Filed: Nov. 14, 1995
Latest Update: Mar. 02, 2020
Summary: United States Court of Appeals, Fifth Circuit. No. 94-30618. Warren A. MAHER, et al., Plaintiffs-Appellants, Cross-Appellees, v. STRACHAN SHIPPING COMPANY, et al., Defendants-Appellees, Cross- Appellants. United States of America, Intervenor. Nov. 14, 1995. Appeals from the United States District Court for the Eastern District of Louisiana. Before POLITZ, Chief Judge, and JONES and PARKER, Circuit Judges. EDITH H. JONES, Circuit Judge: When this class action was filed in 1992, the applicable ERI
Summary: United States Court of Appeals, Fifth Circuit. No. 94-30618. Warren A. MAHER, et al., Plaintiffs-Appellants, Cross-Appellees, v. STRACHAN SHIPPING COMPANY, et al., Defendants-Appellees, Cross- Appellants. United States of America, Intervenor. Nov. 14, 1995. Appeals from the United States District Court for the Eastern District of Louisiana. Before POLITZ, Chief Judge, and JONES and PARKER, Circuit Judges. EDITH H. JONES, Circuit Judge: When this class action was filed in 1992, the applicable ERIS..
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United States Court of Appeals,
Fifth Circuit.
No. 94-30618.
Warren A. MAHER, et al., Plaintiffs-Appellants, Cross-Appellees,
v.
STRACHAN SHIPPING COMPANY, et al., Defendants-Appellees, Cross-
Appellants.
United States of America, Intervenor.
Nov. 14, 1995.
Appeals from the United States District Court for the Eastern
District of Louisiana.
Before POLITZ, Chief Judge, and JONES and PARKER, Circuit Judges.
EDITH H. JONES, Circuit Judge:
When this class action was filed in 1992, the applicable ERISA
statute of limitations, 29 U.S.C. § 1113 (1987), barred cases six
years after the breach occurred and three years after the earliest
date on which a plaintiff "had actual knowledge of the breach or
violation ..." The district court found that the plaintiffs'
knowledge in 1987 that Strachan had purchased Executive Life
annuities to replace their former retirement benefits plan tolled
the three year statute of limitations period and time-barred their
claims. Accordingly, the central issue on appeal is whether the
information known by the class members three years before the date
suit was filed amounted to "actual knowledge of the breach or
violation" for purposes of § 1113(2)(A). We hold that for summary
judgment purposes, it does not, and the lower court's grant of
summary judgment must be reversed. We also reject Strachan's
1
challenge to the impact of the Pension Annuities Protection Act of
1994 on appellants' standing.
BACKGROUND
Strachan Shipping Company ("Strachan") was the employer
sponsor of a qualified retirement plan subject to the provisions of
ERISA (the "Plan"). The Plan was a defined benefit plan
established to provide retirement benefits for Strachan's employees
and their beneficiaries. Strachan administered the Plan through
its appointed retirement board, of which defendants/appellees
Robert W. Groves III and Edwin L. Ennis were members. Groves was
chairman of the board of directors as well as a member of the
board's compensation committee. Ennis was the secretary/treasurer
of Strachan and also served on the compensation committee. All
appellees were fiduciaries of the plan.
By memorandum dated December 26, 1986, Ennis informed plan
participants and beneficiaries that the plan was being reorganized.
On April 17, 1987 and July 15, 1987, memoranda from Ennis advised
plan participants and beneficiaries that the plan's reorganization
was "designed to allow the company to utilize excess assets which
have accumulated in the pension plan." The parties were assured
that their benefits would not be "diminished in any way by this
reorganization."
Shortly afterward, Strachan agreed to purchase a group single
premium annuity contract from the now-infamous Executive Life for
approximately $10,750,000 to cover the plan participants' benefits.
As a Result of this purchase and the plan's termination, Strachan
2
received a cash reversion of over $4,500,000.1
On November 1, 1987, Executive Life began paying monthly
benefits to former plan participants and beneficiaries who were in
pay status. The checks were in the same amounts as the checks
previously received by beneficiaries, but they indicated that
Executive Life was now the payor. Participants who were not in pay
status first received their Executive Life Annuity Certificates
from Strachan in May of 1989, along with a memorandum from Strachan
informing participants that their benefits had been secured with
"the purchase of a Group Annuity Contract from Executive Life
Insurance Company."
