89 F.3d 1156 (4th Cir. 1996), 95-1077, Custer v. Sweeney

Docket Nº:95-1077, 95-1079.
Citation:89 F.3d 1156
Party Name:Robert D. CUSTER, as a Participant of and Trustee for the Sheet Metal Workers' National Pension Fund, Plaintiff-Appellant, v. Raymond J. SWEENEY, Defendant-Appellee, and Harry Huge; Krista Fogleman; Rogovin, Huge & Schiller; Donovan, Leisure, Newton & Irvine; Shea & Gould, Defendants. Harry Huge; Rogovin, Huge & Schiller, Amici Curiae. Robert D. CU
Case Date:July 22, 1996
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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89 F.3d 1156 (4th Cir. 1996)

Robert D. CUSTER, as a Participant of and Trustee for the

Sheet Metal Workers' National Pension Fund,

Plaintiff-Appellant,

v.

Raymond J. SWEENEY, Defendant-Appellee,

and

Harry Huge; Krista Fogleman; Rogovin, Huge & Schiller;

Donovan, Leisure, Newton & Irvine; Shea & Gould,

Defendants.

Harry Huge; Rogovin, Huge & Schiller, Amici Curiae.

Robert D. CUSTER, as a Participant of and Trustee for the

Sheet Metal Workers' National Pension Fund,

Plaintiff-Appellee,

v.

Raymond J. SWEENEY, Defendant-Appellant,

and

Harry Huge; Krista Fogleman; Rogovin, Huge & Schiller;

Donovan, Leisure, Newton & Irvine; Shea & Gould,

Defendants.

Harry Huge; Rogovin, Huge & Schiller, Amici Curiae.

Nos. 95-1077, 95-1079.

United States Court of Appeals, Fourth Circuit

July 22, 1996

Argued Dec. 4, 1995.

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ARGUED: William Willis Carrier, III, Tydings & Rosenberg, Baltimore, Maryland, for Appellant. James J. McGuire, Mayer, Brown & Platt, New York City, for Appellee. ON BRIEF: J. Hardin Marion, Lawrence J. Quinn, Tydings & Rosenberg, Baltimore, Maryland; William L. Stauffer, Jr., Kurt C. Rommel, R. Grant Decker, Stauffer & Abraham, Vienna, Virginia, for Appellant. Nicholas W. Lobenthal, Richard E. Rosberger, Mayer, Brown & Platt, New York City, for Appellee. John Rounsaville, Jr., Roger W. Yoerges, Anne D. Bolling, Steven P. Finizio, Wilmer, Cutler & Pickering, Washington, D.C.; Michael C. Montavon, Michael C. Montavon, P.C., Fairfax, Virginia, for Amici Curiae.

Before HALL and NIEMEYER, Circuit Judges, and BUTZNER, Senior Circuit Judge.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge HALL and Senior Judge BUTZNER joined.

OPINION

NIEMEYER, Circuit Judge:

Robert D. Custer, a trustee of and participant in the Sheet Metal Workers' National Pension Fund, an employee benefit plan regulated by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., sued the plan's attorneys, alleging breach of ERISA fiduciary duties and legal malpractice. The district court dismissed Custer's ERISA claim on the ground that the attorney named in the ERISA count was not a plan fiduciary and declined to exercise jurisdiction over the malpractice claims, allowing Custer to prosecute those claims in state court. The court also denied a defendant's motion for attorneys fees.

Custer appeals the dismissal of his ERISA claim, and Raymond J. Sweeney, one of the defendant attorneys, cross-appeals, contending that the district court erred in failing to dismiss Custer's malpractice claims with prejudice as preempted by ERISA. Sweeney also cross-appeals the district court's refusal to award him attorneys fees. We now affirm.

I

Until his resignation in mid-1993, the late Edward J. Carlough served as chairman of the Sheet Metal Workers' National Pension Fund and president of the Sheet Metal Workers' International Association, the pension plan's affiliated union. While holding those positions, Carlough allegedly squandered millions of dollars of the pension plan's assets (1) to subsidize the lease of a private jet primarily for his personal use and (2) to purchase, improve, furnish, operate, and reside at a lavish mansion under the guise that it was needed as a second conference center. Sweeney, Carlough's nephew, served as legal counsel to the pension plan and to the two trustee committees that oversaw the airplane and conference center transactions.

