Court: Court of Appeals for the Ninth Circuit; December 26, 1995; Federal Appellate Court
A lawsuit under the Employee Retirement Income Security Act (ERISA) involves plaintiffs Pilkington, a British corporation, and its subsidiary Pilkington Visioncare, Inc., seeking damages for alleged breaches of fiduciary duties by the Revlon Corporation and its officers, who were trustees of a predecessor ERISA plan. Pilkington acquired the 'Visioncare' companies from Revlon and inherited obligations to former Revlon employees under an ERISA pension plan. The plaintiffs argue that the annuity provider, Executive Life Insurance Company, defaulted on its obligations, necessitating direct payments from Pilkington Visioncare and the Visioncare Pension Plan to beneficiaries. The district court initially ruled that the plaintiffs lacked standing under ERISA to sue trustees of a predecessor plan, asserting that standing exists only among fiduciaries of the same plan. It also found no breach of fiduciary duty by the defendants. However, the appellate court determined that the plaintiff fiduciaries do have standing to pursue claims against the predecessor plan's fiduciaries due to losses incurred by their plan, and reversed the summary judgment, indicating genuine issues of material fact regarding potential breaches of fiduciary duty. The background emphasizes that in 1985, following a hostile takeover, Revlon's Board decided to terminate its pension plan by purchasing an annuity to cover benefits owed to plan participants, with the plan originally being over-funded at nearly $200 million in assets.
Revlon engaged in an annuity selection process with the assistance of Hewitt Associates, soliciting bids from various insurance carriers. Prior to the bidding, Revlon requested a price quote from Executive Life and made a refundable deposit of $18 million. Executive Life submitted the lowest bid of $85 million, resulting in a reversion of over $100 million in plan assets back to Revlon. Following this, Pilkington acquired the Visioncare companies from Revlon, and a paid-up annuity contract was to be transferred to the Visioncare Pension Plan for pension liabilities related to Visioncare employees. However, Executive Life defaulted on the annuity before Revlon transferred the certificates. The plaintiffs alleged that Revlon violated its fiduciary duties of prudence and loyalty under ERISA by selecting Executive Life. The appeal addresses two main issues: (1) whether the plaintiffs, who are fiduciaries of the Pilkington Visioncare Pension Plan, have standing to sue Revlon’s predecessor plan fiduciaries, and (2) whether the district court correctly granted summary judgment to the defendants. The district court ruled that the plaintiffs lacked standing because ERISA allows fiduciaries to sue only other fiduciaries of the same plan, and not those of a predecessor plan. The plaintiffs argue this restriction contradicts Congress' intent to enforce strict fiduciary duties across ERISA plans, as supported by case law that emphasizes the stringent standards imposed on fiduciaries.
Reading a limitation into the statute could effectively allow fiduciaries to evade liability for breaches of statutory obligations through corporate changes like spin-offs or mergers. The defendants argue that the case is governed by the Supreme Court's rulings in Massachusetts Mutual Life Ins. Co. v. Russell and Franchise Tax Bd. v. Constr. Laborers Vac. Trust, which established that ERISA's remedies and the parties entitled to seek them are exclusive and carefully integrated. However, these decisions do not address whether fiduciaries can sue predecessor fiduciaries, and no Supreme Court precedent prohibits this lawsuit.
Lower court cases cited do not support the appellees' argument that the statute bars such suits. For instance, the Third Circuit in Northeast Dept. ILGWU Health and Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund ruled that fiduciaries could sue other fiduciaries regarding benefit disputes between plans. The court emphasized that the suit aligned with Congress's intent to enforce fiduciary responsibilities. In Modern Woodcrafts, Inc. v. Hawley, the court allowed a suit by new plan fiduciaries against fiduciaries from a previous statewide plan, but clarified that ERISA does not permit such actions unless the defendants' breach caused harm to the plaintiffs' plan.
