In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 07-4023

JEAN MCCARTER, et al.,

Plaintiffs-Appellants,

v.

RETIREMENT PLAN FOR THE DISTRICT MANAGERS OF THE

AMERICAN FAMILY INSURANCE GROUP, et al.,

Defendants-Appellees.

____________

Appeal from the United States District Court

for the Western District of Wisconsin.

No. 3:07-cv-00206-bbc—Barbara B. Crabb, Chief Judge.

____________

ARGUED MAY 28, 2008—DECIDED SEPTEMBER 2, 2008

____________

Before EASTERBROOK, Chief Judge, and RIPPLE and

WOOD, Circuit Judges.

EASTERBROOK, Chief Judge. American Family Insurance

Group amended its pension plans in 1997 to allow participants to elect cash distributions (with values actuarially

equal to the participants’ vested pensions) when they

leave its employ. As amended, the plans give workers

90 days to choose whether to take lump sums immedi-
2 No. 07-4023

ately or annuities when they reach retirement age. Plaintiffs exercised the lump-sum option. Now they regret

their decisions and say that the plans should have let

them defer the choice until normal retirement age. Allowing only 90 days makes people too likely to accept cash,

plaintiffs maintain. Although a lump-sum distribution

must be rolled over into another pension investment, it

can be withdrawn and spent (after a tax penalty has been

paid), leaving people with less income at retirement age.

Plaintiffs believe that they are entitled to choose

again—and, even if they have dissipated the money

they received, that they remain entitled to an annuity

once they reach retirement age.

None of the plaintiffs is willing to restore the cash to

the pension plan. This led the district court to dismiss

the suit for want of standing. The plaintiffs got what

they asked for (immediate distribution) and can’t complain about the lack of a windfall (the value of the

pension twice: once in cash and again as an annuity). But

if the Employee Retirement Income Security Act (ERISA)

entitles them to revoke their elections yet keep the cash,

it is not appropriate to dismiss the suit for lack of a case

or controversy. Pension plans may distribute their benefits as lump sums only with participants’ consent,

29 U.S.C. §1053(e)(1), and plaintiffs maintain that their

consents are void because they should have had more time

to choose. The injury they assert—that monthly income

at retirement age is diminished if participants are stampeded into taking cash, which then burns holes in their

pockets—can be traced to the plans’ terms and can be

redressed by a judgment in plaintiffs’ favor. No more is
No. 07-4023 3

required for standing. See Lujan v. Defenders of Wildlife, 504

U.S. 555, 560–61 (1992). Plaintiffs’ claim may be weak, but

the shortcomings of a legal theory differ from a lack of

subject-matter jurisdiction. Bell v. Hood, 327 U.S. 678 (1946).

American Family tells us that it gives departing employees only 90 days to choose because an indefinitely long

window would lead to adverse selection. Ex-employees

would be tempted to wait to see how their health and

family circumstances developed. Those whose health

deteriorated would take the lump-sum option, because

income deferred past death is useless (you can’t take it

with you) unless the participant wants to make a bequest;

likewise those without a spouse or children would take

the cash and buy an annuity that lacked survivorship

features and thus paid a higher monthly benefit. Meanwhile healthy ex-workers, and those with large families,

would take the pension option. A pension plan with

longer-lived participants, or more than the average

number of people eligible for survivors’ benefits, is more

expensive to maintain. Giving ex-workers a short time

to elect between cash and an annuity reduces the opportunity for strategic behavior that is costly not only for

the plan but also for other participants, whose benefit

levels must be cut if the employer wants to keep pension

costs stable. (This also shows another reason why plaintiffs suffered injury in fact: a lump-sum option open for

a brief time is worth less to the participant than an option

that is always available and can be exercised at a well

chosen moment.)

Plaintiffs do not deny that adverse selection is the likely

outcome of a long window. But they say that the cost
4 No. 07-4023

to the employer is irrelevant under 26 C.F.R.

§1.411(a)–11(c)(2)(i), which they read to provide that no

pension plan may impose a “significant detriment” on

a participant who declines the opportunity for a cash

distribution. This is the language on which plaintiffs rely:

No consent [to immediate distribution of a lump

sum] is valid unless the participant has received a

general description of the material features of the

optional forms of benefit available under the

plan. In addition, so long as a benefit is immediately distributable, a participant must be informed

of the right, if any, to defer receipt of the distribution. Furthermore, consent is not valid if a significant detriment is imposed under the plan on any

participant who does not consent to a distribution.

Whether or not a significant detriment is imposed

shall be determined by the Commissioner by

examining the particular facts and circumstances.

This regulation does not help plaintiffs, for two principal reasons.

