Credit Managers Ass'n of Southern California v. Kennesaw Life & Accident Insurance
Docket: Nos. 91-55070, 91-55447 and 91-55789
Court: Court of Appeals for the Ninth Circuit; May 19, 1994; Federal Appellate Court
CMA appeals the district court's award of attorney's fees to Kennesaw Life and Accident Insurance Company under ERISA, along with the denial of its motion to quash a writ of execution for judgment enforcement. The case involves CMA, appointed as a receiver for insolvent health insurers, bringing an action against Kennesaw in 1983 on multiple claims, including ERISA violations. The district court granted Kennesaw summary judgment on all but the ERISA claim, which was remanded. After a bench trial in 1990, Kennesaw's motion for involuntary dismissal was granted, leading to the fee award of $600,178.29 in March 1991, covering the period post-remand. CMA contests the fee award, claiming Kennesaw waived its request by not including it in its initial answer and that the court lacked authority due to the absence of a final pretrial order. The court finds CMA's arguments unpersuasive, noting that CMA had sufficient notice and opportunity to address the fee issue. The judgment is partially affirmed, partially reversed, and remanded.
Kennesaw submitted a pretrial conference order to the district court, requesting attorney’s fees under 29 U.S.C. § 1132(g)(1), which was approved and signed by CMA's trial counsel, notifying CMA of Kennesaw's intent to seek fees if successful. Although the district court's signing of the order is unconfirmed, Kennesaw raised the fee issue in multiple documents and at trial, leading to two hearings on the matter. The court found that Kennesaw adequately presented its fee request, and thus the district court acted within its rights to consider it.
CMA contested the fee award, arguing it lacked proof of being a fiduciary of an ERISA plan, which would negate the court's authority to grant fees. However, the court noted that under 29 U.S.C. § 1132(g)(1), courts have discretionary power to award fees in ERISA-related actions. Previous rulings established that CMA had standing to bring an ERISA claim based on its assertion that employers in the COMPETE organization created their own ERISA plans. Although CMA failed to prove the existence of such plans at trial, the court determined that CMA had consistently claimed fiduciary status and standing throughout the litigation process, justifying the fee award to Kennesaw. The court distinguished CMA's case from M. R Investment Co. v. Fitzsimmons, where the plaintiff did not assert ERISA-related claims, thereby reinforcing the appropriateness of awarding fees to Kennesaw despite CMA's evidentiary failures.
M. R sought to establish it was not a 'party in interest' to the ERISA plan related to its loan, contrasting sharply with CMA's situation where it claimed to be the fiduciary of an ERISA plan for eight years. CMA's reliance on Downey Community Hosp. v. Wilson is ineffective; in Downey, the employer pursued a declaratory judgment regarding health services under its ERISA plan, and the court ultimately denied attorney’s fees to a stop-loss insurer, ruling it was not a prevailing party under ERISA. The court emphasized that awarding fees to insurers could deter beneficiaries from pursuing legitimate claims. In contrast, CMA's direct action against Kennesaw, asserting it as an ERISA fiduciary, grants CMA standing. Awarding attorney’s fees to Kennesaw would align with ERISA's purpose by discouraging baseless claims. Previous cases cited by CMA that oppose attorney’s fee awards against ERISA plaintiffs involved individuals unsuccessfully seeking benefits; those cases applied different equitable factors than those applicable to CMA. Thus, CMA's situation warrants a separate analysis regarding the award of attorney’s fees.
