Denzler v. Questech, Inc.

• Decision Date: 19 March 1996
• Docket Number: No. 94-2109,94-2109
• Citation: 80 F.3d 97
• Parties: Pens. Plan Guide P 23918R Edwin W. DENZLER, Plaintiff-Appellee, v. QUESTECH, INCORPORATED; Walter V. Edwards, III; Joseph P. O'Connell, Jr., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 97

80 F.3d 97

Pens. Plan Guide P 23918R

Edwin W. DENZLER, Plaintiff-Appellee, v. QUESTECH, INCORPORATED; Walter V. Edwards, III; Joseph P O'Connell, Jr., Defendants-Appellants.

No. 94-2109.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 30, 1995.

Decided March 19, 1996.

Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Leonie M. Brinkema, District Judge. (CA-93-1543-A)

ARGUED: Christina Miesowitz Burkholder, Questech, Inc., Falls Church, Virginia, for Appellants. Karl W. Pilger, Boring, Parrott & Pilger, P.C., Vienna, Virginia, for Appellee. ON BRIEF: Norman H. Singer, Keck, Mahin & Cate, Washington, D.C., for Appellants. Brian V. Ebert, Boring, Parrott & Pilger, P.C., Vienna, Virginia, for Appellee.

Before MURNAGHAN, HAMILTON, and MOTZ, Circuit Judges.

Affirmed in part and remanded in part by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge HAMILTON and Judge MOTZ joined.

OPINION

MURNAGHAN, Circuit Judge:

Edwin W. Denzler ("Denzler"), appellee-plaintiff, sued his former employer Questech, Inc. ("Questech"), appellant-defendant, for pension benefits under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461. The district judge ruled in favor of Denzler, granting his motion for summary judgment on Questech's liability under the ERISA plan and, after holding hearings, awarding him damages, costs, and attorney's fees. Questech has appealed those orders. We affirm the lower court's summary judgment order as to liability, but remand for recalculation of damages and reconsideration of attorney's fees and costs.

I

A. The ERISA Plan

Denzler worked for Questech from November 9, 1978, until August 31, 1990. He became a participant in an Officers and Managers Deferred Compensation Plan ("Def Com Plan" or "the Plan") in 1986 by executing a Joinder Agreement which specified the amount of his retirement benefits--$350,000 payable at age 65 for ten years at $35,000 per year. ¹ In return for that benefit, Denzler agreed to have Questech deduct $7,500 from his salary annually to contribute to the Def Com Plan. In 1990, however, Denzler took early retirement before reaching age 65. Under the terms of the Def Com Plan, he was entitled to receive an actuarial equivalent amount of $350,000 using the current interest rates for either discounting or compounding.

B. Questech's Payments Under the Plan

Upon retiring, Denzler requested a statement of his benefits. The Administrator of the Def Com Plan, an executive committee of the Questech Board of Directors, sent Denzler a letter dated October 2, 1990 ("the October letter") indicating that Denzler would be paid the sum of both a basic benefit and an added benefit. The basic benefit was $94,176 and the added benefit $255,830. The basic benefit, however, was reduced because of early retirement to $53,191--the actuarial equivalent amount of $94,176. The added amount of $255,830 remained the same.

Questech paid Denzler annual installments based on the sum of both the "added benefit" and "basic benefit" in 1990, 1991, and 1992. In 1993, however, the Plan Administrator reduced the benefit paid to Denzler as a result of the failure of the Def Com Plan holdings to generate the expected rates of return. ² The Administrator argued that the reduced payments were justified because under the terms of the Def Com Plan, Denzler was entitled to a basic benefit only.

C. Denzler's Lawsuit

Denzler filed a series of complaints in federal district court arguing that he was entitled to his full early retirement benefit, not just a basic benefit. His first complaint alleged a breach of contract and sought a declaration of rights under the Plan. Denzler, with the district court's leave, amended his complaint because it failed to mention that his Def Com Plan was an employee benefit plan governed by ERISA. Subsequently, Denzler filed a second amended complaint seeking greater damages.

