No. 06-4100
____________________________
IN THE UNITED STATES
COURT OF APPEALS
FOR THE SIXTH CIRCUIT
____________________________
KERMIT D. BRIDGES, on
behalf of himself and a class of persons
similarly situated and
on behalf of American Power System Retirement
Savings Plan (formerly
known as the American Electric Power System
Employees Savings Plan)
and Central and South West.
Plaintiff-Appellant
v.
AMERICAN ELECTRIC POWER
COMPANY, INC., et al.
Defendants-Appellees
____________________________
On Appeal from the United States District Court
for the Southern District of Ohio at Columbus
____________________________
BRIEF OF THE
SECRETARY OF LABOR AS AMICUS CURIAE SUPPORTING
PLAINTIFF-APPELLANT AND REQUESTING
REVERSAL
____________________________
HOWARD M. RADZELY |
KAREN L. HANDORF |
Solicitor of Labor |
Counsel for Appellate and Special
Litigation |
|
|
TIMOTHY D. HAUSER |
J. MATTHEW CALLOWAY |
Associate Solicitor |
Attorney |
|
United States Department of Labor |
|
Office of the Solicitor |
|
Plan Benefits Security Division |
|
200 Constitution Ave., N.W., Room
N-2700 |
|
Washington, DC 20210 |
|
Phone:
(202) 693-5287 |
|
Fax:
(202) 693-5774 |
TABLE OF CONTENTS
STATEMENT OF THE
ISSUE
INTEREST OF THE SECRETARY OF LABOR
STATEMENT OF THE FACTS
SUMMARY OF THE
ARGUMENT
ARGUMENT
Plaintiff has standing under ERISA to bring this suit because he has a colorable claim that he is entitled to additional vested benefits under his defined contribution Plan
A.
The plaintiff has standing because he is a former employee who may become eligible to receive additional benefits from his defined contribution plan should he prevail on his allegations of fiduciary breach
B.
Reading ERISA to deny plaintiffs standing to
sue when they have received a lump-sum distribution that was diminished as a result of a fiduciary breach is contrary to the purposes and policies of ERISA
CONCLUSION
CERTIFICATE OF COMPLIANCE
CERTIFICATE OF SERVICE
ADDENDUM:
A. In re Polaroid ERISA Litig., No. 03 Civ. 8335, 2006 WL 2792202 (S.D.N.Y.
Sept. 29, 2006)
B. Thompson v. Avondale Indus., Inc., No. Civ.A. 99-3439, 2001 WL 1543497
(E.D. La. Nov. 30, 2001)
C. Graden v. Conexant Sys., Inc., No. 05-0695, 2006 WL 1098233 (D.N.J. Mar.
31, 2006), appeal docketed, No. 06-2337 (3d Cir. Apr. 27, 2006)
D. In re RCN Litig., No. 04-5068, 2006 WL 753149 (D.N.J. Mar. 21, 2006)
E. Holtzscher v. Dynegy, Inc., No. 05-3293, 2006 WL 626402 (S.D. Tex. Mar.
13, 2006), appeal docketed, No. 06-20297 (5th Cir. Apr. 18, 2006)
F. In re Admin. Comm. ERISA Litig., No. C03-3302, 2005 WL 3454126 (N.D. Cal.
Dec. 16, 2005)
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TABLE OF AUTHORITIES
Federal
Cases:
Amalgamated Clothing & Textile Workers v. Murdock, 861 F.2d 1406
(9th Cir. 1998)
Connolly v. PBGC, 475 U.S. 211 (1986)
Firestone Tire
& Rubber Co. v. Bruch, 489 U.S. 101 (1989)
Graden v. Conexant
Sys., Inc.,
No. 05-0695, 2006 WL 1098233 (D.N.J. Mar. 31, 2006)
Hargrave v. TXU
Corp., 392 F. Supp. 2d 785 (N.D. Tex. 2005)
Holtzscher v.
Dynegy, Inc., No. 05-3293, 2006 WL 626402 (S.D. Tex. Mar. 13, 2006)
Hughes Aircraft Co.
v. Jacobson, 525 U.S. 432 (1999)
In re Admin. Comm.
ERISA Litig.,
No. C03-3302, 2005 WL 3454126 (N.D. Cal. Dec. 16, 2005)
In re AEP ERISA
Litig.,
437 F. Supp. 2d 750 (S.D. Ohio 2006)
In re Mut. Funds
Inv. Litig., 403 F. Supp. 2d 434 (D. Md. 2005)
In re Polaroid
ERISA Litig.,
No. o3 Civ. 8335, 2006 WL 2792202
(S.D.N.Y. Sept. 29, 2006)
In re RCN
Litig.,
No. 04-5068, 2006 WL 753149 (D.N.J. Mar. 21, 2006)
In re Williams Cos.
