Court Opinion

ID: 2996294
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:27:14.229769+00
Date Added: 2024-06-11T12:48:06.106573
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

Nos. 02-2765 & 02-3871
RICHARD B. HELFRICH and DANIEL B. NELSON,
                                         Plaintiffs-Appellants,
                               v.

CARLE CLINIC ASSOCIATION, P.C.,
                                           Defendant-Appellee.
                        ____________
          Appeals from the United States District Court
                for the Central District of Illinois.
          No. 99-2232—Michael P. McCuskey, Judge.
                        ____________
      ARGUED APRIL 18, 2003—DECIDED MAY 12, 2003
                     ____________

 Before EASTERBROOK, KANNE, and DIANE P. WOOD, Circuit
Judges.
  EASTERBROOK, Circuit Judge. Carle Clinic Association
claims to be one of the nation’s largest medical-prac-
tice groups. See . Together with the
Carle Foundation, it operates several clinics plus the
hospital affiliated with the University of Illinois in
Urbana-Champaign. Carle promised employees (includ-
ing physicians) a pension that could be as large as 50%
of average earnings. Doctors Richard Helfrich and Daniel
Nelson learned to their dismay, however, that the total
annual pension under Carle’s defined-benefit plan cannot
exceed $160,000. Paying more would cost the plan its “tax-
2                                   Nos. 02-2765 & 02-3871

qualified” status, which allows Carle to deduct pension
expenses and employees to defer until retirement all taxes
on the value of this fringe benefit. See 26 U.S.C. §§ 401(a),
415. The cap changes with the cost of living; $160,000
is close enough for current purposes. It is less than the
pension that Helfrich and Nelson believed had been prom-
ised, and when the plan refused to pay more they filed
this suit under §502(a) of the Employee Retirement In-
come Security Act, 29 U.S.C. §1132(a). Observing that the
plan’s terms explicitly restrict payouts to a level consistent
with retaining tax advantages, the district court granted
summary judgment for Carle. Later it ordered plaintiffs to
reimburse Carle for the legal expense it had incurred in
defending the suit.
  Plaintiffs’ principal contention on appeal is that summa-
ries Carle handed out to its employees override the terms
of the plan. Every pension plan must publish a summary
plan description, and conflicts between this document
and the plan itself are resolved in favor of the summary
plan description (unless it alerts the reader to look for
additional terms in the full plan). See, e.g., Mathews v.
Sears Pension Plan, 144 F.3d 461, 466 (7th Cir. 1998).
Plaintiffs want us to extend this rule to other descriptive
material. They did not make such an argument in the
district court (relying there on estoppel, which we discuss
below); and plaintiffs’ argument, like this whole suit,
reflects confusion between the employer and the plan,
which under ERISA is a separate trust. Plans can control
the contents of summary plan descriptions, which they
prepare (with, one hopes, a degree of care appropriate to
the reliance they engender and the legal consequences
they carry). Plans cannot control what miscellaneous
recruiters and personnel managers may say, nor does even
a large employer’s human-resources staff draft descriptions
with the precision that the plan itself will do—for the
employer knows that its staff can refer to the summary
Nos. 02-2765 & 02-3871                                    3

plan description. Because ERISA requires plans to prepare
summary plan descriptions, and because their content is
within the plan’s control, it makes sense to give these
documents legal effect when relied on. Employer-prepared
summaries, by contrast, have no footing in ERISA and could
not be enforced against the plan without disregarding the
boundary between two distinct entities: the plan and the
employer. Blurring that line is what plaintiffs hope to
achieve, and they have taken their own view to heart by
suing only the employer. Claims based on the plan (or the
summary plan description) must be enforced against the
plan, which is not a party. Yet Carle makes nothing of
this omission, and §1132(a) does not make federal jurisdic-
tion depend on the plan’s inclusion as a defendant. It is
enough if the plaintiff is a plan participant and makes
a claim for benefits. Still, plaintiffs’ decision not to sue
the plan reveals their working assumption that the plan
and the employer are indistinguishable. ERISA does not
operate that way.
  One summary plan description is in the record. This
document, dated October 1996, is 21 single-spaced pages.
It fully describes the cap required by statute as a condi-
tion of tax deferral. The three documents that plaintiffs
call “summaries” do not look remotely like summary
plan descriptions and must have been prepared by Carle
rather than by the plan. “Summary I” is a single-page
handout; “Summary II” is a brochure that covers all
of Carle’s fringe benefits in the equivalent of two letter-
sized pages; and “Summary III,” a section of Carle’s em-
ployee handbook, though longer (at 15 pages), covers many
topics in addition to the pension formula. None of the three
summaries alerts employees to the $160,000 cap on tax-
qualified plans, most likely because the latest of the three
dates from 1981. Ever since ERISA’s enactment in 1976, the
Carle plan has provided that benefits will not exceed what
tax-qualified plans can provide. Congress amended the
4                                   Nos. 02-2765 & 02-3871

