Case No. 01-3255
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
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Benefits Committee of Saint-Gobain Corporation, et al.,
Plaintiffs-Appellants
v.
Key Trust Company of Ohio, N.A.,
Defendant-Appellee
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Appeal from the United States District Court
for the Northern District of Ohio
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BRIEF OF THE SECRETARY OF LABOR AS AMICUS CURIAE
IN SUPPORT OF DEFENDANT-APPELLEE KEY TRUST CO.
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Howard Radzely
Acting Solicitor of Labor
Timothy D. Hauser
Associate Solicitor
William Zuckerman
Senior Trial Solicitor
Peter Dolan
Trial Attorney
P.O. Box 1914
Washington, D.C. 20013
(202) 693-5600
Attorneys for the Secretary of Labor
as Amicus Curiae
TABLE OF CONTENTS
INTEREST OF THE SECRETARY OF LABOR
STATEMENT OF THE CASE
STATEMENT OF FACTS
The ESOP and the Parties
The ESOP's Purchases of Furon Stock
The Loan Agreements
Acquisition of Furon and Amendment of the ESOP Plan Document
Termination of the ESOP
ARGUMENT
I. The district court correctly held that Key Trust's
remittance of the demanded payment would breach its fiduciary duties under ERISA
II. Remittance by the Trustee would constitute a transaction prohibited by ERISA § 406(a)(1)(D),
29 U.S.C. § 1106(a)(1)(D)
III. The district court correctly rejected the Benefits Committee's argument that the plan document authorizes Key Trust to
make the demanded payment
CONCLUSION
TABLE OF AUTHORITIES
Federal Cases:
Adams v. Avondale Indus., Inc., 905 F.2d 943 (6th Cir.), cert. denied, 498 U.S. 984 (1990)
Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc.,
472 U.S. 559 (1985)
Central Trust Co. v. American Avents Corp., 771 F. Supp. 871 (S.D. Ohio 1989)
Dairy Fresh Corp. v. Poole, 108 F. Supp.2d 1344 (S.D. Ala. 2000)
Donovan v. Bierwirth, 680 F.3d 263 (2d Cir.), cert. denied, 459 U.S. 1069 (1982)
Donovan v. Cunningham , 716 F.2d 1455 (5th Cir.1983),
cert. denied, 467 U.S. 1251 (1984)
Donovan v. Williams, 4 EBC 1237 (N.D. Ohio 1983)
Eaves v. Penn, 587 F.2d 453 (10th Cir. 1978)
First Nat'l Bank of Chicago v. Retirement Trust, No. 90 C 3981, 1991 WL 285269 (N.D. Ill. Dec. 27, 1991)
Gilliam v. Edwards, 492 F. Supp. 1255 (D.N.J. 1980)
Herman v. Nationsbank Trust Co., 126 F.3d 1354 (11th Cir. 1997), cert. denied, 525 U.S. 816 (1998)
Hunter v. Caliber Sys. Inc., 220 F.3d 702 (6th Cir. 2000)
Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995)
Marshall v. Cuevas, 1 EBC 1580 (D.P.R. 1979)
Marshall v. Kelly, 465 F. Supp. 341 (W.D. Okla. 1978)
Marshall v. Mercer, 4 EBC 1523 (N.D. Tex. 1983), aff'd in part and rev'd in part on other grounds,
747 F.2d 304 (5th Cir. 1984)
Martin v. Feilen, 965 F.2d 660 (8th Cir. 1992), cert. denied, 506 U.S. 1054 (1993)
McMahon v. McDowell, 794 F.2d 100 (3rd Cir.), cert. denied, 479 U.S. 971 (1986)
Reich v. Compton, 57 F.3d 270 (3rd Cir. 1995)
Secretary of Labor v. Fitzsimmons, 805 F.2d 682 (7th Cir. 1986)
Utilicorp United, Inc. v. Kemper Financial Servs., Inc., 741 F. Supp. 1363 (W.D. Mo. 1989)
Federal Statutes:
Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. 1001 et seq.
