W. Keith Watkins, CHIEF UNITED STATES DISTRICT JUDGE.
Defendant Community Bankshares, Inc. ("Bankshares"), maintained an Employee Stock Ownership Plan ("ESOP" or "Plan"). The ESOP, which was invested primarily in Bankshares's stock, was a retirement plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"). See 29 U.S.C. §§ 1001, et seq. Plaintiffs Dave and Vikki Bryant were participants in the ESOP. In April 2009, having met the age and participation requirements, Plaintiffs were eligible to diversify a percentage of the employer stock in their individual ESOP accounts. They contend that Bankshares, as the Plan administrator, failed to follow the Plan's directives to implement their diversification elections by June 30, 2009, and to distribute shares of stock, which would have been subject to a put option binding against Bankshares based upon the preceding year's stock valuation of $11.00 per share. Instead, Bankshares suspended implementation of the diversification elections until after (1) an interim valuation revealed that in September 2009 the stock's worth had plummeted to $2.30 per share and (2) Bankshares and the Federal Reserve Bank had entered into a written agreement that prohibited Bankshares from redeeming put options. Thereafter, against this bleak backdrop, in November 2009, Bankshares offered to issue stock in satisfaction of the diversification elections but informed participants that it would not honor the put options. Bankshares also gave participants the option to change their 2009 diversification elections in light of this new information; however, Plaintiffs contend that this offer to receive the illiquid stock of a failing bank and the resultant tax liability presented no choice at all. Thus, Bankshares deprived Plaintiffs of their rights under the Plan to receive a distribution of shares and to exercise a put option, which would have required Bankshares to buy back the shares based upon the preceding year's stock valuation of $11.00 per share. The stock is now worthless.
The Plan administrator defends its decision, contending that, given Bankshares's deteriorating financial condition, it acted in the best interests of all Plan participants by refusing to honor 2009 diversification elections, which under the Plan would have been subject to put options at the preceding year's stock valuation. It further contends that, in November 2009, the Bryants voluntarily submitted new diversification elections to keep their stock in the Plan and that these new elections voided their April 2009 diversification elections.
This is the Bryants' second ERISA action against Bankshares and the Plan's fiduciaries to enforce Plan rights and obtain benefits under 29 U.S.C. § 1132(a)(1)(B).
The court exercises subject-matter jurisdiction pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e). The parties do not contest personal jurisdiction or venue.
The parties advance the issues in this ERISA action through cross-motions for summary judgment. In the typical case, summary judgment is appropriate when the "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). This is not the typical case, however. It is an ERISA action where the material undisputed facts are part of an administrative record
The Eleventh Circuit, following guidance from the United States Supreme Court, has developed a six-step process to guide the district court's review of a plan administrator's benefits-denial decision and that review hinges on whether the plan gave the administrator discretion to deny the claim. See Blankenship v. Metro. Life Co., 644 F.3d 1350, 1355 (11th Cir. 2011) (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), and Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008)). The court elaborates upon and employs this process in Part V.
At all times relevant to the events in this litigation, Bankshares had its headquarters in Cornelia, Georgia, and was the holding company of several banks, including Community Bank & Trust-Alabama in Union Springs, Alabama ("Alabama Bank"), and Community Bank & Trust-Habersham in Cornelia, Georgia ("Georgia Bank").
Bankshares maintained an ESOP for its employees and for the employees of affiliated employers, and Plaintiffs were participants in the ESOP. The Plan established a trust fund to hold the assets of the Plan
The Plan administrator, whom the Plan designated as Bankshares or as individuals or entities appointed by Bankshares, "ha[d] sole responsibility for the administration of the Plan." (Plan, §§ 1.29, 7.1.) The Plan trustee "ha[d] sole responsibility for management of the assets held under the Trust." (Plan, § 7.1.) However, "[n]o Fiduciary guarantees the Trust Fund in any manner against investment loss or depreciation in asset value." (Plan, § 7.1.)
An ESOP is a "defined contribution plan" that is "designed to invest primarily in qualifying employer securities." 26 U.S.C. § 4975(e)(7). It is "a type of pension plan intended to encourage employees to make their employees stockholders." Steinman v. Hicks, 352 F.3d 1101, 1102 (7th Cir. 2003).
Bankshares established and maintained the ESOP through a written instrument that defined the terms of the Plan and the rights of participants. Bankshares was the sole source of funding for the Plan and made annual contributions to the trust, which invested primarily in Bankshares's stock and secondarily in cash. Eligibility to participate in the Plan required an employee's completion of one year of service during which the employee had worked at least 1,000 hours. In 2009, there were 459 participants in the Plan.
The focus of this litigation is on the Plan's terms governing an eligible participant's rights to diversify his or her individual account investments (§ 8.3) and to exercise a put option on the distribution of employer stock in satisfaction of a diversification election (§ 5.8). The interplay between these two provisions (which themselves are intertwined) and the provision governing the Plan administrator's fiduciary duties (§ 8.4) also is at issue. Because the Plan administrator and trustees had to discharge their duties in accordance with the Plan provisions, see 29 U.S.C. § 1104(a)(1)(A), §§ 8.3, 5.8, and 8.4 are set out verbatim.
Section 8.3 of the Plan titled, "Diversification of Investments," provides:
(Plan, § 8.3 (Doc. # 57-3, at 18-19).)
The Plan also defines the terms in § 8.3. An "eligible participant" is an employee who has attained at least the age of 55 and has at least ten years of participation in the Plan. (Plan, § 1.12.) A "qualified election period" is "[t]he six (6) Plan Year period beginning with the first Plan Year in which the relevant Participant first becomes an Eligible Participant." (Plan, § 1.31.) A "plan year" is a calendar year (Plan, § 1.30), and the Annual Valuation Date is "December 31 of each Plan Year" (Plan, § 1.36).
Under § 8.3, eligible participants were entitled to receive shares of stock only, not cash. But the Plan also gave participants a "put" option that was binding on Bankshares at any time when its stock was not publicly traded. Section § 5.8, titled, "Participant's Right to Put Company Stock to the Company and the Plan," provides as follows:
(Plan, § 5.8(a)-(c).)
As the Plan language reveals, §§ 5.8 and 8.3 work together. To summarize, an eligible participant — one who had participated in the plan for ten years and had attained the age of at least 55 years — could make a diversification election within the 90-day period following the close of each plan year in the six-plan-year qualified election period. For the first five 90-day annual election periods, the Plan gave an eligible participant the option to diversify 25% of his or her account balance that was invested in employer securities, reduced by any amounts previously diversified. During the sixth and final 90-day election period in the qualified election period, an eligible participant could diversify 50% of stock shares in his or her account balance, reduced by amounts previously diversified. The value of the account balance was its value on the Annual Valuation Date.
There is no Plan language in the section that defines the Annual Valuation Date (§ 1.36) or in § 5.8 that permits Bankshares to use a date other than the Annual Valuation Date when placing a value on Bankshares's stock for purposes of buying back the shares under a put option.
(Plan, § 8.4.)
