Filed: Apr. 19, 2005
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 02-1513 SERGIO AREVALO; ROBERT IVERSON, III; THOMAS OHRBECK; JOHN PAGANO; PRICE J. POLYNICE, Plaintiffs - Appellants, versus HARRIS HERMAN; MARCO POSSATI, Defendants - Appellees, and KIMBERLY ERRICO, Defendant. Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. Dennis W. Dohnal, Magistrate Judge. (CA-01-512) Argued: February 25, 2003 Decided: April 19, 2005 Before GREGORY and SHEDD,
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 02-1513 SERGIO AREVALO; ROBERT IVERSON, III; THOMAS OHRBECK; JOHN PAGANO; PRICE J. POLYNICE, Plaintiffs - Appellants, versus HARRIS HERMAN; MARCO POSSATI, Defendants - Appellees, and KIMBERLY ERRICO, Defendant. Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. Dennis W. Dohnal, Magistrate Judge. (CA-01-512) Argued: February 25, 2003 Decided: April 19, 2005 Before GREGORY and SHEDD, ..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 02-1513
SERGIO AREVALO; ROBERT IVERSON, III; THOMAS
OHRBECK; JOHN PAGANO; PRICE J. POLYNICE,
Plaintiffs - Appellants,
versus
HARRIS HERMAN; MARCO POSSATI,
Defendants - Appellees,
and
KIMBERLY ERRICO,
Defendant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. Dennis W. Dohnal, Magistrate
Judge. (CA-01-512)
Argued: February 25, 2003 Decided: April 19, 2005
Before GREGORY and SHEDD, Circuit Judges, and C. Arlen BEAM, Senior
Circuit Judge of the United States Court of Appeals for the Eighth
Circuit, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Marie Dempsey Carter, MARIE D. CARTER, P.L.C., Richmond,
Virginia, for Appellants. Samuel M. Brock, III, SPILMAN, THOMAS &
BATTLE, P.L.L.C., Charleston, West Virginia, for Appellees. ON
BRIEF: James S. Crockett, Jr., TROUTMAN SANDERS, L.L.P., Richmond,
Virginia, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
PER CURIAM:
Former employees of the now defunct Sky Trek International
Airlines, Inc. ("Sky Trek") allege that President and Chief
Executive Officer Harris Herman ("Herman") and Chairman of the
Board of Directors Marco Possati ("Possati") violated the Employee
Retirement Income Security Act ("ERISA") by failing to pay medical
claims incurred by the employees before the bankruptcy trustee
terminated the company's benefit plan. The district court1 granted
Herman and Possati's motion for summary judgment, and the employees
appeal. We affirm.
I.
Sky Trek provided its current and former employees a self-
funded medical benefit plan that was designed to operate
independently from the company. The employees and the company both
advanced funds to the plan. Current employees made payments to the
fund through payroll deductions and former employees contributed
through direct payments to a third-party administrator ("TPA").
Medical claims were not processed by the plan itself, but rather by
the TPA.2 The TPA determined which claims to pay and then paid the
1
The Honorable Dennis W. Dohnal, United States Magistrate
Judge for the Eastern District of Virginia, sitting by consent of
the parties pursuant to 28 U.S.C. § 636(c)(1).
2
The New England Financial Employee Benefits Group processed
claims for current employees and the COBRA Company of Virginia
processed claims for former employees.
3
claims. Sky Trek maintained a bank account to which the TPA had
access for reimbursement of claim costs and administrative
expenses.
On May 12, 2000, Sky Trek filed for reorganization under
Chapter 11 of the Bankruptcy Act. 11 U.S.C. §§ 1101-1174. This
reorganization was subsequently converted to a Chapter 7
liquidation on June 22, 2000. 11 U.S.C. §§ 701-766. The
bankruptcy court refused to allow Sky Trek to pay medical claims
incurred by employees before the initial bankruptcy petition was
filed, and the bankruptcy trustee terminated the plan.
Several employees sued Possati and Herman for failing to pay
pre-petition medical claims, asserting that they were personally
liable for breaching their fiduciary duty, under ERISA, to the plan
and the plan participants. Herman and Possati responded that they
were not fiduciaries. In granting Herman and Possati's motion for
summary judgment, the district court determined that the company
officials were not fiduciaries, and that even if they were, they
did not breach any duties. The employees appeal and seek a
judgment requiring payment of their individual medical claims.3
3
Specifically, the employees seek "declaratory relief to
establish that . . . Possati and Herman are personally liable,
jointly and severally, for the losses that resulted from their
fiduciary breaches as well as judgment providing for individual
recovery from them, including pre-judgment interest, attorney's
fees, costs, [and] other reasonable costs incurred as provided for
by ERISA." Arevalo v. Herman, No. 3:01CV512, slip op. at 1-2 (E.D.