ERISA Litig.,
231 F.R.D. 416 (N.D. Okla. 2005)
Kuntz v. Reese,
785 F.2d 1410 (9th Cir. 1986) (per curiam)
Kuper v. Quantum
Chem. Corp., 829 F. Supp. 918 (S.D. Ohio 1993)
Kuper v.
Iovenko, 66 F.3d 1447 (6th Cir. 1995)
LaLonde v. Textron,
Inc.,
418 F. Supp. 2d 16 (D.R.I. 2006)
Leuthner v. Blue
Cross & Blue Shield, 454 F.3d 120 (3d Cir. 2006)
Martin v.
Feilen, 965 F.2d 660 (8th Cir. 1992)
Nachman Corp. v.
PBGC, 446 U.S. 359 (1980)
Nechis v. Oxford
Health Plans, Inc., 421 F.3d 96 (2d Cir. 2005)
Phillips v. Alaska
Hotel & Rest. Employees Pension Fund,
944 F.2d 509 (9th Cir. 1991)
Rankin v. Rots,
220 F.R.D. 511 (E.D. Mich. 2004)
Sec'y of Labor v.
Fitzsimmons, 805 F.2d 682, 689-94 (7th Cir. 1986) (en banc)
Sommers Drug Stores
Co. Employee Profit Sharing Trust v. Corrigan, 883 F.2d 345 (5th Cir. 1989)
Thompson v.
Avondale Indus., Inc.,
No. Civ.A. 99-3439, 2001 WL 1543497 (E.D. La. Nov. 30, 2001) (unpublished)
Vartanian v.
Monsanto Co., 14 F.3d 697 (1st Cir. 1994)
Wilson v. Bluefield
Supply Co., 819 F.2d 457, 459 (4th Cir. 1987)
Federal Statutes:
Employee Retirement
Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq.
Section 2(b), 29 U.S.C.
§ 1001(b)
Section 3(7), 29 U.S.C.
§ 1002(7)
Section 3(34), 29 U.S.C. § 1002(34)
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 409, 29 U.S.C.
§ 1109
Section 502(a)(2), 29 U.S.C. § 1132(a)(2)
Other Authorities:
Legislative History
of the Employee Retirement Income Security Act of 1974, 94th Cong.
(Comm. Print 1976)
H.R. Rep. No. 93-533
(1973), reprinted in
1974 U.S.C.C.A.N. 4639
ABA Section of Labor
and Employment Law, Employee Benefits Law (2d ed. 2000)
U.S. Gen. Accounting
Office, Publ'n No. GAO-02-745SP, Answers to Key Questions About Private Pension Plans
(Sept. 18, 2002), available at
http://www.gao.gov/new.items/d02745sp.pdf
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STATEMENT OF THE ISSUE
The plaintiff in this case is a former employee who participated in a defined
contribution plan sponsored by his employer, American Electric Power Company,
Inc. The plaintiff filed suit in 2003 claiming that while he was invested
in the American Electric Power System Retirement Savings Plan, defendants
breached their fiduciary duties under ERISA, causing losses to the Plan.
As a result of these losses, the distribution of assets the plaintiff received
from his defined contribution account was less than it should have been.
The question presented is whether, under these circumstances, the plaintiff has
standing to sue on behalf of the Plan as a "participant" within the meaning of
ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2).
INTEREST OF THE SECRETARY OF LABOR
The Secretary of Labor
has primary authority to interpret and enforce the provisions of Title I of the
Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C.
§ 1001, et seq. The Secretary's interests include
promoting the uniform application of ERISA, protecting plan participants and
beneficiaries, and ensuring the financial stability of plan assets.
See Sec'y of Labor v. Fitzsimmons, 805 F.2d 682, 689–94 (7th Cir.
1986) (en banc). The Secretary therefore has a strong interest in ensuring
the proper interpretation of ERISA.
STATEMENT
OF THE FACTS
1. Named plaintiff Kermit D. Bridges
("Bridges") is a former employee of American Electric Power Company
("AEP"). In re AEP ERISA Litig., 437 F. Supp. 2d 750, 753 (S.D.
Ohio 2006). Bridges participated in the American Electric Power System
Retirement Savings Plan ("Plan") throughout his more than thirty years of
employment with AEP. Id. at 753. Bridges retired in 1992 but
continued to have an account in the Plan both at the time of his original
Complaint and his later Amended Complaint. Id. He did not
withdraw his account balance until 2004, when he voluntarily withdrew from the
Plan. Id.