The Plan required an independent appraiser to conduct a yearly assessment as of December 31 (i.e., the Annual Valuation Date) of the trust fund's fair market value; hence, the value of Bankshares' stock was "its fair market value on such Annual Valuation Date...." (Plan, § 4.2(a).) To obtain the annual valuation of its shares of common stock as of December 31, 2008, Bankshares hired an independent appraiser, Burke Capital Group ("BCG"), a division of Morgan Keegan and Company. BCG's report, dated March 20, 2009, and titled, "Determination of the Fair Market Value of the Common Stock of [Bankshares] for ESOP Valuation Purposes as of December 31, 2008," placed an $11.00 per share value on Bankshares's stock. The
In April 2009, Plaintiffs had satisfied the age and service requirements to qualify to diversify a percentage of the employer stock in their individual ESOP accounts. Mr. Bryant was eligible to make a 50% election, and Mrs. Bryant was eligible to make a 25% election.
The Bryants each received an ESOP Investment Diversification Notice from Bankshares, dated February 25, 2009. The Notice informed Mr. Bryant that:
(Mr. Bryant's ESOP Investment Diversification Notice, at 2 (Doc. # 57-8).) Mr. Bryant checked the option on the Notice "to transfer the shares subject to my election to an IRA." Mrs. Bryant also received a similar Notice, informing her that she had the right to diversify "25% of [her] account balance invested in employer securities." (Mrs. Bryant's ESOP Investment Diversification Notice, at 2 (Doc. # 57-9).) She, like her husband, selected the option "to transfer the shares subject to my election to an IRA." (Id.) The signature date on each Plaintiff's Notice is April 14, 2009.
Although the Plan required eligible participants to make their elections by March 31 of each Plan year, the Plan Administrator "allowed participants until April 15 to make their diversification elections." (Stump's Aff., at 3 (Doc. # 58-5).) Presumably, for this reason, the timeliness of the Bryants' diversification elections is not an issue.
The value of the Bryants' accounts as of the Annual Valuation Date (December 31, 2008) is as follows. Mr. Bryant held 9,197.930607 shares of Bankshares stock in his ESOP. The cumulative monetary value of the shares (calculated by multiplying the units of shares by $11.00 per share) was $101,177.24. Mr. Bryant's account also had $8,946.30 in cash. (Mr. Bryant's ESOP
In the ESOP Investment Diversification Notices, Bankshares informed participants it would implement participants' diversification elections by June 30, 2009. That deadline came and went. Then, on September 16, 2009, with diversification elections still unfulfilled, Bankshares entered into a written agreement with the Federal Reserve Bank ("FRB") and the Georgia Bank Commissioner. The written agreement prohibited Bankshares from purchasing or redeeming its stock without prior consent from the FRB and the Bank Commissioner.
Suspecting that the value of its stock had declined markedly, Bankshares hired BCG to prepare a special valuation of the fair market value of its common stock. On October 23, 2009, Bankshares received the valuation, which revealed that, as of September 30, 2009, Bankshares stock value had plummeted to $2.30 per share. (ESOP, eff. 10/30/2009 (Doc. # 57-11).) According to Defendants, "[t]he September 2009 Special Valuation supplemented and revised the December 2008 Annual Valuation"; however, as discussed later in this opinion, Defendants do not point to any provision in the governing Plan, and the court found none, that permitted a revaluation for purposes of implementing diversification elections or for valuing put options. (Defs. Resp. to Interrog. No. 19 (Doc. # 64-1, at 10).) Also, around this time, Bankshares's Vice President of Human Resources Mary Wilkerson became the Plan administrator and orally informed Mr. Bryant that the Plan would not be implementing any of the participants' April 2009 diversification elections. (Mr. Bryant's Dep., at 16-19 (Doc. # 57-28).)
In a letter dated November 2, 2009, Bankshares notified all Plan participants of the results of the special valuation and the stock's $2.30 per share value. This letter informed Plan participants that the ESOP did not "have enough cash, or the ability to raise additional cash, to implement fairly participants' diversification elections, given the obligation to operate the ESOP in the interests of all participants and beneficiaries." (Bankshares's Nov. 2, 2009 Update on ESOP Issues (Doc. # 57-13).) The letter provided notice to the Bryants that: (1) The Plan would "honor" prior diversification elections, but that distributions would be in shares of common stock only; (2) that the ESOP would not offer a put option on stock distributions; (3) that Bankshares would reinstate the put option when the Federal Reserve Bank lifted the restriction on Bankshares from redeeming its shares of stock, but that the price of the put option would be based on the "fair market value at that time and in accordance with such rules as the Plan Administrator may establish." (Bankshares's Nov. 2, 2009 Update on ESOP Issues (Doc. # 57-13, at 3-4).) The letter further warned Plan participants who opted to make diversification elections that the distribution of common stock would be a taxable event, but that Plan participants could "rollover the distribution to an IRA and avoid current taxation." Finally, Bankshares informed participants that the
In conjunction with the foregoing letter, Bankshares sent each Plaintiff another ESOP Investment Diversification Notice. It was the same Notice dated February 25, 2009, but the February 25, 2009 date was marked through and replaced with a handwritten date of November 30, 3009. Both Plaintiffs filled out this form and elected for their shares to remain invested in the Plan. (Docs. # 57-14, 57-15.) Because Plaintiffs did not receive a distribution of stock after making their April 2009 diversification elections, they did not have the opportunity to exercise a put option.
On January 29, 2010, the Georgia Department of Banking and Finance closed the Georgia Bank and named the FDIC as receiver.
On or about June 23, 2011, Mr. Bryant received a distribution of the cash in his ESOP account, totaling $8,806.53, and Mrs. Bryant received a distribution of the cash in her ESOP account, totaling $1,667.31. The Bryants' stock remains in their ESOP accounts, but it is worthless.
In 2012, Bankshares's board of directors became the Plan administrator. As of March 29, 2012, Bankshares's board of directors had voted to terminate the Plan; however, on May 28, 2016, the date Stump signed his summary judgment affidavit, the termination still was not effective. (Stump's Aff. ¶¶ 3, 38 (Doc. # 58-5); see also Minutes, Bankshares Bd. of Directors Meeting, 03/29/2012 (noting that a request to terminate the Plan had been filed with Internal Revenue Service (Doc. # 58-5, at 19).) Because the Plan appears for all practical purposes to be defunct, references in this opinion to the Plan are in the past tense.
On June 29, 2012, Plaintiffs filed their first ERISA lawsuit in this court against Defendants. (Bryant, et al. v. Community Bankshares, et al., No. 2:12-CV-562-MEF (M.D. Ala. June 29, 2012).) The action was dismissed on March 3, 2014, without prejudice, for Plaintiffs' failure to exhaust their administrative remedies. Subsequently, the Bryants initiated the administrative review process.
By letter dated March 12, 2014, Plaintiffs' counsel submitted a written claim to the Plan administrator under § 7.3 of the Plan, asserting that the "crux of [Plaintiffs'] claim is that [the Plan administrator] had a contractual obligation to diversify the Bryants' accounts and failed to do so."
(Bankshares's June 9, 2014 Letters Denying Bryants' Initial Claims (Doc. # 1-10, at 6; Doc. # 1-11, at 5-6).)
