McPherson v. Employees' Pension Plan of American Re-Insurance Co., Inc.

• Decision Date: 23 August 1994
• Docket Number: RE-INSURANCE,No. 93-5482,93-5482
• Citation: 33 F.3d 253
• Parties: 18 Employee Benefits Cas. 1865 Paul F. McPHERSON, Appellant, v. EMPLOYEES' PENSION PLAN OF AMERICANCOMPANY, INC.; Pension Committee of Employees' Pension Plan.
• Court: U.S. Court of Appeals — Third Circuit

Page 253

33 F.3d 253

18 Employee Benefits Cas. 1865

Paul F. McPHERSON, Appellant, v. EMPLOYEES' PENSION PLAN OF AMERICAN RE-INSURANCE COMPANY,

INC.; Pension Committee of Employees' Pension Plan.

No. 93-5482.

United States Court of Appeals, Third Circuit.

Argued March 4, 1994.

Decided Aug. 23, 1994.

Earl M. Bennett (argued), Glenn R. Gordon, William T. Knox, IV, Herold and Haines, Warren, NJ, for appellant.

Edward R. Gallion (argued), Alexandre A. Montagu, Sullivan & Cromwell, New York City, for appellees.

Before: STAPLETON and SCIRICA, Circuit Judges, and VAN ANTWERPEN, District Judge. ^*

OPINION OF THE COURT

STAPLETON, Circuit Judge:

Attorneys' fees may be awarded to prevailing parties in actions brought under the Employee Retirement Income Security Act of 1974 ("ERISA"). The statute, however, provides no standard for a fee award, stating only that "the court in its discretion may allow a reasonable attorney's fee and costs of action." 29 U.S.C. Sec. 1132(g)(1). To guide district courts as they exercise their discretion in connection with such fee applications, we have set forth five factors that must be considered:

(1) the offending parties' culpability or bad faith;

(2) the ability of the offending parties to satisfy an award of attorneys' fees;

(3) the deterrent effect of an award of attorneys' fees against the offending parties;

(4) the benefit conferred on members of the pension plan as a whole; and

(5) the relative merits of the parties' position.

Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir.1983). ¹ We have further instructed that there is no presumption that a successful plaintiff in an ERISA suit should receive an award in the absence of exceptional circumstances. Ellison v. Shenango, Inc. Pension Bd., 956 F.2d 1268, 1273 (3d Cir.1992). Finally, we have directed that a district court, when ruling on an application for attorneys' fees in an ERISA case, should articulate its analysis and conclusions as it considers each of the five Ursic factors. Anthuis v. Colt Indus. Operating Corp., 971 F.2d 999, 1012 (3d Cir.1992). This appeal requires us to further discuss the standard for awarding attorneys' fees in ERISA cases.

I.

American Re-Insurance Company ("the Company") fired its comptroller, Paul F. McPherson, on July 29, 1983. McPherson's last day of work was August 12, 1983, although his salary and benefits continued through February 16, 1984. McPherson attributes his dismissal to personal differences with two senior executives.

McPherson had worked at the Company since 1959 and was a vested participant in the Employees' Pension Plan of American Re-Insurance Company ("the Plan"), a single-employer defined-benefit plan, which was qualified under 26 U.S.C. Sec. 401(a). McPherson had various options for receiving his Plan benefits, among which was a lump-sum distribution of $182,837 when he turned 55 on January 8, 1987. Lump-sum distributions needed the approval of the Pension Committee of Employees' Pension Plan ("the Committee"), which was required by Sec. 6.4 of the Plan to evaluate requests in "a uniform and nondiscriminatory manner."

McPherson wrote a letter to a member of the Committee in October 1986, in which he asked whether "the lump sum option is available to me." McPherson was told in a letter dated November 5, 1986, that "a lump sum is available to eligible participants" and that "[e]ligibility includes proof of good health, financial stability, etc." McPherson wrote back on December 11, 1986, offering to provide any necessary information. A Committee member sent a letter to McPherson on December 29, 1986, which specified the proof of health and financial stability that the Committee would require, but cautioned "that a lump sum benefit has never been granted to anyone under the age of sixty-two." McPherson submitted the requested documentation to the Committee on January 19, 1987.

McPherson's request to the Committee for a lump-sum distribution was the tenth since 1974; the Committee had approved the nine others. In considering the nine previous requests for lump-sum distributions, the Committee had sometimes looked to two criteria: good health and financial stability on the part of the applicant. The good health requirement was said to be designed to prevent a selection pattern that might undermine the financial stability of the Plan--a pattern in which terminally ill participants would request distributions on their deathbeds while healthy participants would not request distributions and continue to receive benefits throughout their lengthy retirements. The financial stability requirement aimed to ensure that beneficiaries had sufficient sophistication to manage a lump-sum distribution.

