Cottrill v. Sparrow, Johnson & Ursillo, Inc.

• Citation: 100 F.3d 220
• Decision Date: 04 November 1996
• Docket Number: No. 96-1542,96-1542
• Parties: Arthur T. COTTRILL, Plaintiff, Appellant, v. SPARROW, JOHNSON & URSILLO, INC., et al., Defendants, Appellees. . Heard
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 220

100 F.3d 220

Arthur T. COTTRILL, Plaintiff, Appellant, v. SPARROW, JOHNSON & URSILLO, INC., et al., Defendants, Appellees.

No. 96-1542.

United States Court of Appeals First Circuit.

Heard Nov. 4, 1996.

Decided Nov. 19, 1996.

Jeffrey S. Brenner, Providence, RI, with whom Corrente, Brill & Kusinitz, Ltd. was on brief, for plaintiff, appellant.

Edward C. Roy, Providence, RI, with whom Roy & Cook was on brief, for defendants, appellees.

Before SELYA, CYR and LYNCH, Circuit Judges.

SELYA, Circuit Judge.

We are summoned again to survey the battleground on which plaintiff-appellant Arthur T. Cottrill has been struggling to recover his beneficial interest in a profit-sharing plan maintained by his former employer, Sparrow, Johnson & Ursillo, Inc. (SJU). ¹ In our first visit to the war zone we determined that Cottrill was not a fiduciary within the contemplation of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461 (1994), and specifically, 29 U.S.C. § 1002(21)(A). See Cottrill v. SJU, 74 F.3d 20, 22 (1st Cir.1996). We therefore reversed the district court's contrary ruling and remanded for the entry of judgment in Cottrill's favor. See id.

The entry of judgment did not end the hostilities. Cottrill appeals anew, this time contending that the district court abused its discretion by (1) miscalculating prejudgment interest, and (2) denying him attorneys' fees. We affirm.

I. Setting the Stage

We refrain from rehearsing the facts for two reasons. First, they are adequately stated in our earlier opinion. See id. at 21. Second, the questions that Cottrill now raises do not pertain directly to the merits of his cause, but concern only embellishments to the judgment. Thus, after pausing to elucidate the standard of review, we proceed immediately to the appellant's asseverational array.

Both prejudgment interest and attorneys' fees are available, but not obligatory, in ERISA cases. See Quesinberry v. Life Ins. Co. of North Am., 987 F.2d 1017, 1030 (4th Cir.1993) (en banc) (discussing prejudgment interest); 29 U.S.C. § 1132(g)(1) (discussing attorneys' fees). An appellate court reviews the grant or denial of prejudgment interest in ERISA cases solely for abuse of discretion. See Smith v. American Int'l Life Assurance Co., 50 F.3d 956, 957 (11th Cir.1995); Anthuis v. Colt Indus. Operating Corp., 971 F.2d 999, 1002 (3d Cir.1992). The same standard of review obtains in connection with rulings granting or denying applications for attorneys' fees under 29 U.S.C. § 1132(g)(1). See Thorpe v. Retirement Plan of the Pillsbury Co., 80 F.3d 439, 445 (10th Cir.1996); Gray v. New England Tel. & Tel. Co., 792 F.2d 251, 259 (1st Cir.1986). Consequently, we will disturb such rulings only if the record persuades us that the trial court "indulged a serious lapse in judgment." Texaco P.R., Inc. v. Department of Consumer Affairs, 60 F.3d 867, 875 (1st Cir.1995); accord Lutheran Med. Ctr. of Omaha, Neb. v. Contractors, Laborers, Teamsters & Eng'rs Health & Welfare Plan, 25 F.3d 616, 623-24 (8th Cir.1994).

II. Analysis

A. Prejudgment Interest

In ERISA cases the district court may grant prejudgment interest in its discretion to prevailing fiduciaries, beneficiaries, or plan participants. This judicial discretion encompasses not only the overarching question--whether to award prejudgment interest at all--but also subsidiary questions that arise after the court decides to make an award, including matters such as the period and rate to be used in calculating interest. See, e.g., Smith, 50 F.3d at 958.

In this instance, the district court awarded prejudgment interest, but, in Cottrill's estimation, the court chose an unrealistic accrual date (thereby truncating the period for which it allowed interest) and then compounded the error by selecting too miserly an interest rate. We address each of these complaints in turn.