By letter dated August 6, 2014, Plaintiffs' counsel requested a review of the Plan administrator's decisions denying Plaintiffs' claims:
(Pls.'s Aug. 6, 2014 Admin. Appeal (Doc. # 1-12, at 3-4 (internal citations omitted)).)
Bankshares denied Plaintiffs' appeals in its letters dated October 3, 2014, stating:
(Bankshares's Letters Denying Bryants' Admin. Appeals (Doc. # 1-13, at 3-4; Doc. # 1-14, at 3-4).)
After exhausting their administrative remedies with unsuccessful results, the Bryants brought this action. This case proceeds
In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), the Supreme Court held that § 502(a)(1)(B) claims challenging the denial of benefits based on plan interpretations are subject to de novo review "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan."
Blankenship, 644 F.3d at 1355.
Plan language giving the plan administrator "full and exclusive authority to determine all questions of coverage and eligibility," as well as "full power to construe the provisions of [the] Trust," confers the requisite discretionary authority on the plan administrator to trigger review under the arbitrary-and-capricious standard of review. Guy v. Se. Iron Workers' Welfare Fund, 877 F.2d 37, 38-39 (11th Cir. 1989) (listing the "`fair reading' and reasonableness of" a plan administrator's interpretation as a relevant factor under the arbitrary-and-capricious standard of review). The parties agree that § 7.3 of the Plan gave the Plan administrator discretion to interpret the Plan's terms and, therefore, that § 7.3 requires an evaluation of Plaintiffs' § 1132(a)(1)(B) claim under the arbitrary-and-capricious standard of review. (Plan, § 7.3 (conferring on the Plan administrator "the sole and exclusive discretionary power to construe and interpret the Plan, and to determine all questions that may arise thereunder ..., including the amount of benefits to which any Participant or beneficiary may become entitled hereunder...").)
Having determined that the Plan gives a clear grant of discretion to the Plan administrator in reviewing claims (step two), the court will bypass step one and proceed directly to step three. The Eleventh Circuit also has taken this shortcut. See Till v. Lincoln Nat'l Life Ins. Co., 678 Fed.Appx. 805, 807-08 (11th Cir. 2017) (skipping step one of the Firestone analysis and focusing on the ultimate issue of whether the denial of benefits was arbitrary and capricious); see also Emery v. Am. Airlines, Inc., 56 F.Supp.3d 1284, 1289 (S.D. Fla. 2014) (same).
At step three, the issue is whether based upon the information known to the Plan administrator when the final decision was made, the Plan Administrator's resolution of Plaintiffs' claim was "arbitrary and capricious" or an "abuse of discretion." Blankenship, 644 F.3d at 1355 n.5 (noting that the phrases "arbitrary and capricious" and "abuse of discretion" are interchangeable in an ERISA case (citing Jett v. Blue Cross & Blue Shield of Ala., Inc., 890 F.2d 1137, 1139 (11th Cir. 1989))). The arbitrary and capricious standard of review applies to "both the administrator's construction of the plan and concomitant factual findings." Paramore v. Delta Air Lines, Inc., 129 F.3d 1446, 1451 (11th Cir. 1997).
"When conducting a review of an ERISA benefits denial under an arbitrary and capricious standard ..., the function of the court is to determine whether there was a reasonable basis for the decision, based upon the facts as known to the administrator at the time the decision was made." Jett, 890 F.2d at 1140. A decision is reasonable "even if there is evidence that would support a contrary decision." Id. Factors that shed light on the inquiry include: (1) whether the plan administrator's interpretation is contrary to the clear terms of the plan; (2) whether the plan administrator has interpreted the terms uniformly; (3) whether the interpretation of the Plan is reasonable and a fair reading of the Plan; (4) whether the interpretation
Although the Plan administrator's interpretation of the Plan under the arbitrary-and-capricious standard of review is entitled to a high level of deference, the standard is not toothless. Till v. Lincoln Nat'l Life Ins. Co., 182 F.Supp.3d 1243, 1268-69 (M.D. Ala. 2016), aff'd, 678 Fed.Appx. 805 (11th Cir. 2017). Courts have recognized that a plan interpretation is arbitrary and capricious when the plan administrator "construe[s] provisions of a plan in a way that clearly conflicts with the plain language of the Plan," when the interpretation "renders nugatory other provisions of the Plan," and when the Plan administrator's construction of the provision "lacks any rational nexus to the primary purpose" of the Plan. Tapley v. Locals 302 & 612 of the Int'l Union of Operating Eng'r-Emp'rs Constr. Indus. Ret. Plan, 728 F.3d 1134, 1139 (9th Cir. 2013) (internal citations, brackets, and quotation marks omitted). Additionally, "[a] decision is arbitrary and capricious if it was made in bad faith, not supported by substantial evidence, or is erroneous on a question of law." Acree v. Hartford Life & Acc. Ins. Co., 917 F.Supp.2d 1296, 1310 (M.D. Ga. 2013). And, as one circuit put it, "[i]n some cases, the plain language or structure of the plan or simple common sense will require the court to pronounce an administrator's determination arbitrary and capricious." Hess v. Hartford Life & Acc. Ins. Co., 274 F.3d 456, 461 (7th Cir. 2001).
Here, some of the reasons Defendants offer to justify the Plan administrator's reasons for denying Plaintiffs' diversification elections were reasons Bankshares articulated to the Bryants during the administrative claims process. Others are new reasons advanced in this litigation. As to the former, while the Eleventh Circuit has not precluded a court's consideration of a post-hoc rationale of an administrative denial of a claim for benefits, there may be good reasons to treat that rationale with a dose of skepticism. See Tippitt v. Reliance Standard Life Ins. Co., 276 Fed.Appx. 912, 915 (11th Cir. 2008) (recognizing that "[a] district court may choose not to accord self-serving post-hoc explanations much weight ..., but it is not error to consider them"). In University Hospitals of Cleveland v. Emerson Elec. Co., 202 F.3d 839 (6th Cir. 2000), cited with approval in Tippitt, the Sixth Circuit observed the pitfalls of the post-hoc rationale:
Id. at 849.
In light of the foregoing principles, the court analyzes both the reasons the Plan
Then-Plan administrator Stump informed the Bryants in letters denying their initial claims that, "[o]rdinarily, the Plan Administrator would have been obligated to implement Mr. Bryant's April 2009 Diversification Request[s] on or before June 30, 2009." (Bankshares's June 9, 2014 Letter Denying Mr. Bryant's Claim for Benefits, at 6 (Doc. # 1-10); see also Dodd's Aff., ¶ 12 (Doc. # 58-6 (confirming that, "[o]rdinarily, with the guidance of independent third party advisors, [he] would have implemented the April 2009 Diversification Requests and subsequent purchase of the shares, either through the participant's exercise of the put option or the Plan's election to purchase shares, based on the $11.00 per share value in the 2008 Annual Valuation. This process ordinarily would have been completed on or before June 30, 2009.").) Stump gave four reasons why Bankshares did not implement the diversification requests prior to June 30, 2009. He explained that, "[a]t that time,"
(1) Bankshares' stock had plummeted "from $11.00 per share in December 2008 to just $5.20 per share in June 2009," and Bankshares did not have an accurate current valuation of its stock,
(2) Bankshares "was not in a position to honor the put option to repurchase the stock," and
(3) the Plan alternatively could not purchase the shares tendered to Bankshares under the put option because the purchase would "have had an adverse effect on other Plan participants."
