Filed: May 13, 2005
Latest Update: Feb. 21, 2020
Summary: United States Court of Appeals Fifth Circuit F I L E D REVISED MAY 12, 2005 March 16, 2005 Charles R. Fulbruge III In the Clerk United States Court of Appeals for the Fifth Circuit _ m 03-11087 _ MICHAEL MILOFSKY, ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, AND ON BEHALF OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES; ROBERT WALSH, ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
Summary: United States Court of Appeals Fifth Circuit F I L E D REVISED MAY 12, 2005 March 16, 2005 Charles R. Fulbruge III In the Clerk United States Court of Appeals for the Fifth Circuit _ m 03-11087 _ MICHAEL MILOFSKY, ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, AND ON BEHALF OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES; ROBERT WALSH, ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, ..
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United States Court of Appeals
Fifth Circuit
F I L E D
REVISED MAY 12, 2005
March 16, 2005
Charles R. Fulbruge III
In the Clerk
United States Court of Appeals
for the Fifth Circuit
_______________
m 03-11087
_______________
MICHAEL MILOFSKY,
ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
AND ON BEHALF OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN
FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES;
ROBERT WALSH,
ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
AND ON BEHALF OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN
FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES,
Plaintiffs-Appellants,
VERSUS
AMERICAN AIRLINES, INC.;
JOHN DOES 1-10,
AS MEMBERS OF THE PENSION ASSET ADMINISTRATION COMMITTEE
OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN
FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES;
JOHN DOES, 11-20,
AS MEMBERS OF THE PENSION BENEFITS ADMINISTRATION COMMITTEE
OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN
FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES;
TOWERS PERRIN,
Defendants-Appellees.
_________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________
Before KING, Chief Judge, SMITH and American Airlines to render administrative ser-
GARZA, Circuit Judges. vices in connection with the $uper $aver Plan.
The notices informed the plaintiffs of when the
JERRY E. SMITH, Circuit Judge: account transfers would take place and of
certain “blackout” periods during which they
Michael Milofsky and Robert Walsh would not be permitted to have access to their
brought a class action under the Employee accounts. Allegedly, the transfer of the ac-
Retirement Income Security Act of 1974 counts did not go smoothly, with the account
(“ERISA”) against American Airlines, Inc. transfers occurring weeks, and in some cases,
(“American Airlines”) and Towers Perrin, months after the time written in the notices.
alleging breach of fiduciary duty with regard to
a transfer of their pension plans from their The plaintiffs sued under ERISA § 502-
former employer when it was acquired by the (a)(2), 29 U.S.C. § 1132(a)(2), alleging that
parent company of American Airlines. The American Airlines and Towers Perrin had vio-
district court dismissed the action. Finding no lated fiduciary duties in misrepresenting how
error, we affirm. and when their accounts would be transferred
to the $uper $aver Plan. They alleged that
I. because of the failure to effect the transfer of
Milofsky and Walsh were pilots for Busin- the class members’ account balances in a time-
ess Express, Inc. (“BEX”), when it was ac- ly and prudent manner, the values of their
quired by AMR Eagle Holding Corporation, accounts decreased because the assets
the parent company of American Eagle, Inc. remained invested in the floundering BEX Plan
(“American Eagle”). While employed with longer than expected. Plaintiffs requested
BEX, the plaintiffs participated in its individual actual damages to be paid to the $uper $aver
account pension plan, called the “BEX Saving Plan, to be allocated among their individual ac-
and Profit Sharing Plan” (“BEX Plan”). counts proportionately to their losses resulting
from the alleged breach.
At the time of the acquisition, plaintiffs
were informed that the balances in their ac- The district court dismissed the action, find-
counts in the BEX Plan would be transferred ing that plaintiffs lack standing to sue under
to a comparable American Eagle § 401(k) § 502(a)(2) and that they are barred from
plan, the “$uper $aver Plan.” The notice re- suing in federal court because they failed to
garding this transfer was sent to them by Tow- exhaust administrative remedies. The court
ers Perrin, a benefits consulting firm hired by also found that plaintiffs could not sue Towers
2
Perrin because they did not allege specific facts dial purpose of ERISA.2 Third-party adminis-
that would establish that it was an ERISA trators who perform merely administrative
fiduciary. The dismissal is the subject of the duties, however, are not fiduciaries under
instant appeal. ERISA.3 In determining whether a party is a
fiduciary for the purpose of maintaining an
II. ERISA action against it, we must focus on
We review action on a Federal Rule of Civil whether it acted as a fiduciary with respect to
Procedure 12(b)(6) motion de novo. See, e.g., the specific acts or omissions alleged to have
Blansett v. Cont’l Airlines, Inc., 379 F.3d 177, breached its fiduciary duties.4
179 (5th Cir.), cert. denied,
125 S. Ct. 672
(2004). We accept all well-pleaded facts as The complaint fails to identify any specific
true, viewing them in the light most favorable discretion or decisionmaking authority that
to the plaintiffs. See Jones v. Greninger, 188 Towers Perrin had with respect to the alleged
F.3d 322, 324 (5th Cir. 1999). “At the same breaches of fiduciary duty. Taking all alleged
time, the plaintiffs must plead specific facts, facts as true, the extent of Towers Perrin’s in-
not mere conclusional allegations, to avoid volvement is that it provided plaintiffs with the
dismissal for failure to state a claim.” Kane notices that contained the alleged misrepresen-
Enters. v. MacGregor (USA), Inc., 322 F.3d tations.5 There is no allegation that Towers
371, 374 (5th Cir. 2003). “We will thus not Perrin exercised discretion or control regard-
accept as true conclusory allegations or un- ing the content of the notices, the transfer of
warranted deductions of fact.”
Id. (quoting funds from the BEX Plan to the $uper $aver
Collins v. Morgan Stanley Dean Witter, 224 Plan, the length of the blackout periods, or the
F.3d 496, 498 (5th Cir. 2000)). investment of the accounts. The transmission
III.
The plaintiffs argue that the district court 2
See Bannistor v. Ullman, 287 F.3d 394, 401
erred in finding that they inadequately allege
(5th Cir. 2002).
that Towers Perrin is a fiduciary under ERISA.