The Plan at issue is a
defined contribution plan under ERISA § 3(34), 29 U.S.C. § 1002(34),
established for the benefit of employees of AEP. 437 F. Supp. 2d at
752. In a defined contribution plan, "benefits [are] based solely upon the
amount contributed to the participant's account, and any income, expenses,
gains, and losses, and any forfeitures of accounts of other participants which
may be allocated to such participant's account." ERISA § 3(34); 29
U.S.C. § 1002(34).[1] During
the time period relevant to this case, AEP employees could make contributions to
the Plan, which were invested in one of a number of different funds at each
employee's direction. 437 F. Supp. 2d at 752. One of these funds was
the AEP Stock Fund, an employer stock fund that invested in AEP stock.
Id. In addition, AEP made matching contributions to the Plan in
amounts up to 6% of each employee's regular compensation. Id.
These matching contributions were invested solely in the AEP Stock Fund until
March 1, 2002 when AEP began allowing individual employees to designate other
funds to receive matching employer contributions. Id.
Pursuant to ERISA
sections 409 and 502(a)(2), 29 U.S.C. §§ 1109 and 1132(a)(2), the named
plaintiff brought this case as a class action against various officers,
directors, employers and committees of AEP and its subsidiaries. 437 F.
Supp. 2d at 752. The plaintiff alleges that the defendants, as Plan
fiduciaries, breached their duties under ERISA between December 9, 1998 and
September 8, 2003 by imprudently continuing to invest plan assets in AEP stock
while they were aware that AEP stock values were artificially inflated.
Id. at 753. The plaintiff also alleges that the defendants breached
their fiduciary duties by misrepresenting and failing to disclose material
information that was necessary for participants to make informed decisions
concerning the appropriateness of investing in AEP stock. Id.
These fiduciary breaches allegedly caused losses to the Plan as a whole.
Id.[2]
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2. In a decision dated July 12, 2006, the
district court denied the plaintiff's motion for class certification and
dismissed his complaint, holding that the plaintiff was not a participant with
standing to bring an action under ERISA. 437 F. Supp. 2d at 762.
Relying on Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989),
the court stated that a former employee is a plan participant if he possesses
either "a reasonable expectation of returning to covered employment" or "a
colorable claim to vested benefits." 437 F. Supp. 2d at 755 (quoting
Firestone, 489 U.S. at 117–18). Because the plaintiff conceded that
he did not have a reasonable expectation of returning to covered employment, the
district court's analysis centered on whether the plaintiff had a colorable
claim for vested benefits. Id. at 754, 756.
The court concluded
that the plaintiff did not have standing because he "has already collected all
vested benefits due to him under the plan." 437 F. Supp. 2d at 760.
Relying on Sommers Drug Stores Co. Employee Profit Sharing Trust v.
Corrigan, 883 F.2d 345 (5th Cir. 1989), and Kuntz v. Reese, 785 F.2d
1410 (9th Cir. 1986) (per curiam), the district court distinguished a claim for
"vested benefits," justifying ERISA standing, from a claim for "damages," which
the court found insufficient to support ERISA standing. 437 F. Supp. 2d at
761–62. The court characterized the plaintiff's claim as seeking "added
value" to his previously divested Plan holdings and found it to be similar to
the claim for damages in Kuntz. Id. at 762. The court
stated that "[t]hese additional damages that might have accrued,
however, are too speculative to be considered vested under ERISA."
Id. at 762 (emphasis in original).[3] Having concluded that the
plaintiff did not have a "colorable claim for benefits" and thus lacked
standing, the district court denied the plaintiff's motion for class
certification and dismissed his claims without prejudice.
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SUMMARY
OF THE ARGUMENT
ERISA allows plan
participants to sue on behalf of plans to remedy fiduciary breaches. ERISA
broadly defines "participant" as "any employee or former employee of an employer
. . . who is or may become eligible to receive a benefit of any type
from an employee benefit plan which covers employees of such employer."
ERISA § 3(7), 29 U.S.C. § 1002(7). Mr. Bridges' claim is that
fiduciary breaches caused losses to the Plan while he held an account in the
Plan, and because vested benefits under defined contribution plans are linked
directly to the performance of the plan's overall assets, 29 U.S.C.
§ 1002(34), these losses caused a corresponding diminution in the amount of
the vested benefits that he received. If he prevails on his claim and the
Plan recovers its lost assets, Mr. Bridges will be entitled to the payment of
additional benefits from the Plan. He is, therefore, a "former employee"
who "is or may become eligible to receive a benefit of any type" and meets the
statutory definition of participant. He also has a "colorable claim" to
vested benefits and meets the Supreme Court's definition of "participant" in
Firestone, 489 U.S. at 116–18. Accordingly, he has standing to
bring this action.
