Pilkington Plc Pilkington Visioncare, Inc. Pilkington Visioncare Pension Plan v. Ronald O. Perelman Howard Gittis Jewel S. Lafontant Bruce Slovin Fred R. Sullivan Pierre A. Rinfret Revlon, Inc.
Docket: 93-55573
Court: Court of Appeals for the Ninth Circuit; December 26, 1995; Federal Appellate Court
A lawsuit was filed under the Employee Retirement Income Security Act of 1974 (ERISA) by Pilkington PLC, Pilkington Visioncare, Inc., and the Pilkington Visioncare Pension Plan against Ronald O. Perelman and other Revlon executives, who were trustees of a predecessor pension plan. The plaintiffs, who acquired the Visioncare companies from Revlon, sought damages for alleged breaches of fiduciary duties related to unpaid benefits owed to former Revlon employees under an ERISA plan. The annuity provider chosen by Revlon, Executive Life Insurance Company, defaulted on its obligations, prompting Pilkington to directly pay the shortfall to the beneficiaries.
The district court granted summary judgment in favor of the defendants, ruling that the plaintiffs lacked standing to sue the trustees of the predecessor plan, as ERISA only grants standing to fiduciaries of the same plan. Additionally, even had standing been established, the court found no genuine issue of material fact regarding the defendants' alleged breach of fiduciary duty. The Department of Labor participated as amicus curiae due to its involvement in similar cases against Executive Life regarding unpaid benefits.
The principal claim involves allegations that the defendant trustees of Revlon breached their fiduciary duties under ERISA by selecting Executive Life as the annuity contract provider. The plaintiffs, fiduciaries of the Pilkington Visioncare Pension Plan, are found to have standing to pursue the action against the predecessor plan's fiduciaries, whose actions allegedly caused losses to the plaintiffs' plan. The court reverses the summary judgment previously granted to the defendants, citing genuine issues of material fact regarding potential breaches of fiduciary duty.
In December 1985, following a hostile takeover, Revlon's Board of Directors opted to terminate the pension plan by purchasing an annuity to cover benefits owed to participants. The plan, which had nearly $200 million in assets and was over-funded, aimed to ensure the same benefits for the employees of Revlon's subsidiaries through the annuity purchase. Revlon solicited bids for the annuity, involving an advance, refundable deposit of $18 million to Executive Life before the bidding process officially opened. Executive Life submitted the lowest bid, leading Revlon to purchase the annuity for $85 million, thus resulting in a reversion of over $100 million in plan assets back to Revlon.
In September 1987, Pilkington acquired the Visioncare companies from Revlon, with the expectation that a 'paid up annuity contract' would be transferred to cover pension liabilities for Visioncare employees. However, Executive Life defaulted on the contract shortly after the transfer. The plaintiffs allege that Revlon's selection of Executive Life constituted a violation of the fiduciary duties of prudence and loyalty mandated by ERISA.
The appeal centers on whether the plaintiffs have standing to sue the fiduciaries of the predecessor Revlon plan and whether the district court correctly granted summary judgment to the defendants. The plaintiffs, who are fiduciaries of the Pilkington Visioncare Pension Plan and have assumed all assets and liabilities of the Revlon plan, argue that the defendants' decision was driven by greed and poor judgment. They invoke 29 U.S.C. Sec. 1132(a), which allows fiduciaries, among others, to enforce ERISA's provisions through legal action.
The district court ruled that the plaintiffs lacked standing, primarily because ERISA only permits fiduciary lawsuits against other fiduciaries of the same plan, thus excluding claims against fiduciaries of a predecessor plan. The defendants argued for this limitation even in instances where predecessor fiduciaries allegedly harmed the plaintiffs' plan. However, the statute does not explicitly restrict lawsuits against fiduciaries of other plans, and imposing such a limitation would contradict Congress' intent to enforce strict fiduciary duties under ERISA.
Defendants cited Supreme Court cases, Massachusetts Mutual Life Ins. Co. v. Russell and Franchise Tax Bd. v. Construction Laborers Vac. Trust, which held that ERISA's remedies and authorized parties were exclusive. They emphasized ERISA's carefully structured enforcement provisions. Nevertheless, the Supreme Court did not address whether fiduciaries could sue predecessor fiduciaries, and there is no Supreme Court precedent preventing this lawsuit.
Additionally, the lower court cases referenced by the district court do not support the defendants' position. Notably, the Third Circuit in Northeast Dept. ILGWU Health and Welfare Fund v. Teamsters Local Union No. 229 Welfare Fund unanimously allowed a lawsuit by fiduciaries of one plan against those of another plan, demonstrating that such actions can proceed under ERISA.
A majority of the panel determined that the lawsuit could proceed, rejecting the dissenting opinion that it was sanctioned under Sec. 1132(a). Instead, the majority provided two reasons for federal common law standing under 28 U.S.C. Sec. 1331, emphasizing that allowing the suit aligns with Congress' intent to enforce fiduciary responsibilities. The case's resolution is deemed significant for the interests of benefit trust funds, which Congress has recognized as critical.
In Modern Woodcrafts, Inc. v. Hawley, the court ruled that fiduciaries cannot sue other fiduciaries unless the alleged breach caused injury to their specific plan. This principle was echoed in Smith v. Hickey, where plaintiffs lacked standing as fiduciaries of a plan they did not manage. In the current case, however, plaintiffs are pursuing claims against fiduciaries of the plan adversely affected by the defendants' actions, having inherited any injuries sustained by Revlon's plan after acquiring the Visioncare companies, which essentially serves as a rebranded version of Revlon's plan.