Based on reasons (1), (2), and (3), Stump cited § 8.4 of the Plan and said that Bankshares "decided to suspend all diversification elections until it could develop a plan that would be fair and equitable to all Plan participants."
Concerning the fourth reason (4), the Plan administrator explained that, later in November 2009, the Bryants revoked their April 2009 diversification elections to transfer the shares to their individual retirement accounts and directed Bankshares to keep their shares invested in the Plan, and that there are no longer out-standing diversification elections by the Bryants. It is appropriate to address reasons (1), (2), and (3) together, followed by a discussion of reason (4).
The first three reasons underlying Bankshares's decision to suspend implementation of the diversification elections arise from the Plan administrator's belief that by June 30, 2009, the December 31, 2008 annual valuation did not accurately reflect the precipitous drop in Bankshares's stock in 2009. This meant that the 2008 annual valuation commanded an overinflated price for purposes of the Plan's obligations to implement diversification elections and ensure a participant's right to a put option. Reasons (1), (2), and (3) implicate Bankshares's duties under the Plan to implement diversification elections
These three reasons for the Plan administrator's decisions disallowing the Bryants' proper elections to diversify their investments in their individual ESOP accounts do not survive review under the arbitrary-and-capricious standard. The decisions conflict with the clear, specific, and mandatory terms of the Plan governing stock valuation, a participant's right to make a diversification election, and a participant's right to exercise a put option on distributed shares and, at the same time, render those mandatory terms nugatory. The decisions also construe the Plan in a manner that contravenes the governing federal regulations.
Because the Plan does not contain an exception to the use of the Annual Valuation Date for purposes of implementing diversification elections and transacting put options, it was arbitrary and capricious for the Plan administrator to disregard the December 31, 2008 annual valuation. Where the "plan document unambiguously addresses the valuation procedure, ... the plan is contractually bound to honor that procedure...." Pratt v. Petroleum Prod. Mgmt. Inc. Emp. Sav. Plan & Trust, 920 F.2d 651, 662 (10th Cir. 1990). Under §§ 8.3 and 5.8 of the Plan, the fair market value of the participant's account and of Bankshares's stock is determined as of the Annual Valuation Date for purposes of distributions of stock shares precipitated by diversification elections and put option transactions.
Section 8.3 provided that the participant could elect to diversify a percentage of the investment in his or her account in the Plan, "determined as of the Annual Valuation Date for the Plan Year preceding the Plan Year in which such election [was] made." (Plan. § 8.3.) The Plan, at § 1.36, mandated that the "Annual Valuation Date shall be December 31 of each Plan Year." The Annual Valuation Date also fixed the value of the stock for the put option price. (See Plan, § 5.8(b) ("The price at which the put option shall be exercisable is the fair market value as of the Annual Valuation Date which precedes the date the put option is exercised.").) For both diversification elections and put option transactions made in 2009, the December 31, 2008 Annual Valuation Date fixed the value of the stock at $11.00 per share.
Sections 5.8 and 8.3 do not provide an exception or contingency permitting Bankshares to use a date other than the Annual Valuation Date for ascertaining the fair market value of Bankshares's stock and a participant's individual account. Defendants have not identified any Plan provision that gives the Plan administrator discretion to override the mandatory provisions of §§ 5.8 and 8.3. For instance, when asked, Dodd was unable to point to any language in the Plan to support his supposition that Bankshares did not have to implement a diversification election, which would have triggered the put option, based on the value of the stock on the Annual Valuation Date if the Plan trustees "fe[lt] like the valuation ha[d] changed dramatically." (Dodd's Dep., at 25-26 (Doc. # 57-27).)
The Plan language is clear: The Annual Valuation Date is the sole date that governs valuations for purposes of diversification elections and put option transactions. The Plan language also is mandatory: The
Notably, the Plan could have made an exception for an alternative valuation date or other contingency plan in unexpected times of financial stress, but it did not. Other courts examining ESOPs have recognized, at least implicitly, the validity of such provisions. See, e.g., Craig v. Smith, 597 F.Supp.2d 814, 821 (S.D. Ind. 2009) (reciting the ESOP provision that assigned the value of stock for purposes of a put option "as of the most recent Valuation Date; unless the Administrator believes that the value as of the most recent Valuation Date is significantly more than the fair market value of such Employer Stock as of the date of the transaction, in which case, the value of the Employer stock shall be, if permitted under ERISA, the value of such Employer Stock determined as of the date of such transaction"); Jasper v. M.H. & B.L. Jasper, D.D.S., P.C. Profit Sharing Plan, 340 F.Supp.2d 1017, 1021-22 (E.D. Mo. 2004) (discussing a plan provision that permitted the Plan administrator to use a special valuation date for purposes of allocating trust fund earnings among the accounts "to avoid prejudice to any Participant under the Plan"); Mitchell v. Falley's Inc., 958 F.Supp. 548, 550 (D. Kan. 1997) (observing that the Plan required an annual valuation of the stock, but allowed an interim valuation when the administrator "believe[d] that the value of the stock has changed substantially since the last valuation" and an adjustment of account balances if the interim valuation revealed a ten percent deviation (plus or minus)).
Moreover, Defendants have cited no authority, and the court has found none, indicating anything unusual about a plan that sets the valuation to occur on an annual basis (instead of more frequent valuations) and on a date that is earlier than the distribution date. When the valuation date precedes the election date, a participant can make an informed decision as to whether to diversify. Because the valuation establishes the number and worth of stock shares in a participant's individual ESOP account prior to the election period, the participant knows the value of his or her individual account and knows that a distribution of shares would proceed based upon that value. Additionally, cost efficiency may guide a company's decision to have a yearly valuation date. See Pratt, 920 F.2d at 661-62 (observing that "plausible reasons exist for [an annual] valuation method" where, for example, the company deems "the expense of obtaining more frequent valuations for these employer securities [to be] too great"); see also American Bar Association Section of Taxation Employee Benefits Committee ESOP Subcommittee, Spring 2015 Meeting Washington, D.C., 2015 ABATAX-CLE 0508026, 2015 WL 3792951 (May 8, 2015) ("ESOPs are only required to value the stock once a year and to require otherwise would be overly burdensome on the company and distract the company's leadership from running, improving, and growing the company. The nature of an annual balance forward plan is that balances are static until the next annual allocation date and that activity is reflective of this static balance.").
The selection of an Annual Valuation Date as the price point for diversification elections and put option transactions also reflects a realistic allocation of unknown risks between Bankshares and ESOP participants. For example, Bankshares may have anticipated that its stock value would increase, in which case the participant would have borne the risk; however, unfortunately for Bankshares, for diversification elections and put options exercised in 2009, Bankshares realized the risk. In
920 F.2d at 661.
Here, the terms governing the timing of the valuation of Bankshares's stock for purposes of ascertaining the fair market value of the stock and the individual ESOP accounts are clear, mandatory, and permit no exception. This court, as in Pratt, cannot rewrite the requirements of the Plan to alleviate the adverse consequences to Bankshares as a result of its allocation of risk.
