NOT FOR PUBLICATION
ELAINE ZEE, INDIVIDUALLY AND AS PLAN ADMINISTRATOR OF LIGHTING WORLD,
INC. EMPLOYEES PROFIT-SHARING PLAN; DELAWARE CHARTER GUARANTEE &
TRUST COMPANY, TRUSTEE OF LIGHTING WORLD, INC. EMPLOYEES PROFIT-SHARING
PLAN; BRUCE BELFER; LINDA MERLING; MARC BELFER; LIGHTING WORLD, INC.
Appellants No. 97-5725
NORBERT S. BELFER, Deceased; CORRINE BELFER,
As Executrix fo the Estate of Norbert S. Belfer, Deceased
ELAINE ZEE, Individually and as Plan Administrator
of Lighting World, Inc. Employees Profit-Sharing Plan; DELAWARE
CHARTE GUARANTEE & TRUST COMPANY, Trustee of Lighting World, Inc.
Employees Profit-Sharing Plan; BRUCE BELFER; LINDA MERLING; MARC BELFER;
LIGHTING WORLD, INC.
Appellants No. 98-5153
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 97-1445)
Argued August 3, 1998
Before: NYGARRD, ALITO, and RENDELL, Circuit Judges
(Opinion Filed: Sep 22 1998)
RENDELL, Circuit Judge:
Appellants, Elaine Zee et al., challenge the district court's grant of summary judgment in favor of Corinne Belfer.1 We will affirm the grant of summary judgment in part and reverse in part. Further, we will remand the issue of attorney's' fees to be reconsidered by the district court in light of this opinion.
Norbert Belfer and Linda Merling were married for thirty years and had three children: Elaine Zee, Bruce and Mark.2 Until 1994, Norbert and Linda owned and operated a business called Lighting World, Inc. ("LWI"), a closely held corporation; the Board of Directors consisted of Norbert, Linda, and their children, Elaine and Bruce, both of whom are LWI employees. The couple divorced in 1990 and signed a settlement agreement which related to the distribution of their marital property. In the specific provision of the agreement at issue in this case, the parties agreed to make their children "equal co-beneficiaries" of their LWI profit-sharing plans. Norbert subsequently married Corinne.
From the time of the divorce until April of 1994 Norbert Belfer continued as CEO and 50% shareholder of LWI. At that time, Norbert claimed that he had been forced out of the company and initiated legal proceedings against the other LWI Directors in state court. In 1996, the New Jersey Chancery Court found that Norbert Belfer had been removed from his position and was no longer employed by Lighting World. On December 4, 1996, Norbert Belfer contacted Elaine Zee, who had become the plan administrator for LWI's benefits, and requested an immediate lump-sum distribution of the proceeds of his profit-sharing plan on the basis that he had been terminated.3 A few weeks later Nobert Belfer learned that he was suffering from cancer. He again contacted Zee and requested distribution of the proceeds of the account on the basis of disability. In February of 1997, Zee denied both of Norbert Belfer's requests for disbursement of the profit-sharing funds.
Nobert Belfer brought suit in federal court challenging Zee's refusal to disburse plan funds to him. In April the district court ordered the parties to adopt an interim agreement concerning the provision of funds sufficient to meet the Norbert's medical needs. Norbert Belfer died on April 28, 1997. Subsequently, Corinne Belfer was substituted for Norbert Belfer pursuant to Federal Rule of Civil Procedure 25(a)(1). Both Corinne Belfer and Zee filed motions for summary judgment. The district court granted Corinne Belfer's motion.
Appellants contest the district court's grant of summary judgment and argue that Norbert Belfer was not entitled to the proceeds of the plan because he had entered into a property settlement agreement ("PSA") in 1990 which constituted a qualifed domestic relations order ("QDRO") under ERISA. Appellants argue that a provision in the PSA stating that all of the proceeds of the account should go to Norbert Belfer's three children rather than to Mr. Belfer should be recognized under the QDRO exception to ERISA's prohibition against alienation.
Under ERISA, profit-sharing plans are treated like pension plans. Generally, ERISA prohibits the alienation of pension benefit plans. 29 U.S.C. §1056(d)(1). The purpose of this "spendthrift" provision is to ensure that pension plans are not transferred to third parties thus depriving the plan participants of their retirement savings. Therefore, agreements which assign rights in the proceeds of pension plans are generally unenforceable.
