Paasch v. National Rural Electric Cooperative Ass'n
Docket: Case No. 1:15-cv-01638-GBL-MSN
Court: District Court, E.D. Virginia; April 8, 2016; Federal District Court
Defendant National Rural Electric Cooperative Association (NRECA) filed a Motion to Dismiss Count I of Plaintiff Rose Paasch's Amended Complaint, which alleges violations of the Employee Retirement Income Security Act of 1974 (ERISA) and the Family and Medical Leave Act of 1993 (FMLA). The Court addressed two key issues: (1) whether Paasch sufficiently stated a claim under 29 U.S.C. 1105(a) regarding her alleged status as a co-fiduciary to NRECA’s ERISA plans and (2) whether her internal reporting of NRECA's noncompliance constituted a protected action under 29 U.S.C. 1140. The Court granted NRECA’s motion, concluding that Paasch did not adequately allege her fiduciary status or a plausible breach of duty under 1105(a), nor did her internal communications meet the criteria for protection under 1140 as established by the Fourth Circuit. Paasch, a former Retirement Compliance Consulting Representative at NRECA, detailed several fiduciary breaches by NRECA, including failures related to employee benefits reinstatement, nondiscrimination testing, communication of eligibility to employees, misreporting of compensation, and non-compliance with contribution formulas and minimum participation rules.
Paasch alleges that NRECA engaged in three types of actions related to noncompliance issues: (1) self-correcting instances that should have been disclosed to the IRS, (2) self-correcting after the statute of limitations for self-correction had expired, and (3) failing to report or correct certain noncompliance instances altogether. She reported these issues to her supervisor, Carol Brecht, and the Director of Compliance, Michele Gardner, who sometimes chose to let the non-compliant work continue or failed to adequately address the concerns raised by Paasch. During an IRS audit of NRECA’s 401(k) Pension Plan in 2012, Gardner allegedly instructed Paasch to avoid contact with the IRS agent and to be cautious about her statements in public. The DOL found ERISA violations in July 2012, requiring NRECA to restore $27 million to its plans.
In February 2013, Paasch requested FMLA leave to care for her seriously ill father, but Brecht suggested a modified work schedule instead. Brecht warned that Paasch would be placed on probation if work issues arose during her absence. Subsequently, NRECA placed Paasch on a ninety-day probation for unsatisfactory performance, which she claims was retaliatory for her FMLA request or for reporting NRECA's breaches of fiduciary duty under ERISA. In late 2013, she reported another noncompliance issue to Gardner and Brecht, who asked her to investigate further. Early in 2014, NRECA’s ERISA attorney, Steve Summers, indicated to Paasch that disclosing ERISA violations to the IRS was unavoidable.
On March 18, 2014, Paasch raised additional noncompliance issues regarding nondiscrimination testing and reported that several member plans were failing or at risk of failing such testing. Gardner then assigned Paasch an unrelated IT project, which deviated from her usual responsibilities. On April 8, 2014, NRECA terminated her employment, providing a termination letter that falsely claimed her dismissal was due to unsatisfactory performance. Paasch contends her termination was retaliatory for her reporting on NRECA's ERISA violations.
Paasch seeks relief under 29 U.S.C. § 1132(a)(3) for two alleged violations of ERISA by NRECA: (1) a breach of co-fiduciary duty under 29 U.S.C. § 1105(a) for interfering with her attempts to address NRECA's noncompliance; and (2) interference with protected rights under 29 U.S.C. § 1140 due to her probation and termination following her reports of noncompliance. Paasch filed her initial Complaint on December 10, 2015, and an Amended Complaint on February 7, 2016. NRECA responded with a Motion to Dismiss Count I or alternatively to strike her jury trial demand on February 22, 2016, to which Paasch opposed on March 7, 2016, and NRECA replied on March 14, 2016.
The standard for reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) requires that the complaint must state a plausible claim for relief, necessitating acceptance of all factual allegations as true while drawing reasonable inferences in favor of the plaintiff. Legal conclusions and conclusory allegations without factual support are not afforded the same presumption of truth. The court reviews the complaint alongside any documents referenced within it or judicially noticed materials. Sufficient factual allegations must raise the right to relief above mere speculation, with the claim needing to be plausible rather than merely conceivable. The complaint must provide enough factual content to enable the court to infer liability and must not rely on naked assertions devoid of factual enhancement.