To establish standing to sue under ERISA as a fiduciary, a party must be a fiduciary of the specific ERISA plan affected by the alleged breach of fiduciary duty. The Modern Woodcrafts case supports this principle, as it determined that plaintiffs lacked standing to sue fiduciaries of a different plan because they had no management discretion over that plan. In the current case, plaintiff fiduciaries are suing fiduciaries of the plan that experienced the alleged breaches. Upon acquiring the Visioncare companies, the plaintiffs assumed any existing injuries from Revlon's spin-off plan, which has effectively transformed into the Visioncare plan. Therefore, the plaintiffs have standing under 29 U.S.C. § 1132(a).
Supporting case law includes Molnar v. Wibbelt, where trustees of successor funds were allowed to compel fiduciaries of a predecessor fund to provide records, affirming that fiduciaries can act on behalf of their plans. Conversely, in a different claim, the Third Circuit denied a counterclaim from fiduciaries of a defunct plan against a new plan's fiduciaries, as they were not participants or fiduciaries of the new benefit funds. In Lee v. Prudential Ins. Co. of America, a plaintiff lacked standing to remedy breaches affecting other plans, aligning with ERISA's intent that claims are limited to the specific plan involved.
Defendants’ reliance on Mertens v. Hewitt Associates was found misplaced, as that case addressed claims against non-fiduciaries rather than fiduciaries, clarifying that fiduciaries can be held liable for money damages. The Seventh Circuit's decision in Winstead v. J.C. Penney Co. Inc. extended standing to fiduciaries of one plan to sue fiduciaries of another plan under certain interrelated circumstances. This reasoning applies strongly here, as the defendants’ plan is the predecessor of the plaintiffs’ plan, reinforcing the plaintiffs' standing to enforce their fiduciary responsibilities under ERISA.
The Secretary of Labor's amicus brief emphasizes the legal precedent allowing beneficiaries to sue fiduciaries of predecessor plans, citing cases such as *Bigger v. American Commercial Lines, Inc.* and *Bass v. Retirement Plan of Conoco, Inc.*, which established that former participants have standing to seek remedies against fiduciaries for breaches involving asset transfers to successor plans. The brief argues that there is no justification for shielding predecessor fiduciaries from ERISA suits by successor beneficiaries, aligning with the intent of ERISA to promote justice and efficient administration.
Additionally, Congress amended 29 U.S.C. 1132 to retroactively permit fiduciaries to sue if an annuity purchase violates ERISA duties, thereby supporting the standing of plaintiff fiduciaries from the Visioncare Pension Plan to initiate legal action against the fiduciaries of the Revlon plan. The court clarified that it does not rely on its previous ruling in *Fentron Industries, Inc. v. Nat'l Shopmen Pension Fund*, as that decision has been weakened by later Supreme Court rulings.
As an alternative conclusion, the district court's summary judgment favoring the defendants was overturned because the record indicates significant factual disputes regarding the reasonableness of the defendants' actions and whether they breached fiduciary duties owed to the Revlon plan.
Defendants justified their choice of Executive Life as the annuity provider based on ratings from Standard & Poors and A.M. Best, claiming they acted as fiduciaries by selecting the lowest bidder. However, legal precedents indicate that merely relying on ratings does not fulfill their fiduciary duty of loyalty under ERISA. Evidence suggests that there were concerns within the insurance industry regarding the reliability of these ratings at the time of the spin-off. ERISA mandates that fiduciaries must act solely in the interest of participants and beneficiaries, exclusively for their benefit. Appellants argued that Revlon's actions raised questions about its loyalty, especially since choosing Executive Life, which was over $13 million cheaper, allowed more funds to revert to Revlon. The district court had compelling evidence that maximizing reversion influenced Revlon's decision-making, suggesting a deviation from ERISA's loyalty requirements, thus making summary judgment inappropriate. Prior cases have established that trustees' conflicts of interest can breach ERISA's loyalty mandates. The district court's conclusion that there was no evidence of self-interest was flawed, as it dismissed the potential influence of Revlon's significant debt and the $13 million difference in bids as unlikely to affect decision-making. Furthermore, Revlon's officers may have been aware of Executive Life's precarious financial position due to its investments in junk bonds, including those from Revlon itself. Consequently, the district court's summary judgment was reversed, and the case was remanded for further proceedings. Under 29 U.S.C. 1132(a), participants, beneficiaries, or fiduciaries are empowered to seek relief for breaches of fiduciary duty or violations of plan terms.