Section 3(14)(C), 29 U.S.C. §1002(14)(C)
Section 3(21)(A), 29 U.S.C. §1002(21)(A)
Section 403(c), 29 U.S.C. § 1103(c)
Section 404(a)(1), 29 U.S.C. § 1104(a)(1)
Section 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A)
Section 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B)
Section 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D)
Section 406, 29 U.S.C. § 1106
Section 406(a), 29 U.S.C. § 1106(a)
Section 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D)
Section 408, 29 U.S.C. § 1108
Section 408(b)(3), 29 U.S.C. § 1108(b)(3)
Section 502(a)(3), 29 U.S.C. § 1132(a)(3)
Other Authorities:
26 U.S.C. § 4975(d)(3)
H.R. Rep. No. 93-1280, 93rd Cong., 2d Sess. at 313 (1974),
reprinted in 1974 U.S.C.C.A.N. 5038, 5093
S. Rep. No. 93-127 at 131, reprinted in 1974 U.S.C.C.A.N. 4838, 4867
26 C.F.R. § 54.4975-7(b)(5)
29 C.F.R. § 2550.408b-3
29 C.F.R. § 2550.408b-3(b )(2)
DOL Advisory Opinion 93-35A, 1993 WL 562217 (Dec. 23, 1993)
DOL Information Letter 0420, 1997 WL 1824020 (Dec. 17, 1997)
IRS Priv. Ltr. Rul. 9416043, 1994 WL 141568 (Jan. 28, 1994)
IRS Priv. Ltr. Rul. 8044074, 1980 WL 135505 (Aug. 11, 1980)
INTEREST OF THE SECRETARY OF LABOR
The Secretary of Labor ("the Secretary") has primary authority to
interpret and enforce Title I of the Employee Retirement Income Security Act
("ERISA" or the "Act"), as amended, 29 U.S.C. §§ 1001 et seq., and therefore has
a strong interest in ensuring that the ERISA fiduciary standards are correctly
applied in the administration of assets of employee benefits plans. The Secretary's
interests further include promoting the uniform application of the Act, protecting
plan participants and beneficiaries, and ensuring the financial stability of plan
assets. Secretary of Labor v. Fitzsimmons, 805 F.2d 682, 688-94 (7th Cir. 1986)
(en banc). The Secretary has a heightened interest in transactions involving
leveraged (debt-financed) employee stock ownership plans ("ESOPs"), as in the
subject case, because Congress, in enacting ERISA, expressed particular concern
about these transactions and directed the Secretary to give them "special scrutiny."
H.R. Rep. No. 93-1280, 93rd Cong., 2d Sess. at 313 (1974), reprinted in 1974
U.S.C.C.A.N. 5038, 5093.
STATEMENT OF THE CASE
Acting as a fiduciary of the Furon Company Employee Stock
Ownership Plan ("Plan" or "ESOP"), the Benefits Committee of Saint-Gobain
Corporation ("Benefits Committee"), filed this action against Key Trust of Ohio,
N.A. ("Key Trust" or "Trustee"), the ESOP's trustee. The ESOP is an employee
benefit plan subject to ERISA, and the Benefits Committee brought the action
under 29 U.S.C. § 1132(a)(3) to compel Key Trust to transfer specific ESOP assets
to Saint-Gobain Performance Plastics Corporation ("Saint-Gobain Plastics"). Key
Trust counterclaimed for a declaratory judgment that its fiduciary duties under
ERISA preclude remittance of the demanded payment.
On cross-motions for summary judgment, the district court denied all
of the Benefits Committee's claims and granted summary judgment to Key Trust
on its counterclaim. The Benefits Committee timely appeals from this judgment.
STATEMENT OF FACTS
The Secretary as amicus curiae adopts the district court's findings of
fact, which are summarized below.
The ESOP and the Parties
In 1990, the Furon Company ("Furon") established the ESOP as an
employee benefit plan for its employees, designed to invest primarily in stock
issued by Furon. R. 25 at 2-3. The Benefits Committee administers the ESOP,
and Key Trust holds the ESOP's assets in trust. R. 25 at 2-3. Saint-Gobain
Corporation ("Saint-Gobain"), which is a successor to Furon, appoints the
Benefits Committee's members and also may remove them at will, with or without
cause. R. 25 at 2 and 4-6; R. 19, Exh. A at § 13.4.(1) The Benefits Committee and
Key Trust both are fiduciaries of the ESOP, within the meaning of ERISA §
3(21)(A), 29 U.S.C. § 1002(21)(A). R. 25 at 2.
