Cottrill v. Sparrow

USCA1 Opinion









UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT

_________________________


No. 96-1542


ARTHUR T. COTTRILL,

Plaintiff, Appellant,

v.

SPARROW, JOHNSON & URSILLO, INC., ET AL.,

Defendants, Appellees.

_________________________


APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Ernest C. Torres, U.S. District Judge] ___________________

_________________________


Before

Selya, Cyr and Lynch,

Circuit Judges. ______________

_________________________


Jeffrey S. Brenner, with whom Corrente, Brill & Kusinitz, ___________________ ____________________________
Ltd. was on brief, for appellant. ____
Edward C. Roy, with whom Roy & Cook was on brief, for _______________ ___________
appellees.

_________________________

November 19, 1996

_________________________
















SELYA, Circuit Judge. We are summoned again to survey SELYA, Circuit Judge. _____________

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 ___ ________ ___

Cir. 1996). We therefore reversed the district court's contrary

ruling and remanded for the entry of judgment in Cottrill's

favor. See id. ___ ___

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. __

Setting the Stage Setting the Stage _________________

We refrain from rehearsing the facts for two reasons.

First, they are adequately stated in our earlier opinion. See ___

id. at 21. Second, the questions that Cottrill now raises do not ___

pertain directly to the merits of his cause, but concern only

embellishments to the judgment. Thus, after pausing to elucidate

____________________

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."

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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 ___ ___________

v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1030 (4th Cir. 1993) ________________________

(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 ___ _____ ________

Int'l Life Assurance Co., 50 F.3d 956, 957 (11th Cir. 1995); __________________________

Anthuis v. Colt Indus. Operating Corp., 971 F.2d 999, 1002 (3d _______ ____________________________

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 ___ ______ ___________________

the Pillsbury Co., 80 F.3d 439, 445 (10th Cir. 1996); Gray v. New _________________ ____ ___

Eng. Tel. & Tel. Co., 792 F.2d 251, 259 (1st Cir. 1986). _______________________

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, _________________ _______________________________

60 F.3d 867, 875 (1st Cir. 1995); accord Lutheren Med. Ctr. v. ______ ___________________

Contractors, Laborers, Teamsters & Eng'rs Health & Welfare Plan, ________________________________________________________________

25 F.3d 616, 623-24 (8th Cir. 1994).

II. II. ___

Analysis Analysis ________

A. A. __

Prejudgment Interest Prejudgment Interest ____________________


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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. ___ ____ _____

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. ___________________

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 ___ ____ ______ __________________

Cir. 1990); Paris v. Profit Sharing Plan for Employees of Howard _____ ___________________________________________

B. Wolf, Inc., 637 F.2d 357, 361 (5th Cir.), cert. denied, 454 _____________ _____ ______

U.S. 836 (1981); Algie v. RCA Global Communications, Inc., 891 F. _____ _______________________________

Supp. 875, 899 (S.D.N.Y. 1994), aff'd, 60 F.3d 956 (2d Cir. _____

1995). Setting the accrual date in this manner not only advances

the general purposes of prejudgment interest, see West Virginia ___ _____________

v. United States, 479 U.S. 305, 310 (1987), but also serves ______________

ERISA's remedial objectives by making a participant whole for the


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period during which the fiduciary withholds money legally due.

See Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, ___ ______ __________________________________

286 (2d Cir. 1992). Figuring the accrual date in this way also

prevents unjust enrichment. See Sweet v. Consolidated Alum. ___ _____ ___________________

Corp., 913 F.2d 268, 270 (6th Cir. 1990); Short v. Central _____ _____ _______

States, Southeast & Southwest Areas Pension Fund, 729 F.2d 567, _________________________________________________

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


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(ostensibly to recoup losses that he occasioned, see Cottrill, 74 ___ ________

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. ____________________

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- ___

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.

____________________

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 ___ _____
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 ___ ___ ________________
Carpenters & Joiners, 1 F.3d 56, 61-62 (1st Cir. 1993) (holding ____________________
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. ______ _____________
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 ___ _____________ ________
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).