To hold otherwise would result in an illogical distinction between the rights
of former employees in a defined contribution plan and those of current
employees both of whose account balances are equally affected by alleged
fiduciary breaches. There is no reason to believe that Congress intended
for a participant who has not yet retired to have standing to sue for such
breaches, while denying standing to a participant in a defined contribution plan
who has retired and received a diminished benefit. Such a result would not
promote ERISA's remedial goals nor would it be consistent with the statute's
broad definition of participant. Moreover, it would reward a breaching
fiduciary for hiding its breaches until participants take distribution of their
defined contribution benefits.
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ARGUMENT
Plaintiff has standing under ERISA to bring this suit because he has a
colorable claim that he is entitled to additional vested benefits under his
defined contribution Plan
ERISA was a direct
response to inadequacies in existing pension laws that became apparent after the
economic collapse of the Studebaker-Packard Corporation left terminated
employees without their promised pensions. See Nachman Corp. v.
PBGC, 446 U.S. 359, 374–75 & n.22 (1980) (quoting 1 Legislative
History of the Employee Retirement Income Security Act of 1974, 94th Cong.,
1599–1600 (Comm. Print 1976) (statement of Sen. Williams, a chief sponsor of the
Senate bill)). Congress enacted ERISA "to protect . . . the
interests of participants in employee benefit plans . . . by
establishing standards of conduct, responsibility, and obligation[s] for
fiduciaries of [such] plans, and by providing for appropriate remedies,
sanctions, and ready access to the Federal courts." ERISA § 2(b), 29
U.S.C. § 1001(b). To this end, ERISA's comprehensive civil
enforcement scheme empowers a plan "participant" to bring a civil action and
obtain "appropriate relief" to redress fiduciary breaches under ERISA
§ 409, 29 U.S.C. § 1109. ERISA § 502(a)(2), 29 U.S.C.
§ 1132(a)(2). Section 409 renders a plan fiduciary personally liable
to the plan for any losses stemming from breaches of his fiduciary duties.
29 U.S.C. § 1109. ERISA broadly defines "participant" to include "any
employee or former employee of an employer . . . who is or may become
eligible to receive a benefit of any type from an employee benefit plan which
covers employees of such employer . . . ." 29 U.S.C.
§ 1002(7).
A. The plaintiff has standing because he is a former employee who may become
eligible to receive additional benefits from his defined contribution plan
should he prevail on his allegations of fiduciary breach.
The plaintiff
qualifies as a "participant" under the plain terms of ERISA because he is a
"former employee" who "is or may become eligible to receive" additional benefits
from the Plan if he succeeds on his fiduciary breach claim. See
ERISA § 3(7), 29 U.S.C. § 1002(7). Despite his withdrawal of the
moneys in his account, the plaintiff "may become eligible" to receive additional
benefits because he was invested in a defined contribution plan. In a
defined contribution plan, "benefits [are] based solely upon the amount
contributed to the participant's account, and any income, expenses, gains, and
losses . . . which may be allocated to such participant's
account." 29 U.S.C. § 1002(34). The amount invested in the
participant's account constitutes the participant's vested benefits, and
participants are vested in their own contributions and the earnings made on
those contributions at all times. See U.S. Gen. Accounting Office,
Publ'n No. GAO-02-745SP, Answers to Key Questions About Private Pension
Plans 13 (Sept. 18, 2002) [hereinafter GAO Report], available
at
http://www.gao.gov/new.items/d02745sp.pdf. In a defined
contribution plan, the amount of the participant's vested benefits increases in
direct proportion to any increase in overall plan assets and diminishes in
proportion to any losses. ABA Section of Labor and Employment Law,
Employee Benefits Law 175 (2d ed. 2000). Accordingly, the risk of
investment performance falls on the employee since all gains and losses are
borne directly by the employee's account. Id.; GAO Report at
10.
As a participant in an ERISA-covered defined contribution plan, the plaintiff
was entitled to a distribution of the earnings in his account as managed by the
Plan's fiduciaries in accordance with ERISA's fiduciary obligations. ERISA
protects the interests of plan participants in their retirement benefits by
imposing stringent obligations of prudence and undivided loyalty on plan
fiduciaries. ERISA § 404(a)(1)(A) and (B), 29 U.S.C.
§ 1104(a)(1)(A) and (B); see also Kuper v. Iovenko, 66 F.3d
1447, 1453 (6th Cir. 1995) ("ERISA's imposition of a fiduciary duty
. . . has been characterized as 'the highest known to law'" (quoting
Sommers, 793 F.2d at 1458)). If plaintiff's allegations are true
and the Plan fiduciaries breached these obligations, then the breaches caused
the Plan to have fewer assets. Because the Plan's assets were diminished
as a result of the alleged fiduciary breaches, the plaintiff's account balance
was also diminished, and he received a smaller distribution of vested benefits
than he was entitled to receive when he withdrew his account balance. In
seeking restoration to the Plan for alleged fiduciary breaches that took place
before he received his benefits, the plaintiff seeks amounts that can and should
be allocated in a manner that ultimately augments his individual vested
benefits.[4] These amounts are precisely
the "vested benefits" to which a plan participant in a defined contribution plan
is entitled under ERISA. 29 U.S.C. § 1002(34). Thus, the
plaintiff is a "former employee" who is or may become "eligible to receive a
benefit" from the Plan in the form of the amount he would have received had the
defendants not breached their fiduciary duties. 29 U.S.C.
