Court Opinion

ID: 2966374
Source: CourtListenerOpinion
Date Created: 2015-09-22 00:28:41.680283+00
Date Added: 2024-06-11T11:43:09.633466
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

EDWIN W. DENZLER,
Plaintiff-Appellee,

v.
                                                                    No. 94-2109
QUESTECH, INCORPORATED;
WALTER V. EDWARDS, III; JOSEPH P.
O'CONNELL, JR.,
Defendants-Appellants.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-93-1543-A)

Argued: October 30, 1995

Decided: March 19, 1996

Before MURNAGHAN, HAMILTON, and MOTZ, Circuit Judges.

_________________________________________________________________

Affirmed in part and remanded in part by published opinion. Judge
Murnaghan wrote the opinion, in which Judge Hamilton and Judge
Motz joined.

_________________________________________________________________

COUNSEL

ARGUED: Christina Miesowitz Burkholder, QUESTECH, INC.,
Falls Church, Virginia, for Appellants. Karl W. Pilger, BORING,
PARROTT & PILGER, P.C., Vienna, Virginia, for Appellee. ON
BRIEF: Norman H. Singer, KECK, MAHIN & CATE, Washington,
D.C., for Appellants. Brian V. Ebert, BORING, PARROTT & PIL-
GER, P.C., Vienna, Virginia, for Appellee.

_________________________________________________________________

OPINION

MURNAGHAN, Circuit Judge:

Edwin W. Denzler ("Denzler"), appellee-plaintiff, sued his former
employer Questech, Inc. ("Questech"), appellant-defendant, for pen-
sion benefits under the Employee Retirement Income Security Act of
1974 ("ERISA"), 29 U.S.C. §§ 1001-1461. The district judge ruled in
favor of Denzler, granting his motion for summary judgment on
Questech's liability under the ERISA plan and, after holding hearings,
awarding him damages, costs, and attorney's fees. Questech has
appealed those orders. We affirm the lower court's summary judg-
ment order as to liability, but remand for recalculation of damages
and reconsideration of attorney's fees and costs.

I

A. The ERISA Plan

Denzler worked for Questech from November 9, 1978, until
August 31, 1990. He became a participant in an Officers and Manag-
ers Deferred Compensation Plan ("Def Com Plan" or "the Plan") in
1986 by executing a Joinder Agreement which specified the amount
of his retirement benefits--$350,000 payable at age 65 for ten years
at $35,000 per year.1 In return for that benefit, Denzler agreed to have
_________________________________________________________________
1 Questech adopted the Def Com Plan in 1986 in order to attract quali-
fied employees and to provide a comfortable retirement for its highly
compensated managers and employees. The Def Com Plan was an
unfunded plan, commonly referred to as a "Top Hat" plan. Kemmerer v.
ICI Americas, Inc., 842 F. Supp. 138, 140-41 (E.D. Pa. 1994), aff'd in
relevant part, 70 F.3d 281 (3d Cir. 1995). Many ERISA rules and protec-
tions that apply to funded pension benefits plans, including detailed
accrual, vesting, funding, and fiduciary responsibility regulations, do not
apply to Top Hat plans. Barrowclogh v. Kidder, Peabody & Co., 752

                    2
Questech deduct $7,500 from his salary annually to contribute to the
Def Com Plan. In 1990, however, Denzler took early retirement
before reaching age 65. Under the terms of the Def Com Plan, he was
entitled to receive an actuarial equivalent amount of $350,000 using
the current interest rates for either discounting or compounding.

B. Questech's Payments Under the Plan

Upon retiring, Denzler requested a statement of his benefits. The
Administrator of the Def Com Plan, an executive committee of the
Questech Board of Directors, sent Denzler a letter dated October 2,
1990 ("the October letter") indicating that Denzler would be paid the
sum of both a basic benefit and an added benefit. The basic benefit
was $94,176 and the added benefit $255,830. The basic benefit, how-
ever, was reduced because of early retirement to $53,191--the actuar-
ial equivalent amount of $94,176. The added amount of $255,830
remained the same.

