Phelps v. U.S. West Inc., (10th Cir. 1998)

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UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

NELSON B. PHELPS, individually

and as representative of all pre-January 1, 1991, Plan Participants and

Plan Beneficiaries and for the benefit

of U.S. WEST RETIREE HEALTH

CARE MEDICAL PLANS AND U.S.

WEST RETIREE DENTAL CARE

PLANS,

Plaintiffs - Appellants,

No. 97-1270

(D. Colorado)

(D.C. No. 95-Z-2759)

v.

U.S. WEST, INC., and U.S. WEST,

INC., EMPLOYEES' BENEFIT

COMMITTEE,

Defendants - Appellees.

ORDER AND JUDGMENT
name="txt*">(*)

Before SEYMOUR,
name="9">ANDERSON, and LUCERO,

Circuit Judges.

Nelson B. Phelps appeals from the district court's denial of his motion for

attorney's fees under the Employee Retirement Income Security Act ("ERISA")

§ 502(g)(1), 29 U.S.C. § 1132(g)(1). Phelps argues on appeal that the

district

court abused its discretion in denying his motion for attorney's fees because he

was the "prevailing party" in the litigation, and the factors used in determining

whether to grant attorney's fees under § 502(g)(1) weigh in his favor. We affirm.

BACKGROUND

In March 1990, Mr. Phelps retired from his position as an Executive

Director of US West Human Resources. When he retired, Phelps, along with

approximately 30,000 other former US West employees who retired prior to

January 1, 1991, was covered by the US West Health Care Medical Plan ("the

Plan").(1) The Plan is a traditional

indemnity plan,(2) and at the time he retired,

Phelps was assured by US West representatives that "US West was committed to

providing . . . health and dental care benefits for life and that the level of

coverage would not be reduced." Appellant's Br. at 4.

Five years after Phelps retired, however, US West began what Phelps

perceived as a concentrated campaign "to enroll the 30,000 pre-'91 retirees in

Health Maintenance Organizations ('HMOs')." Appellant's Br. at 5. Phelps

viewed the use of HMOs as a reduction in the level of his health care and became

concerned that none of US West's guarantees of lifetime unreduced indemnity

plan coverage were memorialized in the governing Plan documents. In particular,

Phelps was concerned by the Plan's reservation-of-rights clause, which stated that

US West "reserves the right to terminate or amend [the Plan] at any time with

respect to any or all classes of current or future Participants (including Retired

Employees), subject to applicable limitations of the law." Appellant's App. at

114.

Because of his concern, in August 1995, Phelps filed a class-wide

administrative claim with the EBC, demanding that the EBC obtain a resolution

from the US West, Inc., Board of Directors formally acknowledging that US West

was contractually bound not to reduce or eliminate lifetime health coverage for

pre-1991 retirees. Appellant's App. at 117. Phelps also demanded that the EBC

amend the Plan by eliminating the reservation-of-rights clause and inserting

language memorializing its commitment to the pre-1991 retirees. Id. Then, in

November, before receiving a response to his administrative claim,
name="txt3a">(3) Phelps filed a

federal class action suit against US West under ERISA § 502(a)(3)(B), 29 U.S.C. § 1132(a)(3)(B), seeking injunctive relief and an order declaring the rights of all

pre-1991 retirees to lifetime, unreduced indemnity-plan coverage.

About a week after Phelps filed his lawsuit, the EBC denied his

administrative claim because it had "no authority to require the US West, Inc.

Board of Directors to issue resolutions of any nature." Appellant's App. at 215.

The EBC nevertheless assured Phelps that "[g]iven that the Company has clearly,

publically [sic], and continually acknowledged its health care commitment to pre-1991 retirees,

the Plan will be amended to formalize this long-standing

commitment." Id. Phelps' appeal of this decision was denied.

Approximately two months later, in January 1996, US West formally

amended the Plan's language to guarantee unreduced lifetime indemnity plan

coverage to every employee that retired prior to 1991. Phelps nevertheless

proceeded with his lawsuit because he remained concerned that language in the

amendment allowed US West to freeze "reasonable and customary charge

reimbursement schedules" at January 1996 values.

Finally, in February 1996, during the deposition of the Secretary of the

EBC, US West resolved Phelps' lingering question regarding the reimbursement

schedules, and the parties entered into a stipulation of dismissal. The next day,

Phelps filed a motion seeking attorney fees of $27,072.50 pursuant to ERISA

§ 502(g)(1), 29 U.S.C. § 1132(g)(1), and requesting an evidentiary

hearing.

