                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-14-2005

Martorana v. Bd Trustees 420
Precedential or Non-Precedential: Precedential

Docket No. 04-1181




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                                         PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT


                    No. 04-1181


            MICHAEL MARTORANA,
                        Appellant
                     v.

  THE BOARD OF TRUSTEES OF STEAMFITTERS
          LOCAL UNION 420 HEALTH,
        WELFARE AND PENSION FUND;
       STEAMFITTERS LOCAL UNION 420


     Appeal from the United States District Court
       for the Eastern District of Pennsylvania
             (D.C. Civil No. 03-cv-01029)
      District Judge: Honorable Stewart Dalzell


              Argued January 25, 2005

Before: SCIRICA, Chief Judge, RENDELL and FISHER,
                  Circuit Judges.

               (Filed: April 14, 2005)

                          1
John N. Salla
Joseph M. Armstrong [ARGUED]
Salla & Armstrong
2001 Market Street, Suite 3410
Two Commerce Square
Philadelphia, PA 19103
  Counsel for Appellant

Margaret M. Underwood [ARGUED]
Jacoby Donner
1515 Market Street, Suite 2000
Philadelphia, PA 19102
  Counsel for Appellee




                OPINION OF THE COURT


RENDELL, Circuit Judge

       Appellant, Michael Martorana, brought suit against the
Board of Trustees of the Steamfitters Local Union 420 Health,
Welfare and Pension Fund (“the Board”) alleging that the Board
improperly denied benefits due to him pursuant to an ERISA
plan. The Board then brought a counterclaim alleging that
Martorana owed $4100 in back contributions toward the cost of
health care coverage from October 1994 to December 1999.




                              2
       The District Court granted summary judgment in favor of
the Board on both Martorana’s claim and the Board’s
counterclaim. The District Court also awarded attorney’s fees
to the Board for Martorana’s claim for increased pension
benefits and directed that these fees be paid by way of the
Board’s withholding no more than $160 per month from
Martorana’s pension benefits. On appeal, we must decide
(1) whether the grant of summary judgment was proper,
(2) whether the order assessing fees against Martorana’s pension
benefits contravenes ERISA and its underlying policies, and
(3) whether the award of attorney’s fees was proper.

            I. Factual and Procedural Background

       Martorana joined the Union on July 27, 1972, and
worked steadily until he sustained a serious injury while
performing work as a Union member on March 21, 1994. He
then began to collect Workers’ Compensation benefits, which he
continued to receive at least through November 2003.

        Martorana applied for Social Security disability benefits
on November 30, 1995, and the Social Security Administration
(SSA) determined that he was eligible for such benefits on
December 14, 1997. Although the SSA found that Martorana
became disabled on March 21, 1994, it awarded benefits
retroactive only to November 1994 because of certain time
restrictions imposed by federal law.



                               3
        In addition to his Workers’ Compensation and Social
Security benefits, Martorana requested, and received, the
Disability Retirement Pension to which he was entitled under
the Union’s Pension Plan. In the summer of 2000, Martorana
first contended that the Board had improperly calculated his
disability pension benefits because, when calculating his length
of service (upon which the amount of pension is based), it failed
to take into account the period during which he received
Workers’ Compensation. At its July 20, 2000 meeting, the
Board rejected Martorana’s claim because under the terms of the
pension plan “credited hours,” but not “contribution hours,”
accrue during the period when a worker is receiving Workers’
Compensation, and the calculation of disability pension benefits
depends on one’s total contribution hours not one’s credited
hours. Martorana appealed this decision unsuccessfully to the
Board.

       While Martorana was making his claim for additional
benefits, the Board demanded that Martorana pay $4400 in past-
due healthcare contributions to the Welfare Plan for the medical
coverage he had received between October 1994 and December
1999. Martorana argued that the Welfare Plan did not require
him to contribute to the plan while he was an “active”
participant. The Board pointed out that he could not be an
“active” participant in the Welfare Plan while simultaneously
receiving benefits under the Pension Plan. When Martorana
resisted contributing to the Welfare Plan, the Board refused to
pay $300 of his medical claims, and it now concedes that the

                               4
amount of Martorana’s past-due healthcare contributions should
be reduced by $300 to $4100.

