Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-02746/USCOURTS-caed-2_06-cv-02746-4/pdf.json

Nature of Suit Code: 150
Nature of Suit: Overpayments &amp; Enforcement of Judgments
Cause of Action: 29:1132 E.R.I.S.A.-Employee Benefits

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

A.C. STEELMAN, FRAN

MCDERMOTT, TRUSTEES OF

THE SACRAMENTO AREA

ELECTRICAL WORKERS’ PENSION

TRUST FUND, as successor to

and as TRUSTEES on behalf

of SACRAMENTO VALLEY

ELECTRICAL WORKERS’ PENSION

TRUST,

Plaintiff,

NO. CIV. S-06-2746 LKK/GGH

v.

PRUDENTIAL INSURANCE

COMPANY OF AMERICA,

PRUDENTIAL FINANCIAL, INC., O R D E R

Defendants.

 /

Plaintiffs allege that they are the trustees of the Sacramento

Valley Electrical Workers Pension Trust (“Valley Trust”) and the

trustees of the Sacramento Area Electrical Workers Pension Trust

(“Area Trust”). Plaintiffs have brought claims under the Employee

Retirement Income Security Act (ERISA) and state law against

defendants Prudential Financial, Inc. and the Prudential Insurance

Company of America (collectively, “Prudential”), who have allegedly

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1

 The background to this action has been set forth in the

court’s April 4, 2007 order (“April Order”) and the July 6, 2007

order (“July Order”). The court incorporates relevant portions

here.

2

 Plaintiffs have alleged that the Valley Trust is a TaftHartley trust fund. Under the Labor Management Relations Acts

(“LMRA”), the boards of such funds must have equal employeremployee representation. 29 U.S.C. § 186. 

3 This fact was pled in plaintiffs’ previous complaint.

Although it has not been pled in plaintiffs’ current complaint,

plaintiffs do not dispute the accuracy of the statement. Cf. Sicor

Ltd v. Cetus Corp., 51 F.3d 848, 859-60 (9th Cir.) (party who

believes prior factual allegation was erroneous may attempt to

explain the error in which case the trial court may accord the

2

withheld proceeds owed to plaintiffs. The court previously granted

two motions to dismiss with leave to amend. Pending before the

court is defendants’ motion to dismiss plaintiffs’ third amended

complaint. For the reasons explained below, the motion is granted

in part and denied in part, without leave to amend.

I. Background1

A. Valley Trust

The Valley Trust was created in 1967 by a local union and one

of its employers, the Sacramento Valley Chapter of the National

Electrical Contractors Association (“NECA”). Third Am. Compl.

(“TAC”) ¶ 4. The trust maintained a defined benefit pension plan

until the plan terminated in 1982. TAC ¶ 4. Plaintiffs allege

that they constitute the “duly appointed” board of trustees for the

Valley Trust. TAC ¶ 2. The Valley Trust Agreement provides that

NECA had to approve of five of the ten requisite trustees.2 Valley

Trust Agreement, § 3.1. NECA, however, allegedly “ceased to exist

on or before 1992.”3 Second Am. Compl. (“SAC”) ¶ 2. 

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26 explanation due weight). 

3

B. Group Annuity Contracts 

At issue in this case are two annuity contracts issued by

Prudential. In 1982, the Valley Trustees voted to terminate the

existing defined benefit pension plan and used the trust’s

accumulated assets of approximately $12 million dollars to purchase

group annuity contracts from Prudential. TAC ¶ 8. When the Valley

Trustees purchased the annuity contracts, they named themselves,

“Board of Trustees of Sacramento Valley Electrical Workers’ Pension

Plan,” as the contract holders. TAC ¶ 9; GA-8811, GA-8812, Verpent

Decl. to Defs.’ First Mot. to Dismiss, Exs. 1, 2. The purpose of

the contracts was to provide accrued pensions to the participants

of the terminated pension plan.