According to ERISA § 3(21), “a person is a 3
See Reich, 55 F.3d at 1047.
fiduciary with respect to [an ERISA] plan to
4
the extent . . . he has any discretionary author- Pegram v. Herdich, 530 U.S. 211, 226 (2000)
ity or discretionary responsibility in the admin- (“In every case charging breach of ERISA fiducia-
istration of such plan.” 29 U.S.C. § ry duty . . . the threshold question is not whether
1
1002(21)(A)(iii). The term “fiduciary” must the a ctions of some person employed to provide
be liberally construed to implement the reme- services under a plan adversely affected a plan ben-
eficiary’s interest, but whether that person was
acting as a fiduciary (that is, was performing a fi-
duciary function) when taking the action subject to
complaint.”); see also Bannistor, 287 F.3d at 401
(“The phrase ‘to the extent’ [in 29 U.S.C.
1
See also Reich v. Lancaster, 55 F.3d 1034, § 1002(21)(A)] indicates that a person is a fidu-
1049 (5th Cir. 1995) (“To be fiduciaries, such per- ciary only with respect to those aspects of the plan
sons must exercise discretionary authority and con- over which he exercises authority or control.”)
trol that amounts to actual decision making
5
power.”) See Compl. ¶¶ 21-24.
3
of notices and forms advising plan participants IV.
of their rights and options under a plan is Plaintiffs contend the district court erred in
nothing more than an administrative or min- dismissing their complaint for want of standing
isterial service, which is insufficient to elevate under ERISA § 502(a)(2), which confers
Towers Perrin to the status of fiduciary under standing on plan participants to bring private
ERISA for purposes of this lawsuit.6 causes of action to seek “appropriate relief”
under ERISA § 409. That section subjects
The only other references the complaint plan fiduciaries to liability for breaches of
makes to Towers Perrin’s status are conclu- duty,9 providing that a fiduciary that breaches
sional allegations that it acted as a fiduciary.7 any of its duties under t he Act “shall be per-
Such allegations are insufficient to allow this sonally liable to make good to such plan any
claim to survive a rule 12(b)(6) motion to losses to the plan resulting from each such
dismiss.8 breach.” 29 U.S.C. § 1109(a).
In Mass. Mut. Life Ins. Co. v. Russell, 473
6
The Department of Labor’s interpretation of U.S. 134 (1985), the Court interpreted the lan-
ERISA § 3(21) supports the notion that these kinds guage of § 409 to permit actions only in which
of activities are ministerial for the purpose of the sought-after recovery benefits the plan as
determining fiduciary status. See Dept. of Labor, a whole, as distinguished from an individual
Interpretive Bulletin 75-8, 29 C.F.R. § 2509.75-8, beneficiary.10 In Matassarin v. Lynch, 174
D-2 (2002) (listing “[p]reparation of communica- F.3d 549 (5th Cir. 1999), we reiterated the
tions material” and “[o]rientation of new partici- standing requirement established by Russell,
pants and advising participants of their rights and that suits under ERISA § 502(a)(2) inure to
options under the plan” as examples of ministerial
services that do not make a party a fiduciary, be-
cause such a person “does not have discretionary
8
authority or discretionary control respecting man- (...continued)
agement of the plan”). Sweeney, 89 F.3d 1156, 1161-63 (4th Cir. 1996);
Metro. Life Ins. Co. v. Palmer, 238 F. Supp. 2d
7
Compl. ¶ 16 (“At all relevant times, Towers 826, 831 (E.D. Tex. 2002).
Perrin has been a fiduciary of the $uper $aver Plan
9
within the meaning of Section 3(21) of ERISA, 29 Section 404 of ERISA, 29 U.S.C. § 1104, de-
U.S.C. § 1002(21), because it exercised discretion tails the duties of an ERISA fiduciary.
over the administration of the $uper $aver Plan”);
10
id. ¶ 31 (“At all relevant times, defendant[] . . .
Russell, 473 U.S. at 140 (“[R]ecovery for a
Towers Perrin acted as [a] fiduciar[y] under Sec- violation of § 409 inures to the benefit of the plan
tion 3(21)(A) of ERISA”);
id. ¶ 35 (“At all rele- as a whole.”);
id. at 142 (“A fair contextual read-
vant times, American . . . and Towers Perrin were ing of the statute makes it abundantly clear that its
co-fiduciaries.”) draftsmen were primarily concerned . . . with rem-
edies that would protect the entire plan, rather than
8
See Kane Enters., 322 F.3d at 374. Other with the rights of an individual beneficiary.”); see
courts have held that failing to plead specific facts also Varity Corp. v. Howe, 516 U.S.489, 515
establishing that a defendant was a fiduciary with (1996) (noting that plaintiff could not proceed un-
respect to the plan and the acts or omissions in der § 502(a)(2) because “that provision, tied to
question requires dismissal. See, e.g., Custer v. § 409, does not provide a remedy for individual
(continued...) beneficiaries”).
4
the benefit of the plan as a whole.11 not merely individual participants and benefi-
ciaries, could obtain relief.
Despite plaintiffs’ contrary claims, this suit
concerns individualized relief for the particu- We reject the argument that the claim in-
larized harm suffered by a subset of plan par- ures to the benefit of the plan as a whole just
ticipants and does not seek to vindicate the because the complaint requests that damages
rights or interests of the plan as a whole. The be paid to the plan instead of directly to the
district court properly observed that, apart respective plaintiffs. The plaintiffs attempt to
from conclusional claims that the suit is on distinguish Russell and Matassarin, highlight-
behalf of the plan, all the specific allegations ing the fact that in those cases, the complaint
deal only with the individual accounts held by requested that damages be paid directly to the
the plaintiff class members.12 individuals who are aggrievedSSmaking it akin
to a claim for benefitsSSwhereas the plaintiffs
As in Matassarin, where we dismissed a in this case seek proceeds to be paid to the
§ 502(a)(2) claim for lack of standing, the plan. Although the complaint demands pay-
plaintiffs have alleged breaches of fiduciary ment to the $uper $aver Plan as an entity, it
duty that uniquely concern only their individual specifically requests that the damages be
accounts.13 The complaint contains no allega- “allocated among plaintiffs’ individual ac-
tion that defendants violated fiduciary duties counts proportionate to plaintiffs’ losses.”14
vis-á-vis the entire plan or that the $uper $aver In an individual account plan, such as the
Plan itself sustained losses for which it, and $uper $aver Plan, a participant has rights to
the plan based “solely upon the amount con-
tributed to the participant’s account, and any
11
income, expenses, gains and losses, and any
See Matassarin, 174 F.3d at 566 (stating that
forfeitures of accounts of other participants
the “‘loss to the plan’ language . . . limits claims to
which may be allocated to that participant’s
those that inure to the benefit of the plan as a whole
and not to the benefit only of individual plan benefi- account.” 29 U.S.C. § 1002(34).
