89, but they could not agree on attorneys’ fees.

Rodriguez applied for a fee award of $627,647.98 for legal services rendered through May 14, 1990. In a brief Memorandum and Order, the district court applied the five-factor ERISA attorney’s fees test that had been adopted by this court in Tenneco, Inc. v. First Virginia Bank of Tidewater, No. 82-1158, 4 E.B.C. 1344 (4th Cir. Apr. 5, 1983) (per curiam) (unpublished),¹ and ruled that Rodriguez was not entitled to receive attorneys’ fees. This appeal followed.

II

Section 502(g)(1) of ERISA provides: 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)(1). The Tenneco test circumscribes a district court’s discretion to award fees by directing consideration of five factors in determining the propriety of making a particular award:

(1) The degree of the opposing party’s culpability or bad faith;

(2) The ability of the opposing party to satisfy an award of attorney’s fees;

(3) Whether an award of attorney’s fees against the opposing party would deter other persons acting under similar circumstances;

(4) Whether the party requesting attorney’s fees sought to benefit all participants and beneficiaries of an ERISA Plan or sought to resolve a significant legal question regarding ERISA; and

(5) The relative merits of the parties’ positions.

Tenneco, slip op. at 4, 4 E.B.C. at 1345. Applying this test to the instant case, the district court found that factors two and five favored Rodriguez, factors three and four favored MEBA, and factor one favored neither party. Faced with an apparent “tie” between the parties, the district court rejected the fee application.

Reinking, decided by this court since Tenneco, expressly adopted the five-factor test from Bowen, but with a twist not expressed in Tenneco, hence not taken into account by the district court in its application of the Tenneco test.

Specifically, the Reinking court, considering an application by an ERISA plan participant for attorneys fees, adopted the view now held by three other circuits² that while the five-factor test should be used “as a guide, ... [the district court] must also bear in mind the remedial purposes of ERISA to protect employee rights and to secure effective access to federal courts.” Reinking, 910 F.2d at 1218. Looking to these remedial purposes, as found in ERISA’s preamble, 29 U.S.C. § 1001(b), and key portions of ERISA’s legislative history, see H.R.Rep. No. 93-807, 93d Cong., 2d Sess., reprinted in 1974 U.S.C.C.A.N. 4639, 4670, the court held that “in order to effectuate the remedial purposes of ERISA, a prevailing individual beneficiary should ordinarily recover attorney’s fees unless special circumstances would render such an award unjust.” Reinking, 910 F.2d at 1218.³

Reinking thus effectively mandated a presumption favoring prevailing ERISA plaintiffs which the district court, presumably unaware of the recent case, failed to take into account. As applied in this case, it requires a re-assessment of the fee award application under the five-factor test that is more disposed toward an award of fees. In particular, it requires a re-evaluation of factors one (defendant’s culpability), two (defendant’s ability to pay), and three (likely deterrent effect of an award) in ways more favorable to the fee applicant than the district court thought proper.

We take these in order.⁴

A

The district court ruled that neither party was favored by the first factor, MEBA’s culpability or bad faith. In doing so, the lower court relied on language from Rodriguez I that MEBA’s error was merely a “mistake,” and indicated that it thought bad faith was necessary to tip the scale in claimant’s favor on this factor.

Assessed more carefully and with Reink-ing 's general presumption favoring prevailing claimant in mind, we believe that this fact should be considered to favor Rodriguez rather than being a neutral factor. It is true that in Rodriguez I we characterized the initial failure to notify as merely a mistake; but we characterized the continuing treatment of Rodriguez’s inquiries over the next twelve years as a breach of fiduciary duty. See Rodriguez I, 872 F.2d at 74. Such a breach of duty, even if it does not amount to bad faith, surely constitutes “culpability” within contemplation of the five-factor test. Cf. Werner v. Upjohn Co., 628 F.2d 848, 856-57 (4th Cir.1980) (“culpable conduct” defined as something “more than negligence”; as “blamable” or “wrong” conduct, but not necessarily conduct involving “malice or guilty purpose”).

Assessed in light of Reinking’s general presumption, we believe MEBA’s overall conduct in dealing with Rodriguez’s inquiries and claims must be assessed as sufficiently “culpable” to tip factor one in Rodriguez’s favor.

B

Although the district court thought that factor two (opposing party’s ability to pay) favored Rodriguez, recognizing that MEBA was able to satisfy a fee award, we believe the court underrated its force as properly assessed under Reinking. For, as noted in the Ninth Circuit decision upon which Reinking principally relied, “Based on this factor alone, absent special circumstances, a prevailing ERISA employee plaintiff should ordinarily receive attorneys’ fees from the defendant.” Smith v. CMTA-IAM Pension Trust, 746 F.2d 587, 590 (9th Cir.1984); see also Reinking, 910 F.2d at 1218 (noting that denying fees to a beneficiary who prevails against a large plan would “significantly undermine the ability of potential beneficiaries to protect their rights in federal court”).

The district court obviously gave this factor no such near-dispositive force in its assessment. Under Reinking, it should be given that force in the absence of special circumstances, a matter to which we will turn at the end of our re-evaluation of the Tenneco factors.

C

The district court considered that factor three (the deterrent effect of an award) did not favor the claimant here. In the first place, the court again relied on its perception that MEBA’s conduct only represented an unavoidable “mistake” not amenable to deterrence. Based on this, the court opined that this court’s finding of liability in Rodriguez I, in conjunction with the notice provisions of ERISA should prove to be sufficient deterrence.