Questech paid Denzler annual installments based on the sum of
both the "added benefit" and "basic benefit" in 1990, 1991, and 1992.
In 1993, however, the Plan Administrator reduced the benefit paid to
Denzler as a result of the failure of the Def Com Plan holdings to gen-
erate the expected rates of return.2 The Administrator argued that the
reduced payments were justified because under the terms of the Def
Com Plan, Denzler was entitled to a basic benefit only.
_________________________________________________________________
F.2d 923, 935-37 (3d Cir. 1985), overruled on other grounds, Pritzker v.
Merrill Lynch, 7 F.3d 1110 (3d Cir. 1993); Kemmerer, 842 F. Supp. at
141; Carr v. First Nationwide Bank, 816 F. Supp. 1476, 1486 (N.D. Cal.
1993). The enforcement provisions of ERISA described in 29 U.S.C.
§ 1132(a), however, apply to Top Hat plans. Barrowclogh, 752 F.2d at
935-37; Kemmerer, 842 F. Supp. at 141; Carr, 816 F. Supp. at 1486.
2 The Def Com Plan was failing to produce an expected 10% rate of
return, which was exacerbated by the fact that the number of participants
in the Def Com Plan had dropped dramatically and the assumed mortal-
ity of participants had not occurred.

                    3
C. Denzler's Lawsuit

Denzler filed a series of complaints in federal district court arguing
that he was entitled to his full early retirement benefit, not just a basic
benefit. His first complaint alleged a breach of contract and sought a
declaration of rights under the Plan. Denzler, with the district court's
leave, amended his complaint because it failed to mention that his Def
Com Plan was an employee benefit plan governed by ERISA. Subse-
quently, Denzler filed a second amended complaint seeking greater
damages.

The district judge examined the Plan's documents--the Plan and
the Joinder Agreement--and determined that they"[we]re clear on
their face" and "clear as a bell" in that Questech owed Denzler his full
benefit, taking into account his early retirement. Indeed, she stated
that parol evidence was unnecessary because the documents were so
clear and unambiguous. Nevertheless, she also examined the October
letter. She noted that the letter supported her interpretation and that
Questech could not just stop paying Denzler the payments the Octo-
ber 1990 letter promised after making those payments for three years.
Finding that the Def Com Plan was clear and unambiguous and sup-
ported by the October letter, the district court granted Denzler's
motion for summary judgment as to Questech's liability under the Def
Com Plan.3

Subsequently, the district court held a hearing on damages and
ruled that Questech owed Denzler a total retirement benefit of
$318,000 based on a 10% discounted rate of the full $350,000 benefit
that was to be paid out if Denzler retired at age 65. The court sub-
tracted the $76,307.31 in benefits already paid to Denzler and entered
a judgment order requiring that $241,692.69, plus interest for the
overdue 1993 payments, be paid to Denzler. The court also entered
several orders after a series of pleadings and hearings as to attorney's
fees and costs. Ultimately, the court determined that Questech had
acted in bad faith in refusing to pay Denzler his full early retirement
_________________________________________________________________
3 Denzler also sought an additional "termination benefit" under the Def
Com Plan. The district court found that he was not entitled to that addi-
tional benefit.

                     4
benefit and awarded to Denzler costs of $4,212.64, and attorney's
fees of $34,496.00. Questech appeals the district court's orders.

II

Questech appeals three categories of orders: (1) summary judgment
on liability; (2) damages; and (3) attorney's fees and costs. We
address each in turn.

A. Summary Judgment

We review a district court's summary judgment ruling under a de
novo standard of review. Henson v. Liggett Group, Inc., 61 F.3d 270,
274 (4th Cir. 1995). Under Rule 56(c) of the Federal Rules of Civil
Procedure, summary judgment is appropriate where there are no gen-
uine issues of material fact. In making that determination, we review
the record in the light most favorable to the nonmoving party.

