1994 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-22-1994

McPherson v. Emply'ees Pension Plan of Am. ReIns. Co.

Precedential or Non-Precedential:

Docket 93-5482

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Recommended Citation

"McPherson v. Emply'ees Pension Plan of Am. Re-Ins. Co." (1994). 1994 Decisions. Paper 121.

http://digitalcommons.law.villanova.edu/thirdcircuit_1994/121
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 

 N0. 93-5482 

 

 PAUL F. MCPHERSON 

 Appellant 

v. 

 EMPLOYEES' PENSION PLAN OF AMERICAN RE-INSURANCE COMPANY, INC.; 

 PENSION COMMITTEE OF EMPLOYEES' PENSION PLAN 

 

 On Appeal From the United States District Court 

 For the District of New Jersey 

 (D.C. Civil Action No. 90-05019) 

 

 Argued March 4, 1994 

 BEFORE: STAPLETON and SCIRICA, Circuit Judges, and 

 VAN ANTWERPEN, District Judge* 

 (Opinion Filed August 23, 1994) 

 

Earl M. Bennett (Argued) 

Glenn R. Gordon 

William T. Knox, IV 

HEROLD and HAINES 

25 Independence Boulevard 

Warren, New Jersey 07059 

Attorneys for Appellant 

Edward R. Gallion (Argued) 

Alexandre A. Montagu 

SULLIVAN & CROMWELL 

125 Broad Street 

New York, New York 10004 

Attorneys for Appellees 

 
* Honorable Franklin S. Van Antwerpen, United States District 

Judge for the Eastern District of Pennsylvania, sitting by 

 designation. 

 

 OPINION OF THE COURT

 

STAPLETON, Circuit Judge: 

 Attorneys' fees may be awarded to prevailing parties in 

actions brought under the Employee Retirement Income Security Act 

of 1974 ("ERISA"). The statute, however, provides no standard 

for a fee award, stating only that "the court in its discretion 

may allow a reasonable attorney's fee and costs of action." 29 

U.S.C. § 1132(g)(1). To guide district courts as they exercise 

their discretion in connection with such fee applications, we 

have set forth five factors that must be considered: 

 (1) the offending parties' culpability 

or bad faith; 

 (2) the ability of the offending parties 

to satisfy an award of attorneys' fees; 

 (3) the deterrent effect of an award of 

attorneys' fees against the offending 

parties; 

 (4) the benefit conferred on members of 

the pension plan as a whole; and 

 (5) the relative merits of the parties' 

position. 
Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir. 1983).1 We 

have further instructed that there is no presumption that a 

successful plaintiff in an ERISA suit should receive an award in 

the absence of exceptional circumstances. Ellison v. Shenango, 

Inc. Pension Bd., 956 F.2d 1268, 1273 (3d Cir. 1992). Finally, 

we have directed that a district court, when ruling on an 

application for attorneys' fees in an ERISA case, should 

articulate its analysis and conclusions as it considers each of 

the five Ursic factors. See Anthuis v. Colt Indus. Operating 

Corp., 971 F.2d 999, 1012 (3d Cir. 1992). This appeal requires 

us to further discuss the standard for awarding attorneys' fees 

in ERISA cases. 

I. 

 American Re-Insurance Company ("the Company") fired its 

comptroller, Paul F. McPherson, on July 29, 1983. McPherson's 

last day of work was August 12, 1983, although his salary and 

benefits continued through February 16, 1984. McPherson 

attributes his dismissal to personal differences with two senior 

executives. 

 McPherson had worked at the Company since 1959 and was 

a vested participant in the Employees' Pension Plan of American 

 

1. See also Anthuis v. Colt Indus. Operating Corp., 971 F.2d 

999, 1011 (3d Cir. 1992); Schake v. Colt Indus. Operating Corp. 

Severance Plan, 960 F.2d 1187, 1193 (3d Cir. 1992); Bell v. 

United Princeton Properties, Inc., 884 F.2d 713, 724-25 (3d Cir. 

1989); Monkelis v. Mobay Chemical, 827 F.2d 935, 936 (3d Cir. 

1987); Groves v. Modified Retirement Plan, 803 F.2d 109, 119-20 

(3d Cir. 1986). 
Re-Insurance Company ("the Plan"), a single-employer definedbenefit plan, which was qualified under 26 U.S.C. § 401(a). 

McPherson had various options for receiving his Plan benefits, 

among which was a lump-sum distribution of $182,837 when he 

turned 55 on January 8, 1987. Lump-sum distributions needed the 

approval of the Pension Committee of Employees' Pension Plan 

("the Committee"), which was required by § 6.4 of the Plan to 

evaluate requests in "a uniform and nondiscriminatory manner." 