First, although subsection (c)(2)(i) when read alone

sounds like a substantive regulation of pension plans, the

context shows otherwise. This is a tax regulation, and it

defines whether a pension plan is qualified for favorable

tax treatment (principally deferral of income tax on the

value of pension contributions). Subsection 1.411(a)–11(a)

sets out the consequence of failure to satisfy the requirements in the other subsections: “If the consent requirements or the valuation rules of this section are not satisfied, the plan fails to satisfy the requirements of [26
No. 07-4023 5

U.S.C. §411(a)].” Section 411 spells out which plans are

“qualified trusts” meeting the standards of 26 U.S.C. §401

for tax deferral. Plaintiffs equate “not tax-qualified” with

“not lawful,” but there’s no basis for thinking that only

those pension plans eligible for tax benefits are lawful

under ERISA. See Brengettsy v. LTV Steel Hourly Pension Plan,

241 F.3d 609 (7th Cir. 2001). Many pension plans provide

benefits exceeding the maximum on which taxes can be

deferred, and so are not tax-qualified, but are perfectly

lawful; likewise top-heavy plans (those that provide

extra benefits to workers with higher incomes) may be

ineligible for tax deferral but satisfy all of ERISA’s substantive rules.

Second, even if §1.411(a)–11(c)(2)(i) established substantive requirements, it would not entitle plaintiffs to

relief. They want us to treat the need to make a prompt

choice as a “significant detriment”. That can’t be so;

subsection (c)(2)(i) says that the participant must be

informed of “the right, if any, to defer receipt of the distribution” (emphasis added), which must mean the lack of

a right to defer receipt of cash is not itself a “significant

detriment”.

Having a limited time to choose cash does not diminish

the value of a pension. Until 1997 employees who left

American Family were not entitled to lump-sum distributions; they had to wait for an annuity to commence at

retirement age. When the option to take a cash distribution was added in 1997, the value of the annuity was

unchanged. Adding a lump-sum option to an existing

(and entirely lawful) pension annuity does not create a
6 No. 07-4023

“detriment” of any kind; it bestows a benefit by making

the package of options more valuable. Participants do not

lose anything (other than the opportunity to receive an

immediate distribution) by turning down the lumpsum offer.

Pension and welfare plans often contain limited-time

opportunities. Think of an opportunity to take early

retirement. That offer would be worth more if held open

for a longer time, but extending an offer with a short

fuse does not diminish the value of the regular pension

benefit or otherwise make the choice involuntary. As

we concluded in Henn v. National Geographic Society,

819 F.2d 824 (7th Cir. 1987), an offer that increases employees’ opportunities—the sort of offer that they would

pay to receive, rather than pay to avoid—is lawful, and

the choice is binding even if with the benefit of hindsight

the employee would have made a different election.

No more need be said about the merits, but a procedural

complication remains. After dismissing the suit, the district

court ordered plaintiffs to pay the plans’ legal fees. The

judge relied on 29 U.S.C. §1132(g), which allows feeshifting in ERISA actions when the loser’s position was

not substantially justified. (The statute itself is silent on

the standard; we borrowed “substantially justified” from

the Equal Access to Justice Act. See Bittner v. Sadoff &

Rudoy Industries, 728 F.2d 820, 828–31 (7th Cir. 1984).)

Plaintiffs want us to reverse this decision. The district

court has not, however, quantified the award, and until

it does the decision is not final. See, e.g., Riley v. Kennedy,

128 S. Ct. 1970, 1980–81 (2008); Liberty Mutual Insurance

Co. v. Wetzel, 424 U.S. 737 (1976).
No. 07-4023 7

When raising this subject on appeal, plaintiffs assumed

that awards of attorneys’ fees are covered by a single

notice of appeal from the final decision on the merits.

The Supreme Court held otherwise in White v. New Hampshire Department of Employment Security, 455 U.S. 445 (1982),

concluding that awards of attorneys’ fees under feeshifting statutes are separate decisions, separately

appealable just like awards of costs. The Court reached

this conclusion in part to prevent disputes about the

timeliness of appeals and in part so that lingering controversy about attorneys’ fees would not delay appellate resolution of the merits, which otherwise would

have to wait for the fees to be quantified. But the upshot

of White’s approach is that decisions on the merits and

decisions about attorneys’ fees are treated as separate

final decisions, which must be covered by separate

notices of appeal—each filed after the subject has independently become “final.” Amendments to the Federal

Rules of Civil Procedure after White fortified the distinction between a final decision on the merits and a final

decision on attorneys’ fees (or costs). See Fed. R. Civ. P.

54(d)(2), 58(e). This is why we have been able to address

the merits of plaintiffs’ appeal even though the case

remains live in the district court until the judge has told

plaintiffs how much they must pay toward the plans’ legal

expenses. And it is also why we cannot reach that

dispute—not only because the decision about fees is not

final, but also because plaintiffs have not filed a notice

of appeal concerning that decision. (A timely notice of

appeal is a jurisdictional requirement. Bowles v. Russell,

127 S. Ct. 2360 (2007).)
8 No. 07-4023

Twenty-four years ago, we concluded in Bittner that

“pendent appellate jurisdiction” permits a court of

appeals to review a district court’s decision to award

attorneys’ fees to a prevailing party, even when the

fees have not been quantified and the award thus is not

final. 728 F.2d at 826–27. About a decade after Bittner,

however, the Supreme Court threw cold water on pendent

appellate jurisdiction. The Court observed in Swint v.