Eligible Furon employees who participate in the ESOP own
individual accounts in the ESOP, and the ESOP allocates to these accounts credits
based on the Furon stock purchased by the ESOP. R. 25 at 2-4. The benefits
payable by the ESOP are the balances in participants' accounts. R. 25 at 4 and 6.
The ESOP's Purchases of Furon Stock
The ESOP purchased blocks of Furon stock periodically during
1990-97. R. 25 at 3-4. Furon financed each purchase by lending to the ESOP
each block's entire purchase price. R. 25 at 3-4. These stock purchase loans are
called "Exempt Loans" because they satisfy exemptions from otherwise applicable
prohibitions in the Internal Revenue Code ("Code") and ERISA. R. 25 at 3-4.
The Trustee did not allocate (or credit) this stock to participants'
ESOP accounts immediately upon purchase but, instead, as provided in the
ESOP's governing documents, held it in the ESOP's Suspense Subfund. R. 25 at
4. Furon stock in the Suspense Subfund is "Unallocated Stock," and the ESOP's
proceeds from its sale are "Unallocated Proceeds." As the ESOP made loan
repayments, it released Unallocated Stock from the Suspense Subfund to
participants' ESOP accounts in proportion to the repayment amounts. R. 25 at 4.
The Loan Agreements
Furon did not take a security interest in the ESOP's Unallocated
Proceeds, and the Exempt Loans are unsecured. R. 25 at 4. For each Exempt
Loan, Furon and the ESOP executed a written loan agreement (the "Loan
Agreements"). Under the Loan Agreements, Furon promised to remit to the ESOP
contributions sufficient to enable the ESOP to make timely loan payments; agreed
that a scheduled loan payment not made solely because of Furon's failure to make
such required contributions is not a default by the ESOP; and further agreed that,
if it failed to make such required contributions, the ESOP Trustee's obligation to
pay principal and interest due on the loans is suspended until Furon makes the
necessary contribution. R. 25 at 13.
In construing the Loan Agreements, the district court found that Key
Trust's obligation to repay the Exempt Loans is entirely dependent on
Furon/Saint-Gobain Plastics making the anticipated contributions to the ESOP. R.
25 at 14. Absent those contributions, the district court found further, the Loan
Agreements impose on Key Trust no duty to repay the Exempt Loans further. R.
25 at 14.
Acquisition of Furon and Amendment of the ESOP Plan Document
In 1999, Saint-Gobain purchased all of Furon's outstanding stock for
cash, including the Unallocated Stock in the ESOP's Suspense Subfund and
renamed Furon as Saint-Gobain Plastics. R. 25 at 5-6. On March 17, 2000,
Section 15.4 of the ESOP's plan document was amended to provide in part that "
[u]pon termination of the Plan . . . any unallocated proceeds . . . held in the
Suspense Subfund shall, . . . to the extent permitted by the [Internal Revenue]
Code and Regulations, be returned to the Company in full satisfaction of such
Exempt Loan." R. 25 at 14-15. The district court found that this amendment did
not grant Saint-Gobain Plastics a security interest in the ESOP's Unallocated
Proceeds. R. 25 at 22.
Termination of the ESOP
After it amended section 15.4 of the plan document, Saint-Gobain
Plastics terminated the ESOP and permanently ceased making contributions to it.
R. 25 at 6-7, 11-13, and 14. As a consequence, the district court found, "[Key
Trust's] obligation under the Loan Agreements to make payments on the Exempt
Loans has been suspended" and suspended "permanent[ly]." R. 25 at 11 and 14.
In a further finding, "because [Key Trust's] failure to repay [further] is solely a
result of Saint-Gobain Plastics' failure to make further contributions," it "does not
constitute a default. . . ." R. 25 at 13.
Relying on plan document section 15.4, as amended, the Benefits
Committee then demanded that Key Trust pay approximately $2,300,000 of the
ESOP's remaining Unallocated Proceeds to Saint-Gobain Plastics. Key Trust
refused on the ground that its fiduciary duties preclude such payment. R. 25 at 6-
7. The subject action ensued.
ARGUMENT
I. The district court correctly held that Key Trust's remittance of the
demanded payment would breach its fiduciary duties under ERISA.