However, in 1984 Congress enacted the Retirement Equity Act ("REA"). The purpose of the legislation was "primarily to safeguard the financial security of widows and divorcees." Ablamis v. Roper, 937 F.2d 1450, 1453 (9th Cir. 1991). The Act required pension plans to provide automatic survivor benefits to spouses of deceased plan participants. 29 U.S.C. §1055. Further, the Act created an exception to the antialienation provisions of ERISA whereby the proceeds of a pension plan could be alienated or assigned pursuant to a "qualified domestic relations order" ("QDRO"). 29 U.S.C. §1056.
In order to qualify as a QDRO, an agreement must include:
(2) the amount or percentage of benefits payable to an alternate payee or a manner of determining the amount or percentage,
(3) the number of payments or period affected by the order, and
(4) the plan to which the order applies.
§1056(d)(3)(B)(i)(I). These requirements are designed to make certain that alienation is intended, and to alleviate the burden and risk of interpretation that vague provisions may create for those administering the plans. See Metropolitan Life Ins. Co. v. Wheaton, 42 F.3d at 1080, 1083 (7th Cir. 1994).
The PSA contained the following language:
Appellants argue that this agreement constitutes a QDRO and that Norbert Belfer irrevocably assigned the profit-sharing plan benefits to his children. Corinne Belfer contends that the agreement does not meet the QDRO requirements and thus the PSA is unenforceable pursuant to ERISA's antialienation provisions.
The district court held that the failure of the PSA to list the names and addresses of the alternate payees was not fatal because all parties -- including the plan administrator -- were aware of the location of the beneficiaries. The court similarly found that all parties knew the profit-sharing plan to which the PSA referred so its misidentification in the PSA did not necessarily defeat the establishment of a QDRO. The court also determined that the words "equal co-beneficiaries" clearly established that each child was to receive a third of all of the proceeds of the plan. See Metropolitan Life Ins. Co. v. Person, 805 F.Supp. 1411, 1416 (E.D. Mich. 1992). However, the district court then held, as is discussed below, that the PSA was not a QDRO because it failed to adequately set forth the number of payments or the period affected by the order and these terms could not be inferred from the circumstances of the case. We agree.
Appellants contend that the language of the agreement indicates that the parties intended the PSA to create an inter vivos assignment and that the number of payments and time of payment could be determined by looking at the plan documents which required that the plan pay out benefits in a lump-sum upon the occurrence of certain events -- death, retirement, disability.
We note first that the intent of the parties is not dispositive in determining whether a PSA qualifies as a QDRO. See Hawkins v. Comm'n of Internal Revenue, 86 F.3d 982, 989 (10th Cir. 1996). The language of the agreement must be clear, and here it is not. The PSA fails to specify the number of payments or the period affected by the order as required by statute. There is no indication of when the funds are to be transferred to the three children or when their purported interest is to arise. In fact, the lack of clarity is manifest by the instant litigation. To the extent that appellants' argument relies on reference to the plan documents to supply missing terms, the plan does not address appellants' rights and is of no assistance. Further, even if the intent of the parties or later actions of those with an arguable interest in the funds could elucidate the parties' language, we find nothing to assist our search for clarity.4
The policy behind the antialienation provisions of ERISA and the narrow QDRO exception also supports this outcome. Under the plan at issue in this case, a participant may collect pension benefits upon disability, retirement, termination or death. Appellants argue that the same events should have triggered the transfer of funds to the children. This result runs counter to the entire policy behind ERISA and the antialienation provisions that insures that the employee who has earned these benefits has access to them when in need. The fact that the district court in this case had to fashion an interim agreement to provide for the costs of Norbert Belfer's medical care during the period of this litigation underscores that such a result would be not be consistent with ERISA's general goals of ensuring that workers have adequate income during their retirement or periods of disability.