Questech argues that it is not liable for the additional retirement
benefits Denzler seeks because Denzler's compensation plan con-
tained two types of benefit payments--a basic benefit, payable
always, and an added benefit, payable only if the Plan generated a
surplus (the "dual-payment theory"). Questech contends that once it
became apparent that the Def Com Plan was not generating the
expected rates of returns, the Plan Administrator had the right to
reduce Denzler's payments to the basic benefit. Questech also argues
that, in any event, the Plan was ambiguous as to what amount of ben-
efits Denzler was due as an early retiree and that, therefore, summary
judgment as to liability for more than the "basic benefit" was in error.

In interpreting ERISA plans, we turn to principles of the federal
common law of contracts. See Firestone Tire & Rubber Co. v. Bruch,
489 U.S. 101, 110 (1989); Wheeler v. Dynamic Engineering, Inc., 62
F.3d 634, 638 (4th Cir. 1995). We also turn to principles of state com-
mon law for guidance. Wheeler, 62 F.3d at 638.

Summary judgment on a contractual claim is appropriate only
where there is no ambiguity in the contract or plan. World-Wide
Rights, Ltd. Partnership v. Combe, Inc., 955 F.2d 242, 245 (4th Cir.

                    5
1992). The question of whether a contract is ambiguous is one of law,
which we review de novo. Nehi Bottling Co. v. All-American Bottling
Corp., 8 F.3d 157, 162 (4th Cir. 1993). Thus, we first examine the
Plan to determine whether, as a matter of law, it is ambiguous on its
face. Goodman v. Resolution Trust Corp., 7 F.3d 1123, 1126 (4th Cir.
1993).

The basic contractual documents defining the Def Com Plan and
benefits are the Def Com Plan and the Joinder Agreement. A de novo
review of those documents reveals that they unambiguously state that
Denzler is to receive an actuarial equivalent of $350,000 upon early
retirement. The Joinder Agreement provides that at age 65, Denzler
is to receive a retirement benefit that shall equal $350,000. There is
no mention, indication, or implication that $350,000 is the sum of two
types of benefits or that a portion of the payment is optional, discre-
tionary, or dependent upon the generation of a surplus. The Joinder
Agreement also states that the $350,000 shall be paid in accordance
with Article V of the Def Com Plan. Article V describes the proce-
dure for paying an actuarial equivalent amount of $350,000 to early
retirees.4 Again, there is no indication that a portion of that actuarial
equivalent amount is dependent upon a surplus or that the retirement
benefit is divided into a basic benefit and an optional additional
amount. The notion of dual payments is entirely absent from the Def
Com Plan and the Joinder Agreement. Thus, Questech's attempt to
justify its actions based upon a dual-payment theory is not supported
by the relevant documents.

Nonetheless, Questech makes several arguments as to why the con-
tract is ambiguous. We find those arguments unconvincing. Questech
_________________________________________________________________
4 Section 5.2(a) provides:

          All participants who attain age sixty-five (65) and complete four
          (4) years of participation in the Plan shall be entitled to a retire-
          ment benefit in the amount specified in the Participant's Joinder
          Agreement. A Participant may elect to retire anytime after he or
          she attains age fifty-five (55) and completes four (4) years of
          participation in the Plan. If the Participant retires at any age other
          than sixty-five (65), the Participant's retirement benefit shall be
          an actuarial equivalent amount, utilizing the then current Interest
          Rate for either discounting or compounding.

                    6
does not even attempt to point to any ambiguities relating to the dis-
tinction between a basic benefit and added amount in the Plan
because there are none. Instead, Questech attempts to create an
ambiguity in the Plan concerning the amount of early retirement bene-
fits. Questech relies on two far-fetched readings of the Def Com Plan
in its attempt to create that ambiguity.5

First, Questech contends that because the Plan states that early
retirees are entitled to an actuarial equivalent amount without stating
"amount of what," it is unclear what should be the base figure for the
actuarial equivalent calculation. The Plan, read as a whole, however,
clearly defines the base figure. The relevant provision in the Plan
states that all participants' retirement benefits will consist of the
amount specified in each participant's Joinder Agreement--in Den-
zler's case, $350,000. The Plan then provides that early retirees will
receive an actuarial equivalent amount, utilizing the then current
interest rate for either discounting or compounding. Read in its
entirety, the Plan leaves no doubt that the actuarial equivalent amount
is to be calculated using $350,000 as the base figure. No other figure
is mentioned, nor is the possibility for another figure raised by the
language of the relevant subsection.