ciaries”) (citing, inter alia, Russell, 473 U.S. at Consequently, because plaintiffs demand that
140-42). any relief be channeled only to the individual
accounts of the plaintiff class members, non-
12
Compl. ¶ 12 (“[A]ll the individual accounts class members would receive no benefit as a
of plaintiffs and other members of the Class result of a successful suit, because they would
sustained damages”) (emphasis added); id. ¶ 38 not receive additional funds in their accounts,
(“As a result of these acts and omissions, the value apart from the attenuated possibility that class
of the plaintiffs’ individual accounts under the members might forfeit their balances at some
$uper $aver Plan, immediately following the trans- future, unspecified time.
fer, was less than what it would have been had the
money been transferred when promised.”) (empha-
Legal title may be formally in the hands of
sis added).
13
Matassarin, 174 F.3d at 566 (“Most of the
ERISA breaches that Matassarin alleges concern
only her individual account or, at most, those of the
sixty-seven Plan participants who were offered
14
lump-sum distributions.”) Compl. ¶ 14 (emphasis added).
5
the trustees,15 but individual account holders augmenting the value of their accounts or by
retain a beneficial interest only in their respec- vindicating their rights as to fiduciary breaches
tive account balances. Although proceeds directed toward them.16
would be paid into the plan as an entity, the
fact that they are channeled exclusively into In this regard, we take special note of the
the accounts of the plaintiff class benefits only fact that in Russell, 473 U.S. at 141, the Court
a subsection of the plan, which cannot be said was careful to distinguish what it called “the
to benefit the plan as a whole as required un- entire plan,” on the one hand, from what it
der § 502(a)(2). Because this claim does not termed “the rights of an individual benefi-
otherwise seek to vindicate rights of the entire ciary,” on the other hand, and to require that
planSSgiven that the alleged fiduciary breaches an individual claim benefit the former. Each of
occurred only as to the members of the plain- the plaintiffs has “rights” as a beneficiary. The
tiff class and were not directed to the whole point of Russell is that a plaintiff who seeks to
plan membershipSSthis claim does not benefit vindicate those rights, whether by receiving a
the entire plan. direct payment or by having his individual
account credited with an additional sum cer-
Similarly, the fact that the total assets of the tain, may not use the vehicle of § 502(a)(2)
planSSdefined as the sum of the values of the unless his claim, if successful, will benefit not
individual accountsSSwould increase as a just himself, but the whole plan.
result of a successful suit does not mean that
recovery inures to the benefit of the entire It is no accident, therefore, that the Su-
plan. Although potential recovery might preme Court has required that a suit benefit
benefit that substantial number of individual not just the plan, but the plan “as a whole.”
accounts, adopting that logic would dramati- Russell, 473 U.S. at 140. That is to say, the
cally expand standing under § 502(a)(2) to cir- statute confers only “remedies that would
cumstances in which only a single plaintiff protect the entire plan, rather than with the
alleges that his account was damaged as a rights of an individual beneficiary.”
Id. at 141.
result of a breach of fiduciary duty that was Accordingly, “[a] fair contextual reading of the
uniquely targeted at him and no other plan statute makes it abundantly clear that its
participants. draftsmen were primarily concerned with the
We cannot adopt an interpretation that
16
would allow a plaintiff, merely by praying that We stop short, however, of saying that there
relief pass through the plan into individual is no standing unless all plan participants would
accounts, to eviscerate the standing require- benefit from the litigation. The central question, in
ment imposed by § 502(a)(2) by engaging in a the context of an individual account plan, is wheth-
er the suit inures to the benefit of the plan, which
legal fiction that the suit benefits the plan as
occurs whenever all plan participants would di-
whole. The increase would be of no benefit to rectly benefit (by all having increased balances in
participants outside the plaintiff class, either by their individual accounts) or when the suit seeks to
vindicate the rights of the plan as an entity when
alleged fiduciary breaches targeted the plan as a
15
ERISA § 403(a), 29 U.S.C. § 1103(a) (“[A]ll wholeSSwhether the suit is filed by all plan partici-
assets of an employee benefit plan shall be held in pants or only a subset thereof.
trust by one or more trustees.”)
6
possible misuse of plan assets, and with reme- suit seek to “benefit [] the plan as a whole,”
dies that would protect the entire plan, rather Russell, 473 U.S. at 140, highlights the flaw in
than with the rights of an individual benefici- plaintiffs’ heavy reliance on Kuper v. Iovenko,
ary.”