Internal Revenue Code in 1986 to create the limit (origi-
nally $90,000 but lifted to $160,000 under a formula
enacted in 1991), and pre-1986 brochures were unlikely
to describe future legislation.
  Now if a summary plan description from 1981 had
omitted mention of a rule (the plan’s provision that no
benefit costing the plan its tax-qualified status would
be paid) that had a potential to curtail retirement in-
come, plaintiffs might have a better position. But the rec-
ord does not contain any summary plan description preced-
ing 1996. Plaintiffs complained at oral argument that
the district court had blocked their discovery into this
subject, but counsel admitted that he had not sought
documents of this kind. Instead plaintiffs noticed several
depositions of plan officials, and the district judge stopped
this process as burdensome because nothing that any
plan official could say about the handling of Helfrich’s or
Nelson’s demands for larger pensions would affect the
proper disposition of the suit, which depends on the
validity of the plan itself. Plaintiffs’ counsel then earned
the district judge’s enmity by noticing another set of
depositions, showing that he would do what he could to
evade the judge’s ruling. The judge did not abuse his
discretion in curtailing plaintiffs’ efforts to take deposi-
tions; and plaintiffs did not seek production of the kind
of documents that could assist them (or serve requests
for admissions about the nature and contents of earlier
summary plan descriptions). Maybe counsel knew that
there is no helpful document waiting to be found; Helfrich
was for a time chairman of Carle’s board and a member
of its pension committee, so his files may well contain
whatever relevant documents the plan distributed.
  So the rule that summary plan descriptions, if relied
on, trump the plan itself does not assist plaintiffs. And,
as we have concluded that this rule should not be ex-
tended to documents prepared by the employer, it follows
Nos. 02-2765 & 02-3871                                      5

that the same contention under the banner of “estoppel”
fares no better. The doctrine that the summary plan
description prevails over the plan is a form of estoppel;
to establish the limits of this doctrine is to establish
the limits of estoppel. No matter what label applies, doc-
uments prepared by an employer do not supersede those
documents that establish the terms of a pension plan.
Whether, and to what extent, estoppel is available with
respect to welfare benefit plans under ERISA is an issue
on which the judiciary has not come to rest, compare
Frahm v. Equitable Life Assurance Society, 137 F.3d 955,
961 (7th Cir. 1998), with Shields v. Teamsters Pension
Plan, 188 F.3d 895 (7th Cir. 1999), but with respect to
pension plans (which by statute must be very formal) the
only variance that any court has allowed depends on the
plan’s own writings, such as summary plan descriptions.
See, e.g., Downs v. World Color Press, 214 F.3d 802, 805-06
(7th Cir. 2000); Krawczyk v. Harnischfeger Corp., 41 F.3d
276, 280 (7th Cir. 1994); Shields, 188 F.3d at 900 n.3. And
we cannot imagine a good claim of estoppel that would
require a plan to forfeit the tax benefits on which its
actuarial soundness relies. Plaintiffs’ position, if accepted,
would cost Carle, their co-workers, and themselves consid-
erable sums in taxes. Helfrich estimated before the case
began that, under his position, Carle would need to con-
tribute about $20 million extra to the plan; Carle also
would lose tax deductability of past and future contribu-
tions, costing it (and thus its physician-owners) millions
more. It is unclear whether plaintiffs would be winners;
that depends on whether the increase in pension benefits
would be enough to cover their tax obligations. Most other
current and former Carle employees—those not affected
by the cap because their annual earnings were less than
$320,000—would be certain to lose because they would
suffer tax consequences without offsetting gains. Overrid-
ing the plan’s terms to achieve that dubious end is not a
proper function of an equitable doctrine.
6                                   Nos. 02-2765 & 02-3871

