Attorneys Properly Dismissed From Controversy, But Matter Remanded to See If Employer/Fiduciary Had to Bear Proportionate Fees And Costs Incurred by Plaintiff Employee In Recovering Third Party Tortfeasor/Uninsured Motorist Proceeds.
Well, we do not usually have a lot of ERISA issues to report on. Not today, we do.
CGI Technologies and Solutions, Inc. v. Rose, Case Nos. 11-35127 et al. (9th Cir. June 20, 2012) (for publication) drew a three-judge split decision, a majority (authored by Circuit Judge Gould), a concurrence (authored by Circuit Judge Schroeder), and a dissent (authored by Chief District Judge Beistline, D. Alaska, sitting by designation).
The issues were two-fold as far as fee recovery was concerned: (1) was plaintiff’s attorney properly dismissed as a party where it did not pay itself a fee and escrowed the amount pending proper resolution, and (2) did the district judge have to honor a make-whole contractual provision (giving deference to the benefit of the bargain) or should the court look at equitable defenses for purposes of construing the “appropriate equitable relief” language of section 502(a)(3) of ERISA (29 U.S.C. § 1132(a)(3)).
The facts essentially focused upon an ERISA Plan’s subrogation/reimbursement clauses exempting the employer company from responsibility for fees in a subrogation action and expressly disclaimed application of the common fund doctrine. Plaintiff employee’s attorneys did get some nice recovery from a third-party tortfeasor and uninsured motorist insurer, with employer seeking first priority reimbursement from the recovery for some money it shelled out. Plaintiff’s attorneys carved out and escrowed the disputed reimbursement amount before paying itself for fees incurred in the process. The district judge dismissed the attorneys but did hold employer responsible for some proportional fees/costs incurred by plaintiff in the third-party/insurer matters.
One can say that the Ninth Circuit did agree that the attorneys were properly dismissed. Although they were not signatories to the Plan, they could have been correct parties had they paid themselves fees from the proceeds. They didn’t, so no problem with failing to extend nonsignatory cases to this situation where some financial impact resulted from nonsignatory counsel’s actions.
That brought the appellate court to issue 2, which did produce the differences in opinion. It was apparent that the Ninth Circuit was somewhat unclear on what the district court did, whether honoring equitable principles or whether honoring the contractual bargain. There was a split in federal appeals court thinking on the subject, but the Ninth Circuit (by a 2-1 vote) lined up with the Third Circuit’s reasoning in US Airways, Inc. v. McCutchen, 663 F.3d 671, 679 (3d Cir. 2011), which held that equitable principles did trump contractual plan provisions–keeping in mind that this simply meant that the contractual provisions were not controlling, not that they should not be given proper equitable weight. The dissenting judge thought the Plan governed, but the end result was a remand to make sure the district judge did properly weigh equitable factors in terms of gauging whether fees/costs should be reimbursed to plaintiff employee under section 502(a)(3)’s “appropriate equitable relief” language.