C. Prudential’s Demutualization

In 2000, Prudential adopted a plan to demutualize, that is,

to reorganize from a mutual life insurance company to a stock life

insurance company. The demutualization plan was approved by the

New Jersey Insurance Commissioner. As a result of the

demutualization, the entire value of Prudential was allocated among

Prudential’s eligible policyholders in accordance with terms set

out in the demutualization plan. The demutualization plan provided

that the entire value of Prudential would be allocated to owners

of eligible policies in the form of cash, policy credits, or common

stock in a newly created holding company. See Demutualization

Plan, Defs.’ Request for Judicial Notice, Ex. 1 to Defs.’ First

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4

 The Area Trust was created in 1981 by the local union and

the Sacramento Electrical Contractors Association (“SECA”) to

provide pension benefits for union members through a new plan. TAC

¶ 5. 

4

Motion to Dismiss.

The demutualization plan defined "the Owner of . . . a group

annuity contract . . . [as] the Person or Persons specified as the

policyholder or contract holder in the master policy or contract,

as reflected in the applicable Records" of Prudential as of

December 15, 2000. See Demutualization Plan, § 5.3. Plaintiffs

admit that in 2000, the Valley Board had a number of vacancies and

was at that time “inoperative.” Pls.’ Opp’n at 18. Nevertheless,

they maintain that the board as a legal entity never ceased to

exist. The demutualization plan provided that should a contract

holder not be located, the demutualization proceeds would be paid

in cash and escheated to the state where the contract was issued.

See Demutualization Plan, § 8.1(f).

D. Claims Asserted

In the current complaint, plaintiffs allege four causes of

action. The first and second causes of action are predicated upon

ERISA section 502(a)(2) and 502(a)(3), respectively. The third

cause of action is pled in the alternative. Plaintiffs aver that

“[s]hould the Valley Trust been found to be defunct prior to 2001

then the Area Trust was and is its successor, recognized as such

by Prudential through its communications with Area Trust employees,

and as such is entitled to demutualization consideration.”4 TAC

¶ 37. The fourth cause of action is a breach of contract claim

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5 The holding in Twombly explicitly abrogates the well

established holding in Conley v. Gibson that, "a complaint should

not be dismissed for failure to state a claim unless it appears

beyond doubt that the plaintiff can prove no set of facts in

support of his claim which would entitle him to relief." 355 U.S.

41, 45-46 (1957); Twombly, 127 S. Ct. at 1968.

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under state law.

II. Standard

In order to survive a motion to dismiss for failure to state

a claim, plaintiffs must allege "enough facts to state a claim to

relief that is plausible on its face." Bell Atlantic Corp. v.

Twombly, 127 S. Ct. 1955, 1974 (2007). While a complaint need not

plead "detailed factual allegations," the factual allegations it

does include "must be enough to raise a right to relief above the

speculative level." Id. at 1964-65. 

As the Supreme Court observed, Federal Rule of Civil Procedure

8(a)(2) requires a "showing" that the plaintiff is entitled to

relief, “rather than a blanket assertion” of entitlement to relief.

Id. at 1965 n.3. Though such assertions may provide a defendant

with the requisite "fair notice" of the nature of a plaintiff's

claim, only factual allegations can clarify the "grounds" on which

that claim rests. Id. "The pleading must contain something more.

. . than . . . a statement of facts that merely creates a suspicion

[of] a legally cognizable right of action." Id. at 1965, quoting

5 C. Wright & A. Miller, Federal Practice and Procedure, § 1216,

pp. 235-36 (3d ed. 2004).5

On a motion to dismiss, the allegations of the complaint must

be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322 (1972).

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6

The court is bound to give the plaintiff the benefit of every

reasonable inference to be drawn from the "well-pleaded"

allegations of the complaint. See Retail Clerks Intern. Ass'n,

Local 1625, AFL-CIO v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963).

In general, the complaint is construed favorably to the pleader.

See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other

grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982). That said,

the court does not accept as true unreasonable inferences or

conclusory legal allegations cast in the form of factual

allegations. W. Mining Council v. Watt, 643 F.2d 618, 624 (9th

Cir. 1981).

