USCA1 Opinion
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
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No. 96-1542
ARTHUR T. COTTRILL,
Plaintiff, Appellant,
v.
SPARROW, JOHNSON & URSILLO, INC., ET AL.,
Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ernest C. Torres, U.S. District Judge]
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Before
Selya, Cyr and Lynch,
Circuit Judges.
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Jeffrey S. Brenner, with whom Corrente, Brill & Kusinitz,
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Ltd. was on brief, for appellant.
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Edward C. Roy, with whom Roy & Cook was on brief, for
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appellees.
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November 19, 1996
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SELYA, Circuit Judge. We are summoned again to survey
SELYA, Circuit Judge.
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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
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Cir. 1996). We therefore reversed the district court's contrary
ruling and remanded for the entry of judgment in Cottrill's
favor. See id.
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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.
I.
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Setting the Stage
Setting the Stage
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We refrain from rehearsing the facts for two reasons.
First, they are adequately stated in our earlier opinion. See
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id. at 21. Second, the questions that Cottrill now raises do not
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pertain directly to the merits of his cause, but concern only
embellishments to the judgment. Thus, after pausing to elucidate
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1The defendants in this case are SJU, its profit-sharing
plan (the Plan), and Steven J. Ursillo (SJU's chief executive
officer and the Plan's trustee). For simplicity's sake, we refer
to them collectively as "the trustee" or "the defendants."
2
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
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v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1030 (4th Cir. 1993)
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(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
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Int'l Life Assurance Co., 50 F.3d 956, 957 (11th Cir. 1995);
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Anthuis v. Colt Indus. Operating Corp., 971 F.2d 999, 1002 (3d
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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
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the Pillsbury Co., 80 F.3d 439, 445 (10th Cir. 1996); Gray v. New
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Eng. Tel. & Tel. Co., 792 F.2d 251, 259 (1st Cir. 1986).
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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,
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60 F.3d 867, 875 (1st Cir. 1995); accord Lutheren Med. Ctr. v.
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Contractors, Laborers, Teamsters & Eng'rs Health & Welfare Plan,
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25 F.3d 616, 623-24 (8th Cir. 1994).
II.
II.
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Analysis
Analysis
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A.
A.
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Prejudgment Interest
Prejudgment Interest
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3
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.
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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
1. The Date of Accrual.
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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
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Cir. 1990); Paris v. Profit Sharing Plan for Employees of Howard
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B. Wolf, Inc., 637 F.2d 357, 361 (5th Cir.), cert. denied, 454
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U.S. 836 (1981); Algie v. RCA Global Communications, Inc., 891 F.
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Supp. 875, 899 (S.D.N.Y. 1994), aff'd, 60 F.3d 956 (2d Cir.
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1995). Setting the accrual date in this manner not only advances
the general purposes of prejudgment interest, see West Virginia
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v. United States, 479 U.S. 305, 310 (1987), but also serves
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ERISA's remedial objectives by making a participant whole for the
4
period during which the fiduciary withholds money legally due.
See Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270,
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286 (2d Cir. 1992). Figuring the accrual date in this way also
prevents unjust enrichment. See Sweet v. Consolidated Alum.
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Corp., 913 F.2d 268, 270 (6th Cir. 1990); Short v. Central
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States, Southeast & Southwest Areas Pension Fund, 729 F.2d 567,
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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
5
(ostensibly to recoup losses that he occasioned, see Cottrill, 74
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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
2. The Rate of Interest.
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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-
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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.
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2The appellant disputes the district court's finding that,
prior to year's end, the appellant's money continued to earn
interest. We have two reactions. First, the finding is
unnecessary to the result, for it is the fact that the account
remained untouched, coupled with the absence of a meaningful
turnover demand at an earlier time, that renders the December 31,
1991 date defensible. Second, the court relied upon the
representations of SJU's counsel (uncontradicted by Cottrill's
lawyer) in making this ore tenus finding and invited Cottrill to
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seek to modify the order if these representations were erroneous.