       Martorana initiated this action in The Delaware County
Court of Common Pleas, alleging that in calculating his years of
service, and in assessing past-due healthcare contributions
against him, the Board failed to comply with the terms of the
Pension Plan and Welfare Plan, respectively, in violation of
ERISA, 29 U.S.C. § 1001, et seq., and requesting declaratory
judgment.

       The Board removed the case and filed a counterclaim for
$4100 in past-due healthcare contributions. On December 22,
2003, the District Court entered an order granting summary
judgment in favor of the Board on all claims and thereafter in
January 2004 entered a further order granting judgment in favor
of the Board for $8,217.08 in attorney’s fees and costs based on
the Pension Plan claim, stating “[d]efendant may collect the
judgment... only by reducing plaintiff’s monthly Disability
Retirement Pension by an amount not to exceed $160.00 per
month.” The District Court noted “awarding the attorneys fees
and costs incurred in defending Martorana’s claim for additional
pension benefits serves the socially useful purpose of deterring
similar unfounded claims that consume courts’ limited
resources.”

         Martorana filed two unsuccessful motions for
reconsideration in the District Court and now appeals to us. On

                               5
appeal, we must decide whether the grant of summary judgment
against Martorana on the Pension Plan claim and the Welfare
Plan claim were proper, whether the order allowing essentially
for a monthly set-off of Martorana’s pension benefits violates
ERISA and its underlying policies, and whether the award of
attorney’s fees was appropriate. We find that the grant of
summary judgment was appropriate, but that the District Court
erred in both the award of attorney’s fees and the manner in
which it ordered them to be paid. Accordingly, we will reverse
in part and remand to the District Court.

       The District Court had jurisdiction pursuant to ERISA, 29
U.S.C. § 1132(e) and general federal question jurisdiction
pursuant to 28 U.S.C. § 1331. We have jurisdiction over this
appeal under 28 U.S.C. § 1291.

                        II. Discussion

                    A. Summary Judgment

       Martorana brought his claims pursuant to 29 U.S.C.
§ 1132(a)(1)(B), invoking his right to sue under ERISA to
“recover benefits due to him under the terms of the plan, to
enforce his rights under the terms of the plan, or to clarify his
rights to future benefits under the terms of the plan.” We
exercise plenary review over the District Court's decision to
grant summary judgment. See Blair v. Scott Specialty Gases,
283 F.3d 595, 602-03 (3d Cir. 2002). We apply the same

                               6
standard as used by the District Court. Id.

       In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,
115 (1989), the Supreme Court stated that “a denial of benefits
challenged under § 1132(a)(1)(B) is to be reviewed under a de
novo standard unless the benefit plan gives the administrator or
fiduciary discretionary authority to determine benefits or to
construe the terms of the plan.” In the present case, the Pension
Plan gives the Board “the sole and absolute discretion to
determine eligibility for benefits under the Plan, and to construe
and interpret the provisions of the Plan...” Similarly, the
Welfare Plan provides that “[t]he Trustees shall have the sole
and absolute discretion to determine eligibility for benefits
under the Plan of Benefits, and to construe and interpret the
provisions of the Plan of Benefits and this Trust Agreement...”
Therefore, we must determine whether the decisions of the
Board in rejecting Martorana’s claims for increased pension
funds and requiring payment of back healthcare premiums were
arbitrary and capricious.

       We will overturn the decisions of the Board only if they
were “without reason, unsupported by the evidence or
erroneous as a matter of law. This scope of review is narrow,
and ‘the court is not free to substitute its own judgment for that
of the [administrator] in determining eligibility for plan
benefits.’” Mitchell v. Eastman Kodak Co., 113 F.3d 433, 439
(3d Cir. 1997) (citations omitted).


                                7
       We have little difficulty concluding that the Board’s
ruling was not arbitrary or capricious. As noted above,
Martorana seeks to ignore the plain provisions of the plan that
provide that only credited hours accrue during the period when
a worker is receiving Workers’ Compensation, and the
calculation of disability pension benefits depends not on total
credited hours, but rather on contribution hours. Martorana’s
refusal to recognize this renders his claim, as noted by the
District Court, totally lacking in merit.

       Furthermore, we find that the Board’s determination that
Martorana was a Retiree, and, therefore, required to make
contributions to the healthcare fund, was supported by ample
evidence, and, more specifically, by the clear terms of the plan.
We, therefore, find that neither decision by the Board was
arbitrary or capricious, and will affirm the District Court’s grant
of summary judgment on both.