Appellant's App. at 61. The district court referred the matter to a Magistrate

Judge.

After extensive briefing and the submission of evidence,
name="txt4a">(4) the Magistrate

recommended that the district court deny Phelps' motion for attorney fees because

Phelps was not the prevailing party in the litigation and because the factors used

to determine whether to grant attorney's fees under § 502(g)(1) did not weigh in

his favor. Appellant's App. at 342-44. After considering Phelps' objections to

the Magistrate's recommendation and US West's response, the district court

adopted the Magistrate's recommendation and denied Phelps' motion for

attorney's fees. Phelps filed a timely notice of appeal.

DISCUSSION

We review the district court's decision whether to award attorney's fees for

an abuse of discretion and will reverse "only upon reaching 'a definite conviction

that the court, upon weighing relevant factors, clearly erred in its judgment.'"

Thorpe v. Retirement Plan of Pillsbury Co., 80 F.3d 439, 445 (10th Cir. 1996)

(quoting Gordon v. United States Steel Corp., 724 F.2d 106, 108 (10th Cir.

1983)).

ERISA provides that in any action brought by an ERISA plan participant,

"the court in its discretion may allow a reasonable attorney's fee and costs of

action to either party." ERISA § 502(g)(1), 29 U.S.C. § 1132(g)(1).

Although

the statute is not express on this point, most courts, including this one, have

interpreted ERISA to allow an award of attorney's fees only to prevailing parties.

See, e.g., Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 89 n.14 (1982);

Arfsten v.

Frontier Airlines, Inc. Retirement Plan for Pilots, 967 F.2d 438, 442 n.3 (10th Cir.

1992); Martin v. Blue Cross & Blue Shield of Va., Inc., 115 F.3d 1201, 1210 (4th

Cir.) (collecting cases), cert. denied, 118 S. Ct. 629 (1997). But see

Tourangeau

v. Uniroyal, Inc., 101 F.3d 300, 308 n.6 (2d Cir. 1996).

Phelps argues that he was the prevailing party because US West did not

begin "serious consideration" of the Plan amendment until after he filed his

administrative claim and lawsuit. Appellant's Br. at 28-30.
name="txt5a">(5) The burden here,

however, is not on US West to show prior "serious consideration." Rather,

because the suit was disposed of without full litigation on the merits, the burden

was on Phelps to show that his suit was a "catalyst" or "material factor" in

obtaining concessions from US West and that US West did not act for "wholly

gratuitous" reasons in response to his suit. See Hooper v. Demco, Inc., 37 F.3d

287, 292 (7th Cir. 1994) (quotations omitted).

While the timing of the amendment, as outlined above, may indirectly

support Phelps' claim that he was the prevailing party, the evidence as a whole

does not. For example, although Phelps presented the affidavit of a Retiree

Advisory Board member, stating the Manager of Health Care Administration,

Marie Serold, had admitted that the Plan amendment was caused by Phelps'

lawsuit, Appellant's App. at 90, US West presented the equally convincing

affidavit of Marie Serold herself, supported by the affidavit of another Retiree

Advisory Board member, stating that Serold had not attributed the Plan

amendment to Phelps' lawsuit. Appellant's App. at 230-31, 279. And although

Phelps presented a letter written by the President and CEO of US West

Communications, Inc., which stated that less than 24 hours after Phelps' lawsuit

was filed, US West polled the EBC members and reached an agreement to amend

the Plan, Appellant's App. at 123, US West presented the affidavit of the EBC's

Secretary, which clarified that US West had been considering how to best resolve

this very issue since the spring of 1995 and was not motivated to act by Phelps'

lawsuit. Appellant's App. at 202-03.

On the record as a whole, we cannot say that the district court abused its

discretion in determining that Phelps did not cause US West to amend the Plan

and thus was not the prevailing party in the litigation. Because we conclude that

Phelps did not meet the threshold requirement of showing he was the prevailing

party, it is unnecessary for us to reach Phelps' argument that the factors used to

determine whether to grant attorney's fees under ERISA to prevailing parties

weigh in his favor.(6)

CONCLUSION

We conclude that the district court did not abuse its discretion in denying

Phelps' motion for attorney fees.(7)

AFFIRMED.

ENTERED FOR THE COURT

Stephen H. Anderson

Circuit Judge

FOOTNOTES

Click footnote number to return to corresponding location in the text.