On April 11, 1991, Executive Life was placed into
conservatorship by the California Commissioner of Insurance. The
Commissioner immediately reduced participants' annuity payments by
thirty (30) percent. In August, 1992, appellants filed a class
action pursuant to Section 502(a) of ERISA, 29 U.S.C. § 1132(a),
against Strachan and its officers alleging a breach of their
fiduciary duties to plan participants and beneficiaries.2 See
1
The plan was a "defined benefit plan," under which the risk
of loss or gain associated with plan investments remained
entirely with Strachan. When such a plan terminates, assets in
excess of plan liabilities revert to the plan sponsor if plan
language permits, which it did in this case.
2
The district court certified a plaintiff class which
includes all participants of Strachan's former pension plan who
resided in Louisiana in April 1991 and who hold Executive Life
annuities. Participants in states having a state guaranty fund
in place in April 1991 received their full annuity payment
through supplementation. Louisiana had no state guaranty fund,
and the plaintiff class members in pay status are therefore not
receiving such supplementation.
3
ERISA §§ 404(a)(1)(A) and (B), § 403(c)(1), 29 U.S.C. §§
1104(a)(1)(A) and (B), and § 1103(c)(1).
The district court granted summary judgment to Strachan,
holding that appellants had no standing or remedy under ERISA and
that their suit is barred by the three-year statute of limitations.
According to the court, the appellants were put on notice and had
actual knowledge of the breach when Strachan purchased the
Executive Life annuities. The court emphasized that some of the
members of the plaintiff class had indicated some "concern" about
Executive Life more than three years before filing suit. And, for
a similar period, some of the class had known that the plan's
termination would enable Strachan to take an enhanced reversion
because of Executive Life's low bid.
After receiving the initial adverse judgment, the class moved
for relief based on the October 22, 1994, passage of the Pension
Annuitants Protection Act, which amended Section 502(a) of ERISA to
make clear that annuitants have standing to obtain relief for
violations of ERISA in connection with annuity purchases. Applying
the amendment, the district court issued an order granting the
plaintiffs' motion as to standing but reiterating the statute of
limitations bar.
STANDARD OF REVIEW
This court reviews a district court's granting of summary
judgment de novo, applying the same standard as the district court.
Dupre v. Chevron U.S.A., 20 F.3d 154, 156 (5th Cir.1994). Summary
judgment is proper if there is "no genuine issue as to any material
4
fact" and the movant, Strachan, is entitled to judgment as a matter
of law. Fed.R.Civ.Proc. 56(c); Green v. Touro Infirmary, 992 F.2d
537, 538 (5th Cir.1993).
DISCUSSION
A. Statute of Limitations
The ERISA statute of limitations is keyed respectively to the
date the cause of action arose and the date the plaintiff had
actual notice. Hogan v. Kraft Foods, 969 F.2d 142, 145 (5th
Cir.1992). The statute specifies a two-step analysis of accrual of
an ERISA action: first, when did the alleged breach or violation
occur; and second, when did the plaintiff have actual knowledge of
the breach or violation? Ziegler v. Connecticut General Life Ins.
Co.,
916 F.2d 548, 550 (9th Cir.1990).
In this case, Strachan's selection process for an annuity
provider ended on August 6, 1987, with the signing of a Letter
Agreement with Executive Life to purchase a group annuity contract.
Both sides acknowledge that the alleged breach occurred on that
date. Ziegler, 916 F.2d at 551 (the culpability resulting from the
breach of ERISA fiduciary duty arises with the contract's
creation). Under the first step of analysis, the Maher class filed
their action within six years of August 6, 1987.
The second step requires a determination whether the class had
actual knowledge of the breach more than three years before the
complaint was filed. Because suit was filed in August 1992, the
claim is time barred only if appellants had actual knowledge of the
breach before August 1989. As to both participants in the Plan and
5
beneficiaries in pay status, the district court equated mere
knowledge of Strachan's purchase of annuities from Executive Life
with actual knowledge of the alleged breach of fiduciary duty.
Each group had actual knowledge early enough to bar their claims
under this analysis.
This court recently adopted a test articulated by the Third
Circuit for applying the three-year time bar. Reich v. Lancaster,
55 F.3d 1034, 1057 (5th Cir.1995) (district court did not err in
finding tax forms did not provide plaintiffs actual knowledge of
breach of fiduciary duty or ERISA violation). The Third Circuit
held:
[a]ctual knowledge of a breach or violation requires that a
plaintiff have actual knowledge of all material facts
necessary to understand that some claim exists, which facts
could include necessary opinions of experts, knowledge of a
transaction's harmful consequences, or even actual harm.