Id. Any fair construction of Russell
66 F.3d 1447 (6th Cir. 1995), in which the
must dwell on the Court’s intentional and court allowed a subclass of beneficiaries to sue
repeated reference not only to the plan, but to for breach of fiduciary duty under § 502(a)(2)
the entire plan, the plan as a whole. over the defendants’ argument that for stand-
ing to exist, the breach must harm all partic-
This distinction between relief for the plan ipants. There, suit was brought by a subset of
and relief for individuals is paramount.17 all plan participants, a subset consisting of
Where, as here, a small segment of the em- members who had been transferred from one
ployees bring a claim that, by its very nature, company to another.
can only benefit them, it cannot be said to help
the plan in the sense that the Supreme Court In Kuper, 66 F.3d at 1452, the defendants
requires. “claim[ed] that an action under [] § 1109 must
be brought on behalf of a plan as a whole and
It is easy to conclude that the instant claim that a claim brought by a subclass of plan
does not meet that test. We need not specu- participants fails to satisfy this requirement.”
late on every possible situation in which a suit The court began its analysis by correctly stat-
that demands relief beneficial to a large pro- ing that “ERISA does not permit recovery by
portion of the beneficiaries can reasonably be an individual who claims a breach of fiduciary
said to “protect the entire plan.” Instead, it is duty. Instead, . . . any recovery . . . must go to
enough to say, for present purposes, that the the plan.” Id. at 1452-53 (citations omitted).
specific relief here requested, affecting only The distinction drawn in Kuper is “between a
218 individual accounts out of a much larger plaintiff’s attempt to recover on his own behalf
plan, is much too narrow to qualify.18 and a plaintiff’s attempt to have the fiduciary
reimburse the plan.” Id. at 1453.
The Supreme Court’s insistence that the
The court went awry, however, in then
rejecting “[d]efendants’ argument that a
17
“[Section] 409 is more fairly read in context breach must harm the entire plan to give rise
as providing remedies that would protect the entire to liability under § 1109.” Id. (emphasis
plan rather than individuals . . . .” Russell, 473 added). The court’s reasoning is directly
U.S. at 150 (Brennan, J., concurring) (internal contrary to the insistence in Russell on “benefit
quotation marks omitted). to the plan as a whole,”
Russell, 473 U.S. at
18
140, and contravenes the Court’s emphasis on
The number of potential recipients here com-
“remedies that would protect the entire plan,”
pares favorably to the sixty-seven participants in
Matassarin. There, in a situation like the current
id. at 141.
one, this court noted that because of the specific
nature of the claim, tailored to only a small portion We can only guess that the Kuper court
of the account holders, the plaintiff “has failed to was unaware of Russell or overlooked this
allege any way in which the defendants’ actions crucial language in fashioning its opinion. In
caused a loss to the Plan as a whole as envisioned any event, Kuper, being from another circuit,
in § 502(a)(2).”
Matassarin, 174 F.3d at 566.
7
is not binding, and we cannot find persuasive posite, because there the plaintiffs sought dis-
a case that runs afoul of the Supreme Court’s gorgement of profits, rescission of a stock
requirements. sale, and reinstatement of a “put” optionSS re-
lief that would benefit all participants of the
Moreover, Kuper appears to drive an artifi- plan and thus inure to the benefit of the plan as
cial wedge between the concept of “the entire a whole.20 Finally, Steinman v. Hicks, 352
plan,” which it openly rejects despite the F.3d 1101 (7th Cir. 2003), did not involve a
Supreme Court’s blessing, and the notion of subset of participants, but rather a claim that
“the plan as a whole,” which it appears to there was a breach of fiduciary duty for failure
embrace. After rejecting, as we have stated, to diversify plan assets, a claim that inured to
the defendants’ argument that a breach must the benefit of the entire plan because the
harm “the entire plan,” the court inexplicably breach targeted all plan participants. The
closes with the comment that a ruling for claim in this case is distinguishable because it
plaintiffs “would benefit the Plan as a whole pertains only to alleged misrepresentations and
[and] would cure any harm that the Plan suf- untimely transfers made with respect to a
fered.” Kuper, 66 F.3d at 1453. By this latter specific subclass of participants, the former
statement, taken alone, the opinion appears to BEX pilots who were transferred to American
be internally inconsistent, because the court Eagle.21
seems to be adopting the correct test, i.e., that
a successful claim must help the “plan as a Contrary to plaintiffs’ assertions, denying
whole” after discarding the seemingly identical standing here will not close off all claims by
“entire plan” test. beneficiaries of individual account plans
against fiduciaries for violations of their duties.
In the alternative, the Kuper court’s closing At the very least, standing exists under ERISA
observation renders irrelevant its rejection of § 502(a)(3), under which participants may
the “entire plan” requirement, because the directly seek equitable relief for any practice
court is saying that under the facts of the case, that violates any term of ERISA or the plan.
the claim meets the “plan as a whole” test in Section 502(a)(3) makes no reference to §
any event. By this specific mode of analysis, 409, which the Court interpreted in Russell,
the court’s rejection of the “entire plan” test is 473 U.S. at 140-41, to engraft a standing
arguably rendered dictum. To the extent it is requirement that the suit would benefit the
a holding, however, it flies in the face of the plan as a whole under § 502(a)(2).
Supreme Court’s directive, and we decline to
follow it for the reasons explained.19 Section 502(a)(3) is available for individu-
alized relief such as that sought in this case.22
Similarly, the plaintiffs’ citation of Smith v.
Snydor, 184 F.3d 356 (4th Cir. 1999), is inap- 20
Smith, 184 F.3d at 363 (“[I]t does not solely
benefit the individual participants.”).
19 21
Because of the arguable conflict with the See Compl. ¶¶ 20-28, 34.
Sixth Circuit, this opinion has been pre-circulated
22
to the active judges of this court in accordance with Varity, 516 U.S. at 510 (“The words of sub-
our usual policy. See Estate of Farrar v. Cain, section (3)SS‘appropriate equitable relief’ to ‘re-
941 F.2d 1311, 1316 n.22 (5th Cir. 1991). (continued...)
8
Though that subsection explicitly limits recov- it.”25
ery to equitable relief and might deny the
plaintiffs the particular remedy they desire,23 In summary, plaintiffs lack standing because
that is all that is available under the remedial this case in essence is about an alleged particu-
scheme designed by Congress.24 Despite the larized harm targeting a specific subset of plan
policy arguments the plaintiffs advance, “[o]ur beneficiaries, with claims for damages to
task is to apply the text, not to improve upon benefits members of the subclass only, and not
the plan generally. This is the kind of case
that, under Russell and its progeny, falls
outside § 502(a)(2), despite the formalistic
distinction that recovery from the suit would
22 be paid into individual accounts and not di-
(...continued)
dress’ any ‘act or practice which violates any pro-
rectly to plaintiffs. Even though the complaint
vision of this title’SSare broad enough to cover in- may allege that damage occurred to the plan as
dividual relief for breach of a fiduciary obliga- a whole, we agree with the district court when
tion.”); Matassarin, 174 F.3d at 556 (“A plan ben- it saw the essence of the complaint as a claim
eficiary may bring a § 502(a)(3) action against an decrying particularized harm to individual
ERISA fiduciary based on loss to the individual plaintiffs who seek only to benefit themselves
beneficiary as well as based on loss to the plan as and not the entire plan as required by § 502-
a whole”);
Steinman, 352 F.3d at 1102 (“[S]ection (a)(2).26
502(a)(3) is the vehicle for suits by individuals who
are seeking relief just on their own behalf rather AFFIRMED.
than on behalf of the plan.”).