§ 1002(7). As such, the plaintiff is a "participant" who has standing
to sue under ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2).
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Reading the term
"participant" to include the plaintiff is fully consistent with the Supreme
Court's decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S.
101 (1989). In Firestone, the Supreme Court considered ERISA's
definition of "participant" in the context of ERISA's plan document disclosure
provisions. The Court held that, in order to be considered a participant
entitled to plan documents, a former employee must either have a "reasonable
expectation of returning to covered employment" or "a colorable claim that (1)
he or she will prevail in a suit for benefits, or that (2) eligibility
requirements will be fulfilled in the future." Id. at 117–18.
The plaintiff here has a colorable claim that he will prevail in a suit for
benefits because he alleges that defendants' fiduciary breaches caused losses to
the Plan, which reduced the overall amount of vested benefits that he
received. If there is a recovery to the Plan for fiduciary breaches that
occurred while the plaintiff had an account balance in the Plan, he will have a
claim to additional vested benefits.
To hold otherwise would produce the absurd result that when a fiduciary
breach causes significant financial loss to a defined contribution plan, thereby
substantially diminishing the benefits payable to all accounts, participants
will have unequal rights: affected employees who stay in the plan could
bring an action to recover their lost benefits, while employees who retired and
took a diminished distribution could recover nothing at all. That result
cannot be correct—either all affected employees have a "colorable claim" or none
do. Certainly, if two participants with equal account balances incur equal
losses on the same date, they should both have standing. To find that the
participant who had not yet retired retains standing, while the participant who
retired—and actually suffered the diminished distribution—does not, would
neither promote ERISA's remedial objectives nor comport with its broad
definition of "participant." Nothing in ERISA compels such an arbitrary or
illogical result.
Courts that have recognized the nature of benefits under defined contribution
plans have correctly accorded standing to plaintiffs who were actively invested
in those plans at the time of alleged fiduciary breaches even though they had
received their account balances at the time suit was brought. For example,
in Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan, 883
F.2d 345 (5th Cir. 1989), the Fifth Circuit held that plaintiffs, former
participants in a terminated defined contribution profit-sharing plan, had
standing to bring an ERISA action against fiduciaries for losses allegedly
resulting from the sale of the trust's stock for less than fair market value.
[5] Even though the plan had
already been terminated and the participants had received the entire value of
their vested account balances, the court reasoned that plaintiffs' claim to
recover the plan's losses gave them standing. Because the plaintiffs had
allegedly received reduced distributions as a result of the fiduciary breach,
they had a colorable claim for additional vested benefits. Id. at
349–50.
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Contrary to the district court's conclusion, the plaintiff's claim here is
legally indistinguishable from the plaintiffs' claim in Sommers.
Like the plaintiffs in Sommers, the plaintiff here seeks relief that
clearly could affect the amount of vested benefits that he will ultimately
receive from the Plan. Mr. Bridges was a plan participant when the alleged
fiduciary breaches occurred and, as in Sommers, he alleges that the
breaches caused a loss to the Plan which reduced the amount of vested benefits
that he received. As in Sommers, the Plan distributed the account
balances to the Plan's participants in accordance with the plan terms, but the
amounts were reduced because of fiduciary misconduct. And, as in
Sommers, if the plaintiff is successful in his suit and losses to the
Plan are restored, his vested benefits will be augmented. Thus, this case
and Sommers are identical in all legally significant respects.
Despite having received payment of vested benefits when he left the plan, Mr.
Bridges, like the plaintiffs in Sommers, has a colorable claim that he is
still "eligible to receive a benefit of any type" in the form of an additional
recovery from the Plan and, accordingly, is a "participant" for purposes of
ERISA standing.