ERISA's seminal purposes are to safeguard the interests of
participants and to preserve the integrity of plan assets, and it is to these ends that
courts must interpret and apply the Act's provisions. Gilliam v. Edwards, 492 F.
Supp. 1255, 1261 (D.N.J. 1980). ERISA § 404(a)(1)(A) requires a fiduciary to
"discharge his duties with respect to a plan solely in the interest of the participants
and beneficiaries and for the exclusive purpose of providing benefits to
participants and beneficiaries." 29 U.S.C. § 1104(a)(1)(A). Fiduciary loyalty is
"an unwavering duty on an ERISA trustee to make decisions with single-minded
devotion to a plan's participants . . . .'' Adams v. Avondale Indus., Inc., 905 F.2d
943, 946 (6th Cir.), cert. denied, 498 U.S. 984 (1990). Thus, every action of both
the Benefits Committee and Key Trust, as the ESOP's fiduciaries, must comport
with those ends and "must be made with an eye single to the interests of the
participants and beneficiaries." Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.
1982), cert. denied, 459 U.S. 1069 (1982) (describing "the complete loyalty to
participants demanded of . . . trustees of a pension plan" under ERISA).
By remitting to the ESOP's sponsoring employer a payment which
the ESOP has no obligation to make, Key Trust clearly would violate this duty of
fiduciary loyalty. In this appeal, it is stipulated that, under the Loan Agreements,
the ESOP's loan repayment obligation was suspended if Furon failed to make its
promised contributions to the ESOP. It is further stipulated that Saint-Gobain
Plastics permanently ceased all contributions to the ESOP after acquiring Furon.
Indeed, as it must, the Benefits Committee concedes that, "[i]n short, [Saint-Gobain Plastics] has no enforceable right to repayment under the Loan
Agreements." BC Br. at 23.
Any remittance of ESOP assets to Saint-Gobain Plastics in the guise
of a "loan repayment" thus would be gratuitous. It is axiomatic that the transfer of
plan assets where there is no obligation to do so or without equivalent
consideration violates ERISA. Marshall v. Cuevas, 1 BNA Employee Benefits
Cases ("EBC") 1580-81 (D.P.R. 1979) ((plan fiduciaries violated the loyalty
provisions of ERISA § 404(a)(1)(A) by transferring plan assets to the destitute
widow of a deceased trustee when they had no obligation to do so)); Reich v.
Compton, 57 F.3d 270, 272-73, 290-91 (3rd Cir. 1995) (breach of fiduciary loyalty
to transfer a plan asset for well under its accounting value).
Fiduciary loyalty also requires Key Trust to assert and defend the
ESOP's rights under the Loan Agreements. In Dairy Fresh Corp. v. Poole, 108 F.
Supp. 2d 1344 (S.D. Ala. 2000), where the sponsoring employer sued the ESOP to
obtain one-half of its assets, the ESOP's trustee breached his duty of loyalty by
initially acquiescing in the claim against the ESOP, by raising no defenses to the
claim, and by failing to investigate its basis. Id. at 1352-53, 1359-61.
Accordingly, in assessing Key Trust's compliance with its fiduciary
duty of loyalty should it comply with the Benefits Committee's demand for the
payment, the district court correctly observed:
If [Key Trust] were to repay the Exempt Loans when it has no legal
obligation to do so, it would not be acting solely in the interest of the
participants of the Furon ESOP. For clearly it is in the participants'
interest to maximize the amount of their benefits and not have their
benefits reduced by payment of unsecured, unenforceable debts.
R. 25 at 22-23.
Remittance of the unobligated payment additionally would breach
Key Trust's duty of prudence, codified in ERISA § 404(a)(1)(B), "to discharge
[its] duties . . . with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in like capacity and
familiar with such matters would use . . . ." 29 U.S.C. § 1104(a)(1)(B). Because,
as the district court found, the demanded payment would cause an unecessary and
permanent loss to the ESOP participants (R. 25 at 9-10 and 22-23), its remittance
would be patently imprudent. See Compton, 57 F.3d at 272-73, 290-91; Hunter v.