23
The Supreme Court has indicated that com-
pensatory and punitive damages may not be avail-
able under ERISA § 502(a)(3). See Varity, 516
U.S. at 510 (citing Mertens v. Hewitt Assocs.,
508
U.S. 248, 255, 256-58 (1993)).
24
Aetna Health, Inc. v. Davila, 124 S. Ct.
2488, 2499 (2004) (“The limited remedies avail-
able under ERISA are an inherent part of the care-
ful balancing between ensuring fair and prompt en-
forcement of rights under a plan and the encourage-
ment of the creation of such plans.”) (internal ci-
tations omitted); Great W. Life & Annuity Ins. Co.
v. Knudson,
534 U.S. 204 (2002) (“We have
observed repeatedly that ERISA is a comprehen-
sive and reticulated statute, the product of a decade 25
Pavelic & LeFlore v. Marvel Entm’t Group,
of congressional study of the Nation’s private em- 493 U.S. 120, 126 (1989).
ployee benefits system. We have therefore been
26
especially reluctant to tamper with the enforcement Because we affirm the dismissal for want of
scheme embodied in the statute by extending standing, we need not consider whether the plain-
remedies not specifically authorized by its text.”) tiffs are required to exhaust administrative reme-
(internal citations omitted). dies before bringing suit.
9
KING, Chief Judge, concurring in part and dissenting in part:
I respectfully dissent from the majority’s unprecedented
holding that participants in an individual account plan lack
standing under § 502(a)(2) of ERISA to recover losses to the plan
under § 409 of ERISA for a fiduciary breach unless all plan
participants would benefit from the litigation. ERISA governs
two types of pension plans: (1) individual account plans such as
the 401(k) plan at issue here; and (2) defined benefit plans.1
See 29 U.S.C. 1002. At the end of 2003, over $ 2.3 trillion in
assets were held in individual account plans, representing well
over half of all pension plan assets in the United States.2 The
majority’s holding means that those participants in individual
account plans who are unfortunate enough to be forced to litigate
in the Fifth Circuit will be unable to recover monetary losses to
the plans caused by fiduciary breaches when fewer than all plan
participants would benefit from the litigation, thereby limiting
recovery to the equitable relief available under § 502(a)(3) of
ERISA. To deprive plan participants in such circumstances of a
1
Individual account plans provide each plan participant with an
individual account, and benefits under such plans are determined by the
amount contributed to a participant’s account and by any applicable
income, expenses, gains, and losses. See 29 U.S.C. 1002(34). Examples
of individual account plans, which are also referred to as defined
contribution plans, are 401(k) plans, 403(b) plans, employee stock
ownership plans, and profit sharing plans. Defined benefit plans are
generally defined as pension plans other than individual account plans.
See 29 U.S.C. 1002(35).
2
FED. RES. BD., FLOW OF FUNDS ACCOUNTS OF THE UNITED STATES: FLOW AND OUTSTANDINGS
THIRD QUARTER 2004, FED. RES. STATISTICAL RELEASE Z.1, at 113 (Dec. 9, 2004).
10
§ 409 remedy for breach of fiduciary duty effectively nullifies
Congress’s intent to provide a high level of protection to any
and all plan participants from fiduciary abuse. The majority’s
holding finds no support in the two cases it cites, and it
squarely conflicts with the one other circuit court to have
directly addressed this issue.
A. Russell and Matassarin Do Not Support the Majority’s Holding
The majority relies on two cases in support of its holding,
Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134
(1985), and Matassarin v. Lynch,
174 F.3d 549 (5th Cir. 1999).
Both of these cases are distinguishable from the present case,
and neither justifies the majority’s conclusions.
In Russell, Doris Russell, a participant in two employee
benefits plans covered by ERISA, became disabled and began
receiving plan benefits.
Russell, 473 U.S. at 136. On October
17, 1979, her benefits were terminated.
Id. On November 27,
1979, however, they were reinstated, and her retroactive benefits
were paid in full.
Id. Russell claimed that the interruption of
benefit payments to her forced her disabled husband to cash out
his retirement savings, which, in turn, allegedly aggravated her
psychological and physical ailments.
Id. at 137. Accordingly,
she sued the plans’ fiduciaries for extra-contractual punitive
damages, as well as damages for mental and emotional distress, to
be paid directly to her.
Id. at 136-38. The Supreme Court held
11
that Russell could not bring her private right of action for
compensatory and punitive relief under § 502(a)(2) because: (1)
§ 502(a)(2) only permits lawsuits where the damages would inure
to the benefit of the plan; and (2) ERISA does not authorize the
direct recovery of extra-contractual damages by a plan partici-
pant. Id. at 140-41, 144-45, 148.