           B. Equitable Set-off of Pension Benefits

       The District Court’s award of attorney’s fees, discussed
more fully below, was accompanied by its allowance of a
monthly set-off of Martorana’s pension benefits as the method
of payment of those fees. Martorana contends on appeal that
the District Court’s order effected an attachment or equitable




                                8
set-off of his pension benefits that contravenes ERISA policy.1


  1
    Appellees contend that the issue of equitable set-off is not
properly before us because in his Notice of Appeal Martorana
only stated that he was appealing the December 22, 2003 Order
of the District Court, which granted summary judgment to the
Board on both claims and awarded the Board attorney’s fees
with respect to Martorana’s increased pension claim. However,
under Fed. R. App. P. 4, this Notice was required to be filed
within thirty days of the December 22, 2003 Order and,
therefore, would have had to have been filed before the District
Court issued the order allowing for equitable set-off on January
26, 2004. Subsequently, in his Concise Summary of the Case,
filed with this Court on February 2, 2004, Martorana specifically
stated that he was appealing “the order of the lower court
wherein his pension benefits are subject to garnishment.” As we
have noted in the past, we “will exercise appellate jurisdiction
over orders that are not specified in the notice of appeal where:
(1) there is a connection between the specified and unspecified
orders; (2) the intention to appeal the unspecified order is
apparent; and (3) the opposing party is not prejudiced and has a
full opportunity to brief the issues.” Polonksi v. Trump Taj
Mahal Associates, 137 F.3d 139, 144 (3d Cir. 1998).
Furthermore, “[i]n the attorney’s fees context, this court has
found that ‘an adequate connection exists between a specified
order that designates the prevailing party for purposes of
attorney’s fees and an unspecified order that quantifies the
attorney’s fee award.” Id. (citations omitted). Therefore, we
have little difficulty concluding that the issue of equitable set-
off as a means to recoup attorney’s fees is properly before us on

                                9
He also contends that the allowance of equitable set-off violates
the terms of the Pension Plan itself, and Pennsylvania law. We
find that the equitable set-off does contravene ERISA and
ERISA policy, and need not discuss Martorana’s other two
contentions.2 ERISA § 206(d)(1) mandates that “[e]ach pension
plan shall provide that benefits provided under the plan may not
be assigned or alienated.” 29 U.S.C. 1056(d)(1) (2005). At first
glance, therefore, it would seem that any attempt to attach
pension funds would violate the statute. However, in the past,
we have recognized certain exceptions to ERISA’s anti-
attachment provisions. Specifically, in Coar v. Kazmir, 990
F.2d 1413 (3d Cir. 1993), a plan fiduciary, who was also a plan
participant, challenged the reduction of his pension benefits to
allow the plan to recoup the damages he caused when he
engaged in a conspiracy to obtain kickbacks in exchange for
channeling $20 million from the pension fund’s assets. In Coar,
we held that such a reduction was permissible. In doing so, we
observed the apparent conflict between two ERISA sections -
Section 206(d)(1) and Section 409(a). For, Section 409(a)



appeal.
    2
      Our review of the District Court’s determination that
equitable set-off was a permissible means by which the Board
could recover attorney’s fees involves examination of a
conclusion of law. Therefore, our review of this issue is de
novo. Allen-Myland, Inc. v. IBM Corp., 33 F.3d 194, 201 (3d
Cir. 1994).

                               10
mandates that a person who breaches his or her duties to a
pension fund “shall be personally liable to make good to such
plan any losses to the plan resulting from such breach... and
shall be subject to such other equitable relief as the court may
deem appropriate...” 29 U.S.C. § 1109(a) (2005). We,
therefore, concluded that in the context of a restoration of plan
funds due to a fiduciary breach, ERISA permits attachment of
or setoff against the pension benefits of a fiduciary/plan
participant who has committed the breach.