CMA challenges the district court's award of attorney’s fees to Kennesaw, claiming misapplication of the Hummell factors, which guide the court's discretion in such decisions. The factors include the opposing party's culpability or bad faith, ability to pay fees, deterrent effect on future claims, the benefit to all ERISA participants, and the relative merits of the positions. The district court found that all five factors favored Kennesaw: CMA exhibited bad faith by pursuing a claim lacking evidence, had the financial capacity to pay fees, a fee award would deter similar groundless claims, significant legal issues were resolved in an earlier case (CMA I), and CMA's litigation efforts were primarily aimed at securing a settlement rather than genuinely addressing the claims of defrauded beneficiaries. On appeal, CMA argues against the finding of bad faith, citing the district court's prior rulings that suggested the case had merit. However, the district court clarified that its decision to proceed to trial was based on CMA's misrepresentations, as CMA failed to adequately identify unpaid claimants or substantiate its claims regarding the total amount owed. Despite multiple meetings aimed at clarifying CMA's position, the court received no satisfactory explanations, leading to its frustration and decision to allow the trial to proceed.
The district court properly evaluated the evidence independently in relation to CMA's pre-trial motion, fulfilling its obligation effectively. The court found that CMA could not reasonably believe it could prove its ERISA claim against Kennesaw after the remand in CMA I. Consequently, CMA's favorable pretrial rulings were based on unfounded representations, leading to no merit in CMA's claim of bad faith. CMA's assertion regarding its inability to pay the fee award was not considered, as it was not raised in the district court and lacked exceptional circumstances, adhering to the established rule that issues not raised below are not entertained on appeal.
The remaining Hummell factors favored Kennesaw in awarding attorney's fees, with CMA’s appeal failing to present valid reasons to overturn the district court's findings. The district court's approach to determining the fee award amount involved calculating a 'lodestar' by multiplying reasonable hours worked by a reasonable hourly rate. The court confirmed the reasonableness of Kennesaw’s counsel's hours and rates, considering the complexities of the case and CMA’s persistent legal arguments, and concluded that the lodestar figure should not be adjusted.
Kennesaw’s segregated fees and costs after remand were deemed appropriate for the award. The district court appropriately assessed the relevant Kerr factors without needing to address every single factor explicitly, supported by detailed billing records. There was no abuse of discretion in determining the fee amount. Regarding CMA’s motion to quash the writ of execution, the court agreed with CMA that Kennesaw could not enforce the judgment through execution under California law, which requires presenting claims to the Orange County Superior Court that appointed CMA as receiver.
In California, a judgment against a receiver is limited to a claim against the assets they control and is not enforceable via execution; payments are determined solely by the court overseeing the receivership. A receiver can only be held liable in their official capacity for negligence to those not benefitting from the receivership, with recovery charged against the receivership estate. However, if a receiver mismanages the estate, they can be held personally liable for damages upon final accounting. Kennesaw claims that CMA is personally liable for a fee due to bad faith actions post-remand, but any such claim must be presented to the state court with CMA's final report. Furthermore, Kennesaw argues that California receivership law is preempted by ERISA. However, ERISA does not regulate the enforcement mechanisms of creditors against ERISA plaintiffs, allowing California law to apply. The court concludes that the enforcement of the judgment should occur in state court, as California receivership law does not conflict with ERISA, and therefore, the district court incorrectly denied CMA’s motion to quash the writ of execution.
Kennesaw's request for attorney's fees on appeal was denied after evaluating the five Hummell factors, which guide fee awards under 29 U.S.C. § 1132(g). The court found that Kennesaw did not merit such an award and also rejected the request under Fed. R. App. P. 38, determining that the appeal was not frivolous since it did not present obvious or wholly without merit arguments. The court affirmed the district court's award of attorney's fees to Kennesaw but reversed the denial of CMA’s motion to quash the writ of execution, remanding the case with instructions to quash the writ. Each party would bear its own costs and fees for this court proceeding. Additionally, the court clarified that a finding of bad faith by an ERISA plaintiff is not a prerequisite for awarding attorney's fees against them. However, the court rejected CMA's claim of being solely responsible for litigation mishandling, affirming that Section 1132(g)(1) allows for fee awards against either party involved in the litigation. Kennesaw's argument citing Garris v. Mitchell was deemed misplaced, as it did not support the claim regarding the writ of execution, emphasizing that Kennesaw must present its claim against CMA in the relevant state court.