Gluck v. Unisys Corp., 960 F.2d 1168, 1177 (3d Cir.1992).
Later, the Third Circuit elaborated its formula; stating:
[actual knowledge] requires a showing that plaintiffs actually
knew not only of the events that occurred which constitute the
breach or violation but also that those events supported a
claim for breach of fiduciary duty or violation under ERISA.
International Union v. Murata Erie North America, 980 F.2d 889, 900
(3rd Cir.1992). Based on this test, the Third Circuit held that
the defendant fiduciary failed to make the showing of actual
knowledge necessary to meet the "stringent requirement" imposed by
ERISA § 413(2), 29 U.S.C. § 1113(2).
Id. at 901.
Application of this actual knowledge standard makes it
difficult to conceive how appellants' claims would be barred as a
matter of law by their knowledge of the transfer of plan assets
6
into an annuity contract with a company that received some
unfavorable publicity. The Ninth Circuit recently dealt with a
similar issue in Waller v. Blue Cross of California, 32 F.3d 1337
(9th Cir.1994), which involved the termination of an ERISA plan
replaced by annuities purchased from Executive Life.3 The court
declined to equate plaintiffs' knowledge of the purchase of
annuities with actual knowledge of the alleged breach of fiduciary
duty, reasoning that the disclosure of a transaction that is not
inherently a statutory breach of fiduciary duty cannot communicate
the existence of an underlying breach.
Id. at 1341, citing Fink v.
National Savings and Trust Co.,
772 F.2d 951, 957 (D.C.Cir.1985).
In reaching its finding there was no genuine issue of fact
that the class obtained actual knowledge of the breach of fiduciary
duty no later than May 19, 1989, when those not in pay status
received their Executive Life Annuity Certificates from Strachan,
the district court noted that there was a "general concern over the
stability of Executive Life [in 1987]." Strachan also relies
heavily upon deposition testimony of several of the named class
3
Although this case is factually very similar to the case
sub judice, we note the different underlying procedural postures.
Waller came before the Ninth Circuit on a 12(b)(6) motion, while
we are presented with the issue on a grant of summary judgment.
The Waller court noted, "[b]ecause this case was dismissed for
failure to state a claim, all allegations of material fact in
plaintiffs' complaint are taken as true and construed in the
light most favorable to the plaintiff." Waller, 32 F.3d at 1338,
n. 1. The standard on summary judgment review, however, requires
us to look at the evidence adduced by both sides. Nevertheless,
the determinative issue in both cases is whether the plaintiffs
had obtained actual knowledge of the alleged breach when they
learned the defendant employer had purchased annuities from
Executive Life.
7
plaintiffs, seven of whom expressed concern about Executive Life's
financial well-being or knowledge of the selection of Executive
Life as early as 1987 or 1988. For example, appellant Armstrong
testified that he had concerns about Executive Life in early 1988;
that he gained this knowledge through articles that had been
published about the insurance carrier's troubled times; that he
knew Executive Life had been selected because it was the
low-bidder, giving rise to the greatest reversion to Strachan;
and, that he had discussed these doubts with defendant Ennis.
Appellant Collins testified to having read articles about Executive
Life's problems before August 1987, and he had discussed these
concerns with appellant Maher and appellee Ennis. Appellant Maher
testified in deposition to having read a Wall Street Journal
article about Executive Life's junk bond dealings and that he had
asked Strachan's John MacPherson to guarantee his pension.
Additionally, appellants Mintz, Maniglia, and Higgens testified to
knowing of Executive Life's selection before the actual August 1987
signing, and appellant Tomeny knew that a lunch meeting had
occurred at which several of these concerns had been aired by the
appellants to Strachan's management.
Although this testimony demonstrates unease with the choice of
Executive Life, it does not, in our view, show to the exclusion of
a genuine fact issue that appellants had actual knowledge of the
facts necessary to understand that some claim existed, knowledge of
the harmful effect the purchase of Executive Life would have, or
knowledge of any actual harm prior to August 24, 1989. Reich v.
8
Lancaster, 55 F.3d 1034, 1057 (5th Cir.1995) (citing Gluck v.
Unisys
Corp., 960 F.2d at 1177).
