Peter Foltice v. Guardsman Products, Inc.

98 F.3d 933, 20 Employee Benefits Cas. (BNA) 2045, 1996 U.S. App. LEXIS 28069, 1996 WL 625586

• Court: Court of Appeals for the Sixth Circuit
• Decided: October 30, 1996
• Docket: 94-2375
• Status: Published

Opinions

NELSON, J., delivered the opinion of the court, in which SILER, J., joined.

WISEMAN, D.J. (pp. 939-43), delivered a separate dissenting opinion.

DAVID A NELSON, Circuit Judge.

This is an appeal from a denial of attorney fees in an ERISA case that arises out of a disputed claim for pension benefits. On the facts presented, as we read the record, the denial of attorney fees reflects no abuse of discretion or other reversible error; we shall therefore affirm the district court’s decision.

I

Plaintiff Peter Foltice, an employee of defendant Guardsman Products, Inc., suffered a severe knee injury at work early in 1976. Permanently disabled by the accident, Mr. Foltice has been receiving workers’ compensation benefits ever since. These benefits— which came to $429 per month in 1992 — have been funded entirely by Guardsman. Mr. Foltice has performed no work for Guardsman since the date of his accident, which was January 19,1976.

Pursuant to a labor agreement negotiated many years ago with the union that represented employees in Mr. Foltice’s collective bargaining unit, Guardsman has long maintained a pension plan (the “Guardsman Products, Inc. Bargaining Employees’ Retirement Plan”) for its union employees. According to Article IV, § 4.7B of the Plan, pension benefits are not payable to a participant who is “receiving accident or sickness benefits under any plan to which the Company has contributed....”

If the workers’ compensation benefits received by Mr. Foltice constitute “accident” benefits within the meaning of § 4.7B, the language of the Plan precludes Mr. Foltice from receiving pension benefits too. If workers’ compensation benefits do not constitute accident benefits, on the other hand, receipt of such benefits does not defeat the right of a participant to receive pension benefits as of a date — April 1, 1990, in Mr. Fol-tice’s case — determined on the basis of the participant’s age.

There is no evidence that Mr. Foltice requested or received a copy of the Plan itself until well after April 1 of 1990. As required by law, however (see § 101 .of the Employee Retirement Income Security Act of 1974 (“ERISA”) (29 U.S.C. § 1021)), Mr. Foltice was furnished a summary description of the Plan’s terms. This “Summary Plan Description” stated that receipt of workers’ compensation benefits would bar the payment of pension benefits. Written “in a manner calculated to be understood by the average plan participant,” as required by § 102 of ERISA (29 U.S.C. § 1022), the Summary Plan Description told participants, in straightforward language, that:

“Benefits are not paid for periods during which you are receiving sickness and accident benefits from a Company-sponsored plan or worker’s compensation benefits.” Summary Plan Description, Paragraph 10, final sentence.

Mr. Foltice did not apply for pension benefits when he reached qualifying age in 1990. In 1992, however, he apparently presented an oral claim for such benefits in a conversation with Guardsman’s Human Resources Director, Robert Chesnover. Mr. Chesnover contacted a representative of the Wyatt Company — an actuarial consulting firm that is said to have drafted the Guardsman pension plan — and was told by Wyatt that under § 4.7B of the plan “an employee will receive no benefit payments for the periods during which the employee received Workers’ Compensation.” Mr. Chesnover so advised Mr. Foltice, sending him a copy of Article IV of the Plan.

Mr. Chesnover was one of four members of a Pension Committee that had responsibility for general administration of the Plan. The other members were Bernadette Schafer, who was the Controller in Guardsman’s Grand Rapids Division, and two union representatives. An affidavit executed by Ms. Schafer states (1) that Mr. Foltice’s pension claim was discussed at a Pension Committee meeting attended by all four members; (2) that she (Ms. Schafer) indicated to the Committee that the plan contained provisions under which workers’ compensation benefits were to be offset against pension benefits; and (3) that no member of the Committee disputed the proposition that there was to be an offset.¹ Although this discussion was not reflected in any minutes of the Committee, no one — including the union members — has challenged the accuracy of Ms. Schafer’s account of what transpired.