A large number of district courts have properly followed Sommers to
grant standing to former employees who were actively invested in defined
contribution plans at the time of an alleged fiduciary breach. See,
e.g., Kuper v. Quantum Chem. Corp., 829 F. Supp. 918, 923 (S.D. Ohio
1993) (holding that former employees who claimed that the amount in their
defined contribution plan, and thus their lump-sum distributions, were
diminished because of fiduciary breaches retained a colorable claim to vested
benefits and had standing to sue); In re Polaroid ERISA Litig., No. 03
Civ. 8335, 2006 WL 2792202 (S.D.N.Y. Sept. 29, 2006) (holding that former
employees have standing as participants where they alleged that the
distributions they received from their defined contribution plan were reduced
because of fiduciary breaches) (attached as Addendum A to this brief); In re
Mut. Funds Inv. Litig., 403 F. Supp. 2d 434, 441–42 (D. Md. 2005) (holding
that former employees have colorable claims to vested benefits when they did not
receive all the benefits they were due upon withdrawing from a defined
contribution plan as a result of fiduciary breaches); In re Williams Cos.
ERISA Litig., 231 F.R.D. 416, 422–23 (N.D. Okla. 2005) (holding that former
employees have colorable claims to vested benefits where their account balances
would have been larger at the time they took their distributions from a defined
contribution plan if there had been no fiduciary breach); Rankin v. Rots,
220 F.R.D. 511 (E.D. Mich. 2004) (holding that a former employee has standing
where he was a participant in the defined contribution plan during the time when
the alleged breaches of fiduciary duty occurred); Thompson v. Avondale
Indus., Inc., No. Civ.A. 99-3439, 2001 WL 1543497, at *2 (E.D. La. Nov. 30,
2001) (unpublished) (attached as Addendum B to this brief).
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The district court's reliance on the Ninth Circuit's pre-Sommers
decision in Kuntz v. Reese, 785 F.2d 1410 (9th Cir. 1986) (per curiam),
is misplaced because Kuntz involved plaintiffs in a defined benefit
pension plan who had already received all of their promised benefits,
undiminished by any fiduciary breach. The Kuntz court held that
former employees who filed suit after they had received all of their vested
benefits in a defined benefit plan lacked standing under ERISA. 785 F.2d
at 1411. In a defined benefit plan, the participant is promised a fixed
benefit according to a formula set forth in the plan document, usually dependent
on factors like an employee's years of service and final salaried income.
GAO Report at 8–10; Wilson v. Bluefield Supply Co., 819 F.2d 457,
459 (4th Cir. 1987) (noting that a defined benefit plan is "designed and
administered to provide fixed—or 'defined'—benefits to the participants based on
a benefit formula set forth in the Plan"); see also Phillips v. Alaska
Hotel & Rest. Employees Pension Fund, 944 F.2d 509, 512 (9th Cir.
1991).[6] In contrast to defined
contribution plans, the amount of the benefit for each participant in a defined
benefit plan does not increase or decrease when the plan experiences gains or
losses. GAO Report at 8–10.[7] Thus, when an employee
retires and receives a lump sum distribution from a defined benefit plan, that
employee has received all the benefits that he is entitled to receive under the
plan. Thus, Kuntz and other cases involving defined benefit plans,
are inapposite; the plaintiff in Kuntz, unlike the plaintiff here or in
Sommers, had received all of the benefits they had been promised,
unreduced by any fiduciary breach.
A number of district courts (including several cited in the district court
opinion) have incorrectly denied standing to former employees who were actively
invested in defined contribution plans at the time of an alleged fiduciary
breach.[8] These cases, several of which
are on appeal, see supra note 8, fail to account for the nature of
benefits under a defined contribution plan. Specifically, the decisions
disregard the fact that the amount of a participant's vested benefits in a
defined contribution plan increases in direct proportion to any increase in
overall plan assets and decreases in proportion to any losses.
In sum, the plaintiff has a "colorable" claim that the defendants breached
their duties by, among other actions, imprudently continuing to allow investment
of plan assets in AEP stock despite knowing that the stock price was
artificially inflated. The plaintiff also has a "colorable" claim that
these breaches caused losses to the Plan which directly resulted in a decrease
in the amount of benefits the plaintiff received when he withdrew his
account. The plaintiff seeks nothing more and nothing less than the amount
he should have received when he withdrew from the Plan, and that he would have
received but for the fiduciary breach. Such a claim is a claim for vested
benefits under ERISA. Because the plaintiff presents a colorable claim to
additional vested benefits under his defined contribution plan, he has standing
under the statute.
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B. Reading ERISA to deny plaintiffs standing
to sue when they have received a lump-sum distribution that was diminished as a
result of a fiduciary breach is contrary to the purposes and policies of ERISA.
Affirming the district
court's narrow reading of ERISA's standing requirements would undermine the
remedial goals of ERISA, "[t]he primary purpose of [which] is the protection of
individual pension rights." H.R. Rep. No. 93-533 (1973), reprinted
in 1974 U.S.C.C.A.N. 4639, 4639; see also Martin v. Feilen,
965 F.2d 660, 671 (8th Cir. 1992) (noting that one of ERISA's basic remedies for
a breach of fiduciary duty is "to restor[e] plan participants to the position in
which they would have occupied but for the breach of trust"). Courts have
broadly construed ERISA's standing requirements in order to effectuate these
remedial purposes. See Leuthner v. Blue Cross & Blue
Shield, 454 F.3d 120, 128–29 (3d Cir. 2006) (holding that Congress intended
"federal courts to construe [ERISA's] statutory standing requirements broadly in
order to facilitate enforcement of its remedial provisions"); Vartanian v.