Defendants' principal contention is that the Plan administrator's reliance on § 8.4 supplies a reasonable basis for its decisions. This general plan provision requires the Plan administrator to "discharge [his] duties solely in the interest of the Participants" and with the "care, skill, prudence and diligence, under the circumstances then prevailing." (Plan, § 8.4.) To be sure, the Plan administrator's rationale is not without intrigue as Dodd's prediction of Bankshares's dire economic circumstances was perceptive.
Because a participant's right to a put option is mandatory under the Plan and governing regulations, the Plan administrator's decision to obliterate the Bryants' rights to a put option was arbitrary and capricious. The Plan plainly provides that "[a]ny Participant ... receiving a distribution of Company Stock from the Plan at a time when such Company Stock is not readily tradeable on an established market shall have a `put option' on such shares, giving him the right to have the Company purchase such shares...." (Plan, § 5.8(a).) There is no serious dispute that the right to the put option was unqualified under the terms of the Plan, and the provisions in § 5.8 governing put options are specific, which for the reasons discussed above, are not subject to override by the general terms of § 8.4.
Moreover, the Internal Revenue Code requires that, if an employer's stock is "not readily tradeable on an established market" (and Bankshares's stock was not), then the company that sponsors the ESOP must provide a put option right to the participant to sell the shares of stock back to the company. 26 U.S.C. § 409(h)(1)(B) (requiring that, under an ESOP, the participant has "a right to require that the employer repurchase employer securities under a fair valuation formula"). The Plan administrator's interpretation of the Plan in a manner that contravenes federal regulatory requirements governing put option rights in ESOPs is another factor demonstrating the unreasonableness of the Plan administrator's decision. See Cagle, 112 F.3d at 1518 (enumerating factors relevant to the analysis of whether a plan administrator acted arbitrarily and capriciously).
Defendants contend that, while the Plan administrator's standard practice was to implement diversification elections within 180 days of the plan year in which an eligible participant made a diversification election (i.e., by June 30, 2009), the Plan did not mandate this deadline.
The last sentence of § 8.3, when read in isolation, appears to support Defendants' Plan construction that the clock starts ticking for the implementation of diversification elections at the end of the six-year qualified election period. But context can mean a lot, and there are at least four reasons why it does here.
First, Defendants' argument that the June 30 deadline was a self-imposed, rather than a contractual, deadline surfaced for the first time in this litigation. The reasons that follow will show why the court does not assign much weight, if any, to Defendants' post-hoc construction of § 8.3. See Tippitt, 276 Fed.Appx. at 915 ("A district court may choose not to accord self-serving post-hoc explanations much weight ..., but it is not error to consider them.").
Second, the Plan administrator consistently interpreted June 30 as a mandatory deadline, beginning in February 2009 and continuing through the Bryants' administrative review process. Initially, in the Investment Diversification Notice, dated February 25, 2009, Bankshares informed participants that "[y]our direction [for diversification] will be implemented no later than June 30, 2009." (ESOP Investment Diversification Notice (Docs. # 57-8 and 57-9).) In the letters denying the Bryants' initial claims, the Plan administrator did
Again, in the letters rejecting the Bryants' administrative appeals, the Plan administrator did not take the position that the June 30 deadline was permissive. He acknowledged June 30, 2009 as the deadline, but articulated that adherence to that deadline for implementing diversification elections would have been unfair to other Plan participants and not in the best interest of the Plan as a whole based on the falling stock prices. (See, e.g., Bankshares's Oct. 3, 2014 Letter Denying Ms. Bryant's Admin. Appeal ("In April 2009, Ms. Bryant elected to transfer the shares to her IRA and the transfer to her IRA would have occurred on or about June 30, 2009," but for the "deteriorating financial condition of [Bankshares] in 2009" (Doc. # 1-14).)
Defendants posit a different take on the uniform interpretation angle. They argue that the Plan administrator interpreted the Plan consistently because the decision to suspend the implementation of diversification elections pending an interim valuation affected not only the Bryants, but all eligible participants who had made diversification elections in the 90-day election period in 2009. This argument avoids mention that the Bryants were eligible for benefits (a distribution of shares subject to a put option at the price-per-share fixed by the 2008 annual valuation), but that the Plan administrator nevertheless declined to honor the diversification elections (and anticipated put options at the $11.00 share price). In other words, the Plan administrator uniformly contravened the Plan when, in 2009, it suspended implementation of all diversification elections exercised in 2009 pending an interim valuation and then suspended the put option. It cannot be that a Plan administrator's decision becomes reasonable through repetition of a Plan violation. The factor of uniformity of construction does not support Defendants' position that the Plan did not act arbitrarily and capriciously. Uniformity of the Plan administrator's interpretation of the Plan's diversification deadline is a factor that weighs in favor of a finding of arbitrariness and capriciousness. See Cagle, 112 F.3d at 1518.
Third, an interpretation of the Plan that Bankshares's distribution of shares subject to a diversification election did not have to occur until 90 days after the end of the six-year qualified election period, rather than 90 days after the last day of the each 90-day
Fourth, Defendants' interpretation of the Plan deadline lacks a commonsense foundation. See Hess, 274 F.3d at 461 (stating that sometimes "common sense will require the court to pronounce an administrator's determination arbitrary and capricious"). Section 8.3 permits an eligible participant to make up to six diversification elections, one after the close of each plan year of the qualified election period; hence, § 8.3 contemplates a qualified election period containing six distinct units of time for purposes of a participant's right to make a diversification election. Delaying implementation of diversification elections until the end of the six-year qualified election period would eliminate the value of the put option that accompanied a diversification election because it would prevent participants from knowing the value of the put option at the time of the election.
The foregoing analysis demonstrates that the Plan administrator acted arbitrarily and capriciously in failing to implement the Bryants' diversification elections by the Plan's June 30, 2009 deadline. But Defendants offer a final argument against such a finding. They contend that it was reasonable for the Plan administrator to conclude that it could not implement the Bryants' April 2009 diversification elections and anticipated put options prior to June 30, 2009, because the Federal Reserve Bank orally had informed him that Bankshares was prohibited from redeeming its stock.
The ESOP investment diversification notices, dated February 25, 2009, which the Bryants submitted to Bankshares, do not memorialize a restriction orally imposed by the Federal Reserve Bank's on Bankshares's ability to honor a put option should the participant elect for a distribution of stock shares. And the subsequent November 2009 letter from Bankshares to its ESOP participants, revealing the bleak results of the special stock-valuation and informing participants of its decision to suspend put options does not mention an oral directive from the Federal Reserve Bank prohibiting Bankshares from honoring put options. The fact of an oral prohibition from a federal regulatory agency would seem to be a significant reason to relay to participants to explain a Plan administrator's suspension of a put option, had that fact actually motivated the decision.
Additionally, the Plan administrator's letters denying the Bryants' initial claims and upholding the denial on the administrative appeals do not cite the Federal Reserve Bank's oral prohibition as a reason for denying the Bryants' claims. For example, in his letters dated June 9, 2014, denying the Bryants' initial claims, the Plan administrator cited only the written agreement between the Federal Reserve Bank and Bankshares, which prohibited Bankshares from purchasing or redeeming its stock shares, but that agreement did not take effect until September 16, 2009, several months after the June 30, 2009 deadline had passed.