Chambers County Commission, 514 U.S. 35, 43–51 (1995), that

resolving appeals from non-final decisions is not only

incompatible with 28 U.S.C. §1291 but also unnecessary,

because Congress has authorized the judiciary to adopt

rules allowing interlocutory appeals. 28 U.S.C. §1292(e).

Swint pointedly remarked that these rules must be

adopted after public notice and comment, and approval

by the Judicial Conference and the Supreme Court: in

other words, that the subject has been taken out of the

hands of the intermediate appellate courts in the federal

system. Although Swint said that it was not ruling out

all possibility of pendent appellate jurisdiction, the

Court made clear that only the most extraordinary circumstances could justify the use of whatever power the

courts of appeals possess—and that even when circumstances are exceptional the availability of pendent appellate jurisdiction is doubtful. Swint itself held that a court

of appeals had erred in invoking pendent appellate

jurisdiction, because “judicial economy” is no warrant

for disregarding the statutory final-decision rule.

Swint supersedes Bittner, because there is nothing

extraordinary about a losing party’s desire to be rid of a fee

award before the obligation has been set. There is no

urgent need for haste, and a substantial reason to wait—for
No. 07-4023 9

most awards are likely to be affirmed, and then a second

appeal will follow from the district judge’s order specifying the amount of fees. Judicial economy cannot be

achieved by dividing one dispute across two appeals.

All that results from multiple appeals is delay and expense.

That’s precisely why appeal usually must await a final

decision.

Yet although Swint pulled the rug out from under

Bittner (as did the 1993 amendments to Rules 54 and 58

specifying that the merits and awards of attorneys’ fees

are separately appealable decisions), our circuit has

proceeded as if nothing had happened. At least two of our

post-Swint opinions invoke the doctrine of pendent

appellate jurisdiction to review awards of attorneys’ fees

before the district judge had decided how much was

due. See Lorillard Tobacco Co. v. A&E Oil, Inc., 503 F.3d 588

(7th Cir. 2007); Kokomo Tube Co. v. Dayton Equipment

Services Co., 123 F.3d 616, 621–22 (7th Cir. 1997). Neither

of these decisions mentions Swint; they proceed as if

Bittner were the last word.

Even before Swint, four courts of appeals had disagreed

with Bittner and held that appellate resolution must be

postponed until the amount of fees has been quantified.

See Cooper v. Salomon Brothers Inc., 1 F.3d 82, 84–85 (2d Cir.

1993); Pennsylvania v. Flaherty, 983 F.2d 1267, 1275–77 (3d

Cir. 1993); Southern Travel Club, Inc. v. Carnival Air Lines,

Inc., 986 F.2d 125, 129–31 (5th Cir. 1993); In re Modern

Textile, Inc., 900 F.2d 1184, 1192 (8th Cir. 1990). After Swint,

another circuit joined this group. American Soda, LLP v.

U.S. Filter Wastewater Group, Inc., 428 F.3d 921 (10th Cir.

2005). And although before Swint two circuits had fol-
10 No. 07-4023

lowed Bittner, see Andrews v. Employees’ Retirement Plan of

First Alabama Bancshares, Inc., 938 F.2d 1245, 1247–48 & n.6

(11th Cir. 1991); Morgan v. Union Metal Manufacturing, 757

F.2d 792, 795–96 (6th Cir. 1985) (dictum), neither of these

circuits has entertained a fee appeal under the approach

of pendent appellate jurisdiction after Swint. Indeed, as

far as we can see, no decision outside this circuit has

invoked pendent appellate jurisdiction since Swint to

entertain an appeal from an un-quantified award of attorneys’ fees. This circuit now stands alone.

Bittner preceded Swint and cannot be faulted for failing

to anticipate how the Supreme Court would approach

this subject. Now that the Justices have spoken, however,

we are not justified in adhering to an approach that

perpetuates an unnecessary conflict among the circuits.

The portions of Bittner, Kokomo Tube, and Lorillard Tobacco

that invoked pendent appellate jurisdiction are overruled. An appeal may be taken from an award of attorneys’

fees only after that award is independently final—which

means, after the district judge had decided how much

must be paid. This decision was circulated to all active

judges under Circuit Rule 40(e). No judge favored a

hearing en banc.

The district court’s decision is modified to be on the

merits (as opposed to a dismissal for lack of standing), and

as so modified is affirmed. The appeal is dismissed to the

extent it seeks review of the non-final decision that plaintiffs must reimburse the defendants’ attorneys’ fees.

9-2-08