Caliber Sys., Inc., 220 F.3d 702, 723 (6th Cir. 2000) (a transaction is imprudent if
it is not structured appropriately for the plan's interests).
By refusing to comply with the Benefits Committee's demand, Key
Trust further comported with its fiduciary responsibility that, with exceptions not
relevant here, "the assets of [an ESOP] plan shall never inure to the benefit of any
employer . . . ." ERISA § 403(c)(1), 29 U.S.C. § 1103(c)(1). As the district court
correctly noted: "[P]ayment of the Exempt Loans by [Key Trust] in this situation
would benefit only Saint-Gobain Plastics -- precisely the party who is never
intended to benefit from an ESOP." R. 25 at 23.
Moreover, solely because the ESOP's Unallocated Proceeds are not
collateral for the Exempt Loans, Key Trust's use of them as a source for the
demanded payment would in itself violate the Act. In advisory opinions on
analogous facts, the Department of Labor has concluded that an ESOP fiduciary
will breach its duties of loyalty and prudence under ERISA § 404(a)(1), among
others, if it pays off ESOP-owed debt by using unallocated stock in which the
lender does not have a security interest. DOL Advisory Opinion ("AO") 93-35A,
1993 WL 562217, at **2-3 (Dec. 23, 1993); DOL Information Letter ("IL") AO
0420, 1997 WL 1824020, at *3 (Dec. 17, 1997).
In sum, by remitting the demanded payment, Key Trust would breach
multiple fiduciary duties. The district court correctly so held.
II. Remittance by the Trustee would constitute a transaction prohibited by
ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D).
Except for the exempt transactions delineated in ERISA § 408, 29
U.S.C. § 1108, ERISA § 406(a)(1)(D) prohibits a plan fiduciary from knowingly
causing a direct or indirect "transfer to, or use by or for the benefit of, a party in
interest of any assets of the plan." 29 U.S.C. § 1106(a)(1)(D). By employing the
ESOP's participants, Saint-Gobain Plastics is a statutory party in interest with
respect to the Furon ESOP. ERISA § 3(14)(C), 29 U.S.C. § 1002(14)(C). Thus,
unless exempted, Key Trust is prohibited from transferring any ESOP assets to or
for the benefit of Saint-Gobain Plastics.
The demanded payment here cannot meet any exemption from, and
therefore would violate, the prohibition of ERISA § 406(a)(1)(D). A loan to an
ESOP and its repayment are exempt from the prohibitions of ERISA § 406(a)
pursuant to ERISA § 408(b)(3) if, inter alia, the loan (including its repayment) "is
primarily for the benefit of participants and beneficiaries of the plan." 29 U.S.C. §
1108(b)(3). Here, as the district court found, the remittance of an unobligated
"payment" on the Exempt Loans would result in an uncompensated and permanent
loss to the ESOP's participants. Thus, the § 408(b)(3) exemption cannot apply
and, consequently, § 406(a)(1)(D) prohibits the demanded payment of ESOP
assets to Saint-Gobain Plastics. E.g., Marshall v. Mercer, 4 EBC 1523, 1535
(N.D. Tex. 1983), aff'd in part and rev'd in part on other grounds, 747 F.2d 304
(5th Cir. 1984); Donovan v. Williams, 4 EBC 1237, 1241-42, 1245 (N.D. Ohio,
1983); Marshall v. Kelly, 465 F. Supp. 341, 347, 351 (W.D. Okla. 1978).
In an attempt to evade the prohibition mandated by § 406(a)(1)(D),
the Benefits Committee argues that the § 408(b)(3) exemption and the regulation
issued thereunder, 29 C.F.R. § 2550.408b-3, must be interpreted to permit use of
an ESOP's unallocated proceeds to repay an unsecured, exempt loan. BC Br. at
37-39. Otherwise, it contends, an ESOP cannot legally repay any exempt loan that
is unsecured or, alternatively, that only loans secured by the ESOP's unallocated
stock will satisfy the § 408(b)(3) exemption. BC Br. at 37-39.