In sum, the Plan administrator's decision not to implement the diversification elections by June 30, 2009, but to delay implementation pending a new valuation, was arbitrary and capricious based upon the Plan administrator's past consistent interpretations of the Plan's requirements for implementing diversification elections, the governing federal statutory requirements, a pinch of common sense, and the rejection of Defendants' post-hoc rationales.
Defendants argue that, during the 2014 administrative claims process, the Plan administrator had a rational basis to deny the Bryants' claims to make diversification
Plaintiffs contend that the Plan administrator's reliance on their November 30, 2009 diversification elections as nullifying their April 2009 diversification elections is a post-hoc justification because these elections did not exist when the Plan administrator originally refused to honor their April 2009 diversification elections by the June 30, 2009 deadline. Additionally, they argue that the November 2009 elections do not contain a release that would prohibit the Bryants from seeking relief for the June 2009 breach. According to Plaintiffs, the choice Bankshares presented in November 2009 — to implement their diversification elections but without a put option (meaning they would receive the illiquid common stock of a defunct organization and accompanying tax liability) or to change their election and leave their stock shares in their account) — was a "Hobson's choice" or "no choice at all." (Pls.' Summ. J. Mot., at 21 (Doc. # 57).)
As an initial matter, an issue has arisen as to the scope of the record for this court's review. "It is well established that in reviewing a denial of ERISA benefits, the relevant evidence is limited to the record before the administrator at the time the decision was made." Alexandra H. v. Oxford Health Ins. Inc. Freedom Access Plan, 833 F.3d 1299, 1312 (11th Cir. 2016). The focus properly is on the phrase, "at the time the decision was made." Plaintiffs argue that any decision or information obtained after June 30, 2009 — the deadline for Bankshares to implement their diversification elections — cannot supply the reason for the Plan administrator's initial refusal to honor the diversification elections by June 30, 2009. In particular, Plaintiffs contend that the materials for this court's review cannot include the November 2009 diversification elections. Their argument, in effect, is that the administrative record closed on June 30, 2009.
The argument gets traction from the court's previous statement, at the motion-to-dismiss stage, that "[t]he November 2009 revocations post-date the Plan administrator's [June 30, 2009] contractual deadline for implementing Plaintiffs' prior April 2009 diversification requests and, thus, regardless of the validity of the revocations, were not `material available to the administrator at the time it made its decision.'" (Mem. Op. & Order, at 14-15 (quoting Blankenship, 644 F.3d at 1354)). In retrospect, what the court should have written is that the Bryants' November 2009 diversification elections could not explain or justify Bankshares's decision not to implement the diversifications by the June 30, 2009 deadline for the obvious reason that the November 2009 diversification elections were non-existent in June.
It was not reasonable for the Plan administrator to conclude that the Bryants' November 2009 diversification elections amounted to waivers of their previous invocation of their rights to pension benefits (i.e., a diversification election that included a put option on the distribution of shares subject to the election). Although the parties cite no law on the pages of their briefs where they make these arguments, there is a general body of law addressing waivers of pension benefits that is relevant to the analysis. Defendants contend, in essence, that, when the Bryants changed their diversification elections in November 2009, they waived their rights under the Plan to diversify their investments and receive a distribution of a percentage of the stock in their individual ESOP accounts. "The validity of a waiver of pension benefits under ERISA is subject to closer scrutiny than a waiver of general contract claims." Sharkey v. Ultramar Energy Ltd., Lasmo plc, Lasmo (AUL Ltd.), 70 F.3d 226, 231 (2d Cir. 1995). "The essential question is whether, in the totality of the circumstances, the individual's waiver of his right can be characterized as knowing and voluntary." Id. There are six factors a court should consider in evaluating purported waivers of ERISA rights:
Finz v. Schlesinger, 957 F.2d 78, 82 (2d Cir. 1992) (citation omitted); see also Smart v. Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 181 n.3 (1st Cir. 1995) (treating the Second Circuit's list of factors as "helpful rather than conclusive").
The court applies the arbitrary-and-capricious standard of review to the Plan administrator's decision that the Bryants were not entitled to diversify their investments because, in November 2009, they changed their elections to keep their shares in the Plan. The principal focus of this analysis is not whether the Bryants effected a valid waiver of the rights to diversify their elections, but whether it was reasonable for the Plan administrator to conclude that they had done so. Of course, the former issue necessarily informs the analysis of the latter issue. With that in mind, the court turns to the factors set out above.
The third, fourth, fifth, and sixth factors easily answer the inquiry in the Bryants' favor. As to the third factor, Bankshares unilaterally eliminated the Plan's requirement that distributions made in accordance
As to the fourth factor, there is no language in the Bankshares' November 2, 2009 letter to participants, updating them on the financial deterioration of the ESOP, or in the November 2009 diversification-election forms, suggesting that the Bryants were releasing any rights under the Plan to a diversification election that included a put option with a price based on the December 31, 2008 valuation date. See also Krackow v. Dr. Jack Kern Profit Sharing Plan, No. 00 Civ. 2550, 2002 WL 31409362, at *7 (E.D.N.Y. May 29, 2002) (finding that an ERISA claim had not been waived where the release did not contain "clear and unambiguous" language); Stewart v. Project Consulting Servs., Inc., No. 99 Civ. A. 3595, 2001 WL 1334995, at *3 (E.D. La. Oct. 26, 2001) (rejecting a waiver claim where the contract "does not contain an expression by plaintiff that he will not pursue benefits nor that he relinquishes any right to claim such benefits under ERISA"). Hence, under the fourth factor, the court finds that there is a complete absence of clarity in the forms that the Bryants were waiving their rights to benefits under ERISA.
As to the fifth factor, there was no provision in the November 2, 2009 letter or the election form that encouraged Plaintiffs to consult an attorney before changing their election. And neither Plaintiff signed an acknowledgment that they had fully read and understood that they were giving up rights to Plan benefits.
As to the sixth factor, the Bryants received no consideration in exchange for signing the November 2009 elections. Rather, the retraction of a diversification election accompanied by a put option was a financial detriment to the Bryants.
Even if the first two factors are neutral or weigh in Defendants' favor, the third, fourth, fifth, and sixth factors outbalance those factors and reveal that the Plan administrator acted arbitrarily and capriciously in opining that Plaintiffs had given up their rights to pursue a diversification election that included a put option when they signed the November 2009 diversification election.
The Plan administrator's decision to suspend the implementation of diversification elections pending an interim stock valuation was arbitrary and capricious: (1) As Plan participants, the Bryants were eligible to diversify a portion of their Plan account for a period of 90 days in the election period at issue; (2) after Plaintiffs timely submitted their diversification requests, the Plan administrator had ninety days from the close of the annual election period (i.e., until June 30, 2009) to distribute shares in accordance with their diversification elections; (3) thereafter, Plaintiffs had the right to exercise a put option and require Bankshares to buy back the shares at the price set by the December 31, 2008,
Furthermore, the Plan administrator's decision that it could deny Plaintiffs the Plan's right to diversify election based upon the November 2009 forms in which they changed their elections to keep their shares invested in the Plan is arbitrary and capricious. There is not a reasonable basis to support the Plan administrator's conclusion that the November 2009 elections was, in essence, a waiver of benefits promised to Plaintiffs under the Plan.
