Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-06-01277/USCOURTS-ca8-06-01277-0/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 06-1277

___________

Ellison Kalda, M.D.; Robert K. Dahl, *

M.D.; Marilyn McFarlane, P.A.; *

David H. Hylland, Ed.D.; Richard G. *

Whitten, Ph.D.; Cynthia L. Pilkington, *

Ph.D.; Mary K. Kunde, Ph.D.; *

Individually and for their individual *

plan accounts and on behalf of The *

Central Plains Clinic, Ltd. Money *

Purchase Pension and Profit Sharing *

Plan and The Central Plains Clinic, *

Ltd. 401(k) Plan, *

* Appeal from the United States

Appellants, * District Court for the 

* District of South Dakota.

v. *

*

Sioux Valley Physician Partners, Inc., *

formerly known as Central Plains *

Clinic, Ltd.; Sioux Valley Hospital; *

T. A. Schultz, M.D.; Richard Hardie, *

M.D.; Gene Burrish, M.D.; David *

Danielson; Michael Farritor, M.D.; *

John Rittmann, M.D.; Steven Salmela, *

M.D., *

*

Appellees. *

___________

Submitted: October 19, 2006

Filed: March 29, 2007

___________

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1

The Honorable Lawrence L. Piersol, United States District Judge for the

District of South Dakota.

2

Dr. Dahl resigned and Ms. McFarlane retired on December 31, 2000. Dr.

Hylland resigned on February 28, 2001. CPC discontinued psychological services

effective March 31, 2001, which terminated the services of Drs. Whitten, Pilkington,

and Kunde. Dr. Kalda resigned on April 1, 2001. CPC shareholders approved the

merger on April 17, 2001, after the plaintiffs' employment with CPC ended.

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Before SMITH, BOWMAN, and COLLOTON, Circuit Judges.

___________

BOWMAN, Circuit Judge.

The plaintiffs brought this action under the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001–1461 (2000), alleging that the

defendants breached several fiduciary duties and violated the terms of two ERISA

plans. The District Court1

 granted the defendants' motion to dismiss one breach-offiduciary-duty claim and granted the defendants' motion for summary judgment on all

remaining claims. We affirm the judgment of the District Court.

I.

This case results from the events leading up to the merger of Central Plains

Clinic, Ltd. (CPC) with Sioux Valley Physician Partners, Inc. (SVC). The plaintiffs

are former employees of CPC whose employment ended prior to the merger.2

 CPC

administered two ERISA plans in which the plaintiffs participated—a Money

Purchase Pension Plan (MPPP) and a Profit Sharing Plan (PSP). The PSP was

discretionarily funded by CPC, while the MPPP was a defined-benefit plan that

provided for contributions by CPC based on a percentage of a participant-employee's

compensation. CPC reserved the right to amend, modify, terminate, or suspend

contributions to the MPPP at any time.

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In response to financial difficulties, on December 11, 1998, CPC adopted an

amendment to the MPPP that reduced CPC's contributions to the MPPP from twentyfive percent of each participant's compensation to zero. CPC informed participants

that it hoped to resume contributions to the MPPP in the future if CPC became

financially stable. CPC maintained balance sheets that tracked the amounts that it

would have contributed to the MPPP from 1998 to 2001 if not for the zero-funding

amendment. For the calendar year 1998, CPC contributed to the PSP an amount equal

to what it would have contributed to the MPPP if not for the zero-funding amendment.

CPC made no contributions to either plan for the calendar years 1999, 2000, and 2001.

In 2000, CPC separately met with SVC and Avera McKenna Hospital to

explore financial options, including a sale or merger. CPC elected to pursue a merger

with SVC, and on December 18, 2000, the parties executed a letter of intent to merge.

As part of the proposed merger, SVC offered retention-incentive bonuses to CPC

employees who transferred to SVC in amounts equal to the amounts that would have

been contributed to the MPPP if not for the zero-funding amendment. On March 26,

2001, CPC adopted a merger and stock-purchase agreement, subject to shareholder

approval. This agreement provided that physicians who remained with SVC for two

years after the merger and other employees who remained with SVC for thirty days

after the merger qualified for the bonuses. The agreement did not provide for

retroactive funding of either plan.