The argument is inapposite to the facts in this record. First, the
Benefits Committee nowhere attempts to suggest that, where, as the district court
found here (R. 25 at 11 and 13-14), the lender's own actions have permanently
suspended the ESOP's loan payment obligation, any further loan payments can be
"primarily for the benefit of the participants and beneficiaries of the plan." 29
U.S.C. § 1108(b)(3), 29 C.F.R. § 2550.408b-3(b)(2). Second, the Benefits
Committee overlooks a known method through which an ESOP can repay an
unsecured, exempt loan consistently with ERISA. As the district court explained
(R. 25 at 18 n.6), if, as here, the ESOP's loan payment obligation is limited to the
employer's contributions to the ESOP, then the lender will receive all scheduled
loan payments if the employer maintains the ESOP long enough to make the
contributions necessary for the ESOP to make those scheduled payments. In such
a structure, the lender could enforce a claim against the ESOP for payment from
the ESOP's contribution receipts. Here, however, Furon chose to not secure the
Exempt Loans and Saint-Gobain Plastics, Furon's successor, chose to terminate
the ESOP before the loans matured. Ibid.
The Benefits Committee further posits that the fiduciary duties owed
to the ESOP under ERISA § 404(a)(1) should not apply to exempt loans. But in
doing so, it overlooks well-settled law to the contrary. An ERISA § 408
exemption does no more than avoid the prohibitions of § 406 of the Act; it does
not exempt the transaction from the fiduciary duties mandated in ERISA §
404(a)(1). This Court and other circuits have repeatedly approved this
construction of ERISA, which Congress explicitly set forth in ERISA's legislative
history. Kuper v. Iovenko, 66 F.3d 1447, 1458 (6th Cir. 1995); Martin v. Feilen,
965 F.2d 660, 665 (8th Cir. 1992), cert. denied, 506 U.S. 1054 (1993); McMahon
v. McDowell, 794 F.2d 100, 110 (3rd Cir.), cert. denied, 479 U.S. 971 (1986);
Donovan v. Cunningham, 716 F.2d 1455, 1467 (5th Cir. 1992), cert. denied, 467
U.S. 1251 (1984); Eaves v. Penn, 587 F.2d 453, 459 (10th Cir. 1978); S. Rep. No.
93-127 at 31, reprinted in 1974 U.S.C.C.A.N. 4838, 4867.
III. The district court correctly rejected the Benefits Committee's argument
that the plan document authorizes Key Trust to make the demanded
payment.
Conceding that Saint-Gobain Plastics has no enforceable right to
repayment under the Loan Agreements, the Benefits Committee argues that it is
nevertheless entitled to receipt of the loan balance pursuant to Section 15.4 of the
ESOP's plan document.(2) The argument ignores well established law.
ERISA § 404(a)(1)(D) requires plan fiduciaries to act "in accordance
with the documents and instruments governing the plan insofar as such documents
and instruments are consistent with the provisions of this title and title IV." 29
U.S.C. § 1104(a)(1)(D) (emphasis added). Because the demanded payment would
be a fiduciary breach under § 404(a) (1) and a nonexempt transaction prohibited
by § 406(a)(1)(D), the ESOP's governing documents cannot authorize the payment
even though they purport to do so. "Trust [or plan] documents cannot excuse
trustees from their duties under ERISA." Central States, Southeast & Southwest
Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 568 (1985);
Utilicorp United, Inc. v. Kemper Financial Services, Inc., 741 F. Supp. 1363,
1365-66 (W. D. Mo. 1989) (compliance with plan documents cannot be a
defense to a charge of fiduciary breach). If acting in accordance with the plan
document would result in a violation of the Act , a fiduciary must refrain from so
acting. Herman v. Nationsbank Trust Co., 126 F.3d 1354, 1368-69 (11th Cir.
1997), cert. denied, 525 U.S. 816 (1998); Central Trust Co. v. American Avents
Corp., 771 F. Supp. 871, 875-76 (S.D. Ohio 1989); First Nat'l Bank of Chicago v.
Retirement Trust, No. 90 C 3981, 1991 WL 285269, at *2 (N.D. Ill. Dec. 27,
1991). Had Key Trust repaid the loan balance from the Unallocated Proceeds in
reliance on the "authority" expressed in the ESOP plan document, it could not
have escaped the conse- quences of its resulting fiduciary breach.