Step Four of the six-part Firestone test provides that, "if no reasonable grounds exist, then end the inquiry and reverse the administrator's decision." Blankenship, 644 F.3d at 1355. The Plan Administrator's decision to deny Plaintiffs' claims and the subsequent administrative appeals ratifying those decisions are subject to reversal. Accordingly, on liability, Plaintiffs' summary judgment motion on the § 1132(a)(2) claim is due to be granted, while Defendants' summary judgment motion on this count is due to be denied.
The issue turns to relief. In the Eleventh Circuit, § 1132(a)(1)(B) "confers a right to sue the plan administrator for recovery of benefits." Hamilton v. Allen-Bradley Co., 244 F.3d 819, 824 (11th Cir. 2001); Garren v. John Hancock Mut. Life Ins. Co., 114 F.3d 186 (11th Cir. 1997) (employer, as plan administrator, was proper party defendant). The Eleventh Circuit also has held that an action to recover benefits under § 1132(a)(1)(B) is "equitable in nature." Hunt v. Hawthorne Assocs., Inc., 119 F.3d 888, 907 (11th Cir. 1997) (characterizing the plaintiff's ERISA claim for benefits under § 1132(a)(1)(B) as an equitable claim "for the enforcement of the ERISA plan" in contrast to an action for a money judgment). Proper relief under § 1132(a)(1)(B) includes an injunction requiring payment of accrued plan benefits, which here "must issue against" the plan administrator. Id. at 908.
Plaintiffs contend that the Plan administrator failed to honor their April 2009 diversification requests by June 30, 2009, as mandated by § 8.3 and that, therefore, they did not have an opportunity under § 5.8 to exercise their put option and receive cash for their diversified shares of stock. Accordingly, Plaintiffs seek benefits in the form of a distribution of shares that is subject to a put option. They also contend that the fair market value of the put option is that fixed by the December 31, 2008 annual valuation (i.e., $11.00 per share). (See Pls.' Summ. J. Mot., at 36-37 (Doc. # 57).)
Defendants contend that, if liability is established, Plaintiffs are entitled only to "the distribution of a portion of the shares in their account, not cash." According to Defendants, Plaintiffs "have presented no evidence that they have exercised the `put option' or that there is any obligation by Bankshares or the Plan to purchase their shares." Alternatively, Defendants contend that the September 30, 2009 special valuation of "$2.30 per share should be used to determine the value of the portion of [Plaintiffs'] account[s] subject to diversification." (Defs.' Resp. in Opp. to Pls.' Summ. J. Mot, at 60-61 & n.13).)
As a threshold issue, the parties' arguments ignore the elephant in the Complaint. Count One — the § 502(a)(1)(B)
Bankshares, as the Plan administrator, is liable under § 1132(a)(1)(B) for the benefits that Plaintiffs did not receive as a result of Bankshares's failure to distribute the shares of stock in satisfaction of Plaintiffs' diversification elections by June 30, 2009. Those benefits encompass the put option, which would have permitted the Bryants to obtain cash in lieu of stock shares at the $11.00 share price fixed by the December 31, 2008 annual valuation. (See Plan, § 5.8(b) ("The price at which the put option shall be exercisable is the fair market value as of the Annual Valuation Date which precedes the date the put option is exercised.").) Although Defendants urge a $2.30 share price, the interim valuation set that price, and, as discussed in Part V.B.2.a., the Plan contains no provision permitting an interim valuation for purposes of implementation of a put option.
Defendants also argue that the Bryants never exercised their rights to a put option under § 5.8 of the Plan and, thus, Bankshares did not deny them those rights. But the logic of this argument is flawed, if not disingenuous. The Plan administrator prevented Plaintiffs from exercising their rights to a "put option" under § 5.8 by failing to distribute the shares covered by Plaintiffs' diversification elections. The distribution of the shares is the event that activated the right of the put option. (See Plan, § 5.8(a) ("Any Participant ... receiving a distribution of Company Stock from the Plan at a time when such Company Stock is not readily tradeable on an established market shall have a "put option" on such shares, giving him the right to have the Company purchase such shares."). The Bryants' predicament is of Bankshares's making; Bankshares owns it.
Defendants' related argument is that the full spectrum of benefits that Plaintiffs can recover is a distribution of shares under § 8.3. Defendants are correct that § 8.3 only permits a distribution of shares, not cash, but § 8.3 cannot be divorced from § 5.8. As discussed in other parts of this opinion, concomitant with an eligible participant's right to make a diversification election during each plan year of the qualified election period and to direct the Plan Administrator to distribute or transfer the shares covered by the election was the Plan's guarantee to an eligible participant to a put option on the distributed shares. The court recognizes that the employer (Bankshares), not the Plan, was obligated to buy back the shares, but the Plan administrator had a duty to ensure that the participant had the opportunity to elect the put option. Another district court, in awarding benefits under § 1132(a)(1)(B) to an ESOP participant, persuasively reasoned that a put option payable by the employer, not the Plan, is a recoverable benefit. See Craig v. Smith, 597 F.Supp.2d 814, 830 (S.D. Ind. 2009) (The ESOP "gave [the participant] the right to put his shares to the company. Even though the company had to pay for the shares, the ESOP had to ensure that the put option was exercised properly. It did not do so in this case, so the ESOP is liable for benefits that Craig
The amount of benefits to which Plaintiffs are entitled hinges on the number and value of the shares of stock each Plaintiff possessed as of the December 31, 2008 annual valuation. The account balance statements reflect that (1) Mr. Bryant owned approximately 9,197.930607 shares of Bankshares's stock in his ESOP as of January 1, 2009, and (2) Mrs. Bryant owned 880.205842 shares of Bankshares stock in her ESOP as of January 1, 2009. (Bryants' ESOP Account Balances (Doc. # 57-25).) The fair market value of Bankshares's stock as of the December 31, 2008 valuation was $11.00 per share.
Section 8.3 of the Plan entitled Mr. Bryant to diversify fifty percent of the employer securities in his account, which would have equaled approximately 4,599 shares of stock. Exercising the put option at $11.00 per share, Mr. Bryant would have received $50,589. Mrs. Bryant was entitled to diversify twenty-five percent of the employer securities in her account, which would have equaled approximately 220 shares of stock. Exercising the put option at $11.00 per share, Mrs. Bryant would have received $2,420.
Plaintiffs request an award of prejudgment interest. "The award of an amount of prejudgment interest in an ERISA case is a matter committed to the sound discretion of the trial court." Florence Nightingale Nursing Serv., Inc. v. Blue Cross/Blue Shield of Alabama, 41 F.3d 1476, 1484 (11th Cir. 1995) (citation omitted)). "This judicial discretion encompasses not only the overarching question — whether to award prejudgment interest at all — but also subsidiary questions that arise after the court decides to make an award, including matters such as the period and rate to be used in calculating interest." Cottrill v. Sparrow, Johnson & Ursillo, Inc., 100 F.3d 220, 223 (1st Cir. 1996) abrogated on other grounds by Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010).