Meanwhile, CPC's largest lender had urged Avera to make an alternative

proposal to CPC. In a proposal made to CPC shareholders on March 30, 2001, Avera

stated that it would pay physicians "[a]ll pension contributions not made during the

past two years." J.A. at 956. SVC then agreed to pay CPC's debt to the lender, and

the CPC board of directors approved and executed the agreement with SVC on

April 4, 2001. The CPC board conducted a side-by-side evaluation of the SVC and

Avera proposals on April 12, 2001, and reaffirmed its decision to proceed with the

SVC merger. On April 17, 2001, CPC shareholders approved the merger. Because

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the plaintiffs' employment with CPC ended prior to the merger's approval, they were

ineligible for the retention-incentive bonuses.

The plaintiffs commenced this action asserting various ERISA theories,

including breaches of the plans, see 29 U.S.C. § 1132(a)(1)(B), and breaches of

fiduciary duties, see 29 U.S.C. §§ 1104 and 1106. The plaintiffs sought funding of

the MPPP and PSP and funding of the participants' accounts for unpaid contributions,

a declaratory judgment, an equitable accounting, and disgorgement of improper

benefits. The District Court granted the defendants' motion to dismiss a claim alleging

that the zero-funding amendment was a breach of fiduciary duty. The plaintiffs do not

appeal from that portion of the final judgment. The District Court later granted the

defendants' motion for summary judgment on all remaining claims. The District Court

denied the plaintiffs' motion for reconsideration of the summary-judgment order.

Plaintiffs appeal with respect to the entry of summary judgment. We review the grant

of summary judgment de novo and may affirm the judgment on any grounds

supported by the record. Bass v. SBC Commc'ns, Inc., 418 F.3d 870, 872 (8th Cir.

2005). Summary judgment is appropriate where there is no genuine issue of material

fact and the movant is entitled to judgment as a matter of law. Id.

II.

The plaintiffs claim that the defendants made an "unequivocal promise" that

once CPC became financially stable, it would fund the plans in the amount that would

have been contributed to the MPPP absent the zero-funding amendment. Appellants'

Br. at 26. According to the plaintiffs, because CPC knew that this re-funding would

not occur, the promise amounted to a misrepresentation. The District Court held that

CPC's statements, when viewed in the light most favorable to the plaintiffs, were not

misrepresentations. The plaintiffs assert that the District Court erred in granting

summary judgment because a genuine issue of material fact exists as to whether these

statements constitute misrepresentations.

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In deposition testimony, the plaintiffs stated that CPC made several statements

between 1998 and 2000 that support their misrepresentation claim, such as: "[CPC]

said they were going to keep track of [the amount of unpaid contributions], and

potentially if we got healed - - when we got healed we'd get it back," J.A. at 220;

"[O]nce the financial stability of the clinic improved, [the PSP] would be funded," id.

at 221; and "[T]hey also told us [the amount of unpaid MPPP contributions] was going

on the books and when they became financially stable they would pay it," id. at 222.

The plaintiffs contrast these statements with a memorandum summarizing a merger

proposed on October 30, 2000 that included a reference to the payment of retentionincentive bonuses "instead of profit sharing contributions," id. at 302, and the

December 18, 2000, letter of intent to merge that stated SVC would either make a

contribution to the PSP or provide employees compensation "in lieu of" a PSP

contribution, id. at 985. The plaintiffs therefore conclude that CPC knowingly

promised PSP or MPPP re-funding when it knew that re-funding would not occur.

An ERISA fiduciary must "discharge his duties with respect to a plan solely in

the interest of the participants and beneficiaries," 29 U.S.C. § 1104(a)(1), and must

comply with the common-law duty of loyalty, including the "obligation to deal fairly

and honestly with all plan members," Shea v. Esensten, 107 F.3d 625, 628 (8th Cir.)