 McPherson wrote a letter to a member of the Committee 

in October 1986, in which he asked whether "the lump sum option 

is available to me." McPherson was told in a letter dated 

November 5, 1986, that "a lump sum is available to eligible 

participants" and that "[e]ligibility includes proof of good 

health, financial stability, etc." McPherson wrote back on 

December 11, 1986, offering to provide any necessary information. 

A Committee member sent a letter to McPherson on December 29, 

1986, which specified the proof of health and financial stability 

that the Committee would require, but cautioned "that a lump sum 

benefit has never been granted to anyone under the age of sixtytwo." McPherson submitted the requested documentation to the 

Committee on January 19, 1987. 

 McPherson's request to the Committee for a lump-sum 

distribution was the tenth since 1974; the Committee had approved 

the nine others. In considering the nine previous requests for 

lump-sum distributions, the Committee had sometimes looked to two 

criteria: good health and financial stability on the part of the 

applicant. The good health requirement was said to be designed 
to prevent a selection pattern that might undermine the financial 

stability of the Plan -- a pattern in which terminally ill 

participants would request distributions on their deathbeds while 

healthy participants would not request distributions and continue 

to receive benefits throughout their lengthy retirements. The 

financial stability requirement aimed to ensure that 

beneficiaries had sufficient sophistication to manage a lump-sum 

distribution. 

 The Committee informed McPherson in a letter dated 

April 10, 1987, that it had denied his request for a lump-sum 

distribution. The Committee explained that "lump sum benefits 

will only be granted to those qualified participants at the time 

of retirement from active employment," and McPherson was thus 

ineligible because he still held the job that he had taken after 

the Company fired him in 1983. 

 McPherson renewed his request for a lump-sum 

distribution on June 29, 1990. The Committee denied his request 

on October 23, 1990, saying that lump-sum distributions were 

available only to employees who retired directly from the Company 

when they were older than 55. 

 McPherson brought suit in district court under ERISA 

against the Plan and the Committee to obtain a lump-sum 

distribution on December 18, 1990, and was granted summary 

judgment on October 16, 1992. The district court concluded that 

the denial of McPherson's request for a lump-sum distribution was 

"arbitrary and capricious" and not "supported by a rational 

explanation." As the district court later wrote: 
 [D]efendants. . . provided [the court 

with] essentially three reasons for the 

Committee's decision denying . . . plaintiff 

from receiving lump sum benefit payments 

. . . : (1) the potentially destabilizing 

effect on Plan assets; (2) . . . allowing 

more employees to receive lump sums would 

undermine the Plan's investment strategy; and 

(3) . . . allowing "non-retiring" employees 

to receive their benefits in lump sums would 

contravene the primary purpose of the Plan 

which was to provide post-retirement income. 

 Th[is] Court concluded that the 

Committee's concerns regarding the Plan's 

solvency and investment strategy were 

unsupported when viewing the overall size and 

financial soundness of the Plan. Th[is] 

Court also found that the Committee's goal of 

providing post-retirement income would not be 

undermined by providing lump sum benefits to 

retirement aged participants who had left the 

company earlier in their careers. 

 

 McPherson sought attorney's fees and costs. After 

setting forth the five Ursic factors, the district court denied 

McPherson's motion with the following comments: 

 There is no indication that the 

Committee acted in bad faith in denying 

plaintiff's lump sum benefit request, thus 

there appears to be no need to deter such 

conduct by defendants. Although the Court's 

inquiry into the Committee's decision-making 

process revealed that its decision was 

unsupported by the record, that inquiry did 

not reveal any sinister motive which led to 

the Committee's improper determination. 

 It also appears that plaintiff's success 

was neither intended to benefit other Plan 

members, nor will it do so in the future. 

Subsequent to plaintiff requesting a lump sum 

benefit, the section of the Plan governing 

lump sum payments was amended, thus (1) 

restricting lump sum payments to employees 

who "retire directly" from the Company . . .; 
and (2) removing the discretion of the 

Committee to approve or reject such requests. 

 Furthermore, the Committee's decision, 

made in response to a novel situation, was 

not so clearly lacking in merit to warrant 

the imposition of fees. 

 Although it is clear that defendants 

could easily pay plaintiff's attorneys' fees, 

that lone factor does not justify such an 

award. 

The district court thus concluded that the sole Ursic factor 

favoring an award was the ability of the defendants to pay; the 

other fours factors counseled against an award. 

 McPherson now appeals. Subject matter jurisdiction 

exists under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e) and 

appellate jurisdiction under 28 U.S.C. § 1291. "An award of 

. . . attorneys' fees to a prevailing plaintiff in an ERISA case 

is within the discretion of the district court and may only be 

reversed for abuse of discretion." Schake v. Colt Indus. 

Operating Corp. Severance Plan, 960 F.2d 1187, 1190 (3d Cir. 