As the district court noted, courts which have accepted as QDROs contract provisions similar to the one in this PSA have generally done so in cases involving life insurance benefits or the immediate distribution of pension benefits pursuant to an alimony or child support agreement. Op. at 11 (citing cases). Here, we agree that in order to accept the position that the funds should have been transferred to the beneficiaries upon Norbert Belfer's termination, retirement or disability, "the court would have to find that the parties intended to convert the deceased's pension account into a quasi-trust fund for the children, a fund which continued to accrue monies and was completely inaccessible to the deceased." Op. at 12. As the language of the agreement at issue in this case does not clearly set forth the requisite payments or the period affected by the order, we will affirm the district court's holding that the PSA does not constitute a QDRO.5
This district court also determined that the plan administrator, Zee, breached her fiduciary duty in failing to distribute the funds to Norbert Belfer inter vivos when he became disabled. Our review of the district court's legal conclusion is plenary.
Because the plan administrator was had discretion to interpret and construe the terms of the plan, the court must determine whether the denial of benefits constituted an abuse of her discretion in acting as a fiduciary. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).6 However, when, as in this case, the plan administrator has an obvious conflict of interest, other circuits have held that this analysis is modified in that "when a plan participant demonstrates a substantial conflict of interest on the part of the fiduciary, the burden shifts to the fiduciary to prove that its interpretation of plan provisions committed to its discretion was not tainted with self-interest." See Brown v. Blue Cross & Blue Shield of Alabama, 898 F.2d 1556, 1566 (11th Cir. 1990); Miller v. Metropolitan Life Ins. Co., 925 F.2d 979, 984 (6th Cir. 1991). In order to make this assessment, the court must first evaluate the claim de novo and decide if the fiduciary's interpretation of plan provisions was wrong. If the decision was wrong, the court must determine whether the decision was unreasonable. If the decision was wrong, but reasonable, the court will then decide if the administrator's position advanced the interest of the administrator at the expense of the affected party. Op. at 15-16.
Norbert Belfer's initial request for disbursement of the funds was based on the state court finding that he had been terminated from his job at LWI. The district court properly concluded that Zee did not act unreasonably in denying the request based on the fact that the state court decision was being appealed. The district court then evaluated Norbert Belfer's second request -- based on his disability. Using the analysis set forth above, the court found that Zee was "wrong" in failing to disburse the funds since Norbert Belfer had provided proof of his disability which satisfied the plan's definition. Zee gave two reasons for the denial: (1) that Norbert Belfer was in fact employed at another business and (2) that no funds could be disbursed until the QDRO issue was resolved. The district court found the first reason for denial to be unreasonable and tainted with self-interest as Zee had no proof of Norbert Belfer's employment and did not seek to conduct a fuller investigation. Thus, the district court found that Zee had violated her fiduciary duty.
However, in so holding, the district court never considered Zee's second reason for denying the benefits -- that she was awaiting the resolution of the QDRO issue. The court's earlier determination that the PSA was not a QDRO did no obviate the need to consider whether the QDRO conflict served as a reasonable basis upon which to deny Belfer's request. In fact, we find that the QDRO question was a legitimate one and that, therefore, Zee acted reasonably in deferring payment of their proceeds.7 A plan administrator has a duty to pay the appropriate beneficiary, not to pay the first one to make a claim. See Carland v. Metropolitan Life Ins. Co. 935 F.2d 1114, 1121-22 (10th Cir. 1991). As the district court recognized in its opinion regarding attorneys' fees, it is likely that no matter what decision Zee had made about disbursement of the profit-sharing account, the QDRO issue would eventually have been resolved through litigation. Zee was justified in not making a disbursement until the issue was decided. Accordingly, we will reverse the district court's determination that Elaine Zee breached her fiduciary duty by not distributing the proceeds to Norbert Belfer upon his disability.
Attorneys' fees and costs may be awarded to prevailing parties in ERISA actions at the discretion of the court. 29 U.S.C. §1132(g)(1). The district court awarded the plaintiff, appellee here, attorneys' fees of $46,730.23. We review for abuse of discretion. See Ellison v. Shenango Inc. Pension Bd., 956 F.2d 1268, 1273 (3d Cir. 1992).
We consider the following factors when reviewing a district court's decision to award attorneys' fees under ERISA:
2) the ability of the offending parties to satisfy an award of attorneys' fees;
3) the deterrent effect of an award of attorneys' fees against the offending parties;
4) the benefit conferred on members of the pension plan as a whole; and
5) the relative merits of the parties' positions.
See Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir. 1983). Each factor should be evaluated "in balance and relationship to the others." Ellison, 956 at 1278. In considering these factors, the district court found that the first three weighed in favor of the plaintiff, the last two in favor of the defendant, and then awarded attorneys' fees to the plaintiff.
In evaluating the first factor, the court found that because Zee had "acted under the influence of an impermissible conflict of interest" and had been negligent in not determining whether the PSA constituted a QDRO, she acted culpably. However, as we have determined that Zee did not violate her fiduciary duty, we believe that the district court erred in weighing this factor heavily against appellants. We note that while it is true that bad faith is not required under this factor, in other cases in which culpability was found, the courts used words like "frivolous" and "meritless." See, e.g., Monkelis v. Mobay Chem., 827 F.2d 935 (3d Cir. 1987); Tobin v. General Elec. Co., 1996 WL 730551 (E.D. Pa. Dec. 11, 1996). We will remand for the district court to re-examine the Ursic factors and perform again an assessment of their relative weight, in light of our holding as to the absence of a breach of fiduciary duty on Zee's part.8
We will affirm the judgment of the district court with respect to the determination that the agreement at issue does not qualify as a QDRO under ERISA. We will reverse the district court's finding that Zee breached her fiduciary duty. We will remand the case for the district court to address the issue of attorneys' fees consistent with this opinion.
TO THE CLERK OF THE COURT:
Please file the foregoing not-for-publication opinion.
DATED: SEP 22 1998
1 The district court had jurisdiction through 28 U.S.C. §1331 as this action arises under ERISA. This court reviews the appeal from the district court's final order pursuant to 28 U.S.C. §1291. The district court's grant of summary judgment is subject to plenary review. The district court's decision to award attorneys' fees is reviewed for abuse of discretion.
2 As the procedural history of this case is recited in the district court opinion, we need not review that history here.
3 In January of 1997, Norbert Belfer submitted a beneficiary designation form to Zee naming Corinne Belfer as his primary beneficiary and his estate as the contingent beneficiary.
4 Certainly, Norbert Belfer's requests for disbursement of the profit-sharing funds upon his termination and disability demonstrate that he believed he had a right to the money during his lifetime. In addition, Zee permitted Norbert Belfer to borrow against the plan indicating that she believed that he still had right to money in the fund. This action conflicts with appellants' current assertion that the PSA clearly evidences an intent to create a lump-sum transfer of the proceeds of the account upon Norbert Belfer's death retirement or disability.
5 Because we have determined that the PSA fails to meet the requirements of a QDRO; we need not address the argument raised by appellees that the three children were not dependents at the time the PSA was entered into and therefore could not qualify as "alternate payees" under the statute.
6 A plan administrator has an obligation to execute her duties "solely in the interest of the participants and beneficiaries." 29 U.S.C. §1104(a)(1)(A).
7 As we have determined that Zee did not breach her fiduciary duty by failing to disburse the funds, we need not address Zee's argument that a "safe harbor provision" protects her from liability. Zee contends -- as she did before the district court -- that this provision allows her an 18-month period from the date on which the first payment was to be made in which to determine if the QDRO was valid. 29 U.S.C. §1056(d)(3)(H)(v). The district court found, however, that as plan administrator Zee had an obligation to determine "within a reasonable period" whether the QDRO was valid and to "notify the participant and each alternate payee of such determination." 29 U.S.C. §1056(d)(3)(G)(i)(II). We do not reach this issue here.
8 We also note that the court's evaluation of the third factor -- deterrent effect -- is somewhat strained. Although the court recognized that because of "[t]he unique factual and legal issues presented by this case" the likelihood of a similar situation arising again was very small. The court, citing McPherson v. Employee's Pension Plan of American Re-Insurance Co., 33 F.3d 253, 254 (3d Cir. 1994), nevertheless found that an award of attorneys' fees could serve as a deterrent in this case. To the extent that the district court found deterrence here, it is present in every case. By listing deterrence as a separate factor, it seems clear that the Ursic court was referring to some additional element of deterrence beyond that which is inherent in every adverse judgment.