(citing Varity Corp. v. Howe, 516 U.S. 489, 506 (1996)), cert. denied, 522 U.S. 914

(1997). Accordingly, a fiduciary may "'not affirmatively miscommunicate or mislead

plan participants about material matters regarding their ERISA plan'" when discussing

a plan. In re Xcel Energy, Inc., 312 F. Supp. 2d 1165, 1176 (D. Minn. 2004) (quoting

In re Enron Corp., 284 F. Supp. 2d 511, 555 (S.D. Tex. 2003)); see Varity, 516 U.S.

at 506 (observing that "'[l]ying is inconsistent with the duty of loyalty'" (citation

omitted)); Anderson v. Resolution Trust Corp., 66 F.3d 956, 960 (8th Cir. 1995). A

statement is materially misleading if there is "a substantial likelihood that it would

mislead a reasonable employee in the process of making an adequately informed

decision regarding . . . benefits to which she might be entitled." Krohn v. Huron

Mem'l Hosp., 173 F.3d 542, 551 (6th Cir. 1999). Additionally, a fiduciary has a duty

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to inform when it knows that silence may be harmful, Shea, 107 F.3d at 629

(quotations and citations omitted), and cannot remain silent if it knows or should

know that the beneficiary is laboring under a material misunderstanding of plan

benefits, Griggs v. E.I. Dupont De Nemours & Co., 237 F.3d 371, 381 (4th Cir. 2001).

The duty of loyalty requires a fiduciary to disclose any material information that could

adversely affect a participant's interests. Shea, 107 F.3d at 628; see Eddy v. Colonial

Life Ins. Co. of Am., 919 F.2d 747, 750 (D.C. Cir. 1990) ("The duty to disclose

material information is the core of a fiduciary's responsibility . . . ."). 

Before proceeding with the merits of any breach-of-fiduciary-duty claim, we

must address the threshold issue of whether the defendants were acting in a fiduciary

or an employer capacity when the acts in question took place. Pegram v. Herdrich,

530 U.S. 211, 226 (2000). Under ERISA, 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, (ii) he

renders investment advice for a fee or other compensation, direct or

indirect, with respect to any moneys or other property of such plan, or

has any authority or responsibility to do so, or (iii) he has any

discretionary authority or discretionary responsibility in the

administration of such plan. 

29 U.S.C. § 1002(21)(A) (emphasis added). This statute requires that an employerfiduciary "wear the fiduciary hat when making fiduciary decisions." Pegram, 530 U.S.

at 225 (citing Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 443–44 (1999); Varity,

516 U.S. at 497). 

The plaintiffs argue that an employer-administrator acts as a fiduciary as

defined by ERISA if the employer makes statements relating to a business decision

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that also relate to the administration of an ERISA plan. In support of their conclusion,

the plaintiffs cite Varity, where the employer-fiduciary held a meeting to persuade

employees to transfer to a subsidiary and assured them that their benefits would be

secure if they did so, even though it knew that the subsidiary was insolvent. 516 U.S.

at 493–94. The Varity Court concluded that the employer's intentional statements

about the likelihood of future plan benefits in that context amounted to an act of plan

administration and thus the employer was acting as a fiduciary. Id. at 505; accord

Anderson, 66 F.3d at 960. Here, we will assume for the purposes of the

misrepresentation claim that CPC was acting as an administrator-fiduciary when it

made statements concerning the possibility of future funding of either plan. See

Varity, 516 U.S. at 502. 

Viewing the statements in the light most favorable to the plaintiffs, CPC's

statements were not misrepresentations. The statements about funding either plan

when CPC became financially stable constituted no more than a future hope or goal,

and these statements were too vague to qualify as "unequivocal promise[s]." That the

statements were qualified by the words "if" and "potentially" further illustrate that the

statements were speculative and that the employees could not reasonably rely on them

when making decisions about their benefits. Indeed, in describing her understanding

of the statements, one plaintiff stated, "I assumed when things were refinanced . . . the

plan would be taken care of." J.A. at 234 (emphasis added). Furthermore, the facts do

not indicate, as the plaintiffs contend, that CPC knew that re-funding of the plans was

certain not to occur upon the merger, as re-funding was considered in the letter of

intent to merge. This case is distinguishable from Varity, where the defendants

affirmatively told employees that if they changed jobs, their pensions would be

guaranteed, even though the defendants knew their statements were false. 516 U.S.