The Committee informed McPherson in a letter dated April 10, 1987, that it had denied his request for a lump-sum distribution. The Committee explained that "lump sum benefits will only be granted to those qualified participants at the time of retirement from active employment," and McPherson was thus ineligible because he still held the job that he had taken after the Company fired him in 1983.

McPherson renewed his request for a lump-sum distribution on June 29, 1990. The Committee denied his request on October 23, 1990, saying that lump-sum distributions were available only to employees who retired directly from the Company when they were older than 55.

McPherson brought suit in district court under ERISA against the Plan and the Committee to obtain a lump-sum distribution on December 18, 1990, and was granted summary judgment on October 16, 1992. The district court concluded that the denial of McPherson's request for a lump-sum distribution was "arbitrary and capricious" and not "supported by a rational explanation." As the district court later wrote:

[D]efendants ... provided [the court with] essentially three reasons for the Committee's decision denying ... plaintiff from receiving lump sum benefit payments ...: (1) the potentially destabilizing effect on Plan assets; (2) ... allowing more employees to receive lump sums would undermine the Plan's investment strategy; and (3) ... allowing "non-retiring" employees to receive their benefits in lump sums would contravene the primary purpose of the Plan which was to provide post-retirement income.

Th[is] Court concluded that the Committee's concerns regarding the Plan's solvency and investment strategy were unsupported when viewing the overall size and financial soundness of the Plan. Th[is] Court also found that the Committee's goal of providing post-retirement income would not be undermined by providing lump sum benefits to retirement aged participants who had left the company earlier in their careers.

McPherson sought attorneys' fees and costs. After setting forth the five Ursic factors, the district court denied McPherson's motion with the following comments:

There is no indication that the Committee acted in bad faith in denying plaintiff's lump sum benefit request, thus there appears to be no need to deter such conduct by defendants. Although the Court's inquiry into the Committee's decision-making process revealed that its decision was unsupported by the record, that inquiry did not reveal any sinister motive which led to the Committee's improper determination.

It also appears that plaintiff's success was neither intended to benefit other Plan members, nor will it do so in the future. Subsequent to plaintiff requesting a lump sum benefit, the section of the Plan governing lump sum payments was amended, thus (1) restricting lump sum payments to employees who "retire directly" from the Company ...; and (2) removing the discretion of the Committee to approve or reject such requests.

Furthermore, the Committee's decision, made in response to a novel situation, was not so clearly lacking in merit to warrant the imposition of fees.

Although it is clear that defendants could easily pay plaintiff's attorneys' fees, that lone factor does not justify such an award.

The district court thus concluded that the sole Ursic factor favoring an award was the ability of the defendants to pay; the other four factors counseled against an award.

McPherson now appeals. Subject matter jurisdiction exists under 28 U.S.C. Sec. 1331 and 29 U.S.C. Sec. 1132(e) and appellate jurisdiction under 28 U.S.C. Sec. 1291. "An award of ... attorneys' fees to a prevailing plaintiff in an ERISA case is within the discretion of the district court and may only be reversed for abuse of discretion." Schake v. Colt Indus. Operating Corp. Severance Plan, 960 F.2d 1187, 1190 (3d Cir.1992). "Our review of the legal standards a district court applies in the exercise of its discretion is, however, plenary." Ellison v. Shenango Inc. Pension Bd., 956 F.2d 1268, 1273 (3d Cir.1992).

II.

Both McPherson and the Plan agree that the second Ursic factor--"the ability of the offending parties to satisfy an award of attorneys' fees"--favors an award. As for the fourth Ursic factor--"the benefits conferred on members of the pension plan as a whole"--the district court quite properly regarded this factor as weighing against McPherson. The fourth factor requires consideration of the benefit, if any, that is conferred on others by the court's judgment. Before McPherson began his lawsuit, the Plan was amended to limit lump-sum distributions to participants who retired directly from the Company and to eliminate the Committee's discretion to approve or deny lump-sum distributions. McPherson's suit thus held out no possibility of benefit to other similarly situated Plan members because there were, and would be, no other similarly situated Plan members.

III.

We thus find no fault with respect to the district court's application of the second and fourth Ursic factors. There is an error of law, however, that infects the remainder of the district court's analysis. As we read the district court's comments, they appear to reflect a view that the first, third, and fifth factors...