Russell is distinguishable from the present case. First,
Russell requested damages payable directly to her, whereas the
plaintiffs in the present case request damages payable to the
plan. The majority dismisses this distinction as merely
“formalistic,” noting that the damages in the present case would
ultimately be distributed to the plaintiffs’ individual plan
accounts. Majority Opinion, 6, 9. Those courts that have
confronted similar scenarios, however, have reached the opposite
conclusion, holding that fiduciary breach claims can be brought
under § 502(a)(2) when the relief would ultimately benefit the
individual plan participants, so long as the relief flows di-
rectly from the breaching fiduciaries to the plan, rather than
from the breaching fiduciaries to the plaintiffs’ personal
pocketbooks. See, e.g., Smith v. Snydor,
184 F.3d 356, 363 (4th
Cir. 1999) (holding that the plaintiffs’ fiduciary breach claim
under § 409 was not precluded even though they ultimately stood
to benefit and holding that any recovery must be paid directly to
the plan and not to individual participants); Rankin v. Rots, 220
12
F.R.D 511, 520 (E.D. Mich. 2004) (finding standing to sue because
any damages for a breach of fiduciary duty would initially go to
the plan, even if the damages would ultimately flow to the
accounts of plan members); see also Colleen E. Medill, Stock
Market Volatility and 401(k) Plans, 34 U. OF MICH. J. L. REFORM,
469, 538-39 (2001) [hereinafter Stock Market Volatility] (“The
better judicial interpretation . . . is to view the relief as
flowing to the plan in accord with section 502(a)(2), so long as
the monetary award is initially allocated to each participant’s
plan account rather than to his personal pocketbook.”).
Russell is also distinguishable from the present case because
Doris Russell never alleged that the plan itself lost value, but
instead claimed that she personally suffered emotional and physi-
cal harm due to the interruption of her benefits. See Russell,
473 U.S. at 136-37. Conversely, the plaintiffs in the present
case have alleged that their individual accounts decreased in
value and that, accordingly, the value of the plan’s assets as a
whole decreased. Thus, Russell did not involve a diminution in
the amount of the plan’s assets, whereas the present case does
involve an alleged diminution of the plan’s assets held in trust.
Finally, Russell never reached the conclusion that the majority
reaches, i.e., that standing can exist under § 502(a)(2) only if
all plan participants would benefit from the litigation.3 In
3
The majority states in a footnote that there is one limited
(continued...)
13
stead, it only held that a single plan participant, seeking
individual recovery for extra-contractual damages payable di-
rectly to her, could not proceed with her lawsuit under §
502(a)(2). Russell, 473 U.S. at 134. Accordingly, the majority’s
holding goes far beyond the holding of Russell.4
In Matassarin, the plaintiff Patricia Matassarin was, by virtue
of a qualified domestic relations order (the “QDRO”) entered into
as part of her divorce, a beneficiary in an employee stock owner-
ship plan (the “ESOP”) offered by Great Empire Broadcasting, Inc.
Matassarin, 174 F.3d at 556. Matassarin’s account, like that of
approximately sixty-seven other plan participants (most were
terminated employees), was a segregated account.
Id. at 556-57.
In May 1995, Great Empire decided to pay lump-sum distributions
3
(...continued)
exception to its holding that standing exists under
§ 502(a)(2) only if all plan participants stand to benefit: when the
suit “seeks to vindicate the rights of the plan as an entity when
alleged fiduciary breaches targeted the plan as a whole
. . . .” Majority Opinion, 6 n.16. The majority cites no cases in
support of this exception, nor does it explain how a court should
determine if an alleged fiduciary breach targeted the plan as a whole.
Moreover, the plaintiffs in the present case appear to allege a breach
targeted at the plan as a whole when they claim that the defendants
“breached their fiduciary duties to the plaintiffs and the $uper $aver
Plan as a whole by failing to effectuate the timely transfer of
plaintiffs’ account balances from the BEX Plan as promised in numerous
representations to plaintiffs . . . .” Compl. ¶ 34.
4
The majority correctly notes that Russell distinguishes between
relief for individuals and relief for the plan as a whole. Majority
Opinion, 6-7. Russell does not, however, stand for the proposition that
the “plan as a whole” is synonymous with “all participants of the plan,”
and several courts have rejected this definition of the “plan as a
whole.” See Kuper v. Iovenko, 66 F.3d 1447, 1453 (6th Cir. 1995); Kling
v. Fidelity Management Trust Co.,
270 F. Supp. 2d 125-27 (D. Mass.
2003); see also Stock Market Volatility at 538-39.
14
to the ESOP’s segregated account holders. Id. at 557. In accor-
dance with the terms of the QDRO, Great Empire calculated the
value of Matassarin’s account by using the stock price for Great
Empire shares on the date of Matassarin’s divorce.
Id. at 559,
564. Subsequently, Great Empire concluded that Matassarin was
not entitled to a distribution of benefits until the date of her
ex-husband’s retirement. See
id. at 565. Matassarin sued the
ESOP’s fiduciaries, alleging, inter alia, that they breached
their fiduciary duties under ERISA, that her account balance was
miscalculated, and that she was entitled to a distribution of her
benefits. See
id. at 557, 563-70. The district court granted
summary judgment in favor of the defendants, and this court
affirmed its decision in all respects.
Id. at 571. In doing so,
this court stated that Matassarin’s claim that plan fiduciaries
had breached their duties by failing to conform the ESOP to the
requirements of the tax code, thereby jeopardizing the plan’s tax
qualified status, was properly brought under § 502(a)(2) because
it involved the interest of the plan as a whole.
Id. at 565-66.
Nevertheless, the court found that this claim failed because
there were no damages.
Id. at 566. The court then stated that
Matassarin’s remaining fiduciary-breach claims under § 502(a)(2)
“concern only her individual account or, at most, those of the
sixty-seven Plan participants who were offered lump-sum distribu-
tions.”
Id. While the court did not explain why this was so, it
15
affirmed the district court’s grant of summary judgment against
Matassarin on her § 502(a)(2) claims because she “failed to
allege any way in which the defendants’ actions caused a loss to
the Plan as a whole as envisioned in § 502(a)(2).” Id.