at 494. Here, CPC did not promise that it would re-fund either plan upon the

occurrence a merger or any other event. Moreover, CPC had no reason to know

whether the plaintiffs were laboring under a misunderstanding that would have

triggered the duty to inform, since several plaintiffs testified that they "assumed"

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3

The plaintiffs also attempt to raise, for the first time, several other alleged

breaches, including CPC's failure to verify the eligibility of plan participants, enforce

shareholders' rights, and collect and gather trust assets. We do not address claims that

have been raised for the first time on appeal. See Norwest Bank of N.D., N.A. v.

Doth, 159 F.3d 328, 334 (8th Cir. 1998). The plaintiffs also argue that SVC is liable

as a nonfiduciary, but the plaintiffs fail to identify any evidence in the record to

support this claim.

-8-

CPC's statements were promises to re-fund the plans. J.A. at 226, 228, 234. For these

reasons, the plaintiffs' misrepresentation claim fails.

III.

The plaintiffs also allege that CPC breached its fiduciary duties in the course

of negotiating and ultimately merging with SVC because it failed to adequately

consider the Avera proposal.3

 The plaintiffs argue that CPC breached its duty of

loyalty by considering only its own interests and not those of the participants when

merging with SVC.

While a fiduciary must "discharge his duties with respect to a plan solely in the

interest of the participants," 29 U.S.C. § 1104(a)(1), "the fiduciary provisions of

ERISA are not implicated in the sale of a business merely because the terms of the

sale will affect contingent and non-vested future retirement benefits," Phillips v.

Amoco Oil Co., 799 F.2d 1464, 1471 (11th Cir. 1986) (cited with approval in

Hickman v. Tosco Corp., 840 F.2d 564, 566 (8th Cir. 1988)), cert. denied, 481 U.S.

1016 (1987). Thus, normal business decisions with potential collateral effects on

prospective, contingent benefits need not be made in the interest of plan participants.

Hickman, 840 F.2d at 566. In other words, "ERISA does not prohibit an employer

from acting in accordance with its interests as employer when not administering the

plan." Phillips, 799 F.2d at 1471. This dual-capacity standard may distinguish

transactions that are subject to ERISA's fiduciary provisions from those transactions

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that are not. Martin v. Feilen, 965 F.2d 660, 666 (8th Cir. 1992), cert. denied, 506

U.S. 1054 (1993); see Pegram, 530 U.S. at 225–26.

We held in Hickman that the defendant-administrators' refusal to allow the

plaintiffs to remain on the payroll to become eligible for retirement benefits did not

implicate ERISA's fiduciary duties because that decision was a "day-to-day corporate

business transaction." 840 F.2d at 566 (quotations and citations omitted); accord

Adams v. LTV Steel Mining Co., 936 F.2d 368, 370 (8th Cir. 1991), cert. denied, 502

U.S. 1073 (1992). In this case, negotiating the merger with SVC and ultimately

declining to pursue an agreement with Avera were business decisions made by CPC

that did not trigger ERISA's fiduciary provisions. Accordingly, CPC's decision to

merge with SVC rather than Avera did not itself breach a fiduciary duty owed by CPC

to the plaintiffs.

Even if CPC in its capacity as administrator was required to carefully and

impartially evaluate the merger's effect on the plan participants, see Schaefer v. Ark.

Med. Soc'y, 853 F.2d 1487, 1492 (8th Cir. 1988); Donovan v. Bierwirth, 680 F.2d

263, 271 (2d Cir.), cert. denied, 459 U.S. 1069 (1982), we are convinced that CPC

carefully assessed the impact of the merger on the plan participants, especially

considering CPC's side-by-side comparison of the competing proposals. Moreover,

contrary to the plaintiffs' assertions, the record indicates that CPC did in fact retain a

consulting firm to evaluate the proposals. Therefore, the plaintiffs' claims that CPC

breached its fiduciary duties during its consideration of Avera's proposal fail.

IV.