Waller, supra. "It is not enough
that [appellants] had notice that something was awry, [they] must
have had specific knowledge of the actual breach of duty upon which
[they] sue[ ]." Brock v. Nellis,
809 F.2d 753, 754 (11th
Cir.1987). See also Radiology Center, S.C. v. Stifel, Nicolaus &
Co.,
919 F.2d 1216, 1222 (7th Cir.1990).4 The class
representatives' information, of course, does not prove that other
class members had any awareness of articles about Executive Life's
financial stability. But even as to the named class members, there
is no evidence that they had actual knowledge about Executive
Life's actual financial condition beyond predictions in the
financial press. We are hesitant to hold that actual knowledge of
a fiduciary breach or violation may exist simply because of
unfavorable publicity surrounding a company, unless the publicity
itself relates to facts rather than predictions of the company's
adverse condition.
We also reject Strachan's argument that knowledge of the
transaction, i.e. the purchase of Executive Life Annuities, is
4
Mere notice of the Executive Life purchase was not notice
of an ERISA violation or even grounds for believing something was
"awry." The purchase of an annuity from an insurance company is
not a per se violation of ERISA. The Act permits plan sponsors
to terminate plans, replace plan benefits with annuities, and
recapture the remaining plan assets to the extent contemplated by
the plan's governing documents. ERISA §§ 4041(b)(3)(A) and
4044(d)(1), 29 U.S.C. 1341(b)(3)(A) and 1344(d)(1). The
appellants cannot be charged with actual knowledge of an ERISA
violation based upon their awareness of events which the Act
permits. See Waller, 32 F.3d at 1341.
9
enough by itself to trigger the three-year statute of limitations.5
Inasmuch as appellants are challenging the actual selection of
Executive Life, they must have been aware of the process utilized
by Strachan in order to have had actual knowledge of the resulting
breach of fiduciary duty.6 Donovan v. Cunningham, 716 F.2d 1455,
1467 (5th Cir.1983), cert. denied,
467 U.S. 1251,
104 S. Ct. 3533,
82 L. Ed. 2d 839 (1984) ("The focus of the inquiry is how the
fiduciary acted in his selection of the investment, and not whether
his investments succeeded or failed."). See also Fink v. National
Sav. and Trust Co., 772 F.2d 951, 957 (D.C.Cir.1985). The
deposition testimony clarifies what appellants did not know about
Executive Life's selection by Strachan. Armstrong stated he had no
personal knowledge of any facts to indicate that Strachan had
breached its fiduciary duty. Collins testified that he had no
knowledge beyond the shortage of his annuity contract to suggest
appellee had failed to act prudently, diligently, and solely in the
5
Strachan mixes apples and oranges in its argument that
knowledge of the transaction amounts to actual knowledge
sufficient to trigger the statute. The transaction does toll the
statute, but this in turn does not automatically translate to
actual knowledge of a breach. See Martin v. Consultants &
Admrs., Inc., 966 F.2d 1078 (7th Cir.1992); International Union
v. Murata Erie North America,
980 F.2d 889 (3rd Cir.1992);
Blanton v. Anzalone,
760 F.2d 989 (9th Cir.1985); Larson v.
Northrop Corp.,
21 F.3d 1164 (D.C.Cir.1994); Tassinare v.
American Nat. Ins. Co.,
32 F.3d 220 (6th Cir.1994).
6
The appellants' claim in this respect is predicated upon
the appellants' charges under 29 U.S.C. §§ 1103(c)(1) and
1104(a)(1)(A), ERISA §§ 403(c)(1) and 404(a)(1)(A), whereby the
defendant fiduciaries were required to act solely in the interest
of the plan's participants and beneficiaries and for the
exclusive purpose of providing benefits to them, and 29 U.S.C. §
1104(a)(1)(B), ERISA § 404(a)(1)(B), the prudent person fiduciary
standard.
10
interest of the plan participants. Maher did not know the steps
taken by Strachan to investigate the risks of purchasing Executive
Life annuities. And Tomeny, Maniglia, Higgens, and Mentz were
unaware of Executive Life's low bid or the reasoning behind the
selection. The summary judgment evidence to date indicates
appellants' collective awareness only of Executive Life's selection
and negative publicity, cursory discussions with and one letter to
Strachan's management, and a refusal to guarantee a pension. These
facts, taken with the information that Strachan made available
about Executive Life's selection, and the evidence that no
pecuniary loss was suffered until April 1991, strongly suggest that
the class did not have actual knowledge of a breach or violation
before August 1989. Even recognizing the difficulty in determining
in the abstract precisely what constitutes actual knowledge of a
breach or violation, these facts do not seem sufficient to show it.