  One might imagine an argument that, although the
existing plan must respect the statutory rules for main-
taining tax benefits, Carle should be obliged to create
another plan that is not tax-qualified and brings pensions
up to the promised level. Cf. Bartholet v. Reishauer A.G.
(Zürich), 953 F.2d 1073 (7th Cir. 1992). Yet although
plaintiffs hint at such an argument they do not make it
expressly—perhaps because it has no footing in the three
“summaries” on which they rely. These documents describe
two plans: the non-contributory defined-benefit plan at
issue here, and a defined-contribution plan in which
employees could elect to participate. An argument for
creating still a third plan, limited to Carle’s best-paid
physicians, has no support in the documentation. Moreover,
because plaintiffs have not made this argument explicit,
Carle was not put on notice of the need to discuss its
effects. Would such a plan limited to well-paid employees
jeopardize the tax benefits for the rest? Would it have
other adverse consequences? These are subjects that we
need not explore given plaintiffs’ sketchy argument. And
if the contention were cast as a demand for cash from
Carle without a plan, it is hard to see why employers
should insure their employees against legislative change.
But for the amendments to the tax code, even the un-
guarded language of the “summaries” would have held.
Many people are disappointed, and their fortunes affected,
by statutory change; this does not imply that some private
party must step in to undo the effects of the legislation. The
“summaries” described extant pension plans; they did
not include promises to protect employees from the transi-
tion effects of statutory change.
  As for attorneys’ fees: the district court did not abuse
its discretion in concluding that Carle, the prevailing par-
ty, is entitled to recompense under 29 U.S.C. §1132(g)(1),
which says that “the court in its discretion may allow a
reasonable attorney’s fee and costs of action to either
Nos. 02-2765 & 02-3871                                       7

party.” Nor did the district judge err in concluding that fees
in the range of $160,000 are reasonable, given the stakes
of the case: a loss would have cost Carle $20 million or
more and had awful tax consequences for many current
and former employees. Carle retained ERISA specialists to
protect its interests; this was a prudent step. (Plaintiffs
stress that they hired less expensive lawyers. The differ-
ence shows. You get what you pay for.)
  Unfortunately, however, the district judge did not exer-
cise the billing judgment that is essential in all fee-shifting
cases. Carle sought compensation for all legal time and
expenses racked up during the suit’s pendency. That
included, for example, about $885 billed to Carle for the
expense of preparing a press release describing the suit
and $95 for the time one lawyer devoted to preparing an
application for admission to the bar of the United States
District Court for the Central District of Illinois. Press
releases are not part of a legal defense (even if the client
elects to have the drafting done by lawyers), and admission
to the local bar would have a benefit outlasting this
case. Time devoted to exploration of insurance issues
also should not be shifted to the plaintiffs; it is no concern
of this litigation how things happen behind the scenes
in the event the plaintiffs prevail. The district court should
eliminate these items on remand and review the remain-
ing charges to see whether fee-shifting is appropriate
with respect to each kind of service rendered. Carle is
entitled to recover the cost of legal defense (including the
cost of preparing a budget, a normal incident in any
substantial suit), but not legal expenses that do not
produce a defense against the plaintiffs’ claims. On balance,
however, the tab will go up—for although a few items
must be subtracted, the cost of defending Carle on this
appeal must be added. When fees have been awarded in the
district court on the authority of a fee-shifting statute,
the costs of appellate work are automatically shifted.
8                                 Nos. 02-2765 & 02-3871

Commissioner of INS v. Jean, 496 U.S. 154 (1990). The
district court should determine, and award, the legal fees
that Carle incurred in defending its judgment.
  The decision on the merits is affirmed. The award of
attorneys’ fees is vacated, and that subject is remanded
for further proceedings consistent with this opinion.

A true Copy:
      Teste:

                       ________________________________
                       Clerk of the United States Court of
                         Appeals for the Seventh Circuit

                  USCA-02-C-0072—5-12-03