To survive a Rule 12(b)(6) motion to dismiss, a complaint must include sufficient non-conclusory factual allegations that allow for reasonable inferences regarding the plaintiff's entitlement to relief and the defendant’s liability for the alleged unlawful actions. The Court granted the defendant’s motion to dismiss because the Amended Complaint did not adequately state a claim under 29 U.S.C. § 1105(a) or § 1140, thus failing to present a viable claim under § 1132(a)(3) of ERISA. Paasch contends that § 1132(a)(3) offers a remedy for NRECA’s alleged violations of §§ 1105(a) and 1140, allowing ERISA participants, beneficiaries, and fiduciaries to seek equitable relief for such violations. Section 1132(a)(3) permits civil actions to enjoin violations of ERISA provisions or the terms of a plan, or to obtain appropriate equitable relief. The key inquiry is whether the plaintiff sufficiently alleged a statutory violation of ERISA. Paasch claims NRECA violated ERISA by (1) interfering with her fiduciary duty to address NRECA’s noncompliance by placing her on probation and terminating her employment, and (2) retaliating against her for reporting ERISA violations. Each of these allegations will be analyzed separately.
Paasch fails to establish a plausible claim for relief under 29 U.S.C. § 1105(a) for two primary reasons: she insufficiently alleges her status as a fiduciary to NRECA’s ERISA plans, and she does not present a valid cause of action under that section. The court determines that Paasch’s allegations do not demonstrate functional control or authority over the management of the ERISA plans. Under § 1105(a), co-fiduciaries can be held liable for another's breach of fiduciary duty only if they knowingly participate in, conceal, or are aware of the breach without taking reasonable steps to remedy it. The definition of a fiduciary under ERISA, as per 29 U.S.C. § 1002(21)(A), requires exercising discretionary authority or control regarding plan management or asset disposition. In evaluating a motion to dismiss, the court assesses whether the plaintiff has adequately alleged that the individual had the requisite control and discretion over the plan. Previous cases indicate that mere administrative actions, such as sending notices or being labeled as the plan administrator, do not suffice to establish fiduciary status. Additionally, responsibilities related to plan design and amendments do not constitute fiduciary duties under ERISA, meaning plan sponsors who change plan terms are not considered fiduciaries.
Guidance from the Department of Labor (DOL) regulation 29 C.F.R. 2509.75-8 clarifies that individuals performing only ministerial functions within established policies are not considered fiduciaries under ERISA. Ministerial functions include tasks such as determining compliance with eligibility rules, orienting participants, and advising on rights, which lack the discretionary authority necessary to classify someone as a fiduciary. In her Amended Complaint, Paasch's duties included assessing member companies' plan compliance with DOL and IRS regulations, evaluating potential amendments to plans, advising on employee exclusions, and conducting educational conferences. These responsibilities do not represent fiduciary duties, as they involve compliance assessments and recommendations rather than discretionary management of plan assets or administration. The ultimate decision-making authority rested with the member companies, not Paasch, who acted strictly in a ministerial capacity. The court concluded that Paasch did not demonstrate sufficient discretionary authority in her role as Retirement Compliance Consulting Representative, resulting in the dismissal of her claims under ERISA sections 1105(a) and 1132(a)(3).
29 U.S.C. § 1105(a) does not provide a valid cause of action for Paasch. The Court determined that Paasch's claim under § 1105(a) is implausible because this section does not allow a co-fiduciary to sue another fiduciary for interfering with efforts to remedy an alleged breach of fiduciary duty. To establish a claim under § 1105(a), a plaintiff must show that a fiduciary breached their duties and that the co-fiduciary either participated in or was aware of those breaches without taking steps to remedy them. The statute explicitly states that a fiduciary is only liable if they know of another fiduciary's breach and fail to make reasonable efforts to address it. Consequently, under the plain language of § 1105(a)(3), a fiduciary cannot be held liable simply for interfering with another's attempts to remedy a breach. Paasch claimed she had a "right and an obligation" to address NRECA's breach and that NRECA interfered by placing her on probation and terminating her. However, the Court clarified that § 1105(a) does not grant any rights to ERISA fiduciaries, but rather assigns liability for another fiduciary's breaches. Paasch did not cite any relevant case law to support her argument, nor did she provide evidence during oral arguments. The Court concluded that since § 1105(a) facilitates liability for breaches rather than conferring rights, Paasch could not claim interference with a non-existent right. Thus, the Court granted the Defendant's Motion to Dismiss, as Paasch failed to adequately allege a violation under § 1105(a) and consequently did not present sufficient facts to establish a claim under § 1132(a)(3).