See also Martin v. Pacific Lumber, 1993 U.S.Dist. LEXIS 660
(N.D.Cal. Jan. 15, 1993) (no limitations bar under similar facts
pertaining to Executive Life).7
Because of this conclusion, we reject Strachan's request to
decertify the class or to permit it to investigate the claims of
all class members to determine if adequate class representatives
can be found. See Intern. Woodworkers v. Chesapeake Bay Plywood,
659 F.2d 1259, 1270 (4th Cir.1981); Keasler v. Natural Gas
7
The parties cite two different proceedings arising from the
same Pacific Lumber case. We cite from the court's order denying
defendants' motion for summary judgment asserting that the ERISA
claim was time barred.
11
Pipeline Co. of America, 84 F.R.D. 364, 367-68 (E.D.Texas 1979);
In Re Plywood Antitrust Litigation,
76 F.R.D. 570, 586
(E.D.La.1976).
B. Pension Annuitants Protection Act of 1994 ("PAPA")
The district court originally held that the class lacked
standing to sue because appellants, having already received
annuities to replace the plan, were no longer participants or
beneficiaries of the plan at the time they brought suit. The court
reversed itself on this issue a few days after the PAPA was signed
into law. Section 2 of PAPA expressly amends Section 502(a) of
ERISA to permit "any individual who was a participant or
beneficiary at the time of" the breach of a fiduciary duty to bring
a civil action
in the event that the purchase of an insurance contract or
insurance annuity in connection with the termination of an
individual's status as a participant covered under a pension
plan ... constitutes a violation of [ERISA]....
Pub.L. No. 103-401, 108 Stat. 4172 (1994). PAPA specifies that
this amendment applies to "any legal proceeding pendings, or
brought, on or after May 31, 1993." Pub.L. No. 103-401, 108 Stat.
4172 (1994). Strachan admits that PAPA clearly dictates the
appellants' standing but argues that in doing so, the provision
violates the constitutional separation of powers doctrine by
directing the court to decide this case in a particular manner
without changing underlying ERISA law.
Strachan's argument fails on several grounds. First,
isolated statements in the legislative history, particularly those
speaking to the motives of individual legislators, are not relevant
12
to the issue of what Congress actually did.8 Thomas v. Union
Carbide Agric. Prods. Co., 473 U.S. 568, 589,
105 S. Ct. 3325, 3337,
87 L. Ed. 2d 409 (1985); Walker v. United States Dep't. of Housing
& Urban Dev.,
912 F.2d 819, 830 (5th Cir.1990).
Second, Strachan's claim that the PAPA represents an
unconstitutional attempt by Congress to "require courts to reach
particular conclusions of law in cases without changing the
underlying law," contrary to the separation of powers doctrine set
forth in United States v. Klein, 80 U.S. (13 Wall.) 128, 20 L. Ed.
519 (1871), ignores the Court's recent explanation of the doctrine.
In Robertson v. Seattle Audubon Soc'y,
503 U.S. 429,
112 S. Ct.
1407,
118 L. Ed. 2d 73 (1992), the Court unanimously decided that
Klein does not restrict Congress's power to change the law
applicable to cases pending in the courts even if it overrides the
effects of already rendered decisions. The legislation was upheld
because it "compelled changes in the law, not findings of results
under the law."
Id. at 437, 112 S.Ct. at 1413. The effect of PAPA
is similar and requires a similar result.
The Ninth Circuit has already characterized the amendment as
a clarification of existing law rather than a change of law. The
purpose of the clarification, however, was to attribute standing
8
Strachan cites particular portions of the legislative
history to support its position that the PAPA was not intended to
change the law but to correct a mistaken interpretation of ERISA
standing requirements employed in some federal courts. See
H.R.Rep. No. 872, 103d Cong., 2nd Sess. (1994), 1994 WL 702776,
at *97; 140 Cong.Rec. H10621-22 (daily ed. Oct. 3, 1994)
(statement of Rep. Williams); H.R.Rep. No. 872, 103d Cong., 2nd
Sess. (1994),
1994 WL 702776, at *96.
13
not only to annuitants in pending cases but to those in future
cases as well. The legislation was properly called an "amendment"
to ERISA. The PAPA does not encroach on the domain of the
judiciary. See Kayes v. Pacific Lumber, 51 F.3d 1449 (9th
Cir.1995).
CONCLUSION
For the reasons discussed above, the judgment of the district
court is reversed and the case remanded for further proceedings
consistent herewith.
REVERSED and REMANDED.
14