Second, Questech attempts to create an ambiguity by relying on the
subsequent subsection. That provision states that all retirement bene-
fits shall be paid in accordance with the section describing what and
how termination benefits are to be paid.6 Questech attempts to argue
that a reader could, therefore, possibly interpret the section describing
_________________________________________________________________
5 At oral argument, Questech attempted to create an additional ambigu-
ity in the Plan by arguing that the interest rate used to calculate the bene-
fit was subject to change. The interest rate, however, is not relevant to
Questech's liability for full early retirement benefits. The interest rate is
merely a number plugged into an unchanging formula. Thus, a change
in the interest rate may be relevant to the actual amount of damages, but
that change is not relevant to liability.
6 Section 5.2(b) provides:

          The retirement benefit shall be paid in accordance with section
          5.1(b) [describing termination benefits] as if it were part of the
          Participant's termination benefit.

                    7
how termination benefits are paid as also defining the actuarial equiv-
alent amount.

There is no merit in Questech's argument. In stating that "[t]he
retirement benefit shall be paid in accordance with" the section
describing how termination benefits are paid, the Plan refers to all
retirement benefits--both those paid at age 65 and the actuarial equiv-
alent paid in the event of early retirement. Thus, under Questech's
reading of the Plan, the termination benefit provision would define
the amount of retirement benefits to be paid at age 65 and in the event
of early retirement. The termination benefits provision, however, does
not define the amount of benefits payable at age 65; that amount has
been clearly defined as $350,000. Likewise, it makes no sense to read
the termination benefit provision as defining the benefits to be paid
in the event of early retirement.

Instead, a reasonable and consistent reading is that the provision
Questech relies on means that retirement benefits are to be paid in the
same manner that termination benefits are paid, for example, in
roughly equal installments, not less than annually, and the like.7 We
therefore find the Plan clear and unambiguous as to Questech's liabil-
ity to Denzler for an actuarial equivalent amount of $350,000.
_________________________________________________________________
7 The relevant provision, 5.1(b), states:

          Payment of the termination benefit shall be made in roughly
          equal installments, paid not less than annually, commencing on
          the first day of the month after which the termination occurs. The
          amount of each installment shall be determined on a level amort-
          ization rate, calculated by reference to the Participant's current
          Account balance plus interest projected at the then applicable
          Interest Rate. Such payment shall be made for a period equal to
          the number of years over which compensation was deferred by
          the Participant pursuant to his or her Joinder Agreement, but in
          no event shall exceed ten (10) years. Payment shall cease when
          all amounts credited to such Participant's Account have been
          distributed. If a Participant dies before all such payments have
          been made, any remaining monthly payments shall be made, as
          provided in this Article V, to such Participant's Beneficiary.

                    8
Questech has also raised several other issues relating to the district
judge's determination of liability. The district judge did not end her
discussion of the Plan with the fact that the documents were plain on
their face. Despite a stated absence of a need to rely on parol evi-
dence, the district judge turned to one of the prime examples of parol
evidence offered by Questech--a letter dated October 1990. The dis-
trict judge stated: "The Contract, the two contracts, the joinder agree-
ment and the plan contract are clear on their face, and if there was any
inconsistency, that October letter . . . makes it crystal clear." The dis-
trict judge also turned to principles of estoppel, adding that the
Administrator could not just stop making payments that it had made
for three years when a person believed he had a contract for a set
amount of benefits. In a subsequent proceeding on damages, the dis-
trict judge emphasized that the October letter was critical to her find-
ing as to liability. Questech argues that the district judge erred in her
selective reliance on parol evidence and that the judge's reliance on
principles of estoppel also constituted error.