When Mr. Chesnover advised Mr. Foltice that he could not receive pension benefits at the same time he was receiving workers’ compensation benefits, Mr. Foltice consulted the attorney (Themis Fotieo) who had represented him on his workers’ compensation claim. Attorney Fotieo called Mr. Chesn-over, who referred him to § 4.7B of the Plan. Mr. Fotieo subsequently took the position that this section did not apply to workers’ compensation benefits, pointing out that elsewhere in the plan document there were specific references to “workers’ compensation” that appeared to exclude sickness and accident benefits of any other kind.² “Thus,” Mr. Fotieo wrote in one of the letters he sent Guardsman’s counsel, “I am led to believe that the drafter(s) of this document intended something different when they used the phrase “workers’ compensation’ than when they used the phrase ‘sickness and accident.’ ”

Guardsman called Mr. Fotieo’s attention to the final sentence of Paragraph 10 of the Summary Plan Description, but Mr. Fotieo denied that this affected the meaning of the Plan instrument itself. “It is our belief,” Mr. Fotieo wrote Guardsman’s lawyers, “that the retirement plan does not allow for a deduction for workers’ compensation benefits, notwithstanding the conflicting phrase in the ‘Summary Plan.’ We hereby demand that your client promptly start paying retirement benefits to our client ... [seeing] to it that his application is processed and that his payments are made up retroactively.”

In connection with this demand, Mr. Fol-tice signed a retirement benefit election form in which he exercised an option to receive a reduced benefit so that his wife could obtain benefits too (at a rate 50 percent of his) if he should predecease her. Under this option the pension benefits to which Mr. Foltice would be entitled if his attorney’s legal position were sustained came to $400.52 a month.

Following exercise of the option, Guardsman’s attorneys sent Mr. Fotieo a letter rejecting the demand for payment of retirement benefits. The letter reiterated a previous suggestion that “[t]his plan has been interpreted to include workers compensation as an ‘accident or sickness benefit,’”³ and the letter went on to state that the plan “allows Guardsman a reasonable degree of leeway in how it interprets the plan.” The rejection letter then continued as follows:

“The issue is not whether your client’s interpretation of the plan is reasonable or whether there is a more reasonable interpretation of the plan. Under the controlling authority of the United States Supreme Court [a reference- to Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) ], the issue is whether Guardsman’s interpretation of the plan is so unreasonable as to constitute an abuse of its discretion. We continue to believe that there has been no abuse of Guardsman’s discretion and that its interpretation of the plan is fair, reasonable and legally justifiable.”

The district court, as it turned out, disagreed with the conclusion that Guardsman’s interpretation was legally justifiable. On cross-motions for summary judgment the court resolved the merits of the dispute in favor of Mr. Foltice. By judgment order entered on July 28, 1994, the district court awarded Mr. Foltice past due pension benefits of $20,827.04 and declared that Mr. Fol-tice was entitled to pension benefits of $400.52 per month for the rest of his life, with a survivor’s benefit of $200.26 per month for Mrs. Foltice thereafter should he predecease her. There has been no appeal from this judgment.

Mr. Foltice subsequently moved for an award of prejudgment interest, costs, and attorney fees. The district court disposed of the motion by allowing costs of $120 and prejudgment interest of $2,559.64, while declining to award any part of the attorney fees sought. (The motion had requested “lodestar” attorney fees totaling $23,579.75, plus a 50 percent “multiplier.”) Mr. Foltice has perfected a timely appeal from the portion of the order in which the court denied attorney fees.