Monsato Co., 14 F.3d 697, 702 (1st Cir. 1994) ("[t]he legislative history of
ERISA indicates that Congress intended the federal courts to construe the Act's
jurisdictional requirements broadly in order to facilitate enforcement of its
remedial provisions"). The term "participant" should not be read to close
the courthouse doors to former employees who, like the plaintiff here, have
allegedly not received all that they are due under their
plan.
A holding affirming the district court would produce the incongruous result
that fiduciaries could deprive employees of the right to seek redress for
serious violations of ERISA simply by making distributions or terminating the
plan altogether. See Rankin, 220 F.R.D. at 519–20
(recognizing absurdity of allowing employers to cut off participant status
simply by paying some level of benefits); Vartanian, 14 F.3d at 702
("[s]uch a holding would enable an employer to defeat the employee's right to
sue for a breach of fiduciary duty by keeping his breach a well guarded secret
until the employee receive[d] his benefits or, by distributing a lump sum and
terminating benefits before the employee can file suit"); Amalgamated
Clothing & Textile Workers Union v. Murdock, 861 F.2d 1406, 1418–19 (9th
Cir. 1988) ("were we to hold that payment of plan benefits cuts off the standing
to sue of plan beneficiaries, we would, in effect, be saying that a fiduciary
. . . has the power to deprive plan beneficiaries of standing to sue
the fiduciary for misuse of plan assets"). ERISA should not be read to
deny employees the right to recover what is rightfully theirs under the plan
simply because they received a reduced distribution of benefits.
Moreover, the
possibility that employees will leave employment and take lump-sum distributions
without realizing that their benefits have been reduced by a fiduciary breach is
particularly significant in the case of defined contribution plans, like the
plan at issue in this case. Defined contribution plans are designed to be
portable—participants can change jobs and take their retirement benefits with
them by receiving a distribution of their plan accounts and either rolling the
money over into individual retirement accounts or depositing it into their new
employer's plan. GAO Report at 10. Former employees' interest
in being paid the full amount that they are owed by the plan is no less great
than those of current employees who continue to work and participate in the
plan. By holding that these former employees lack standing to sue despite
the fact that the benefits they received were allegedly diminished because of
fiduciary breaches defeats the purposes of ERISA and endangers employees'
retirement security.
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CONCLUSION
For the reasons stated above, the Secretary respectfully requests that this
Court reverse the decision of the district court denying class certification and
dismissing the case.
Respectfully submitted,
HOWARD M. RADZELY
Solicitor of Labor
TIMOTHY D. HAUSER
Associate Solicitor
KAREN L. HANDORF
Counsel for Appellate and Special Litigation
_______________________
J. Matthew Calloway
Attorney
United States Department of Labor
Office of the Solicitor
Plan Benefits Security Division
200 Constitution Avenue, N.W.
Room N-2700
Washington, D.C. 20210
Phone: (202) 693-5287
Fax:
(202) 693-5774
October 19, 2006
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CERTIFICATE OF COMPLIANCE WITH RULE 32(a)
Certificate of Compliance with Type-Volume Limitation,
Typeface Requirements, and Type Style Requirements
1. This brief complies with the
type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because this brief
contains 4,947 words, excluding the parts of the brief exempted by Fed. R. App.
P. 32(a)(7)(B)(iii).
2. This brief complies with the typeface
requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed.
R. App. P. 32(a)(6) because this brief has been prepared in a proportionally
spaced typeface using Microsoft Word 2000 in 14 point sized Times New Roman
font.
J. Matthew Calloway
Attorney
Dated: October 19,
2006
CERTIFICATE OF SERVICE
I hereby certify that on this 19th day of October 2006, 2 copies of the Brief
of the Secretary of Labor as Amicus Curiae Supporting Plaintiff-Appellant and
Requesting Reversal were served, via Federal Express courier service, to the
parties listed below:
Edwin J. Mills |
Alvin James McKenna |
Stull, Stull & Brody |
Porter, Wright, Morris & Arthur |
6 E. 45th Street |
41 S. High Street |
Suite 500 |
Suite 3100 Huntington Center |
New York, N.Y. 10017 |
Columbus, Ohio 43215-6194 |
|
|
Robert A. Izard |
Michael J. Chepiga |
Eric
Palmquist |
Simpson, Thacher & Bartlett |
Schatz & Nobel, P.C |
425 Lexington Avenue |
330 Main Street |
New York, N.Y. 10017-3954 |
Hartford, Ct. 06106-1851 |
|
|
Counsel
for Defendant-Appellee
|
Robert G. Cohen |
|
Kegler Brown Hill & Ritter |
|
Capitol Square, Suite 1800 |
|
65 East State Street |
|
Columbus, Ohio 43215-4294 |
|
|
|
Counsel for Plaintiff-Appellant |
|
___________________________
J. Matthew Calloway
Attorney
United States Department of Labor
Office of the Solicitor
Plan Benefits Security Division
200 Constitution Avenue, N.W.
Room N-2700
Washington, D.C. 20210
Phone: (202) 693-5287
Fax: (202) 693-5774
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________________________________
Footnotes:
[1] In a defined contribution plan,
participants are always vested in both their own contributions and any earnings
made on those contributions. See U.S. Gen. Accounting Office,
Publ'n No. GAO-02-745SP, Answers to Key Questions About Private Pension
Plans 14 (Sept. 18, 2002), available at
http://www.gao.gov/new.items/d02745sp.pdf. A participant only becomes
vested in his employer's contributions and any earnings made on those
contributions once the participant fulfills the plan's criteria—often a
requirement that the participant work for the employer for a certain number of
years. Id.
[2] The Secretary takes no position on
the merits of the plaintiff's Complaint.
[3] The district court also disagreed
with the plaintiff's argument that his status as a "participant" at the time
suit was filed accorded him standing to sue. Acknowledging that "[i]t is
uncontroverted that Plaintiff was eligible for benefits at the time he
brought suit," the district court nevertheless held that "the question, however,
is whether his eligibility continues in the face of his Plan divestment."
437 F. Supp. 2d at 757 (emphasis in original). The district court likewise
disagreed that the plaintiff's status as a participant at the time of the
alleged fiduciary breach accorded the plaintiff standing under ERISA.
[4] Even though he no longer has a Plan
account, Mr. Bridges may obtain his additional vested benefits through a
recovery to the Plan. The district court has the power to establish a
constructive trust to distribute any recovery to the participants and
beneficiaries. See Nechis v. Oxford Health Plans, Inc., 421
F.3d 96, 103 (2d Cir. 2005); Amalgamated Clothing & Textile Workers Union
v. Murdock, 861 F.2d 1406, 1409–19 (9th Cir. 1988) (finding that a
constructive trust may be construed as a "benefit of any type" from an employee
benefit plan).
[5] The district court's
characterization of the claim in Sommers as a claim for "miscalculated
benefits" is incorrect. The Sommers' plaintiffs were not claiming
that plan fiduciaries made arithmetic errors or applied the terms of the plan
incorrectly, but instead alleged that plan fiduciaries sold the plan stock for
less than fair market value, resulting in a diminution of the amount of money
held by the plan and, ultimately, the amount received by participants as
benefits.
[6] The employer is required to make
contributions to the plan, and the assets of the plan are invested to insure
that there will be sufficient money in the plan to cover the promised benefits
when employees retire. GAO Report at 8–10.
[7] Also unlike defined contribution
plans, in defined benefit plans the risk of investment performance is shouldered
by the employer. Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439
(1999). In addition, defined benefit plans are covered by ERISA's pension
insurance program. Connolly v. PBGC, 475 U.S. 211, 230
(1986). In contrast, defined contribution plans are not covered by ERISA's
insurance program. GAO Report at 10.
[8]
See e.g., Graden v.
Conexant Sys., Inc., No. 05-0695, 2006 WL 1098233 (D.N.J. Mar. 31, 2006),
appeal docketed, No. 06-2337 (3d Cir. Apr. 27, 2006) (attached as
Addendum C to this brief); In re RCN Litig., No. 04-5068, 2006 WL 753149
(D.N.J. Mar. 21, 2006) (attached at Addendum D to this brief); Holtzscher v.
Dynegy, Inc., No. 05-3293, 2006 WL 626402 (S.D. Tex. Mar. 13, 2006),
appeal docketed, No. 06-20297 (5th Cir. Apr. 18, 2006) (attached at
Addendum E to this brief); LaLonde v. Textron, Inc., 418 F. Supp. 2d 16
(D.R.I. 2006) (settled on appeal); In re Admin. Comm. ERISA Litig., No.
C03-3302, 2005 WL 3454126 (N.D. Cal. Dec. 16, 2005) (attached as Addendum F to
this brief); Hargrave v. TXU Corp., 392 F. Supp. 2d 785 (N.D. Tex. 2005),
appeal docketed, No.05-11482 (5th Cir. Dec. 29,
2005).
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