The plaintiffs next contend that the defendants breached their duty to properly

manage plan assets. See Cent. States, Se. & Sw. Areas Pension Fund v. Cent. Transp.,

Inc., 472 U.S. 559, 572 (1985). Specifically, the plaintiffs argue that in exchange for

positions at SVC, the CPC officers bargained away MPPP and PSP contributions in

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the form of the balance sheets that tracked the amounts that would have been paid to

either plan absent the zero-funding amendment. To support such a claim, "plan

assets" within the meaning of ERISA must be involved. See 29 U.S.C.

§ 1002(21)(A); NYSA-ILA Med. & Clinical Servs. Fund v. Catucci, 60 F. Supp. 2d

194, 200 (S.D.N.Y. 1999). The District Court held that CPC's balance sheets were

not "plan assets" because there was no vesting language in any of the plan documents

and any obligation to fund the plans was contingent upon an improvement in CPC's

financial condition. The plaintiffs alternatively argue that "plan assets" are involved

because: (1) the plaintiffs were promised these unpaid contributions in lieu of wages;

(2) the balance sheets constituted a beneficial interest under ordinary notions of

property law; or (3) the required vesting language was expressed in the plan

documents.

ERISA does not exhaustively define the term "plan assets," although the

regulations define the term to include amounts that participants pay to an employer

or have withheld from their wages for contribution to a plan. 29 C.F.R. § 2510.3-

102(a). The Secretary of Labor has repeatedly defined "plan assets" consistently with

"ordinary notions of property rights," including in the definition any funds in which

a plan has obtained a "beneficial interest." See, e.g., 2005-08A Op. Dep't of Labor at

*6–7 (May 11, 2005); 2003-05A Op. Dep't of Labor at *5 (April 10, 2003); 2001-02A

Op. Dep't of Labor at *5 n.2 (Feb. 15, 2001); 94-31A Op. Dep't of Labor at *3–4, 7

(Sept. 9, 1994); 93-14A Op. Dep't of Labor at *10–11 (May 5, 1993); 92-22A Op.

Dep't of Labor at *8–10 (Oct. 27, 1992). Whether a plan has acquired a beneficial

interest in particular funds depends on "whether the plan sponsor expresses an intent

to grant such a beneficial interest or has acted or made representations sufficient to

lead participants and beneficiaries of the plan to reasonably believe that such funds

separately secure the promised benefits or are otherwise plan assets." 94-31A Op.

Dep't. of Labor at *7 (Sept. 9, 1994).

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Agency interpretations in opinion letters are "entitled to respect" to the extent

that they have the "power to persuade." Christensen v. Harris County, 529 U.S. 576,

587 (2000) (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)). Whether

a letter has the "power to persuade" is based on factors such as the "thoroughness

evident in [the agency's] consideration, the validity of its reasoning, [and] its

consistency with earlier and later pronouncements." Skidmore, 323 U.S. at 140. We

find the Secretary's reasoning in its rulings regarding "plan assets" thorough, valid,

and particularly consistent. Cf. In Re Luna, 406 F.3d 1192, 1199–1200 (10th Cir.

2005) (applying the Secretary's approach).

The record does not support the plaintiffs' assertion that the unpaid

contributions were promised in lieu of wages; therefore, the unpaid contributions do

not qualify as plan assets under the regulations. Nor do we agree with the plaintiffs

that CPC expressed an intent to grant either plan a beneficial interest in the balance

sheets or that CPC made representations sufficient to lead reasonable participants to

believe that the balance sheets secured any promised benefits or were otherwise "plan

assets." The plaintiffs argue that CPC's use of the term "accrued expenses" on the

balance sheets indicated an intent to grant the plans an interest in the unpaid

contributions. J.A. at 216–17. This argument is undermined, however, by CPC's

statements describing the potential for future funding of the plans as a possibility or

a hope. The unpaid contributions were simply recorded as ledger entries with the

possibility of future repayment. It would be unreasonable to conclude from these

balance sheets that the plans had acquired a beneficial interest in the unpaid

contributions under ordinary notions of property rights. 