In July 1994, Custer filed this action against Sweeney and the pension plan's other attorneys, alleging (1) that Sweeney breached fiduciary duties imposed by ERISA by making the arrangements for Carlough to consummate the airplane and conference center transactions and (2) that Sweeney and the other legal counsel to the pension plan committed legal malpractice in their representation of the plan. Custer predicated federal jurisdiction over the legal malpractice claims on diversity of citizenship, 28 U.S.C. § 1332, and supplemental jurisdiction, 28 U.S.C. § 1367.

The district court granted the defendants' Rule 12(b)(6) motion to dismiss Custer's suit on the ground that Custer's allegations failed to establish that Sweeney, as counsel to the pension plan, qualified as a fiduciary under ERISA. The court, however, granted Custer

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leave to amend his complaint to allege sufficient "indicia of fiduciary position." The court also dismissed without prejudice Custer's malpractice claims. It found an absence of complete diversity and declined to exercise its discretionary supplemental jurisdiction over the malpractice claims.

Custer filed an amended complaint, reasserting in more detail his ERISA claim against Sweeney. He alleged that Sweeney not only had exercised "de facto control over [the] arrangements for leasing the [a]irplane and the acquisition, build-out, furnishing, operation, and maintenance" of the conference center, but also had authorized expenditures and approved payments for those purposes from pension plan funds. Custer appended dozens of documents that purported to illustrate Sweeney's discretionary control over plan assets and management. In the amended complaint, Custer predicated federal subject matter jurisdiction over his malpractice claims against Sweeney and the other former counsel to the pension plan solely on the court's supplemental jurisdiction.

Again the defendants moved to dismiss the complaint. While Sweeney argued that he was not an ERISA fiduciary, all of the defendants argued that Custer's malpractice claims were preempted by ERISA and failed to establish their duty to monitor the pension plan's airplane and conference center investments for compliance with ERISA. Sweeney also requested attorneys fees under both Federal Rule of Civil Procedure 11(c) and ERISA § 502(g), 29 U.S.C. § 1132(g), on the ground that Custer lacked a good faith basis for his claims.

The district court dismissed Custer's ERISA claim against Sweeney with prejudice, concluding that Custer's second attempt to plead Sweeney's fiduciary status under ERISA was "at best hopeless or at worst contrived." It dismissed the legal malpractice claims without prejudice, declining to exercise supplemental jurisdiction over them. Finally, the court denied Sweeney's motion for attorneys fees because it did "not believe that there [was] a sufficient inference of bad faith" on Custer's part.

Custer appeals the district court's dismissal of his ERISA claim, and Sweeney cross-appeals the district court's failure to dismiss the malpractice claim with prejudice as preempted by ERISA. Sweeney also contends that the district court abused its discretion in refusing to award him attorneys fees. [*]

II

We begin with Custer's contention that the district court erred in dismissing his ERISA claim against Sweeney for breach of fiduciary duty. After affording Custer the opportunity to replead that claim, the district court observed that Custer's amended complaint still alleged "that Sweeney was at most an attorney and consultant who took care of the ministerial, day-to-day payment of bills, securing of funds with which to meet Fund obligations, and monitoring the progress of construction and operations on Fund property." Concluding that such activities "completely fail[ed] to establish the exercise of the type of discretion or control necessary to hold Sweeney liable as an ERISA fiduciary," the court dismissed Custer's ERISA claim with prejudice. Whether the district court acted properly thus depends on whether Sweeney qualifies as a "fiduciary" under ERISA.

"[T]he concept of a fiduciary under ERISA is broader than the common law concept of a trustee." Custer v. Pan Am. Life Ins. Co., 12 F.3d 410, 418 n. 3 (4th Cir.1993). It includes not only those "named [as fiduciaries] in the plan instrument, or who, pursuant to a procedure specified in the plan, [are] identified as ... fiduciar[ies]," 29 U.S.C. § 1102(a)(2), but any individual who de facto performs specified discretionary functions with respect to the management, assets, or administration of a plan. According to § 3(21)(A) of ERISA:

[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any

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discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

29 U.S.C. § 1002(21)(A).

While an attorney's duty to his client is that of a fiduciary, see F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1259 (2d Cir.1987), the mere fact that an attorney represents an ERISA plan does not make the attorney an ERISA fiduciary because legal representation of ERISA plans rarely involves the discretionary authority or control required by the statute's definition of "fiduciary." According to the regulations promulgated by the Department of Labor--the agency charged with enforcing ERISA--an attorney or other professional service provider who represents an ERISA plan will not qualify as an ERISA fiduciary so long as he "performs purely ministerial functions ... within a framework of policies, interpretations, rules, practices and procedures made by other persons." 29 C.F.R. § 2509.75-8(D-2); see also 29 C.F.R. § 2509.75-5(D-1) (applying...

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