Cottrill never accepted the invitation. Therefore, he cannot
complain of the finding here. See Dow v. United Bhd. of
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Carpenters & Joiners, 1 F.3d 56, 61-62 (1st Cir. 1993) (holding
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that a party who eschewed the court's invitation to seek
discovery if needed waived any subsequent objection to lack of
discovery); Reilly v. United States, 863 F.2d 149, 168 (1st Cir.
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1988) (upholding denial of discovery request where supposedly
aggrieved party did not accept the magistrate's invitation to
renew it at a later date); cf. United States v. Schaefer, 87 F.3d
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562, 570 n.9 (1st Cir. 1996) (explaining that defendant's failure
to file a motion for reconsideration undercut his later objection
to district court's suppression order).
6
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,
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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
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on the subject, a court that elects to award prejudgment interest
in an ERISA case has broad discretion in choosing a rate. See
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Hansen v. Continental Ins. Co., 940 F.2d 971, 983-85 (5th Cir.
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1991). In such a situation, equitable considerations should
guide the exercise of judicial discretion. See, e.g., Kinek v.
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Paramount Communications, Inc., 22 F.3d 503, 514 (2d Cir. 1994);
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Anthuis, 971 F.2d at 1009.
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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
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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,
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e.g., Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1331 (8th Cir.
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1995); Sweet, 913 F.2d at 270; Blanton v. Anzalone, 760 F.2d 989,
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7
992-93 (9th Cir. 1985); United States v. Mason Tenders Dist.
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Council, 909 F. Supp. 891, 895 (S.D.N.Y. 1995).
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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
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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.
B.
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Counsel Fees
Counsel Fees
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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
8
plaintiffs. Instead, fee awards under ERISA are wholly
discretionary. See Gray, 792 F.2d at 259.
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This discretion is not standardless. To channel its
exercise, this court has cited five basic factors that
customarily should be weighed in the balance: (1) the degree of
culpability or bad faith attributable to the losing party; (2)
the depth of the losing party's pocket, i.e., his or her capacity
to pay an award; (3) the extent (if at all) to which such an
award would deter other persons acting under similar
circumstances; (4) the benefit (if any) that the successful suit
confers on plan participants or beneficiaries generally; and (5)
the relative merit of the parties' positions. See id. at 257-58.
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Other courts of appeals have compiled strikingly similar lists.
See Eddy v. Colonial Life Ins. Co., 59 F.3d 201, 206 n.10 (D.C.
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Cir. 1995) (collecting cases). The circuits agree that such
compendia are exemplary rather than exclusive. See id. at 206;
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Quesinberry, 987 F.2d at 1029. An inquiring court may indeed,
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should consider additional criteria that seem apropos in a
given case. See Anthuis, 971 F.2d at 1012. In a word, the test
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for granting or denying counsel fees in an ERISA case is
"flexible." Gray, 792 F.2d at 258.
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1. Eschewing Presumptions. Several courts of appeals
1. Eschewing Presumptions.
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have declined to adopt a mandatory presumption that attorneys'
fees will be awarded to prevailing plaintiffs in ERISA cases
absent special circumstances. See Eddy, 59 F.3d at 206-07;
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Florence Nightingale Nursing Serv., Inc. v. Blue Cross/Blue
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9
Shield, 41 F.3d 1476, 1485-86 (11th Cir.), cert. denied, 115 S.
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Ct. 2002 (1995); McPherson v. Employees' Pension Plan of Am. Re-
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Ins. Co., 33 F.3d 253, 254 (3d Cir. 1994); Custer v. Pan Am. Life
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Ins. Co., 12 F.3d 410, 422 (4th Cir. 1993); Armistead v.
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Vernitron Corp., 944 F.2d 1287, 1302 (6th Cir. 1991); Iron
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Workers Local #272 v. Bowen, 624 F.2d 1255, 1265-66 (5th Cir.
