McElwaine v. US West, Inc.

• Decision Date: 10 May 1999
• Docket Number: 98-15732,Nos. 97-16306,s. 97-16306
• Parties: S.A. McELWAINE, an unmarried person, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. US WEST, INC., a foreign corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1167

176 F.3d 1167

S.A. McELWAINE, an unmarried person, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. US WEST, INC., a foreign corporation, Defendant-Appellee.

Nos. 97-16306, 98-15732.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 8, 1998.

Decided May 10, 1999.

Robert P. Geller, Bradford T. Yaker, Hertz, Schram & Saretsky, Bloomfield Hills, Michigan, for the plaintiff-appellant.

James J. Trimble, Fennemore Craig, Tucson, Arizona, and Elizabeth Anne Kushibab, US West, Inc., for the defendant-appellee.

Appeals from the United States District Court for the District of Arizona; William D. Browning, District Judge, Presiding. D.C. No. CV-96-00214-WDB.

Before: BRIGHT, ¹ FLETCHER, and THOMPSON, Circuit Judges.

PER CURIAM:

S.A. McElwaine ("McElwaine") pursued a claim against US West, Inc. ("US West"), her former employer, to recover pension benefits that she believed US West owed her and other early retirees as a result of US West's error in calculating the present value of the lump sum benefits it had paid to early retirees. US West admitted its calculation error, but offered McElwaine no firm commitment to remedy the shortfall. McElwaine filed suit one month before the statute of limitations ran.

Unbeknownst to McElwaine, by the time she filed her suit, US West had initiated formal steps to correct its error. Five months after McElwaine filed suit, US West made a commitment to pay approximately $20 million owed to approximately 3,000 beneficiaries. McElwaine continued to pursue the litigation until her case was dismissed almost a year later.

McElwaine now seeks attorney fees under the civil enforcement provisions of the Employee Retirement Income Security Act ("ERISA"). 29 U.S.C. § 1132(g)(1). The district court denied fees because it concluded that McElwaine's lawsuit generated no additional benefits to any of the plan beneficiaries. We have jurisdiction pursuant to 28 U.S.C. § 1291 and we reverse. After considering McElwaine's appeal and US West's persistent unwillingness to divulge its plans to resolve McElwaine's claim, we conclude that McElwaine is entitled to a reasonable attorney fee for a portion of her efforts.

FACTUAL and PROCEDURAL BACKGROUND

McElwaine took early retirement from US West in 1990. She received $216,219 in a lump sum retirement distribution as part of the company's early retirement program, an employee pension plan under ERISA. 29 U.S.C. § 1002. The lump sum distribution included her pension benefit, supplemental early retirement compensation, and a death benefit.

Five years later, McElwaine discovered that US West had calculated the present value of the early retirees' death benefit erroneously. ² Because the pension plan ("Plan") paid death benefits only if a qualified death beneficiary was alive at the participant's death, US West had used a probability factor to estimate the likelihood of paying a death benefit. According to McElwaine, the Plan did not allow US West to use a probability factor. Instead, McElwaine asserted, the Plan required that the present value of the death benefits be calculated assuming a 100 percent probability that a death benefit would be paid. The probability factor reduced the likelihood that a death benefit would actually be paid, and therefore, reduced substantially the amount of death benefits paid to these early retirees.

In March 1995, McElwaine alerted US West to the error and pursued administrative remedies to force US West to (1) recalculate the death benefits portion using a 100 percent probability factor and (2) pay the additional amounts owed to her and all similarly situated plan participants. US West initially denied her claim and McElwaine appealed to US West's Employee Benefits Committee ("EBC") in September 1995. On January 22, 1996, the EBC acknowledged its error and informed McElwaine that, pursuant to her appeal, it was seeking IRS approval of a proposal to correct the deficient calculation. ³ Although the EBC promised to inform McElwaine when the IRS responded, US West did not divulge the details of its proposal, nor did it indicate when it would submit its proposal to the IRS or how it would resolve the issue in the event that the IRS disapproved of its proposed recalculation.

