Unpublished Disposition, 916 F.2d 716 (9th Cir. 1989)

No. 89-15776.

United States Court of Appeals, Ninth Circuit.

Before TANG and NOONAN, Circuit Judges, and DIMMICK^* , District Judge.

Chauncey Schmidt appeals the district court's award of attorney fees and costs in favor of appellee banks. Schmidt contends that the district court, having previously determined that Schmidt was not a participant in an ERISA plan, and that Schmidt did not have an action under ERISA, erred in awarding attorney fees pursuant to ERISA Sec. 502(g) (1). We conclude that the district court lacked jurisdiction to award ERISA attorney fees and therefore reverse and remand.

Appellant Schmidt was the president and Chief Executive Officer of the Bank of California and BANCAL Corporation ("the banks") from 1975 through 1984. Prior to his resignation, Schmidt and the banks entered into an agreement (the "1984 Agreement") which set forth the terms of his retirement compensation. After Schmidt resigned, a dispute arose as to the amount of retirement benefits owed him under the 1984 Agreement.

In 1988, Schmidt filed a complaint in the United States District Court for the Northern District of California claiming to be entitled to additional benefits under the 1984 Agreement. The complaint alleged that jurisdiction was proper under the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(A) (1) (b), which permits district courts to entertain actions brought by a "participant" to determine benefits under an "ERISA plan." Schmidt contended that the 1984 Agreement was a retirement plan subject to ERISA.

Initially, the district court dismissed Mitsubishi Bank, Ltd. ("Mitsubishi"), one of the named defendants below, on the grounds that it had not assumed any obligations under the 1984 Agreement. Then, in a separate order, the district court held that the 1984 Agreement was a unique, individual retirement contract that fell outside the scope of ERISA. The district court concluded that Schmidt's action was more properly one under state law for breach of contract. There being no diversity of citizenship between the parties, the district court dismissed the action for lack of subject matter jurisdiction.¹ 

The banks then filed a motion for attorney fees and a cost bill, both of which were opposed by Schmidt. The district court expressed reluctance to award fees because the plaintiff, while not the prevailing party, "was in good faith attempting to test the limits of ERISA jurisdiction." The court went on to state, however, that the situation was different as regards Mitsubishi where the "plaintiff was clearly wrong on the established law" and had not taken the opportunity to voluntarily dismiss this defendant. Accordingly, the district court ruled that the defendant banks were entitled to "reasonable fees incurred in dismissing those defendants, measured from the time defendants sent plaintiff the operative documents showing that the defendants had been wrongly sued."²  The district court also ruled that defendants were entitled to an award of costs.

This appeal (No. 89-15776) is from the district court's order granting defendants' motion for attorney fees and costs. A separate appeal (No. 89-15541) from the district court's order dismissing the complaint for lack of subject matter jurisdiction has already been heard and dismissed. Schmidt v. Mitsubishi Bank et al., Appeal No. 89-15541 (9th Cir. Nov. 28, 1989) (unpublished opinion).

Defendant banks sought attorney fees pursuant to section 502(g) of ERISA, 29 U.S.C. § 1132(g) (1), which provides in part:

In any action under this subchapter ... by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.

Schmidt, emphasizing the "plain meaning" of this language, contends this section prohibits an award of fees when, as here, the underlying action does not "arise under" ERISA, or when the action was not brought by a "participant" in an ERISA plan.³  Thus, the issue on appeal is whether the district court had jurisdiction to award ERISA attorney fees after having already determined that ERISA jurisdiction was lacking.

While a district court's decision to award attorney fees under ERISA is normally reviewed for abuse of discretion, this appeal raises a question of law--whether jurisdiction existed to award attorney fees--and our review is therefore de novo. United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 105 S. Ct. 101 (1984).

It is settled law in this circuit that ERISA attorney fees are contingent upon the underlying action being brought by a "participant" in an ERISA plan. This is clearly stated in M & R Investment Co., Inc. v. Fitzimmons, 685 F.2d 283 (9th Cir. 1982), in which the trustees of a pension fund appealed the district court's refusal to award them costs and attorney fees under ERISA. We affirmed the refusal, stating:

The district court properly ruled that this action by M & R was not "by" a participant, beneficiary, or fiduciary, and therefore found that the attorneys' fees section does not apply. There is no ambiguity in the wording of the section 502(g). Perhaps if Congress had considered the situation we are faced with, it might have written the statute differently. It did not, and it is not within our power to amend the clear language of the statute.

Id. at 288. Other Ninth Circuit cases reach, or imply, a similar result. See, e.g., Hope v. International Bd. of Elec. Workers, 785 F.2d 826, 831 (9th Cir. 1986); Board of Trustees of Carpenters Pension Trust Fund v. Reyes, 688 F.2d 671, 673-74 (9th Cir. 1982).

In response, the banks make the following arguments: First, that the cases relied upon by Schmidt are distinguishable. Second, that the cases relied upon by Schmidt have been superseded by a recent United States Supreme Court decision, Firestone Tire & Rubber Co. v. Bruch, 103 L. Ed. 2d 80, 97 (1989). Third, that the award of attorney fees can be upheld by analogy to similar fee awards under 42 U.S.C. § 1983.

The banks' attempts to distinguish the cases relied upon by Schmidt and cited above are unpersuasive. Briefly, it is irrelevant why the various courts concluded that jurisdiction under ERISA was lacking. What is significant is that, having so decided, they uniformly declined to award attorney fees.