We earlier have noted the error in the court’s belief that our decision in Rodriguez I had established as the law of the case that MEBA’s conduct overall reflected nothing more than mistake. With this premise undercut, the court’s conclusion that mere mistakes of this sort are not amenable to deterrence obviously falls. Where, as here, the degree of culpability was such as to constitute a breach of fiduciary duty, as was concluded in Rodriguez I, it is obvious that monetary sanctions may well operate to deter repetitions of the conduct. See Reinking, 910 F.2d at 1218.

We therefore conclude that the district court simply erred in ruling that the deterrence factor did not favor Rodriguez.

D

Properly assessed in light of Rein Icing ’s general presumption in favor of prevailing plaintiffs in these cases, only factor four of the Tenneco test (whether the claimant’s action was brought primarily for his own benefit) favors MEBA. With the overall balance of factors so heavily struck in Rodriguez’s favor, there remains only the question, recognized as integral to the test in both Tenneco and Reinking, whether “special circumstances” may nevertheless make an otherwise indicated award of fees unjust. No such special circumstances are suggested here, and we conclude that, accordingly, the district court erred in denying any award.

That leaves the question of the appropriate amount of the award, an issue of course not addressed by the district court, but one that should be determined by that court in the first instance.

Ill

For the above reasons, we vacate the judgment of the district court denying Rodriguez’s application for attorney fees, and remand the cause to the district court with instructions to award attorney fees in an amount determined by that court to be proper under the totality of circumstances. In remanding, we express no opinion as to the proper amount, whether that requested by Rodriguez or some other.

VACATED AND REMANDED WITH INSTRUCTIONS.

1 . The Tenneco panel expressly adopted the test as earlier formulated by the Fifth Circuit in Iron Workers Local # 272 v. Bowen, 624 F.2d 1255, 1266 (5th Cir.1980). Technically, as an unpublished opinion of this court, Tenneco did not establish circuit precedent under our Internal Operating Procedure 36.4-.6, so was not authoritative on the point at the time of the district court’s decision. Whatever awkwardness that may have created for our review of the district court’s decision relying upon Tenneco has been removed, however, by the intervening express adoption of the test from Bowen by our published opinion in Reinking.

Despite this technical problem, for convenience we refer to the five-factor test applied by the district court as the Tenneco test.

2 . Smith v. CMTA-IAM Pension Trust, 746 F.2d 587, 590 (9th Cir.1984); Landro v. Glendenning Motorways, Inc., 625 F.2d 1344, 1356 (8th Cir.1980); Iron Workers Local # 272 v. Bowen, 624 F.2d 1255, 1265 (5th Cir.1980).

3 . This is a flat holding in Reinking, and under this circuit’s long-standing, formal practice, is considered binding upon all panels of this court until overruled by an en banc decision of this court or a decision of the Supreme Court. See Capital Produce Co. v. United States, 930 F.2d 1077, 1079 (4th Cir.1991). Neither has occurred here. The dissent, however, proceeds as if we are free in this case to disregard this critical direction in Reinking for evaluating benefit-claimants’ attorney fee applications under § 1132(g)(1) of ERISA. It mentions Reinking only to suggest in a footnote that as to one of the Tenneco factors it might be distinguished on its facts, op. at 475, n. 2; but its principal burden is that there is no warrant, as Reinking flatly holds for an ingoing presumption in favor of § 1132(g)(1) fee-claimants who have prevailed on the merits. That may be a permissible interpretation of its ERISA fee-shifting provision, as the dissent asserts some other courts have held, but it is not the interpretation now binding on this court, nor followed by some other courts of appeals. The dissent’s unacknowledged quarrel is with Reinking and its entire burden a sub rosa attack upon that decision.

Furthermore, in furthering that sub rosa attack, it misstates in various ways the implications of our recognition of Reinkings authority. Contrary to the dissent’s ominous characterizations, we do not — by drawing on Reinking— somehow convert § 1132(g)(1) into a "prevailing party” feeshifting provision "analogous to” 42 U.S.C. § 1988. Op. at 474. We simply hold — applying Reinking — that although § 1132(g)(1) literally allows fee awards to either party without regard to loss or success on the merits, a prevailing benefit-claimant ordinarily should receive such an award. This does not go as far as have some courts which seemingly have indeed interpreted § 1132(g)(1) as implying that the discretion it confers does not run both ways, but only in favor of prevailing parties. See, e.g., Davis v. Chicago Municipal Employees' Credit Union, 891 F.2d 182, 184 (7th Cir.1989). Neither do we hold — drawing on Reinking — that district court discretion not to award attorney fees to a prevailing claimant is so severely constrained as the dissent asserts. We simply hold that the Tenneco/Reinking test — which in plain terms does not import the judicially-developed § 1988 test but is specifically adapted to ERISA benefit claims — was erroneously applied here because of a misapprehension of its legal import as refined in the intervening decision in Reinking.

4 .The district court’s fee award decision is one ultimately committed to its informed discretion. As earlier indicated, however, that discretion has been effectively constrained by the judicially imposed five-factor test which operates as a legal limit on the exercise of discretion. Our review, therefore while technically for "abuse of discretion” only, may find "abuse" (or more properly, an erroneous exercise of discretion) in failure, whether by mistake or unawareness, to observe the legal constraints which "inform" the proper exercise of discretion in the matter. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, -, 110 S.Ct. 2447, 2459, 110 L.Ed.2d 359 (1990) (legal errors affecting exercises of discretion may be treated as abuses of discretion by reviewing court); United Food & Commercial Workers v. Marval Poultry, 876 F.2d 346, 350-51 (4th Cir.1989) (review of discretionary decision may include de novo review for legal error affecting exercise of discretion).