       However, in arriving at this conclusion, we observed the
caution with which the Supreme Court has approached the
subject of attachment of ERISA pension plan benefits. In
Guidry v. Sheet Metal Workers Nat'l Pension Fund, 493 U.S.
365, 376 (1990), the Court warned:

               Nor do we think it appropriate to approve
       any generalized equitable exception -- either for
       employee malfeasance or for criminal misconduct
       -- to ERISA's prohibition on the assignment or
       alienation of pension benefits. Section 206(d)
       reflects a considered congressional policy choice,
       a decision to safeguard a stream of income for
       pensioners (and their dependents, who may be,
       and perhaps usually are, blameless), even if that
       decision prevents others from securing relief for
       the wrongs done them. If exceptions to this policy


                               11
       are to be made, it is for Congress to undertake
       that task.

         As a general matter, courts should be loath to announce
equitable exceptions to legislative requirements or prohibitions
that are unqualified by the statutory text. The creation of such
exceptions, in our view, would be especially problematic in the
context of an antigarnishment provision. Such a provision acts,
by definition, to hinder the collection of a lawful debt. A
restriction on garnishment therefore can be defended only on
the view that the effectuation of certain broad social policies
sometimes takes precedence over the desire to do equity
between particular parties. It makes little sense to adopt such a
policy and then to refuse enforcement whenever enforcement
appears inequitable. A court attempting to carve out an
exception that would not swallow the rule would be forced to
determine whether application of the rule in particular
circumstances would be ‘especially’ inequitable.             The
impracticability of defining such a standard reinforces our
conclusion that the identification of any exception should be left
to Congress.

       Therefore, in undertaking our analysis in this case, we do
so with the cautionary advice of the Supreme Court in mind.
Because the present case is factually and legally distinguishable
from Coar, we decline to extend the exception to ERISA’s anti-
garnishment provision to encompass the equitable set-off of
pension benefits here. First, while Coar involved a perceived

                               12
conflict between two sections of ERISA, §§ 206(d) and 409(a),
the case before us presents no such conflict. We are not called
upon to reconcile two seemingly contradictory sections of the
statute; rather, we must only determine whether an additional
exception to § 206(d) should be made when a plan participant
becomes obligated to pay the plan’s fees when he brings a
frivolous lawsuit. No other section of ERISA even speaks to
this situation, much less mandates an exception in this
circumstance.

        Second, we are not confronted with a breach of fiduciary
duty, as in Coar. Rather, unlike in Coar where a fiduciary who
was also a plan participant knowingly deprived the plan of
millions of dollars, in this case, Martorana simply exercised his
right to bring suit under ERISA in order to determine his
entitlement to certain benefits. This is the very purpose of 29
U.S.C. § 1132(a)(1). It does not follow from the District
Court’s determination that Martorana’s suit over the pension
benefits was frivolous that we should allow for recoupment of
attorney’s fees from the benefits. In Coar we were faced with
deliberate, criminal behavior by a plan fiduciary which led to
depletion of the fund. In allowing equitable set-off of Coar’s
liability to the pension fund against his own benefits, we were
seeking to promote the purposes underlying ERISA. As we
stated:

       Neither does the legislative history of
       § 206(d)(1), which courts have described as

                               13
       ‘sparse’ and ‘inconclusive’ indicate[s] that a
       dishonest trustee should be shielded from the
       consequences of a breach of fiduciary duty. On
       the contrary, the ‘only available [legislative]
       history states that the objective of the provision
       was to ‘further ensure that the employee’s
       accrued benefits are actually available for
       retirement purposes...’ If, as indicated by the
       legislative history, the anti-alienation provision is
       intended to ‘protect plan beneficiaries by
       ensuring that plan assets are used only for
       payment of benefits’ we think that Congress’s
       purpose ‘would be undermined, not advanced, by
       an interpretation that prohibited offset under
       these circumstances,’ because the Pension Fund’s
       assets would be dissipated further through
       payments to those who had looted the fund rather
       than being preserved for the beneficiaries’ use.
       Coar, 990 F.2d at 1420 (citations omitted).

       While Appellees argue that this rationale should lead us
to extend Coar’s reasoning to the case at hand, we decline to do
so. While it may be argued that plan participants, like
Martorana, who bring suits which are ultimately found to be
frivolous, deserve the same treatment as fiduciaries who breach
a duty to the Plan and “loot” the fund, we are not persuaded.
For, unlike a deliberate looter, a plan participant who, in
earnest, but in error (and perhaps obstinately) seeks to enforce

                                14
or clarify plan rights he believes he has, does not act with
complete disregard for the well-being of the very fund which he
is supposed to help manage. The fact that ERISA allows for the
award of attorney’s fees to the prevailing party at the discretion
of the court in suits such as the one brought by Martorana is
generally sufficient, we believe, to prevent plaintiffs from
bringing suits which they know or strongly suspect to be
without merit. There is no need to increase deterrence by
running afoul of the statutory prohibition and assessing fees
against the pension benefits of such participants.