1992). "Our review of the legal standards a district court 

applies in the exercise of its discretion is, however, plenary." 

Ellison v. Shenango Inc. Pension Bd., 956 F.2d 1268, 1273 (3d 

Cir. 1992). 

II. 

 Both McPherson and the Plan agree that the second Ursic

factor -- "the ability of the offending parties to satisfy an 

award of attorneys' fees" -- favors an award. As for the fourth 

Ursic factor -- "the benefits conferred on members of the pension 
plan as a whole" -- the district court quite properly regarded 

this factor as weighing against McPherson. The fourth factor 

requires consideration of the benefit, if any, that is conferred 

on others by the court's judgment. Before McPherson began his 

lawsuit, the Plan was amended to limit lump-sum distributions to 

participants who retired directly from the Company and to 

eliminate the Committee's discretion to approve or deny lump-sum 

distributions. McPherson's suit thus held out no possibility of 

benefit to other similarly situated Plan members because there 

were, and would be, no other similarly situated Plan members. 

III. 

 We thus find no fault with respect to the district 

court's application of the second and fourth Ursic factors. 

There is an error of law, however, that infects the remainder of 

the district court's analysis. As we read the district court's 

comments, they appear to reflect a view that the first, third, 

and fifth factors cannot favor an award in the absence of a 

finding that the defendants have acted with a "sinister motive," 

i.e., that they have acted in "bad faith." We conclude that this 

view is inconsistent with the analysis contemplated by Ursic and 

that a proper Ursic analysis in this case might result in an 

award to McPherson. 

 The district court concluded that the first Ursic

factor -- "the offending parties' culpability or bad faith" -- 

did not favor an award of attorneys' fees because "[t]here is no 

indication that the Committee acted in bad faith in denying 
plaintiff's lump sum benefit request." McPherson insists that 

the district court applied an incorrect legal standard: under 

Ursic, attorneys' fees may be awarded where there was 

"culpability or bad faith," but the district court only 

considered whether there was bad faith. We agree. 

 The first Ursic factor favors an award to the 

prevailing party not only in cases involving "bad faith" but in 

other cases as well. As the district court recognized, bad faith 

normally connotes an ulterior motive or sinister purpose. Ford 

v. Temple Hosp., 790 F.2d 342, 347 (3d Cir. 1986). A losing 

party may be culpable, however, without having acted with an 

ulterior motive. In a civil context, culpable conduct is 

commonly understood to mean conduct that is "blameable; 

censurable; . . . at fault; involving the breach of a legal duty 

or the commission of a fault. . . . Such conduct normally 

involves something more than simple negligence. . . . [On the 

other hand, it] implies that the act or conduct spoken of is 

reprehensible or wrong, but not that it involves malice or a 

guilty purpose." Black's Law Dictionary (6th ed. 1990). Thus, 

in Vintilla v. United States Steel Corp. Plan, 642 F. Supp. 295, 

296-97 (W.D. Pa. 1986), aff'd, 815 F.2d 697 (3d Cir. 1987), cert. 

denied, 484 U.S. 847 (1987), for example, the court concluded 

with respect to the first Ursic factor: "While we cannot ascribe 

bad faith to plaintiffs' efforts, we do find certain elements of 

culpability attributable to plaintiffs." Indeed, this court in 

Groves v. Modified Retirement Plan, Inc., 803 F.2d 109 (3d Cir. 

1986), found an award of counsel fees to be appropriate in an 
ERISA case without finding that the defendants had acted with an 

ulterior or sinister purpose. 

 A party is not culpable merely because it has taken a 

position that did not prevail in litigation. Nevertheless, if 

the district court in this case had asked both whether the 

Committee had acted in bad faith and whether it had acted with 

culpability, we believe it might have concluded that the first 

prong of Ursic favored an award to McPherson. 

 Two members of the Committee testified in depositions 

that they denied McPherson's lump-sum distribution because they 

feared that it would threaten the Plan's financial stability. If 

this testimony did not reflect bad faith, it at least reflected a 

breach of the Committee's fiduciary duty to remain informed 

concerning the financial condition of the Plan. The Plan in fact 

was overfunded and easily could have accommodated McPherson's 

request and the requests of others similarly situated. As the 

district court found: 

 [A]t the end of 1987, the year plaintiff's 

initial request was rejected, the total 

accrued benefits owed to all participants was 

$17,940,000, while the Plan's assets stood at 

$43,782,134. Indeed, when plaintiff 

submitted his lump sum request during 1987 

his $182,382 benefit amount constituted only 

.53% of the Plan's assets as of the beginning 

of the year. As for the potential for paying 

other lump sums to similarly situated 

participants, the Plan could have immediately 

paid lump sums to all vested terminated 

participants, whether or not they had reached 

age 55, and used less than one-half of the 

Plan's $2,524,941 of interest and dividend 

income for 1990 or about 2.7% of the Plan's 

assets. 
 The Committee also misrepresented to McPherson its past 

experience with applications for lump-sum distributions. In a 

letter dated December 29, 1986, McPherson was told that "a lumpsum benefit has never been granted to anyone under the age of 

sixty-two"; the district court found that two plan participants 

had received lump-sum distributions when they were 58. In a 

letter dated April 10, 1987, McPherson was informed that "lump 

sum benefits will only be granted to those qualified participants 

at the time of retirement from active employment"; in 1984, the 

Committee approved a lump-sum distribution to a participant who 

had left the Company for another job. 