Va. April 12, 2002).
4
II.
We review de novo the district court's decision to grant
Herman and Possati's motion for summary judgment. Higgins v. E.I.
DuPont de Nemours & Co., 863 F.2d 1162, 1167 (4th Cir. 1988). We
view the evidence in the light most favorable to the nonmoving
party. Thompson v. Potomac Elec. Power Co.,
312 F.3d 645, 649 (4th
Cir. 2002).
A.
Section 1002(21)(A) of ERISA defines fiduciary:
[A] person is a fiduciary with respect to a plan to the
extent (i) he exercises any discretionary authority or
discretionary control respecting management of such plan
or exercises any authority or control respecting
management or disposition of its assets, . . . or (iii)
he has any discretionary authority or discretionary
responsibility in the administration of such plan.
29 U.S.C. § 1002(21)(A). "[T]he inclusion of the phrase 'to the
extent' in § 1002(21)(A) means that a party is a fiduciary only as
to the activities which bring the person within the
definition. . . . [A] court must ask whether a person is a
fiduciary with respect to the particular activity at issue."
Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 61 (4th Cir.
1992). The employees argue that Herman and Possati exercised the
necessary discretion and control over the plan to be personally
liable for the unpaid claims. Specifically, they claim that since
Herman and Possati were Sky Trek officials they "knew (or should
5
have known) that when the company filed for bankruptcy protection
the Plan participants would not have coverage for medical claims
incurred pre-petition."4 Appellants' Brief at 15. According to
the employees, Herman and Possati had a fiduciary duty to inform
the plan participants, pre-petition, that the bankruptcy filing
would prevent Sky Trek from funding the plan. They offer neither
plan language nor persuasive precedent within or without the
Bankruptcy Act or ERISA in support of this purported early notice
requirement.
Herman and Possati stated, and the district court concurred,
that under the facts of this case they "had no involvement with the
design, implementation, or operation of the Plan." Arevalo v.
Herman, No. 3:01CV512, slip op. at 3 (E.D. Va. April 12, 2002). We
also agree. Even if it is true that Herman and Possati, pre-
petition, had a fiduciary duty toward the employees and the
requisite control and discretion over the plan, they clearly lost
that control and discretion once Sky Trek's Chapter 11
reorganization was converted to a Chapter 7 liquidation and the
bankruptcy trustee took over sole control of Sky Trek. And, on May
19, 2000, while in Chapter 11, Sky Trek filed an application with
the bankruptcy court seeking to continue to fund the plan for pre-
4
While Sky Trek was operating under Chapter 11 protection,
this is almost certainly an incorrect premise. It is also likely
that the bankruptcy court had the authority to approve at least
some pre-petition medical claims in the Chapter 7 proceeding, but
it chose not to do so.
6
petition claims, but the court denied the application on May 23,
2000.5 Thus, Herman and Possati did not breach a fiduciary duty by
failing to pay the claims. They had no means or authority to do so
after Sky Trek's bankruptcy began.
B.
The employees attempt to establish that Herman and Possati
were also fiduciaries of the plan under 29 U.S.C. § 1002(21)(A)(i)
because of their authority over the plan assets, namely the
employee contributions. The employees claim that their
contributions to the plan were assets over which Herman and Possati
exercised discretionary control, and that Herman and Possati
breached their fiduciary duty to properly manage those assets.6
Herman and Possati counter that although employee and employer
contributions were transferred to the plan account, the bankruptcy
trustee prohibited the payment of the claims and terminated the
plan. Any contributions made after the Chapter 7 bankruptcy filing
did not become plan assets, according to Herman and Possati,
because those funds were remitted directly to the bankruptcy
trustee.
5
Even after the court refused to cover pre-petition claims,
Sky Trek transferred $59,484.21 to the TPA account on May 23, 2000,
and the TPA credited $16,346.69 back to Sky Trek on May 31, 2000.
6
The employees seem to argue that Herman and Possati breached
their fiduciary duty to properly manage the plan assets by failing
to use them to pay the outstanding medical claims.