II

Under § 502(g)(2) of ERISA (29 U.S.C. § 1132(g)(2)), the award of reasonable attorney fees is mandatory where a fiduciary has sued successfully to enforce an employer’s obligation to make contributions to a multi-employer plan. In any other action under ERISA, however, the statute provides that “the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party.” ERISA § 502(g)(1) (29 U.S.C. § 1132(g)(1)) (emphasis supplied). In cases of the sort before us here, our circuit recognizes no presumption as to whether attorney fees will be awarded. See Armistead v. Vemitron Corp., 944 F.2d 1287, 1301-02 (6th Cir.1991), where we rejected the proposition — followed by the Ninth Circuit in Smith v. CMTA-IAM Pension Trust, 746 F.2d 587, 589 (9th Cir.1984) — that a plan participant or beneficiary who wins an ERISA action “should ordinarily recover an attorney’s fee unless special circumstances would render such an award unjust.”

When exercising the discretion vested in the district court by 29 U.S.C. § 1132(g)(1), we have said, the district court should consider the following five factors:

“(1) the degree of the opposing party’s culpability or bad faith; (2) the opposing party’s ability to satisfy an award of attorney’s fees; (3) the deterrent effect of an award on other persons under similar circumstances; (4) whether the party requesting fees sought to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and (5) the relative merits of the parties’ positions.” Sec. of Dept. of Labor v. King, 775 F.2d 666, 669 (6th Cir.1985).

The five factors — sometimes referred to in this circuit as the ‘King factors,” although they originated elsewhere — have been cited in numerous subsequent cases. See, e.g., Firestone Tire & Rubber Co. v. Neusser, 810 F.2d 550, 556 (6th Cir.1987); Central States Pension Fund v. 888 Corp., 813 F.2d 760, 767 (6th Cir.1987); Sweet v. Consol. Aluminum Corp., 913 F.2d 268, 271 (6th Cir.1990); Armistead, 944 F.2d at 1301; Tiemeyer v. Community Mutual Ins. Co., 8 F.3d 1094, 1101 (6th Cir.1993), cert. denied, - U.S. -, 114 S.Ct. 1371, 128 L.Ed.2d 48 (1994); Wells v. United States Steel, 76 F.3d 731, 736 (6th Cir.1996).

The King factors are not statutory, of course, and need not be parsed as though they were. The factors simply summarize considerations that have sometimes been deemed significant in other cases — and, as the district court correctly noted in the case at bar, “[t]hese considerations represent a flexible approach; none of them is necessarily dispositive.”

With regard to the first of the King factors — “the degree of the opposing party’s culpability or bad faith” — the district court concluded that Guardsman’s rejection of Mr. Foltiee’s claim for pension benefits “was erroneous, even arbitrary, but did not evidence a degree of culpability approaching bad faith.” For reasons that we shall discuss in connection with the fifth factor, we doubt that Guardsman’s rejection of the claim was “arbitrary.” If Guardsman was culpable at all, however, we are satisfied that its culpability was relatively slight — and we fully agree with the district court that there was no bad faith here.

In his brief on appeal Mr. Foltiee argues that the district court committed reversible error because it addressed the issue of bad faith “without considering the defendant’s culpability.” The argument is not persuasive. The district court obviously did consider culpability, and found a higher degree of culpability than we would have done. If the district court erred in its assessment of culpability, the error hardly helps Mr. Foltiee.

There is no dispute as to the second King factor; the defendants admittedly have the ability to pay reasonable attorney fees, and the district court so found. This factor alone is not dispositive, of course. See Neusser, 810 F.2d at 557.

The third factor — the deterrent effect of a fee award on other plan administrators — is one that is likely to have more significance in a case where the defendant is highly culpable than in a case such as this one. Honest mistakes are bound to happen from time to time, and fee awards are likely to have the greatest deterrent effect where deliberate misconduct is in the offing. The district court recognized this, concluding that the defendants’ decision to deny Mr. Foltice’s claim “does not present the sort of culpability that warrants punishment in his case or deterrence in others.” We agree.

As to the fourth factor, the district court saw “no evidence that the plaintiff sought, through this action, ‘to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA.’” Again we agree. The merits of the case do not turn on the resolution of any difficult ERISA question, and most of the participants in and beneficiaries of the Guardsman plan stood to gain nothing from this lawsuit.