*.This order and judgment is not binding

precedent, except under the doctrines of

law of the case, res judicata, and collateral estoppel. The court generally disfavors the

citation of orders and judgments; nevertheless, an order and judgment may be cited under

the terms and conditions of 10th Cir. R. 36.3.

1.There are actually nine retiree health care

plans at issue here. See Appellant's Br.

at 3-4. For purposes of clarity in this opinion, they will be referred to collectively as "the

Plan." US West is the sponsor of the Plan, and US West's Employees' Benefit

Committee ("EBC") is the named fiduciary and plan administrator. Id.

2.This means that generally, plan participants

may visit almost any health-care

provider, but they are responsible for an annual deductible and co-insurance for office

visits. Plan participants are reimbursed for reasonable and customary expenses.

Appellant's App. at 201.

3.US West's traditional administrative

procedure allows the company 90 days to

respond to administrative claims. Appellant's App. at 214. Although he was aware of

the general 90-day response period, Appellant's App. at 261, Phelps filed his lawsuit in

federal court after only 75 days. Phelps asserts that he was not required under ERISA to

exhaust administrative remedies because his claim was not a claim for payment of

benefits. Appellant's Br. at 6 n.1.

4.Phelps complains that although the

Magistrate Judge originally granted an

evidentiary hearing, he subsequently vacated the evidentiary hearing and then denied

Phelps' demand for permission to supplement the briefs by submitting additional exhibits

(although he did allow Phelps to supplement his briefs with additional authority). See

Appellant's Br. at 24 n.5; Appellant's App. at 312-13, 320, 339. Because each party

filed a substantial number of affidavits and exhibits, see Appellant's App. at 73-280,

285-309, and because Phelps' request to supplement was made more than a year after

briefing was completed and included many exhibits already in the record, we cannot say

that the Magistrate Judge erred in his decision to not consider further evidence. See

Florence Nightingale Nursing Serv. Inc. v. Blue Cross/Blue Shield of Alabama, 41 F.3d

1476, 1485 (11th Cir. 1995) (stating that evidentiary hearings are not required on the

attorney's fee issue).

Phelps also complains that because the Magistrate Judge did not comment on

Phelps' affidavit in his recommendation, he must not have even considered it.

Appellant's Br. at 23. We find this assertion unpersuasive.

5.In the case cited by Phelps, we held that

material misrepresentations about future

plan offerings do not constitute a breach of fiduciary duty under ERISA unless the

misrepresentations were made after the employer had "seriously considered" the future

offering. See Hockett v. Sun Co., 109 F.3d 1515, 1522-24 (10th Cir. 1997).

The

"serious consideration" standard, as defined in Hockett, is inapplicable here.

6.Because the granting of attorney's fees

under ERISA is not to be done as a matter

of course, in Gordon v. United States Steel Corp., we specified five nonexclusive factors

to guide the district court's decision. These factors are:

(1) the degree of the opposing parties' culpability or bad faith; (2) the

ability of the opposing parties to personally satisfy an award of attorney's

fees; (3) whether an award of attorney's fees against the opposing parties

would deter others from acting under similar circumstances; (4) whether

the parties requesting fees sought to benefit all participants and

beneficiaries of an ERISA plan or to resolve a significant legal question

regarding ERISA; and (5) the relative merits of the parties' positions.

Gordon, 724 F.2d at 109. Here, the Magistrate Judge analyzed the Gordon

factors and

found they did not weigh in Phelps' favor. See Appellant's App. at 342-44. We have

reviewed the record, and if we were to address this issue, we could not say the Magistrate

Judge's view of the evidence is unreasonable or unsupported.

7.US West also argues that Phelps'

underlying claim was either unripe because US

West had never reduced or threatened to reduce the pre-1991 retirees' health benefits, is

now moot because of the January 12, 1996, Plan amendment, or is barred by ERISA's

three-year statute of limitations because Phelps should have been aware of the

reservation-of-rights clause when he retired in 1990. Appellee's Br. at 13-15, 21 (citing

ERISA § 413(2)). Because we are affirming the district court's denial of Phelps'

attorney's fees, it is unnecessary for us to address these jurisdictional issues concerning

the underlying action. See Norton ex rel. Chiles v. Mathews, 427 U.S. 524,

532 (1976)

(stating that the Court has reserved difficult questions of jurisdiction "when the case

alternatively could be resolved on the merits in favor of the same party").

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