The Benefits Committee's argument additionally ignores
countervailing provisions in the ESOP's trust agreement that specifically relieve
Key Trust from following the provisions of section 15.4. By their terms, the
ESOP's plan document and trust agreement must be construed as a single,
integrated document. R. 25 at 15. Section 3.2(d) of the trust agreement provides:
Notwithstanding any other provision of the Trust Agreement, the
Trustee shall not be required to comply with any provision of the
Trust Agreement that is not consistent with the requirements of Title I
of ERISA.
The Benefits Committee's argument to the contrary notwithstanding, then, the
ESOP's governing documents in terms do not require Key Trust, as the ESOP
trustee, to comply with plan document section 15.4 where, as here, compliance
would cause a fiduciary breach.
Finally, in arguing that section 15.4 of the plan document requires
Key Trust to make the demanded payment, the Benefits Committee relies on two
private letter rulings ("PLRs") issued by the Internal Revenue Service ("IRS").
IRS Priv. Ltr. Rul. 9416043, 1994 WL 141568, at *3 (Jan. 28, 1994); IRS Priv.
Ltr. Rul. 8044074, 1980 WL 135505, at *3 (Aug. 11, 1980). This excise tax
exemption and its subsidiary Treasury regulation incorporate the same criteria as
the ERISA § 409(b)(3) exemption and its exempt loan regulation cited above.(3)
These PLRs have no application, however, to fiduciary breach issues
concerning the demanded payment in issue here. First, as the IRS expressly noted
in both PLRs, its jurisdiction there extended only to excise tax questions so that it
could express no opinion on any fiduciary standards imposed by Title I of ERISA.
1980 WL 135505 at *4; 1994 WL 141568 at *4.
Second, these two PLRs differ from this case factually. They concern
ESOPs with enforceable loan payment obligations, unlike the Furon ESOP which,
solely because of Saint-Gobain Plastics' own failure to make promised
contributions to the ESOP, has no further loan payment obligation. Additionally,
unlike the Furon ESOP's unsecured Exempt Loans, PLR 8044074 does not
indicate whether the ESOP's unallocated stock secured the exempt loan.
CONCLUSION
For the foregoing reasons, the judgment below should be affirmed.
Dated:
HOWARD RADZELY
Acting Solicitor of Labor
TIMOTHY D. HAUSER
Associate Solicitor
WILLIAM ZUCKERMAN
Acting Counsel for Special Litigation
PETER B. DOLAN
Trial Attorney
Plan Benefits Security Division
Office of the Solicitor
U. S. Department of Labor
P.O. Box 1914
Washington, D.C. 20013
(202) 693-5600
Attorneys for the Secretary of Labor
as amicus curiae
CERTIFICATE OF COMPLIANCE WITH RULE 37(a)(7)(C)
This brief is printed in proportionally spaced, 14-point, Times New
Roman type, contains 3538 words as measured by Word Perfect 8, and
complies with the type-volume limitations imposed by Fed. R. App. P.
37(a)(7(c) and 29(d).
Peter B. Dolan
CERTIFICATE OF SERVICE
I hereby certify that on June 22, 2001, copies of the foregoing
BRIEF OF THE SECRETARY OF LABOR AS AMICUS CURIAE IN SUPPORT OF DEFENDANT-APPELLEE KEY TRUST COMPANY OF OHIO, N.A.
were sent by overnight delivery to:
Mr. Michael L. Banks |
John W. Edwards II |
Mr. Brian J. Dougherty |
Jeffrey S. Leavitt |
Ms. Kay Kyungsun Yu |
Patricia Eschbach-Hall |
Morgan, Lewis & Bockius |
Jones, Day, Reavis & Pogue |
1701 Market Steet |
North Point |
Philadelphia, PA 19103-2921 |
901 Lakeside Avenue |
|
Cleveland, OH 44114-1190 |
______________________________
Peter B. Dolan
1. 1 "R. 19 Exh." denotes an exhibit to the parties' Stipulations of Fact, which
are record entry 19.
2. The district court found that section 15.4, as amended, did not grant Saint-Gobain Plastics a security interest in the Unallocated Proceeds. R. 25 at 22.
3. Compare 26 U.S.C. § 4975(d)(3) to 29 U.S.C. § 1106(a)(1)(D), and compare
26 C.F.R. § 54.4975-7(b)(5) to 29 C.F.R. § 2550.408b-3.
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