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1980); see also Note, Attorney's Fees Under ERISA: When Is an
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Award Appropriate?, 71 Cornell L. Rev. 1037, 1049-55 (1986)
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(arguing against a mandatory presumption). There is, however,
some conflicting authority. See Landro v. Glendenning Motorways,
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Inc., 625 F.2d 1344, 1356 (8th Cir. 1980) (applying mandatory
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presumption used under civil rights statutes in favor of
prevailing plaintiffs in ERISA cases); see also Bittner v. Sadoff
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& Rudoy Indus., 728 F.2d 820, 830 (7th Cir. 1984) (adapting
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presumption used in Equal Access to Justice Act cases to ERISA
milieu).3
We share the majority view. We hold that, in an ERISA
case, a prevailing plaintiff does not, merely by prevailing,
create a presumption that he or she is entitled to a fee-shifting
award. Our holding flows naturally from the importance of
preserving flexibility in this area of the law. Our holding is,
moreover, adumbrated by our earlier decision in Gray. There, we
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3We do not place Smith v. CMTA-IAM Pension Trust, 746 F.2d
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587 (9th Cir. 1984), in this category. Although Smith quotes
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liberally from a civil rights case, see id. at 589, the opinion
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does not suggest the use of a mandatory presumption, but merely
applies the five basic factors in light of ERISA's remedial
purposes. See Eddy, 59 F.3d at 207 (reaching the same
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conclusion).
10
explicitly rejected the creation of a presumption in favor of
prevailing defendants. 792 F.2d at 258. We pointed out that 29
U.S.C. 1132(g)(1) speaks in discretionary terms, and that its
legislative history, unlike that of certain civil rights
statutes, does not support a presumption via- -vis counsel fees.
See Gray, 792 F.2d at 258-59. This rationale suggests to us that
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a presumption in favor of prevailing plaintiffs also would be
overkill; because the five basic factors have a built-in bias in
favor of prevailing plaintiffs, see id. (recognizing that the
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second, third, and fourth factors may favor prevailing plaintiffs
moreso than prevailing defendants), the superimposition of a
presumption seems unnecessary as a means of protecting the
legitimate interests of plan beneficiaries and participants.
2. Validity of the Order. Having declined to employ a
2. Validity of the Order.
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mandatory presumption, we turn now to the district court's order.
The appellant contends that the court mishandled the five basic
factors. This contention lacks force.
In terms of the first factor culpability the record
contains no indication that the defendants exhibited bad faith;
they consulted with counsel and conducted a year-long
investigation before offsetting Cottrill's account. Thus, even
though the Plan was ultimately found liable under the statute,
the worst that can be said is that the defendants, confronted
with a sizeable loss attributable to the appellant's imprudence,
misjudged the Plan's legal rights.
The district judge made an additional point, referring
11
to his original finding that Cottrill was the person primarily
responsible for the Plan's substantial losses and deeming this
fact relevant to the issue of attorneys' fees.4 This is out of
the ordinary, for the traditional formulation of the first factor
suggests an inquiry into the bad faith or culpability only of the
losing party. Still, on the odd facts of this case, we cannot
say that the district court's emphasis on the prevailing party's
culpability constitutes an abuse of discretion. Cf. Armistead,
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944 F.2d at 1304 (finding no abuse of discretion in the absence
of a showing that consideration of other factors would have led
to a different result). At the very least, Cottrill's conduct is
germane as an additional and significant circumstance to be
considered under the flexible standard that governs ERISA fee
applications. See, e.g., Anthuis, 971 F.2d at 1012.
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The second factor is a non-starter. While evidence
existed that the defendants had funds available and could have
afforded to pay the appellant's fees, this datum has little
relevance here. An inability to afford attorneys' fees may
counsel against an award, see Armistead, 944 F.2d at 1305, but
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the capacity to pay, by itself, does not justify an award, see
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Thorpe, 80 F.3d at 445; Tiemeyer v. Community Mut. Ins. Co., 8
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F.3d 1094, 1102 (6th Cir. 1993), cert. denied, 114 S. Ct. 1371
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(1994); Quesinberry, 987 F.2d at 1030. Consequently, the
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4This finding had been made at trial and, although we
reversed the judgment, our decision in no way questioned the
finding of culpability. See Cottrill, 74 F.3d at 21 (chronicling
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the conduct which informed the lower court's assessment of
culpability).