A more interesting argument is the contention that the relevant case law of this circuit has been superseded by Firestone Tire & Rubber Co. v. Bruch, 103 L. Ed. 2d 80, 97 (1989). Relying on the language in the Firestone opinion set forth below, the banks argue that Schmidt ought to be considered a participant within the meaning of section 502(g) because he asserted a "colorable claim" to vested benefits. The Court in Firestone stated:

In our view, the term "participant" is naturally read to mean either "employees in, or reasonably expected to be in covered employment" ... or former employees who "have ... a reasonable expectation of returning to covered employment" or who have "a colorable claim" to vested benefits.... In order to establish that he "may become eligible for benefits," a claimant must have a colorable claim that (1) he will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future.

Id. at 97 (citations omitted). The banks argue that because Schmidt clearly believed that ERISA jurisdiction was proper--indeed, the district court stated he was making a good faith argument regarding jurisdiction--we must conclude that he was making a colorable claim to benefits. If so, then Schmidt must be defined as an ERISA "participant" and the district court had jurisdiction to award attorney fees.

A closer consideration of the Firestone opinion, however, persuades us that the banks' analysis is flawed. First, it is by no means certain that Schmidt falls within Firestone's definition of "participant." As a former employee, Schmidt has no reasonable expectation of returning to covered employment. Nor will Schmidt ever prevail in his ERISA suit for benefits now that it has been dismissed by the district court.

Next, and more importantly, the Court in Firestone was not addressing the question of whether attorney fees are appropriate after an ERISA case has been dismissed for lack of jurisdiction. Rather, the question before the Court was whether certain individuals were to be considered "participants" entitled to obtain information under the ERISA disclosure provisions. See 29 U.S.C. § 1024(b) (4). As Schmidt suggests, the policy rationale for permitting an individual to obtain ERISA plan information is clearly different from the rationale for authorizing an award of attorney fees.

Finally, if we accept the banks' interpretation of Firestone, we are left with the rather strange result that an individual with a colorable claim to vested benefits may be liable for attorney fees, while one who submits a frivolous claim would escape such liability. The basic policy underlying ERISA--to promote the interests of employees and their beneficiaries in employment benefit plans--suggests that those individuals with potentially legitimate claims should not be discouraged from bringing suit in federal court by the possibility of an adverse award of attorney fees. Thus, we conclude that the banks' reliance on Firestone is misplaced.

The banks' third response, raised for the first time during oral argument, is that the award of attorney fees can be upheld by analogy to 42 U.S.C. § 1983. The banks refer us to Werch v. City of Berlin, 673 F.2d 192, 195 (7th Cir. 1982), for the proposition that an award of attorney fees is appropriate after a section 1983 suit is dismissed for lack of jurisdiction if the suit was "unreasonable, frivolous, meritless, or vexatious."

This argument is simply not controlling in the present case. The civil rights attorney fee provisions are significantly different from the ERISA fee provisions--in particular, 42 U.S.C. § 1988 does not limit recovery to "participants." Moreover, there is a distinct line of authority for awarding attorney fees in section 1983 suits when the plaintiff's action is without foundation. See, e.g., Hueghes v. Rowe, 449 U.S. 5, 14, 101 S. Ct. 173, 178, 66 L. Ed. 2d 163 (1980) (per curiam). Finally, there is no reason to conclude that the cases cited by the banks (none of which are Ninth Circuit opinions) were intended to reverse the clearly stated holding of M & R Investment Co., Inc. v. Fitzimmons, supra.

Having determined that the district court did not have jurisdiction to award ERISA attorney fees because Schmidt was not a participant in an ERISA plan, we do not reach Schmidt's second argument that the district court lacked jurisdiction to award attorney fees after having dismissed the action for lack of ERISA subject matter jurisdiction.

Nor do we consider whether the district court's award of attorney fees ought to be upheld as a form of Rule 11 sanctions.⁴  A review of the record suggests that the district court may have awarded attorney fees in an effort to sanction Schmidt for improperly naming Mitsubishi as a defendant. The standards for imposing sanctions under Rule 11 and for awarding ERISA attorney fees are different, however, and we remand for the district court to determine whether Rule 11 sanctions are appropriate.

The district court's decision to award costs is reviewable only for abuse of discretion. Schmidt argues that the imposition of costs was inappropriate because many of the documents for which costs were charged will be used in the pending state court proceeding. A pending state proceeding, however, does not void the general rule that costs "shall be allowed as of course to the prevailing party unless the court otherwise directs." Fed. R. Civ. P. 54(d).

Therefore, we reverse the district court's award of attorney fees and remand for a determination of whether Rule 11 sanctions are appropriate. The district court's award of costs is affirmed.

REVERSED IN PART AND REMANDED. AFFIRMED IN PART.

TANG, Circuit Judge, concurring in part, dissenting part.

I concur in the majority's opinion, except the remand for consideration of the imposition of Rule 11 sanction against Schmidt for naming Mitsubishi as a defendant. Rule 11 sanctions are appropriate only when a groundless pleading, motion, or other paper signed by an attorney is at issue. See Fed.R.Civ.Pro. 11. Here, the majority posits Rule 11 sanctions to be appropriate because Schmidt after filing the action did not dismiss Mitsubishi after Mitsubishi's counsel advised Schmidt that during a corporate takeover the bank had not assumed Schmidt's employment contract. Thus, the majority suggests a remand for Rule 11 sanction for conduct wholly apart and subsequent to the filing of the pleading, motion, or paper at issue. This is an inappropriate basis for Rule 11 sanctions. I dissent from the majority's remand for consideration of fee shifting under the guise of Rule 11 sanctions against Schmidt.