We need not reach whether the district judge's reliance on the
October 1990 letter and estoppel principles merits reversal. Based on
our own de novo review, we find the Plan documents unambiguous
and, therefore, do not turn to extrinsic evidence or principles of estop-
pel, but rather affirm the lower court's grant of summary judgment
based on the unambiguous Plan. We note, however, that the alterna-
tive theories for imposing liability are questionable at best.8
_________________________________________________________________
8 Questech raises one additional ground for reversal--the district
judge's reliance on a de novo standard of review for the Administrator's
decision. The district judge indicated that she had accepted Denzler's
argument that a de novo standard of review should be applied to the
Administrator's decision to decrease Denzler's benefits because of an
inherent conflict of interest between the Administrator and Denzler. See
generally, Firestone Tire & Rubber, 489 U.S. at 110-115. Where the lan-
guage in a plan is clear and unambiguous, the deference owed the
Administrator's interpretation is not of great relevance because the
meaning is apparent. Cf. Fagan v. National Stabilization Agreement of
Sheet Metal Indus. Trust Fund, 60 F.3d 175, 179 (4th Cir. 1995) (stating
that trustees' interpretation or construction of plan did not concern the
court because "the . . . language of the plan[wa]s clear and unambigu-
ous").

                     9
B. Damages

The Plan provides that Denzler shall receive "an actuarial equiva-
lent amount [of $350,000] utilizing the then current Interest Rate for
either discounting or compounding." Denzler's expert testified that
Denzler was entitled to a total benefit of $318,181 under the terms of
the Def Com Plan. The expert made his calculations by discounting
a benefit of $350,000 with a 10% interest rate. The expert also testi-
fied, however, that his discounting method was not the same proce-
dure used to make an "actuarial equivalent" determination.

The Plan states that the early retirement benefit is an actuarial
equivalent amount calculated with a current discount or interest rate.
The district court's reliance on discounting alone was contrary to the
terms of the Plan and, therefore, clearly erroneous, absent evidence
that the discounting method was what was intended in the Plan or was
otherwise agreed to by the parties.9

Without evidence that the discounting method was intended or
agreed to, the actuarial equivalent amount of $350,000 must be deter-
mined. No party has calculated the actuarial equivalent amount of
$350,000. According to the parties, calculating an actuarial equivalent
necessitates a computer or an actuary. Such calculations are for the
parties and the district court in the first instance. We will therefore
remand for recalculation of the appropriate damages.

C. Attorney's Fees

ERISA allows courts to award, at their discretion, reasonable attor-
ney's fees. 29 U.S.C. § 1132(g). We review the district court's award
_________________________________________________________________
9 Denzler maintains that the parties intended that the discounting
method be used to calculate early retirement benefits. We find the record
unclear as to what was intended by the parties. Denzler further argues
that the district court did not err because the discounted figure was the
only figure before the court and both parties submitted evidence, includ-
ing expert testimony, on Denzler's "discounted" retirement benefits.
Denzler has forgotten that it is his burden to prove the appropriate level
of damages as provided for under the Plan.

                     10
of attorney's fees and costs for abuse of discretion. Custer v. Pan
American Life Ins. Co., 12 F.3d 410, 422 (4th Cir. 1993).

In Quesinberry v. Life Ins. Co. of North America , 987 F.2d 1017,
1029 (4th Cir. 1993), we found that despite the remedial purposes of
ERISA to protect employee rights and to secure effective access to
federal courts, there was no presumption in favor of awarding attor-
ney's fees to a prevailing insured or beneficiary. Custer, 12 F.3d at
422. Thus, we set forth five factors to provide general guidelines for
district courts in making attorney's fees determinations under ERISA:

          (1) degree of opposing parties' culpability or bad faith;

          (2) ability of opposing parties to satisfy an award of attor-
          ney's fees;

          (3) whether an award of attorney's fees against the oppos-
          ing parties would deter other persons acting under similar
          circumstances;

          (4) whether the parties requesting attorney's fees sought to
          benefit all participants and beneficiaries of an ERISA plan
          or to resolve a significant legal question regarding ERISA
          itself; and

          (5) the relative merits of the parties' positions.