It is true that there were four other Guardsman employees who happened to be in a situation comparable to Mr. Foltiee’s. As the district court correctly noted, however, the benefit realized by these four participants was “incidental;” the litigation did not result in the creation of a “common fund” within the meaning of the common law doctrine of that name. See Armistead, 944 F.2d at 1304, suggesting that the fourth factor “appears to be a codification of the common fund doctrine of the common law.”⁴

We turn now to the fifth factor, “the relative merits of the parties’ positions.” As suggested above, it seems to us that any error committed by the district court with regard to this factor was an error in favor of Mr. Foltice.

In the opinion it delivered from the bench in announcing that summary judgment would be entered for Mr. Foltice and against Guardsman, the district court expressed the view that the phrase “accident or sickness benefits,” as used in § 4.7B of the Plan, was a “term of art ... consistently treated throughout the plan as excluding workers’ compensation benefits_” The court acknowledged that the Summary Plan Description expressly told participants — in “language [that] may very well describe the party’s intent more accurately than does the plan itself” — that “benefits are not paid for periods during which you are receiving sickness and accident benefits from a Company-sponsored plan or workers’ compensation benefits.” But the court characterized the Summary Plan Description booklet as “extrinsic evidence” which “should not be used to add terms to a contract that is plausibly complete without them.” In this connection the court noted that the booklet itself says that “[i]n the event of any conflict between this booklet and the plan document, the plan document will govern.”

The district court’s analysis is consistent with a view implied by the author of this opinion in Musto v. American General Corp., 861 F.2d 897, 905 (6th Cir.1988), cert. denied, 490 U.S. 1020, 109 S.Ct. 1745, 104 L.Ed.2d 182 (1989). Unfortunately for Mr. Foltice, however, our circuit has squarely held that where statements in a summary plan description are in conflict with the language of the plan itself, “the summary [plan description] shall govern.” Edwards v. State Farm Mutual Automobile Ins. Co., 851 F.2d 134, 136 (6th Cir.1988).

It is true that under the law of this circuit, language in a plan summary that is merely ambiguous should not be permitted to trump unambiguous language in the plan itself, particularly where participants receive both the plan and the summary in a single package. See Lake v. Metropolitan Life Ins. Co., 73 F.3d 1372, 1379 (6th Cir.1996). In the case at bar, however, the language of the Summary Plan Description is not ambiguous— and we have no reason to believe that the Plan and the Summary were distributed to Guardsman employees in a single package. Accordingly, in our view, the statement in the Summary Plan Description that pension benefits would not be paid for periods in which workers’ compensation benefits were being received should not have been dismissed as “extrinsic evidence.”

This is not to say that Guardsman would necessarily have prevailed on the merits of the case if the Summary Plan Description had been given the consideration to which it was entitled. Elsewhere in the Summary, as the district court observed, “sickness and accident benefits” and “workers’ compensation benefits” were not used as synonymous terms. Notwithstanding the deference accorded decisions made by plan fiduciaries in the exercise of their discretionary powers, see Firestone Tire & Rubber, 489 U.S. at 115, 109 S.Ct. at 956, it is conceivable that the district court would have resolved the merits in favor of Mr. Foltice even if the Summary Plan Description had been treated as an integral part of the Plan, as it should have been, and not relegated to the purgatory reserved for “extrinsic evidence.”

Be that as it may, we can safely say that at the very least this was a closer ease on the merits than the district court thought it was. Yet notwithstanding the flaw in the legal reasoning on which Mr. Foltice’s claim for pension benefits was denied, the order concerning attorney fees makes the point, quoting Armistead, 944 F.2d at 1304, that the defendants’ position was “no more devoid of merit than that of any other losing litigant.” Given our analysis of the relative merits of the parties’ positions, the quoted words seem even closer to the mark than the district court realized.