 One Committee member attributed his opposition to 

McPherson's request to the Plan's terms, which he incorrectly 

understood to ban lump-sum distributions to participants who had 

not retired. Although § 6.2 of the Plan required the Committee 

to evaluate requests for lump-sum distributions in "a uniform and 

nondiscriminatory manner," a Committee member admitted in a 

deposition that the Committee had no written rules on lump-sum 

distributions and sometimes used different criteria to evaluate 

requests for lump-sum distributions. Three Committee members 

admitted in deposition that they were hostile to all lump-sum 

distributions, despite the Plan's explicit provision for them. 

All but one Committee member who participated in the 1987 

decision to deny McPherson's request did not vote in person or 

send a written proxy, as § 9.2 of the Plan required. After the 

Committee denied McPherson a lump sum distribution in 1987, it 

failed to inform him of his right to appeal, as 29 U.S.C. § 1133 
required. All members of the Committee had a fiduciary duty to 

be aware of the provisions of the Plan and to administer it in 

accordance with its terms. 

 Finally, we note that this case does not appear to 

involve a simple lapse of judgment or care on the part of the 

defendants. McPherson's two requests for lump-sum distributions 

and his lawsuit provided the defendants with repeated 

opportunities over a six year period to formulate and reevaluate 

their position in light of the terms of the Plan and its 

financial condition. Each opportunity, however, appears to have 

produced nothing more than new rationales for their ultimately 

unsustainable conclusion. Considerable evidence, then, suggests 

that the defendants may have been guilty of culpable conduct when 

they repeatedly denied McPherson's request for a lump-sum 

distribution. If so, the first Ursic factor weighs to some 

degree in favor of an award of attorneys' fees. The weight to be 

given this factor in the overall Ursic analysis will, of course, 

depend on the district court's appraisal of how wrongful any 

culpable conduct was. 
 IV. 

 A similar difficulty exists with the district court's 

analysis of the third Ursic factor -- "the deterrent effect of an 

award of attorneys' fees against the offending party." The 

district court concluded that "there appears to be no need to 

deter such conduct by the defendants" because "[t]here is no 

indication that the Committee acted in bad faith." We find this 

reasoning flawed. 

 We believe it will further the objectives of ERISA if 

fee awards are employed to deter behavior that falls short of bad 

faith conduct. See Kann v. Keystone Resources, Inc. Profit 

Sharing Plan, 575 F. Supp. 1084, 1096-97 (W.D.Pa. 1983) (in case 

in which "culpability . . . has been shown," fee award will make 

plan "less likely and not so quick to deny benefits to other 

participants" and thus be "a deterrent factor"). Even if the 

Committee did not act in bad faith, the district court should 

have considered whether it would serve the objectives of ERISA to 

award counsel fees in an effort to deter conduct of the kind in 

which the Committee engaged. 

 The district court's failure to distinguish between 

culpability and bad faith also may have affected its analysis of 

the fifth Ursic factor -- "the relative merits of the parties' 

positions." The district court opinion can be read to reflect a 

view that the fifth Ursic factor weighs in favor of an award only 

in those situations where the positions taken by the defendants 

in the litigation have been so meritless as to evidence bad 

faith. As with the first Ursic factor, the fact that the 
defendants' positions have not been sustained does not alone put 

the fifth factor in the column favoring an award. Nevertheless, 

we believe there will be cases in which the relative merits of 

the positions of the parties will support an award even in the 

absence of bad faith litigating. 

V. 

 We express no opinion as to whether attorneys' fees 

should be awarded to McPherson. That will be for the district 

court to decide on remand based upon the sound exercise of its 

discretion. We hold only that the district court used an 

incorrect legal standard to evaluate McPherson's request for 

attorneys' fees. When analyzing the first Ursic factor, it 

considered only whether the defendants acted in bad faith, not 

whether they acted culpably, and, if so, what was the degree of 

their culpability. Similar misunderstandings appear to have 

infected the district court's analysis of the deterrent effect of 

an award of attorneys' fees and its evaluation of the relative 

merits of the parties' positions. 

 We will reverse the district court's order denying 

attorneys' fees and costs and will remand for further proceedings 

consistent with this opinion.