Matassarin, like Russell, is distinguishable from the pres-
ent case. First, Patricia Matassarin’s mission, specifically her
claim for relief, sought only a distribution of her benefits to
her, whereas the plaintiffs in the present case only seek damages
that would be paid to the plan and then distributed within it to
individual plan accounts. Second, Matassarin, like Russell, did
not involve a diminution of the plan’s assets, while the present
case does involve the alleged diminution of the plan’s assets
held in trust. This follows from the fact that Matassarin never
alleged that the total amount of the plan’s assets was reduced by
any of the alleged fiduciary breaches, but instead claimed that
several plan participants, who were also plan fiduciaries, bene-
fitted by being able to repurchase Great Empire shares at below
market value. See
id. at 566-70. Third, Matassarin, unlike the
plaintiffs in the present case, did not claim that the defendants
mishandled plan assets causing damage to the plan as a whole, but
rather alleged that various members of the plan treated her
differently from other plan members and benefitted at her ex-
pense. See Kling v. Fidelity Management Trust Co.,
270 F. Supp.
2d 121, 126 (D. Mass. 2003) (distinguishing Matassarin from a
16
case similar to the present one on the basis that Matassarin
involved a plaintiff “who had been treated differently than other
participants in the same plan”). Finally, Matassarin never
stated that standing can only exist under § 502(a)(2) if every
plan participant would benefit from the litigation. Accordingly,
the majority’s holding goes beyond the holding of Matassarin in
the same way that it goes beyond the holding of Russell.
B. All Cases That Are Directly on Point Permit Suits by a
Subset of Plan Participants Under § 502(a)(2)
While Russell and Matassarin are distinguishable from the
present case, several cases, including one circuit court case,
have been decided that are directly on point. In all of these
cases, courts that have considered whether a subset of plan
participants can sue for a fiduciary breach under § 502(a)(2)
have held that such suits are permissible, thereby reaching the
exact opposite conclusion from that reached by the majority.
For instance, the facts of Kuper v. Iovenko, 66 F.3d 1447 (6th
Cir. 1995), are extremely similar to those of the present case.
Kuper, like the present case, involved a delay in transferring
assets of an individual account plan to a takeover employer.
In Kuper, Quantum Chemical Corporation (“Quantum”), which
maintained a benefits plan for its employees with 401(k) and
ESOP components, sold one of its divisions to Henkel Corpora-
tion. As part of the sale, Quantum and Henkel agreed to a
trust-to-trust transfer of the plan assets of those Quantum
17
employees who would work for Henkel after the sale date. Id.
at 1450-51. The transfer took eighteen months, and during this
period the price of the Quantum stock held in the ESOP declined
nearly eighty percent.
Id. According to the plaintiffs (the
subset of Quantum plan participants whose plan assets were
transferred), the Quantum fiduciaries were responsible for the
delay and breached their fiduciary duties by not diversifying
or liquidating the plaintiffs’ ESOP assets in order to minimize
the harm caused by the delay. The defendants responded that
the plaintiffs could not sue them for relief under § 409 be-
cause the plaintiffs only comprised a subset of the Quantum
plan’s participants. The Sixth Circuit disagreed, stating:
We conclude that plaintiffs’ position that a subclass of Plan
participants may sue for a breach of fiduciary duty is cor-
rect. Defendants’ argument that a breach must harm the
entire plan to give rise to liability under [§ 409] would
insulate fiduciaries who breach their duty so long as the
breach does not harm all of a plan’s participants. Such a
result clearly would contravene ERISA’s imposition of a
fiduciary duty that has been characterized as “the highest
known to law.”
Kuper, 66 F.3d at 1453.5 Similarly, in Kling, the court stated:
5
The majority suggests that Kuper is internally inconsistent because
it rejects the concept that the “entire plan” must be harmed but allows
the litigation to proceed on the basis that “the plan as a whole” would
benefit. Majority Opinion, 8. Kuper is not inconsistent. When
rejecting the claim that the “entire plan” must be harmed for the
litigation to proceed, the court was rejecting the claim that all plan
participants, as opposed to a subset of plan participants, must stand
to benefit from the litigation in order for it to proceed. See Kuper,
66 F.3d at 1453-54. Conversely, when the court later stated that
allowing the litigation to proceed would “benefit the Plan as a
(continued...)
18
[The plaintiff] seeks a remedy for only a subset of the plan
participants [under § 502(a)(2)] . . . . [The plaintiff] does
not sue on behalf of the Plan . . . . That the harm alleged
did not affect every single participant does not alter this
conclusion. To read such a requirement into § 409 that the
harm alleged must affect every plan participant would . . .
“insulate fiduciaries who breach their duty so long as the
breach does not harm all of a plan’s participants.”
Kling, 270 F. Supp. 2d at 125-27 (citing
Kuper, 66 F.3d at 1453).
The Eighth Circuit likewise has noted that it would “not hesitate
to construe ‘losses to the plan’ in [§ 409] broadly in order to
further the remedial purposes of ERISA . . . .” Physicians
HealthChoice, Inc. v. Trs. of Auto. Employee Benefit Tr.,
988
F.2d 53, 56 (8th Cir. 1993). Additionally, one commentator,
arguing that a subset of plan participants should be allowed to
bring a fiduciary breach suit under § 502(a)(2), has written:
If the federal court rules that a fiduciary breach
5
(...continued)
whole[,]” it did not (and could not) mean that every individual plan
account benefitted, but instead likely meant that the total plan assets
would benefit by allowing the litigation to proceed. The majority also
states that Kuper’s rejection of the “entire plan” requirement may be
dictum because of its holding that the plan met the “plan as a whole”
test. Majority Opinion, 8. Kuper’s rejection of the “entire plan”
requirement was not dictum because it was essential to the court’s
decision (i.e., had the court accepted the defendants’ argument that the
litigation could only proceed if all plan participants stood to benefit,
it could not have ruled as it did). See Gochicoa v. Johnson, 238 F.3d
278, 287 n.11 (5th Cir. 2000) (“A statement should be considered dictum
when it could have been deleted without seriously impairing the
analytical foundations of the holding--[and], being peripheral, may not
have received the full and careful consideration of the court that
uttered it." (internal quotation marks omitted)); see also McLellan v.
Mississippi Power & Light Co.,
545 F.2d 919, 925 n.21 (5th Cir. 1977).
Accordingly, the Sixth Circuit clearly concluded in Kuper that a subset
of plan participants could sue for a breach of fiduciary duty under §
502(a)(2)--a conclusion that the majority’s holding would prohibit. See
Kuper, 66 F.3d at 1453.