Plaintiffs are entitled to an award of prejudgment interest. Prejudgment interest will permit Plaintiffs to receive full compensation for their losses and will ensure that the Plan administrator does not obtain "a windfall as a result of its wrongdoing." Slupinski v. First Unum Life Ins. Co., 554 F.3d 38, 54 (2d Cir. 2009). This leaves the issues concerning the rate of prejudgment interest and the date of the accrual of prejudgment interest.
ERISA does not embody a provision providing for prejudgment interest. In Florence Nightingale Nursing Serv., Inc. v. Blue Cross/Blue Shield of Alabama, 41 F.3d 1476 (11th Cir. 1995), an ERISA case involving a skilled home nursing care providers' claim for health benefits Blue Cross and Blue Shield of Alabama refused to pay, the Eleventh Circuit held that "[i]t was clearly within the district court's discretion to use § 27-1-17(b) [subsequently renumbered (c)] as an analogy to fill a gap in ERISA law." Id.; see also Ala. Code § 27-1-17(c) (providing the rate of interest
Plaintiffs assert that they are entitled to an award of prejudgment interest at a rate of 1.5 percent per month (18 percent per annum). This is the rate allotted in § 27-1-17(c), although Plaintiffs do not cite this statute. (Pls.' Summ. J. Mot., at 37.) The court finds that prejudgment interest rate of 1.5%, by reference to § 27-1-17(c), is appropriate in this case involving the wrongful denial of pension benefits under ERISA. Accordingly, prejudgment interest will be calculated at the rate of 18 percent per annum for the time period during which Plaintiff was wrongfully denied benefits under the policy.
The issue now turns to the accrual date for the award of prejudgment interest. Defendants persuasively argue that the Bryants are at fault for much of the delay in this action. They contend that Plaintiffs "inexplicably waited three years to file their first lawsuit in 2012 and five years to exhaust the Claims Procedure in 2014." (Defs.' Resp. in Opp. to Pls.' Summ. J. Mot., at 61 (Doc. # 61).)
The court agrees that Plaintiffs bear primary responsibility for the delay in pursuing their administrative remedies. Their first lawsuit resulted in dismissal because Plaintiffs had "failed to sufficiently allege a lack of `meaningful access' to the Plan's administrative review procedures such that their failure to exhaust should be excused." Bryant v. Community Bankshares, 999 F.Supp.2d 1273, 1277 (M.D. Ala. 2014) (Order dismissing Bryants' ERISA action for failure to exhaust administrative remedies (Doc. # 40)). The court explained:
Id. at 1277.
To account for this delay, the court finds that the unique circumstances of this case justify an accrual of prejudgment interest from the date that the Bryants initiated the administrative claims process. That process began by letters dated March 12, 2014, in which Plaintiffs' counsel submitted a written claim to the Plan administrator, contending that the plan administrator had breach its contractual obligation to diversify the Bryants' accounts. (Pls.' March 12, 2014 Claim for Benefits, at 3 (Doc. # 1-9).)
Accordingly, Plaintiffs' request for prejudgment interest is due to be granted. Plaintiffs are entitled to prejudgment interest at a rate of 1.5% per month (18% annually) from March 12, 2014, to the date of final judgment.
Plaintiffs seek an award of attorney's fees under 29 U.S.C. § 1132(g)(1). This statute "provides no presumption in favor of granting attorney's fees to a prevailing claimant in an ERISA action." Freeman v. Cont'l Ins. Co., 996 F.2d 1116, 1119 (11th Cir. 1993). A fee award "to either party" is within the district court's "discretion," § 1132(g)(1), provided the fee claimant demonstrates "some degree of success on the merits." Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 255, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010) (citation omitted). The following factors are relevant for the determination of
Wright v. Hanna Steel Corp., 270 F.3d 1336, 1344 (11th Cir. 2001); see also Cross v. Quality Mgmt. Grp., LLC, 491 Fed. Appx. 53, 55 (11th Cir. 2012) (concluding that Hardt "allow[s] for the application of the five factors before a district court ultimately determine[s] a party's entitlement to fees" and observing that Hardt specifically "sanctioned the district court's secondary use of the five-factor test"). "No one of these factors is necessarily decisive, and some may not be apropos in a given case, but together they are the nuclei of concerns that a court should address." Plumbers & Steamfitters Local No. 150 Pension Fund v. Vertex Constr. Co., 932 F.2d 1443, 1452 (11th Cir. 1991).
Considering the above factors, the court finds that, while Plaintiffs achieved "some degree of success on the merits," Hardt, 560 U.S. at 255, 130 S.Ct. 2149, an award of attorney's fees is not appropriate. First, a searching review of the record reveals no bad faith on the part of the Plan administrator. The Plan administrator was in a tough position. Bankshares's stock was declining rapidly, as confirmed by the September 2009 interim valuation; the ESOP's financial integrity was at grave risk; and the Plan administrator endeavored to be fair to all 459 of the ESOP participants. The Plan administrator's decisions were contrary to the specific and mandatory language of the Plan; thus, some culpability attaches. But there is no indication that bad faith factored into the decisions. Second, it is unlikely that an award of attorney's fees would deter other ESOP Plan administrators, given the unique financial circumstances confronting Bankshares in 2009. Third, there is no argument or evidence that other eligible participants of an ESOP would derive a benefit from an award of attorney's fees to Plaintiffs. Fourth, this case does not involve a significant legal question regarding ERISA itself. The relative positions of the parties reveal culpability only in legal interpretation of facially ambiguous language in the Plan. This order reverses that error. That error in judgment alone does not foretell an award of attorney's fees under the Wright factors.
Accordingly, Defendants' summary judgment motion as to Count Three, which is Plaintiff's request for attorney's fees, is due to be granted, while Plaintiffs' summary judgment motion on Count Three is due to be denied.
For the foregoing reasons, it is ORDERED as follows:
(1) The motion for summary judgment (Doc. # 57), filed by Plaintiffs, is GRANTED on their claims to enforce Plan rights and for benefits under § 1132(a)(1)(B) in Count One of the Complaint against Defendant Community Bankshares, Inc. Plaintiffs' motion for summary judgment (Doc. # 57) otherwise is DENIED.
(2) Defendants' motion for summary judgment (Doc. # 58) is DENIED on Count One and GRANTED on Count Three, which is Plaintiffs' request for attorney's fees. Defendants' motion for summary judgment (Doc. # 58) is DENIED as moot on Count Two.
(4) Prejudgment interest is awarded at a rate of 1.5 percent per month (18 percent annually) from March 12, 2014, to the date of final judgment.
(5) Plaintiffs shall show cause, on or before
A final judgment will be entered separately after resolution of (5).
DONE this 12th day of September, 2017.
A copy of this checklist is available at the website for the USCA, 11th Circuit at www.ca11.uscourts.gov Effective on December 1, 2013, the fee to file an appeal is $505.00
ESOP Diversification Rules Explained, 69 J. Tax'n 22, 1988 WL 241515, 1; see also id. (explaining that "employer securities acquired by or contributed to an ESOP (or a tax credit ESOP) after 1986 are subject to the diversification requirements").