Following its analysis of the five King factors, the district court’s order concerning attorney fees used these words in stating the court’s conclusion: “[T]he circumstances of this case do not justify a departure from the traditional ‘American Rule’ that each party ordinarily bears its own attorney fees.” Citing Armistead, 944 F.2d at 1303, Mr. Foltice points out, correctly, that the American Rule has been repealed in ERISA cases. Mr. Foltice goes on to contend — incorrectly in our view — that the district court “relied” on the American Rule notwithstanding its repeal. What the district court relied on, we believe, was the King factors; it was the court’s analysis of the King factors that drove the decision, as we read the order, and the reference to the “American Rule,” in context, looks to us like little more than a rhetorical flourish.

Lest there be any misunderstanding, however, we take this opportunity to reiterate that neither the American Rule nor the opposing “English Rule” governs attorney fee questions in ERISA cases of this type. When Congress wants to provide that the loser shall pay the winner’s attorney fees, it knows how to say so. See 29 U.S.C. § 1132(g)(2). Congress has not done that here. Neither has Congress seen fit to create any kind of statutory presumption regarding the payment of attorney fees in cases of this type. Congress having chosen to leave the matter for the courts to decide, in the exercise of their discretion, case-by-case, we think it would ill-behoove us to limit judicial discretion by creating a non-statutory presumption either for or against the award of attorney fees.

Mr. Foltice argues that there are strong policy reasons for “revisiting” the Armistead decision and establishing a presumption in favor of attorney fees for prevailing plaintiffs. But even if our circuit precedent rule did not require us to follow Armistead — and it does — we would consider it more appropriate for these arguments to be addressed to Congress.

Finally, acknowledging that this court may choose not to revisit Armistead, Mr. Foltice urges us to hold in any event that the district court abused its discretion in balancing the King factors. We decline so to hold. As the King panel noted, citing Pue v. Sillas, 632 F.2d 74, 78 (9th Cir.1980), “an abuse of discretion exists only when the court has the definite and firm conviction that the district court made a clear error of judgment in its conclusion upon weighing relevant factors.” King, 775 F.2d at 669. Here we have no definite and firm conviction that the district court made an error of judgment. On the contrary, after examining the relevant factors ourselves, we have a definite and firm conviction that the district court reached the correct result.

The denial of attorney fees is AFFIRMED.

1 . In actuality, as we have seen, accident benefits were not merely to be "offset” against pension benefits; under § 4.7B of the Plan as drafted, receipt of accident benefits would bar payment of pension benefits altogether, even where the pension benefits would have exceeded the accident benefits. Guardsman preferred the offset approach — an approach that may well have been intended all along, and that was obviously more favorable to employees — and the Wyatt Company subsequently undertook to rewrite the plan along these lines.

2 . The parties subsequently stipulated that “[a]t least eight times in the Plan, Guardsman utilized the words ‘Worker's Compensation Benefits' when they were referring to Workers' Compensation Benefit issues.”

3 . The parties subsequently stipulated that there were no minutes reflecting such an interpretation by the Pension Committee, and the defendants have acknowledged that there was no case prior to Mr. Foltice’s in which benefits had been denied on this basis. The Summary Plan Description had been prepared before Mr. Foltice's claim arose, however, and Paragraph 10 of the Summary cannot be squared with § 4.7B of the Plan except as a reflection of the interpretation advanced by Guardsman — i.e., the interpretation under which "accident or sickness benefits" includes workers' compensation benefits. As we have seen, this was the interpretation placed on the Plan by the actuarial consulting firm that had drafted the instrument in the first place.

4 . The Armistead panel also noted that the fourth factor might weigh in favor of a plaintiff who showed that his suit could not have been brought at all but for the prospect of fee-shifting. In the case at bar Mr. Foltiee was ably represented prior to suit by Attorney Themis Fotieo, and there has been no showing that Mr. Fotieo declined to handle the litigation because of anything related to the prospect of fee-shifting. The firm that did handle the litigation — Vamum, Rid-dering, Schmidt & Howlett LLP — very generously agreed to take no fee other than one awarded by the court. The Vamum firm obviously recognized that the court might not award a fee, and was willing to prosecute the lawsuit anyway. The firm's willingness to take the case on this basis is commendable, but it does not satisfy the test suggested in Armistead.