The majority's position is supported by precedents, including Molnar v. Wibbelt, where successor pension fund trustees were allowed to sue for records from a predecessor fund, and the ruling in Lee v. Prudential Ins. Co. of America, which limited standing to claims arising from the specific plan affected by breaches. In contrast to the situation in Lee, the plaintiffs here are directly addressing breaches related to their own plan.
Defendants incorrectly rely on Mertens v. Hewitt Associates, which determined that beneficiaries could only seek equitable remedies against non-fiduciaries, and not monetary damages. This ruling supports that fiduciaries can be held accountable for financial damages. The Seventh Circuit's decision in Winstead expands the interpretation of standing under ERISA, allowing fiduciaries of one plan to sue those of another if their plans are interrelated. In this case, plaintiff trustees are enforcing their own plan's integrity while also addressing the defendants' plan, as the latter is not merely linked but is a predecessor to the plaintiffs' plan. The Secretary of Labor supports the authority of beneficiaries to sue fiduciaries of predecessor plans, referencing cases where former participants successfully held predecessor trustees accountable for breaches involving asset transfers. This interpretation aligns with ERISA's goals of ensuring justice and proper plan management. Furthermore, Congress amended Section 1132 to explicitly allow fiduciaries to seek relief for ERISA violations in annuity purchases, retroactively granting standing to affected parties.
The amendment permits the current fiduciaries of the Visioncare Pension Plan to sue the fiduciaries of the prior Revlon plan under Section 1132(a). The court clarifies that this ruling is independent of its prior decision in Fentron Industries, noting that Fentron's interpretation has been weakened by later Supreme Court rulings, particularly Cripps v. Life Insurance Co. of North America, which emphasized that the list of persons authorized to sue is not exhaustive.
The district court's summary judgment favoring the defendants was reversed, as significant factual issues regarding the reasonableness of the defendants’ actions were identified. The defendants justified their choice of Executive Life as the annuity provider based on ratings from Standard & Poors and A.M. Best, claiming they acted reasonably by selecting the lowest bidder. However, the court found that merely relying on ratings does not fulfill their fiduciary duty of loyalty. Evidence suggested that some industry experts had doubts about the reliability of those ratings at the time.
The plaintiffs argued that Revlon's decision to purchase the annuity from Executive Life, which resulted in a substantial financial benefit to Revlon, raised concerns about fiduciary loyalty. The court noted that prioritizing financial gain for Revlon over participant benefits could indicate a violation of fiduciary duties under ERISA. The potential conflicts of interest among pension plan trustees could impede their ability to act in the best interests of participants, necessitating that they may need to recuse themselves from management when such conflicts arise. Overall, the court emphasized that fiduciary decisions must focus solely on the interests of the participants and beneficiaries.
The district court determined that there was no evidence indicating that the trustees of Revlon acted out of economic self-interest when selecting an insurance carrier, despite claims from plaintiffs that a conflict of interest arose due to Revlon's substantial debt of over $1.4 billion. The plaintiffs suggested that the trustees prioritized cost savings over safety, with a price difference of approximately $13 million between bids. The court found this concern to be an unlikely influence on the trustees' decision-making. However, the appellate court found that the district court improperly resolved factual disputes, concluding that summary judgment was inappropriate.
Additionally, it was noted that Executive Life's downfall was partly due to its heavy investment in junk bonds, including those from Revlon, which could imply that the Revlon officers were aware of the risks tied to their insurance carrier's investments.
The judgment granting summary judgment in favor of the defendants was reversed, and the case was remanded for further proceedings. In dissent, Circuit Judge Kozinski argued against the majority's position, emphasizing that Revlon had no fiduciary relationship with the Visioncare Pension Plan and therefore could not be sued for breach of fiduciary duty. He highlighted that fiduciary duties arise only within a defined fiduciary relationship, and no evidence supported Revlon's status as a fiduciary to the Visioncare Plan. Kozinski criticized the majority's assertion that the Visioncare Plan had effectively assumed the Revlon Plan's responsibilities, clarifying that the Visioncare Plan was a separate entity created to relieve Revlon of certain responsibilities, lacking any fiduciary relationship with Revlon.
Revlon fiduciaries are alleged to have violated their fiduciary duty to the Revlon Plan, but the Visioncare Plan cannot sue for that breach since it is not a direct victim. Although Visioncare initially filed a breach of contract claim that was later dropped, it may have a potential fraud claim but lacks a claim for breach of trust. The majority's argument for allowing plaintiffs to have standing is unnecessary, as there are others with standing, such as Visioncare employees covered by the Revlon Plan and the Secretary of Labor, who can sue for breaches. These parties have not pursued action because they have suffered no harm; beneficiaries have reportedly been paid in full. The plaintiffs' eagerness to sue does not confer standing, as mere potential injury is insufficient. The majority's reliance on the new ERISA section 502(a)(9) for standing is misguided, as this provision does not expand the group entitled to sue for breach of trust. Furthermore, the majority's position conflicts with existing case law that limits standing to sue for breaches between different ERISA plans. The court emphasizes caution against creating inconsistencies with other circuits and asserts that the rationale for differing from established precedent must be clearly articulated.