1. The Date of Accrual. Ordinarily, a cause of action under ERISA and prejudgment interest on a plan participant's claim both accrue when a fiduciary denies a participant benefits. See, e.g., Larsen v NMU Pension Trust, 902 F.2d 1069, 1073 (2d Cir.1990); Paris v. Profit Sharing Plan for Employees of Howard B. Wolf, Inc., 637 F.2d 357, 361 (5th Cir.), cert. denied, 454 U.S. 836, 102 S.Ct. 140, 70 L.Ed.2d 117 (1981); Algie v. RCA Global Communications, Inc., 891 F.Supp. 875, 899 (S.D.N.Y.1994), aff'd, 60 F.3d 956 (2d Cir.1995). Setting the accrual date in this manner not only advances the general purposes of prejudgment interest, see West Virginia v. United States, 479 U.S. 305, 310, 107 S.Ct. 702, 706, 93 L.Ed.2d 639 (1987), but also serves ERISA's remedial objectives by making a participant whole for the period during which the fiduciary withholds money legally due. See Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 286 (2d Cir.1992). Figuring the accrual date in this way also prevents unjust enrichment. See Sweet v. Consolidated Aluminum Corp., 913 F.2d 268, 270 (6th Cir.1990); Short v. Central States, Southeast & Southwest Areas Pension Fund, 729 F.2d 567, 576 (8th Cir.1984).

Cottrill asserts that his cause of action accrued on December 12, 1990, when the lawyer who was handling his divorce sent a letter to the Plan inquiring into the availability and value of Cottrill's beneficial interest. The district court saw matters differently; it found that the cause of action accrued on December 31, 1991, when the trustee erroneously declared Cottrill's funds forfeit.

The district court's reasoning is persuasive. The attorney's letter cannot reasonably be construed as a demand for funds. It was an inquiry for the purpose of providing information necessary to the divorce pavane--no more, no less. The defendants' response to this letter confirms our assessment. Neither in language nor in tone does it presume to deny any application for benefits, but, rather, merely indicates the amounts involved and when particular assets would be available for distribution.

Once past the lawyer's letter, the district court's determination that the defendants did not deprive Cottrill of his benefits until they offset his account on December 31, 1991 (ostensibly to recoup losses that he occasioned, see Cottrill, 74 F.3d at 21) is virtually inevitable. ² Hence, the court acted well within its discretion in finding that prejudgment interest began to accrue on that date.

2. The Rate of Interest. ERISA provides for postjudgment interest to be calculated at the federal rate, 28 U.S.C. § 1961(a) (1994), but it contains no explicit provision for prejudgment interest. Here, the district court employed the federal statutory rate for that purpose. The appellant argues that the court should have used the (somewhat more munificent) rate available under Rhode Island law. See R.I. Gen. Laws § 9-21-10 (1985) (stipulating a flat rate of 12% per annum). We do not think that the district court exceeded its discretion in choosing the federal rate.

As a general rule, federal law governs the scope of remedies available when a claim arises under a federal statute, and this doctrine extends to the rate of prejudgment interest. See Colon Velez v. Puerto Rico Marine Mgmt., Inc., 957 F.2d 933, 941 (1st Cir.1992). Of course, if the particular federal statute is silent, courts have discretion to select an appropriate rate, and they may look to outside sources, including state law, for guidance. See id. Because ERISA is inscrutable on the subject, a court that elects to award prejudgment interest in an ERISA case has broad discretion in choosing a rate. See Hansen v. Continental Ins. Co., 940 F.2d 971, 983-85 (5th Cir.1991). In such a situation, equitable considerations should guide the exercise of judicial discretion. See, e.g., Kinek v. Paramount Communications, Inc., 22 F.3d 503, 514 (2d Cir.1994); Anthuis, 971 F.2d at 1009.

The appellant insists that the lower court departed from "clear federal appellate court precedent" favoring the use of state prejudgment interest rates in ERISA cases. He is wrong. Although federal courts sometimes have looked to state rates for guidance, see, e.g., Hansen, 940 F.2d at 983-84, they have done so as a matter not of compulsion, but of discretion. Indeed, the appellant's argument conveniently overlooks numerous ERISA cases in which federal appellate and district courts have approved use of the federal statutory rate for prejudgment interest. See, e.g., Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1331 (8th Cir.1995); Sweet, 913 F.2d at 270; Blanton v. Anzalone, 760 F.2d 989, 992-93 (9th Cir.1985); United States v. Mason Tenders Dist. Council, 909 F.Supp. 891, 895 (S.D.N.Y.1995).

We need not tarry. The law confers discretion on the trial judge, not on the court of appeals. In this instance the judge chose to use the federal statutory rate in computing prejudgment interest. Utilizing this rate promotes uniformity in ERISA cases. Furthermore, the federal rate is an objective measure of the value of money over time, and the record makes manifest that, in selecting it, the district judge considered both the rationale of full compensation and ERISA's underlying goals. We note, too, that the federal rate is especially appropriate in this case because the Plan's funds were initially invested in Treasury bills. See, e.g., Algie, 891 F.Supp. at 899 (finding the federal rate appropriate when it more closely approximated the likely return on the funds withheld). Mindful of these realities, we do not think that equity demands the use of a higher rate.

B. Counsel Fees

The appellant also challenges the denial of counsel fees. Congress declared that, in any ERISA claim advanced by a "participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee" to the prevailing party. 29 U.S.C. § 1132(g)(1). Unlike other fee-shifting statutes, however, ERISA does not provide for a virtually automatic award of attorneys' fees to prevailing plaintiffs. Instead, fee awards...