McElwaine tried repeatedly to determine whether US West had submitted its proposal to the IRS, but her efforts were fruitless. In February 1996, US West informed her that it had not yet submitted any proposal to the IRS and that it would be uncomfortable sharing any material that it ultimately submitted. The statute of limitations on McElwaine's claim ran in May 1996. ⁴ McElwaine retained counsel in March 1996, and filed a complaint in district court on April 4, 1996. McElwaine's complaint paralleled the allegations in her administrative claim regarding US West's unlawful use of an unspecified probability factor to compute the present value of death benefits available under the early retirement program . ⁵

US West submitted a formal proposal to the IRS on March 15, 1996, explaining its error and resulting deficiency as well as its proposed plan to recalculate the death benefits and make up the shortfall to the beneficiaries. It estimated that its error had shortchanged 2,879 retirees and would require a supplemental payment of $15 million. US West later revised the payment amount, which included eight percent interest per year, to $20 million. US West did not inform McElwaine that it had submitted a proposal to the IRS.

In May 1996, US West agreed to show McElwaine its IRS submission if she signed a confidentiality agreement before viewing the IRS filing. US West assured McElwaine that once she viewed the IRS submission, she would realize that US On August 28, 1996, the IRS formally approved of US West's proposal and issued a Compliance Statement mandating that US West pay the disputed claims within 90 days. US West waited almost one month before informing McElwaine of this development, ignoring McElwaine's inquiries regarding class certification and Rule 26 initial disclosures made after US West had received the IRS Compliance Statement.

West intended to fully satisfy the deficiency she had noted. US West contends that McElwaine never responded to the draft confidentiality agreement or suggested any changes. McElwaine's attorneys argue that the confidentiality agreement was unnecessary and too broad. When US West answered McElwaine's complaint on June 5, 1996, it reiterated that it had already submitted a request for an administrative ruling from the IRS that would resolve the issue in a manner identical to McElwaine's demands. However, it did not offer to share its submission with McElwaine.

By letter, on September 20, 1996, US West informed McElwaine that the IRS had approved its proposal and that it would pay the full extent of her claim within 90 days of the date of the IRS letter. US West included a copy of the IRS Compliance Statement and its original submission to the IRS. US West also urged McElwaine's attorneys to dismiss her suit in light of the pending payment. US West paid McElwaine $9,963.43 on November 21, 1996, and the other plan participants shortly thereafter. According to US West, the typical retiree received more than double the amount of death benefits originally paid.

US West filed a motion for summary judgment on September 30, 1996, ⁶ which the district court granted on June 8, 1997. ⁷ On June 19, 1997, McElwaine filed a petition for attorney fees and costs under 29 U.S.C. § 1132(g)(1), which authorizes discretionary attorney's fees to plan participants who prevail in an ERISA action. The district court denied this petition on March 16, 1998.

In the nine months between US West's motion for summary judgment and the district court's dismissal, McElwaine not only opposed US West's motion for summary judgment but continued to raise "new" issues alleging various errors in the method US West used to calculate benefits, and pressed ahead with efforts to certify the class of beneficiaries. Primarily, McElwaine put forth new theories intended to cast doubt on US West's entire calculation methodology. US West argues that these "new" theories are precluded because McElwaine failed to raise them at the administrative level. McElwaine now appeals the district court's denial of her petition for attorney fees.

STANDARD OF REVIEW

We are called upon to determine whether McElwaine is entitled to fees for any portion of her litigation against US West and whether the amount she seeks is reasonable. We review the district court's denial of a request for attorney fees for an abuse of discretion. Hope v. Int'l Brotherhood of Electrical Workers, 785 F.2d 826, 831 (9th Cir.1986). Because fee awards are discretionary, we may set aside a decision denying fees only if the district court abused its discretion, failed to state the reasons for its decision, or applied incorrect legal standards. Smith v. CMTA-IAM Pension Trust, 746 F.2d 587, 589 (9th Cir.1983). If we are to reverse the district court and award fees, we must conclude with "definite conviction" that the district court "made a clear error of judgment in its conclusion upon weighing relevant factors." Hope, 785 F.2d at 831.

ANALYSIS

1. Attorney Fees Under § 1132(g)(1)

Under the civil enforcement provisions of ERISA, a court may "in its discretion ... allow a reasonable attorney's fee and costs of action to either party." 29 U.S.C. § 1132(g)(1). ⁸ We apply a five-factor test to determine whether an ERISA fee award is appropriate. See Hummell v. Rykoff & Co., 634 F.2d 446, 453 (9th Cir.1980). The "Hummell " factors include (1) the degree of the opposing parties' culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of fees; (3) whether an award of fees would deter others from acting under similar circumstances; (4) whether the parties requesting fees sought to benefit all plan participants...