19
affecting fewer than all of the plan’s participants can
only be remedied under section 502(a)(3) [and not under
section 502(a)(2)], the limited traditional equitable
remedies available under this section may leave this
subset of participants without any relief at all
. . . . Such a result--a fiduciary breach with no
available remedy--nullifies the fiduciary
responsibility provisions of ERISA. Such an
interpretation sends a clear signal to the employee
benefits community that employers may disregard their
statutory obligations with impunity. The long-term
policy consequence is likely to be a significant
undermining of the effectiveness of 401(k) plans in
providing retirement income security.
Stock Market Volatility at 538-39.
By permitting suits by a subset of plan participants under
§ 502(a)(2) for damages payable to the plan to proceed, this
court would ensure that plan participants are not left without a
remedy when plan fiduciaries harm the plan by breaching their
duties.6 For this reason, and because no authority supports the
majority’s denial of standing to the plaintiffs, I would find
that the plaintiffs have standing to pursue their claims under
§ 502(a)(2).
C. The District Court Erred by Requiring Exhaustion of Adminis-
trative Remedies
Because I would find that the plaintiffs have standing to sue
6
The majority contends that denying standing to the plaintiffs would
not foreclose claims by them against the plan’s fiduciaries for
violating their duties, since standing could still exist under §
502(a)(3). Majority Opinion, 9. However, a plan participant can only
sue for equitable relief under § 502(a)(3), whereas a plan participant
can sue for monetary relief under § 502(a)(2). See 29 U.S.C. 1109(a);
Mertens v. Hewitt Assocs., 508 U.S. 248, 255 (1993). Accordingly, as
the majority notes, § 502(a)(3) would deny the plaintiffs the particular
remedy they desire. Majority Opinion, 9.
20
under § 502(a)(2), I must address the district court’s holding
that the plaintiffs’ § 502(a)(2) claims should be dismissed for
failure to exhaust administrative remedies.7 I find that the
plaintiffs, asserting breaches of fiduciary duty rather than
making benefits claims, were not required to exhaust administra-
tive remedies before pursuing their § 502(a)(2) claims in federal
court.
ERISA does not require the exhaustion of administrative reme-
dies before a plan participant can file a lawsuit. Nevertheless,
§ 503 of ERISA does require plans to have procedures in place for
the review of benefits claims brought by plan participants. See
29 U.S.C. § 1133. In line with § 503, this court has held that a
plaintiff must exhaust her administrative remedies before bring-
ing a benefits claim in federal court. Chailland v. Brown &
Root, Inc., 45 F.3d 947, 950 n.6 (5th Cir. 1995); Denton v. First
Nat’l Bank of Waco, Tex.,
765 F.2d 1295, 1301-02 (5th Cir. 1985).
This court has never held, however, that a plan participant must
exhaust her administrative remedies before bringing a fiduciary
breach claim in federal court, and the rationale for requiring
the exhaustion of administrative remedies regarding benefits
claims does not apply to fiduciary breach claims.8
7
The majority does not address this issue because it disposes of the
plaintiffs’ § 502(a)(2) claims for a lack of standing.
8
In its opinion, the district court cited Simmons v. Willcox, 911
F.2d 1077, 1081 (5th Cir. 1990), for the proposition that this circuit
(continued...)
21
When a plan participant files a claim for benefits with a plan
pursuant to § 503 of ERISA, the plan reviews her claim and de-
cides whether or not to pay her the benefits, a process that,
according to this court, minimizes the number of claims filed in
federal court. See Hall v. Nat’l Gypsum Co., 105 F.3d 225, 231
(5th Cir. 1997). This court has stated that the common law
exhaustion requirement in this circuit “presuppose[s] that the
grievance upon which the lawsuit is based arises from some action
of a plan covered by ERISA, and that the plan is capable of
providing the relief sought by the plaintiff.”
Chailland, 45
F.3d at 950. This court has also stated that when the action
arises from some entity other than the plan and the plan is
incapable of providing relief, exhaustion “would make absolutely
no sense and would be a hollow act of utter futility.”
Id.
When a plan participant brings a fiduciary breach claim, the
plan cannot pay the requested damages to the participant, as it
could with a benefits claim, since § 410 of ERISA prohibits a
plan from relieving a fiduciary of liability for a breach of her
8
(...continued)
has held that exhaustion of administrative remedies is required for
fiduciary breach claims. In fact, in Simmons, this court held that the
plaintiff’s “fiduciary breach” claim was actually a disguised benefits
claim, and it therefore concluded that the plaintiff could not avoid §
503’s exhaustion requirement by mislabeling it as a fiduciary breach
claim. In the present case, the plaintiffs have not requested the
distribution of any benefits, but have only raised a pure fiduciary
breach claim for damages to the plan. Therefore, because this case does
not involve a disguised benefits claim, but instead involves a
legitimate fiduciary breach claim, Simmons is inapplicable.
22
duties. See 29 U.S.C. § 1110. Moreover, ERISA has no procedure
for the review of fiduciary breach claims. Accordingly, the
district court’s holding means that the plaintiffs can only file
their fiduciary breach suit after exhausting a review process
that does not exist in order to recover damages that the plan
cannot pay. This is precisely the type of “hollow act of utter
futility” that this court described in Chailland. Chailland, 45
F.3d at 950-51. Because an exhaustion requirement of this sort
is not required by statute or by case law, and because it would
serve no purpose, I would find that the district court erred when
it dismissed the plaintiffs’ § 502(a)(2) claims for failure to
exhaust administrative remedies.
D. Conclusion
I agree with the majority that the plaintiffs have failed to
state a claim against Towers Perrin. But I would hold that the
plaintiffs have standing to pursue their fiduciary breach claims
under § 502(a)(2) of ERISA. I would also find that the district
court erred by dismissing the plaintiffs’ § 502(a)(2) claims for
failure to exhaust administrative remedies. Accordingly, I would
reverse the judgment of the district court dismissing the plain-
tiffs’ § 502(a)(2) claims against the defendants other than
Towers Perrin.
23