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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, ___ ___________ ______________________________

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 ___ ___

on the subject, a court that elects to award prejudgment interest

in an ERISA case has broad discretion in choosing a rate. See ___

Hansen v. Continental Ins. Co., 940 F.2d 971, 983-85 (5th Cir. ______ ____________________

1991). In such a situation, equitable considerations should

guide the exercise of judicial discretion. See, e.g., Kinek v. ___ ____ _____

Paramount Communications, Inc., 22 F.3d 503, 514 (2d Cir. 1994); ______________________________

Anthuis, 971 F.2d at 1009. _______

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 ___ ____ ______

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, ___

e.g., Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1331 (8th Cir. ____ _______ _________________

1995); Sweet, 913 F.2d at 270; Blanton v. Anzalone, 760 F.2d 989, _____ _______ ________


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992-93 (9th Cir. 1985); United States v. Mason Tenders Dist. ______________ ____________________

Council, 909 F. Supp. 891, 895 (S.D.N.Y. 1995). _______

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 ___ ____ _____

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. __

Counsel Fees Counsel Fees ____________

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


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plaintiffs. Instead, fee awards under ERISA are wholly

discretionary. See Gray, 792 F.2d at 259. ___ ____

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. ___ ___

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. ___ ____ _______________________

Cir. 1995) (collecting cases). The circuits agree that such

compendia are exemplary rather than exclusive. See id. at 206; ___ ___

Quesinberry, 987 F.2d at 1029. An inquiring court may indeed, ___________

should consider additional criteria that seem apropos in a

given case. See Anthuis, 971 F.2d at 1012. In a word, the test ___ _______

for granting or denying counsel fees in an ERISA case is

"flexible." Gray, 792 F.2d at 258. ____

1. Eschewing Presumptions. Several courts of appeals 1. Eschewing Presumptions. ______________________

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; ___ ____

Florence Nightingale Nursing Serv., Inc. v. Blue Cross/Blue ____________________________________________ _______________


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Shield, 41 F.3d 1476, 1485-86 (11th Cir.), cert. denied, 115 S. ______ _____ ______

Ct. 2002 (1995); McPherson v. Employees' Pension Plan of Am. Re- _________ __________________________________

Ins. Co., 33 F.3d 253, 254 (3d Cir. 1994); Custer v. Pan Am. Life ________ ______ ____________

Ins. Co., 12 F.3d 410, 422 (4th Cir. 1993); Armistead v. _________ _________

Vernitron Corp., 944 F.2d 1287, 1302 (6th Cir. 1991); Iron ________________ ____

Workers Local #272 v. Bowen, 624 F.2d 1255, 1265-66 (5th Cir. __________________ _____

1980); see also Note, Attorney's Fees Under ERISA: When Is an ___ ____ __________________________________________

Award Appropriate?, 71 Cornell L. Rev. 1037, 1049-55 (1986) ___________________

(arguing against a mandatory presumption). There is, however,

some conflicting authority. See Landro v. Glendenning Motorways, ___ ______ ______________________

Inc., 625 F.2d 1344, 1356 (8th Cir. 1980) (applying mandatory ____

presumption used under civil rights statutes in favor of

prevailing plaintiffs in ERISA cases); see also Bittner v. Sadoff ___ ____ _______ ______

& Rudoy Indus., 728 F.2d 820, 830 (7th Cir. 1984) (adapting ________________

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 ____
____________________

3We do not place Smith v. CMTA-IAM Pension Trust, 746 F.2d _____ ______________________
587 (9th Cir. 1984), in this category. Although Smith quotes _____
liberally from a civil rights case, see id. at 589, the opinion ___ ___
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 ___ ____
conclusion).

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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 ___ ____

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 ___ ___

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. _____________________

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


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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, ___ _________

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. ___ ____ _______

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 ___ _________

the capacity to pay, by itself, does not justify an award, see ___

Thorpe, 80 F.3d at 445; Tiemeyer v. Community Mut. Ins. Co., 8 ______ ________ ________________________

F.3d 1094, 1102 (6th Cir. 1993), cert. denied, 114 S. Ct. 1371 _____ ______

(1994); Quesinberry, 987 F.2d at 1030. Consequently, the ___________
____________________

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 ___ ________
the conduct which informed the lower court's assessment of
culpability).

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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 ___ ______

at 423.

Last but not least, we address the merits of the

underlying suit. We agree with the court below that the case






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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. ___ ____________

Secretary of the Army, 820 F.2d 513, 519 (1st Cir. 1987) _______________________

(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). ______ _______

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
____________________

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 ________
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. ___ ____
Pritzker, 38 F.3d 1239, 1244 n.5 (1st Cir. 1994); Lenn v. ________ ____
Portland Sch. Comm., 998 F.2d 1083, 1088 n.4 (1st Cir. 1993), so, ___________________
too, we are wary of a party's attempts to attach portentous
significance to an appellate court's use of isolated phraseology.

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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, ___ _____________________ ____

792 F.2d at 260.

III. III. ____

Conclusion Conclusion __________

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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