9th Cir. Won't Expand ERISA Attorney Fee Provision

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

March 24 — An employer that used bankruptcy law to avoid paying more than $500,000 to a group of union benefit funds can't recover attorneys' fees under ERISA, the U.S. Court of Appeals for the Ninth Circuit held.

According to the court, the employer's bankruptcy proceedings—in which its ability to discharge the debt rested on the court's conclusion that it wasn't a fiduciary under the Employee Retirement Income Security Act—wasn't an action brought under ERISA that would allow the statute's fee-shifting provision to apply.

The court said that although the meaning of an ERISA term “came to assume a central role” in the underlying bankruptcy proceeding, the statutory text wasn't flexible enough to allow a fee award in a bankruptcy case. Further, the court expressed concern about the “mischief” that would arise if it created an incentive for litigants to “plead non-ERISA causes of action that incorporate ingredients drawn from ERISA, if for no other reason than to render themselves eligible to recover attorney's fees.”

The employer also sought attorneys' fees under a California state law provision, but this, too, failed to persuade the court.

Circuit Judges Diarmuid F. O'Scannlain and Sandra S. Ikuta joined the March 24 decision, along with District Judge Larry A. Burns of the U.S. District Court for the Southern District of California.

Circuit Split

The employer's underlying action led the Ninth Circuit to an important ruling on the bankruptcy code's defalcation exception, which prohibits fiduciaries from receiving bankruptcy discharges for debts incurred through fraudulent conduct. In July 2015, the Ninth Circuit joined two other federal circuits—the Sixth and Tenth—in declining to carve out an exception to the general rule that an employer can't be an ERISA fiduciary with respect to unpaid contributions owed to a benefit fund .

Conversely, the Second and Eleventh circuits have recognized such an exception when the plan documents expressly define the fund to include future payments.

On March 21, the U.S. Supreme Court declined to resolve this circuit split .

Desmond Nolan Livaich & Cunningham represented the employer. Weinberg Roger & Rosenfeld represented the benefit funds.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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