12
district court did not blunder in finding that the second factor
lacked appreciable significance.
Citing the uniqueness of the situation, the district
court found the third factor generalized deterrence to be a
mixed bag. The court reasoned that an award of fees might deter
the wrongful withholding of accounts by fiduciaries, but that a
denial of fees might deter participants and beneficiaries from
acting recklessly in respect to the assets of employee benefit
plans. The appellant does not make any convincing counter-
argument. While we recognize the deterrent value of fee awards
against errant fiduciaries and attach considerable weight to such
deterrence, we discern no reason on these peculiar facts for
rejecting the district court's analysis of deterrence as an
element here. Given the trial court's superior vantage point,
its evaluative judgments about such case-specific matters are
entitled to substantial respect.
The fourth factor common benefit cuts against the
appellant. His situation is both exotic and fact-dependent;
thus, other participants do not stand to profit from the
appellant's success. This lack of other similarly situated
participants militates against a fee award. See Custer, 12 F.3d
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at 423.
Last but not least, we address the merits of the
underlying suit. We agree with the court below that the case
13
presented a close question.5 The very fact that an experienced
trial judge originally found in the defendants' favor argues for
a finding that the defendants had a reasonable basis for
contesting Cottrill's entitlement to the funds, even though this
court ultimately ruled against them. Cf. Sierra Club v.
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Secretary of the Army, 820 F.2d 513, 519 (1st Cir. 1987)
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(acknowledging in an EAJA case that a party's success in the
district court is some evidence that its position was justified);
Porter v. Heckler, 780 F.2d 920, 922 (11th Cir. 1986) (similar).
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The fifth factor, then, is something of a wash.
The bottom line is that the district court applied the
conventional five-factor test in an acceptable manner and added
idiosyncratic features to it in a reasonable way. The court
recognized that a successful plaintiff in an ERISA case more
often than not should recover attorneys' fees, but concluded for
reasons fully articulated in the record that this claim fell on
the other side of the border. If writing on a pristine page, we
might have weighed the mix of factors differently but that is
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5In our prior opinion we wrote that "there was no possible
basis for the [district] court's conclusion that Cottrill was a
fiduciary." Cottrill, 74 F.3d at 22. The appellant seizes upon
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this remark as proof that the merits were open and shut. But the
appellant wrests this statement from its contextual moorings.
Fairly read, the comment capped the preceding analysis which,
examined in context, illustrated the uncertainty of who is a
fiduciary under ERISA. This was a reasonably close case and,
just as we have warned that a judicial decision cannot be
transmogrified by placing overly great reliance on an awkward
locution contained in a trial court's opinion, see Dopp v.
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Pritzker, 38 F.3d 1239, 1244 n.5 (1st Cir. 1994); Lenn v.
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Portland Sch. Comm., 998 F.2d 1083, 1088 n.4 (1st Cir. 1993), so,
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too, we are wary of a party's attempts to attach portentous
significance to an appellate court's use of isolated phraseology.
14
beside the point. Absent a mistake of law or a clear error in
judgment neither of which is evident here we must defer to
the trial court's first-hand knowledge and to its battlefield
determination that the specific facts of this case do not warrant
a fee award. See Florence Nightingale, 41 F.3d at 1485; Gray,
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792 F.2d at 260.
III.
III.
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Conclusion
Conclusion
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We need go no further. The rulings of which the
appellant complains were well within the realm of the trial
court's discretion. The appellant, once victorious, is now
vanquished. He perhaps should have quit while he was ahead.
Affirmed.
Affirmed.
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15