Moreover, the term "accrued" as used in the balance sheets cannot reasonably

be interpreted synonymously with the ERISA definition of an "accrued benefit." In

the case of a defined-benefit plan such as the MPPP, an "accrued benefit" is created

by the plan itself. 29 U.S.C. § 1002(23)(A). Under the MPPP, participants were

eligible for available benefits if they completed 1000 hours of service and were

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employed on the last day of the plan year (i.e., December 31). Since the MPPP was

zero-funded beginning with the December 1998 plan year, no benefits were available

or accrued between 1998 and 2001. The label "accrued expenses" on the balance

sheets did not convert the unpaid contributions into "plan assets" under the Secretary's

approach. 

This conclusion is consistent with cases cited by the District Court holding that

unpaid contributions were "plan assets" where the language of the plan documents

agreed to by the parties described the amounts at issue as "accrued to" or "due and

owing." Laborers Combined Funds of W. Pa. v. Cioppa, 346 F. Supp. 2d 765, 771

(W.D. Pa. 2004); Galgay v. Gangloff, 677 F. Supp. 295, 301–02 (M.D. Pa. 1987); cf.

ITPE Pension Fund v. Hall, 334 F.3d 1011, 1013–16 (11th Cir. 2003). Here, no plan

document contains vesting language that obligated CPC to make payments to either

plan, see, e.g., Luna, 406 F.3d at 1199–1200; therefore, no beneficial interest was

created. Because the plaintiffs cannot establish that the amounts tracked in CPC's

balance sheets were "plan assets," their asset-mismanagement claim fails.

V.

The plaintiffs also argue that CPC is liable under 29 U.S.C. § 1132(a)(1)(B) for

failing to retroactively fund either the PSP or MPPP as allegedly promised. Since the

PSP was funded at CPC's discretion and the MPPP was validly zero-funded in

December 1998, the plaintiffs' claim requires a finding that one of the plans was

amended as a result of CPC's alleged promises to retroactively fund either or both of

the plans.

To the extent that the plaintiffs are claiming an amendment to either plan based

on CPC's oral representations, we reject these claims because ERISA generally

prohibits the oral amendment of plan terms. Palmisano v. Allina Health Sys., Inc.,

190 F.3d 881, 888 (8th Cir. 1999). To the extent that the plaintiffs are claiming an

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amendment based on CPC's balance sheets, we also reject these claims because CPC's

balance sheets did not purport to amend the plans. Cf. Borst v. Chevron Corp., 36

F.3d 1308, 1323 (5th Cir. 1994) (holding that CEO's written statements about plans

that did not purport to be formal plan amendments were not amendments under the

same reasoning that supports the prohibition against oral amendments), cert. denied,

514 U.S. 1066 (1995). Accordingly, we reject the plaintiffs' breach-of-plan claim.

VI.

The plaintiffs' final claims allege that CPC breached a fiduciary duty by

amending the MPPP to add the zero-funding provision. "In general, an employer's

decision to amend a pension plan concerns the composition or design of the plan itself

and does not implicate the employer's fiduciary duties . . . ." Hughes, 525 U.S. at 444;

see Varity, 516 U.S. at 505; Anderson, 66 F.3d at 960. The District Court granted the

defendants' motion to dismiss the plaintiffs' breach-of-fiduciary-duty claim and the

plaintiffs did not appeal this order. The plaintiffs agree that the amendment itself is

not actionable but attempt to restyle this claim as part of their misrepresentation

argument. We find no merit in the plaintiffs' argument. The District Court disposed

of this claim, and the plaintiffs did not appeal that decision. We therefore do not

further consider it.

The plaintiffs also claim that the zero-funding amendment deprived them of

accrued benefits, see 29 U.S.C. § 1054(g), and that CPC failed to comply with

ERISA's notice-of-amendment procedure, see id. § 1054(h). These claims are not

properly preserved for appeal because they were first raised in the plaintiffs' motion

for reconsideration, and the District Court correctly refused to consider them in its

denial of the motion for reconsideration. See Capitol Indem. Corp. v. Russellville

Steel Co., 367 F.3d 831, 834 (8th Cir. 2004). 

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VII.

For the foregoing reasons, we affirm the judgment of the District Court.

______________________________

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