        Finally, in 1997, Congress amended § 206 to specifically
allow for the set-off of pension benefits in several specific
situations. Congress listed among these the very situation
presented in Coar, namely when a fiduciary breaches his duty to
the plan. 29 U.S.C. § 1056(d)(4)(A)(ii).3 None of the
amendments to § 206, however, specifically apply to the
situation we are faced with here and we refuse to craft another


  3
     The other exceptions provided by Congress allow for offset
when it is ordered under a judgment of conviction for a crime
involving the pension plan and when offset is ordered pursuant
to a settlement agreement between the Secretary and the plan
participant, or a settlement agreement between the Pension
Benefit Guaranty Corporation and the participant, in connection
with a violation (or alleged violation) of fiduciary duty, by a
fiduciary or any other person. 29 U.S.C. § 1056(d)(4)(A)(i) and
(iii).

                               15
exception to § 206 where Congress has not recognized one.
Therefore, for the reasons stated above, we hold that the
allowance of equitable set-off of attorney’s fees from
Martorana’s pension benefits by the District Court contravenes
ERISA policy and we will, therefore, reverse this order and
remand for proceedings consistent with this opinion.

                 C. Award of Attorney’s Fees

       Finally, on appeal, Martorana challenges the District
Court’s award of attorney’s fees in this case. As noted above,
the District Court has discretion to award attorney’s fees to
either party in an ERISA suit. See 29 U.S.C. § 1132(g)(1)
(2005). We have previously required that district courts
consider several factors before awarding such fees. These
include: (1) the offending party’s culpability or bad faith;
(2) the ability of the offending parties to satisfy an award of
attorney’s fees; (3) the deterrent effect of an award of attorney’s
fees; (4) the benefit conferred upon members of the pension
plan as a whole; and (5) the relative merits of the parties’
positions. Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d
Cir. 1983).

        Martorana contends that the District Court erred in
giving too little weight to the first factor, Martorana’s lack of
bad faith, and too much weight to the others. Because we find
that the District Court gave insufficient weight to the second
factor, Martorana’s ability to pay, we will reverse the award of

                                16
attorney’s fees and remand for further consideration.

        In considering Martorana’s ability to pay, the District
Court found that the record did not contain sufficient evidence
to determine whether or not he could pay an award of attorney’s
fees, but did note that “[i]t seems likely that these fees and costs
are not large and that the Board could recoup them by reducing
Martorana’s monthly Disability Retirement Pension by an
affordable amount for a few years.                   Our hunches
notwithstanding, we will not make a final finding as to
Martorana’s ability to pay at this time.” Instead, the District
Court determined that the monthly set-off from the pension
benefit he was to receive would be appropriate. Indeed, the
District Court appeared to be trying to help Martorana by
requiring the plan to look only to this monthly allocation for
satisfaction of the fee award, perhaps in recognition of
Martorana’s probable lack of other resources. Putting aside the
possibility of the equitable set-off, the District Court made no
other finding as to Martorana’s ability to pay. Because
articulation by the District Court of its analysis and conclusions
on each of the five Ursic factors is mandated under our case law
before an award is entered, See McPherson v. Employee’s
Pension Plan of American Re-Insurance Co., Inc., 33 F.3d 253,
254 (3d Cir. 1994), we hold that the District Court’s failure to
consider Martorana’s ability to pay without the possibility of
equitable set-off was error. We will therefore reverse the award
of attorney’s fees and remand for further proceedings consistent
with this opinion.

                                17
                      III. Conclusion

       Based on the reasoning above, we will AFFIRM the
December 22, 2003 order of the District Court granting
summary judgment to the Board on both claims. However, we
will REVERSE the January 26, 2004 order of the District Court
granting attorney’s fees to the board and allowing for their
recoupment through an equitable set-off of Martorana’s
monthly pension benefits.

_________________________________




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