The district judge examined the Plan's documents--the Plan and the Joinder Agreement--and determined that they "[we]re clear on their face" and "clear as a bell" in that Questech owed Denzler his full benefit, taking into account his early retirement. Indeed, she stated that parol evidence was unnecessary because the documents were so clear and unambiguous. Nevertheless, she also examined the October letter. She noted that the letter supported her interpretation and that Questech could not just stop paying Denzler the payments the October 1990 letter promised after making those payments for three years. Finding that the Def Com Plan was clear and unambiguous and supported by the October letter, the district court granted Denzler's motion for summary judgment as to Questech's liability under the Def Com Plan. ³

Subsequently, the district court held a hearing on damages and ruled that Questech owed Denzler a total retirement benefit of $318,000 based on a 10% discounted rate of the full $350,000 benefit that was to be paid out if Denzler retired at age 65. The court subtracted the $76,307.31 in benefits already paid to Denzler and entered a judgment order requiring that $241,692.69, plus interest for the overdue 1993 payments, be paid to Denzler. The court also entered several orders after a series of pleadings and hearings as to attorney's fees and costs. Ultimately, the court determined that Questech had acted in bad faith in refusing to pay Denzler his full early retirement benefit and awarded to Denzler costs of $4,212.64, and attorney's fees of $34,496.00. Questech appeals the district court's orders.

II

Questech appeals three categories of orders: (1) summary judgment on liability; (2) damages; and (3) attorney's fees and costs. We address each in turn.

A. Summary Judgment

We review a district court's summary judgment ruling under a de novo standard of review. Henson v. Liggett Group, Inc., 61 F.3d 270, 274 (4th Cir.1995). Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate where there are no genuine issues of material fact. In making that determination, we review the record in the light most favorable to the nonmoving party.

Questech argues that it is not liable for the additional retirement benefits Denzler seeks because Denzler's compensation plan contained two types of benefit payments--a basic benefit, payable always, and an added benefit, payable only if the Plan generated a surplus (the "dual-payment theory"). Questech contends that once it became apparent that the Def Com Plan was not generating the expected rates of returns, the Plan Administrator had the right to reduce Denzler's payments to the basic benefit. Questech also argues that, in any event, the Plan was ambiguous as to what amount of benefits Denzler was due as an early retiree and that, therefore, summary judgment as to liability for more than the "basic benefit" was in error.

In interpreting ERISA plans, we turn to principles of the federal common law of contracts. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S.Ct. 948, 954, 103 L.Ed.2d 80 (1989); Wheeler v. Dynamic Engineering, Inc., 62 F.3d 634, 638 (4th Cir.1995). We also turn to principles of state common law for guidance. Wheeler, 62 F.3d at 638.

Summary judgment on a contractual claim is appropriate only where there is no ambiguity in the contract or plan. World-Wide Rights, Ltd. Partnership v. Combe, Inc., 955 F.2d 242, 245 (4th Cir.1992). The question of whether a contract is ambiguous is one of law, which we review de novo. Nehi Bottling Co. v. All-American Bottling Corp., 8 F.3d 157, 162 (4th Cir.1993). Thus, we first examine the Plan to determine whether, as a matter of law, it is ambiguous on its face. Goodman v. Resolution Trust Corp., 7 F.3d 1123, 1126 (4th Cir.1993).

The basic contractual documents defining the Def Com Plan and benefits are the Def Com Plan and the Joinder Agreement. A de novo review of those documents reveals that they unambiguously state that Denzler is to receive an actuarial equivalent of $350,000 upon early retirement. The Joinder Agreement provides that at age 65, Denzler is to receive a retirement benefit that shall equal $350,000. There is no mention, indication, or implication that $350,000 is the sum of two types of benefits or that a portion of the payment is optional, discretionary, or dependent upon the generation of a surplus. The Joinder Agreement also states that the $350,000 shall be paid in accordance with Article V of the Def Com Plan. Article V describes the procedure for paying an actuarial equivalent amount of $350,000 to early retirees. ⁴ Again, there is no indication that a portion of that actuarial equivalent amount is dependent upon a surplus or that the retirement benefit is divided into a basic benefit and an optional additional amount. The notion of dual payments is entirely absent from the Def Com Plan and the Joinder Agreement. Thus, Questech's attempt to justify its actions based upon a dual-payment theory is not supported by the relevant documents.

Nonetheless, Questech makes several arguments as to why the contract is ambiguous. We find those arguments unconvincing. Questech does not even attempt to point to any ambiguities relating to the distinction between a basic benefit and added amount in the Plan because there are none. Instead, Questech attempts to create an ambiguity in the Plan concerning the amount of early retirement benefits. Questech relies on two far-fetched readings of the Def Com Plan in its attempt to create that ambiguity. ⁵

First, Questech contends that because the Plan states that early retirees are entitled to an actuarial equivalent amount without stating "amount of what," it is unclear what should be the base figure for the actuarial equivalent calculation. The Plan, read as a whole, however, clearly defines the base figure. The relevant provision in the Plan states that all participants' retirement benefits...