Quesinberry, 987 F.2d at 1029. The Quesinberry "five factor
approach is not a rigid test, but rather provides general guidelines for
the district court." Id. Indeed, we have recognized that some of the
factors may not be appropriate in any given case. Id. Nonetheless, we
require the district court to justify an attorney's fee determination by
evaluating the five factors in order to give us some basis for review.
Id.

The district judge stated "I have already determined that . . . . attor-
ney's fees are appropriate." The only prior grounds she, however, had
given were that "under ERISA [attorney's fees] are definitely award-
able." Indeed, the record indicates that she thought the only relevant

                     11
question was whether the fees requested "were reasonable." While she
did note Questech's bad faith, she failed to conduct the type of analy-
sis we require as a basis for review. See, e.g., International Brother-
hood of Teamsters v. New York Teamsters Council Health & Hosp.
Fund, 903 F.2d 919, 924 (2d Cir.) (remanding because of the failure
to state reasons for denying attorney's fees under ERISA), cert.
denied, 498 U.S. 898 (1990). Thus, while a remand is not always nec-
essary if a court fails to evaluate all five factors, we remand here
because of the failure to provide a basis for review.

Denzler also requests compensation for the attorney's fees he
incurred on appeal. ERISA authorizes recovery of fees incurred on
appeal. Banker v. American Mobil Power Corp., 64 F.3d 1397, 1404
(9th Cir. 1995); Brewer v. Protexall, Inc., 50 F.3d 453, 459 (7th Cir.
1995); Nachwalter v. Christie, 805 F.2d 956, 961 (11th Cir. 1986).
We apply the same five Quesinberry factors in considering whether
to award fees on appeal. American Mobile Power , 64 F.3d at 1404;
Williams v. Caterpillar, Inc., 944 F.2d 658, 668 (9th Cir. 1991);
Nachwalter, 805 F.2d at 962.

We award fees as to Questech's appeal of the district judge's sum-
mary judgment ruling on liability. We find that the bad faith factor
weighs heavily in favor of awarding costs and fees. The terms of the
Plan did not permit Questech to pay Denzler only a"basic benefit."
As for the other four factors, the third and fifth factor also weigh in
favor of awarding costs and fees. An award of attorney's fees is likely
to deter other administrators from acting similarly under like circum-
stances and the relative merits of the parties' positions weighs in
favor of awarding fees. As for the second and fourth factors, they are
not particularly compelling either way. The parties did not argue on
appeal that the second factor--ability to satisfy an award of attorney's
fees--favored either side. The fourth factor--whether Denzler sought
to benefit a class of plaintiffs or resolve a significant ERISA question
--does not weigh in favor of awarding fees, but it does not weigh
against awarding fees either. Thus, our evaluation of all five factors
supports the award of fees.

We, however, do not award fees as to the appeal of the district
judge's orders on damages and attorney's fees and costs. Questech's
appeal of the damages calculation and award of fees and costs was not

                    12
in bad faith, nor do the relative merits of the parties' positions on
those two issues merit attorney's fees. Questech secured a remand on
both damages and attorney's fees and costs. As for the other three fac-
tors, two and four, as before, do not significantly weigh either for or
against awarding fees. The remaining factor, likelihood to deter oth-
ers, dictates against awarding fees on appeal because Questech had
legitimate reasons to appeal the damages calculation and award of
fees and costs.

Denzler should, therefore, submit a bill of costs to the Clerk of the
Court within 30 days listing and justifying his costs and attorney's
fees on appeal on the issue of Questech's liability. After Questech has
responded, the Clerk shall assess attorney's fees and costs. If either
party is dissatisfied, review by the Court is available.

For the foregoing reasons, we

AFFIRM IN PART AND REMAND IN PART.

                    13