Paasch’s claim under 29 U.S.C. § 1105(a) is dismissed via a Rule 12(b)(6) motion due to insufficient factual allegations regarding her fiduciary status. The Court references previous cases, such as Searls and Moon, which affirmed dismissals where plaintiffs failed to provide adequate facts to establish a defendant's fiduciary role under ERISA. In Searls, plaintiffs merely alleged a notice letter and a title on a tax form without demonstrating actual control over the plan, leading to dismissal. Similarly, in Moon, the court found insufficient evidence to label a defendant as a fiduciary based solely on accepting payments and advising participants. Paasch's failure to allege her fiduciary status warrants dismissal of her claim.
Additionally, Paasch does not adequately state a claim under ERISA's retaliation provision, as her internal reports were not made in the context of an “inquiry or proceeding” as required by the Fourth Circuit. The Court cites King v. Marriott International Inc., where the Fourth Circuit clarified that the terms "inquiry or proceeding" are limited to more formal contexts than informal complaints to supervisors. Consequently, Paasch's claims under both § 1105(a) and § 1140 are dismissed due to lack of sufficient factual support.
The King court referenced its earlier ruling in Ball v. Memphis Bar-B-Q Co. to clarify the meaning of "inquiry or proceeding" under the Fair Labor Standards Act (FLSA). In Ball, the plaintiff claimed he was terminated for not cooperating in a potential lawsuit and argued that "proceeding" should include internal complaints within a company. However, the Fourth Circuit determined that "proceeding" pertains only to formal legal or administrative actions, excluding informal internal complaints. The court highlighted that the terms "testify" and "institute" imply a level of formality not present in an employee's oral complaints to a supervisor. Consequently, in King, it was noted that the plaintiff failed to allege participation in any formal proceeding, as her complaints were limited to internal channels, which did not fall under the protective scope of 29 U.S.C. 1140.
The court also reviewed decisions from the Fifth and Ninth Circuits that interpreted 1140 as protective of internal ERISA complaints but found their reasoning unconvincing, maintaining that "inquiry or proceeding" does not extend to such complaints. The court asserted that it could not adopt a broader interpretation of the statutory language solely based on policy preferences.
In contrast, Paasch contended that the Supreme Court's decision in Kasten v. Saint-Gobain Performance Plastics Corp. undermined the holding in King, arguing that Kasten's interpretation of "filed any complaint"—which includes oral complaints—overrules the previous interpretations in both King and Ball. Paasch posited that since King relied on Ball's interpretation, it too is effectively overridden by Kasten.
ERISA's retaliation provision differs significantly from the FLSA's, as it lacks the phrase "filed any complaint." Instead, 29 U.S.C. § 1140 prohibits discrimination against individuals who provide information during an "inquiry or proceeding" related to ERISA violations. Paasch's reliance on the Kasten case is flawed because Kasten interpreted the broader FLSA language, while ERISA's terms are more specific. The Fourth Circuit's decision in Ball focused on the meaning of "proceeding" under FLSA, contrasting with Kasten's analysis of oral complaints under the FLSA's language. Consequently, Kasten does not undermine the requirement under ERISA that information must be given in a legal or administrative inquiry.
Paasch's internal reports to her supervisor and the ERISA attorney do not qualify as information provided in an inquiry under ERISA's provision. She fails to assert that she testified or provided information in any legal or administrative proceeding, as required by King. While Paasch contends that her reports were a response to an inquiry initiated by the company's Vice President, this does not elevate her internal reporting to the necessary level for ERISA protection. Her role as a Compliance Consulting Representative involved routine compliance checks and reporting, which does not equate to participating in a legal inquiry.
Paasch's arguments that ERISA allows any person to file a retaliation claim and that compliance representatives need protection lack supporting case law. The King decision reinforces that protection is limited to those who provide information in legal or administrative contexts, irrespective of their job title. Additionally, the Fourth Circuit has established that "inquiry" specifically refers to legal or administrative inquiries, dismissing calls for a broader interpretation. The Court finds Paasch's arguments unconvincing.
Paasch's internal reports to her supervisor and NRECA's in-house attorney do not satisfy the reporting requirements needed to support a retaliation claim under 29 U.S.C. § 1140. As a result, the Court grants the Defendant's Motion to Dismiss, determining that Paasch has not provided sufficient facts to establish a claim for violation of § 1140, and therefore cannot pursue a cause of action under § 1132(a)(3). Furthermore, the Court finds that Paasch has not adequately alleged a claim under 29 U.S.C. § 1106(a) because she was not a fiduciary to the ERISA plans, and § 1105(a) does not support her allegations. Consequently, the Court dismisses the case without prejudice.