7
The Department of Labor, the agency responsible for enforcing
ERISA, has defined "plan assets" as follows:
[T]he assets of the plan include amounts . . . that a
participant or beneficiary pays to an employer, or
amounts that a participant has withheld from his wages by
an employer, for contribution to the plan as of the
earliest date on which such contributions can reasonably
be segregated from the employer's general assets.
29 C.F.R. § 2510.3-102(a).7 The employee contributions fall under
this definition of plan assets because the funds were segregated
from Sky Trek's general assets.8 Herman and Possati were
fiduciaries of the plan, to the extent they exercised any authority
over the disposition of the plan assets. However, they did not
breach their fiduciary duty by failing to pay the employees'
medical claims because they were no longer in control of the plan
assets. The bankruptcy court or the trustee made the decisions
regarding payment of pre-petition medical claims, not the company
officials.
7
"[I]n no event shall the date determined pursuant to
paragraph (a) of this section occur later than 90 days from the
date on which the participant contribution amounts are received by
the employer (in the case of amounts that a participant or
beneficiary pays to an employer) or the date on which such amounts
would otherwise have been payable to the participant in cash (in
the case of amounts withheld by an employer from a participant's
wages)." 29 C.F.R. § 2510.3-102(c).
8
One employee, John Pagano, made a contribution to the plan
after the bankruptcy court denied Sky Trek's application to pay
pre-petition claims. This contribution was remitted directly to
the bankruptcy trustee. Therefore, this contribution did not
become an asset of the plan.
8
C.
The employees brought suit under sections 1132(a)(2) and
1132(a)(3) of ERISA. These sections indicate who may bring a civil
action under the Act.
(a) A civil action may be brought . . . (2) by the
Secretary, or by a participant, beneficiary or fiduciary
for appropriate relief under section 1109 of this title;
(3) by a participant, beneficiary, or fiduciary (A) to
enjoin any act or practice which violates any provision
of this subchapter or the terms of the plan, or (B) to
obtain other appropriate equitable relief (i) to redress
such violations or (ii) to enforce any provisions of this
subchapter or the terms of the plan.
29 U.S.C. § 1132 (a)(2)-(3). Section 1132(a)(2) allows a
participant in a plan to bring a civil action for breach of
fiduciary duty, with the fiduciary being personally liable for the
breach.9 Section 1132(a)(3) permits a participant to seek
equitable relief for violations of the terms of the plan. In their
complaint, the employees sought equitable restitution for their
unpaid medical claims from Herman and Possati personally.
The Supreme Court has limited the relief available under
section 1132(a)(3) to equitable relief "typically available" in a
court of equity. Great-West Life & Annuity Ins. Co. v. Knudson,
534 U.S. 204, 210 (2002) ("[P]etitioners seek, in essence, to
impose personal liability on respondents for a contractual
9
Section 1109 provides that a person who breaches his
fiduciary duty "shall be personally liable to make good to such
plan any losses to the plan resulting from each such breach, . . .
and shall be subject to such other equitable or remedial relief as
the court may deem appropriate." 29 U.S.C. § 1109(a).
9
obligation to pay money--relief that was not typically available in
equity."). Additionally, "for restitution to lie in equity, the
action generally must seek not to impose personal liability on the
defendant, but to restore to the plaintiff particular funds or
property in the defendant's possession." Id. at 214. The
employees seek to impose personal liability on Herman and Possati
for the unpaid medical claims, a goal prohibited by Great-West
Life. Even if they were not seeking to impose personal liability
on the company officials, the employees could not proceed under
section 1132(a)(3) because neither Herman nor Possati have Sky Trek
funds in their possession to pay the pre-petition claims. The
bankruptcy trustee is and has been in sole control of Sky Trek
money and property.
The only possible remedy available to the employees under
ERISA is set forth in section 1132(a)(2). To proceed under this
section, the employees must seek to benefit the plan as a whole,
rather than to seek payment of their individual claims. See
Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142
(1985) ("A fair contextual reading of the statute makes it
abundantly clear that its draftsmen were primarily concerned with
the possible misuse of plan assets, and with remedies that would
protect the entire plan, rather than with the rights of an
individual beneficiary."). Since the relief the employees seek is
10
payment of their individual medical claims, section 1132(a)(2)
affords them no relief.
III.
The district court appropriately granted the motion for
summary judgment. We affirm.
AFFIRMED
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