III. Analysis

A. Section 502(a)(3) Claim

Section 502(a)(3) of ERISA allows a plan participant,

beneficiary, or fiduciary to seek “appropriate equitable relief”

to redress violations of ERISA. 29 U.S.C. § 1132(a)(3). Claims

under this section, unlike claims under section 502(a)(2), may be

brought against non-fiduciaries, but only injunctive and other

appropriate equitable relief are permitted.

1. Standing as Plan Fiduciaries

Plaintiffs allege that they are plan fiduciaries because they

are “the Board of Trustees of the [Valley Board] duly appointed as

such under the terms of the [Valley] Trust Agreement.” TAC ¶ 2.

Defendants respond that plaintiffs could not have been appointed

to the Valley Board, because the Valley Trust Agreement provides

that NECA had to approve of five of the ten requisite trustees, but

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6 Defendants vigorously dispute this assertion and rely upon

a letter from the California Controller’s Office that rejected the

same. The letter, however, references numerous factual issues that

can only be addressed on a motion for summary judgment, not a

motion to dismiss. Similarly, while plaintiffs have requested that

the court take judicial notice of the facts in Arden Electric, et

al. v. Local 340, Int’l Brotherhood of Electrical Workers, N.L.R.B.

654, 656 (1985), which purportedly establish that SECA was the

successor to NECA, this is a factual issue that should be addressed

on summary judgment.

7 To the extent that defendants have evidence that SECA was

not, in fact, the successor organization to NECA, they should

present this evidence in a motion for summary judgment.

7

NECA allegedly “ceased to exist on or before 1992.” SAC ¶ 2.

Plaintiffs now argue that SECA is the successor employer

association to NECA,6 because SECA was allegedly awarded the NECA

Sacramento Chapter charter on December 1, 1992. Because plaintiffs

are entitled to the benefit of reasonable inference from the

allegation that they were “duly appointed” as the Valley Trustees,

the court finds that plaintiffs have pled a plausible basis for

relief.7

Previously, in the first amended complaint, plaintiffs alleged

that the Area trustees appointed themselves as successor trustees

of the Valley Trust on November 15, 2006 under a “Certification of

Successor.” The court ruled that plaintiffs were not entitled to

demutualization consideration based upon this successor theory, as

pled. Defendants complain that the plaintiffs have now pled a

contradictory allegation that the powers of the trust always

remained with the Valley Trust -- a complaint that is not without

foundation. Nevertheless, it is at least conceivable that

plaintiffs might be able to prove that they were, in the

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8

 Plaintiffs could potentially be “barred from bringing suit”

in two different ways: as trustees who (presumably) voted to bring

this action as the Valley Trust or as participants/beneficiaries

of the pension plan. Defendants argue that, with regard to the

latter possibility, plaintiffs have no direct right to

demutualization consideration because the demutualization plan only

gives such rights to the contract holder -- not the ultimate

beneficiaries. Because the court concludes the trust agreement

does not bar plaintiffs’ ability to bring suit as trustees, it

declines to address at this point whether plaintiffs independently

have standing as participants.

8

alternative, properly appointed trustees of the Valley Trust.

Defendants also argue that plaintiffs are barred from bringing

suit because the Valley Trust Agreement provides that “[n]o member

of the Board of Trustees may participate in any decision which

involves his interest as a Covered Employee of the Pension Plan.”8

Valley Trust Agreement, § 3.7. Read in context, however, this

provision appears to limit the ability of board members to

participate in decisions that implicate their own, individual

interests (such as a particular board member and participant’s

claim for disability retirement), rather than decisions that

implicate the trust as a whole. The preceding sentence of the

Valley Trust Agreement states that “the Board of Trustees shall not

discriminate in favor of Covered Employees who are members of the

Board of Trustees.” Valley Trust Agreement, § 3.7. Furthermore,

if board members were barred from decisions affecting their general

interests as participants, they would be barred from participating

in all decisions involving plan assets. Defendants’ interpretation

would therefore lead to an absurd result.

////

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2. Demutualization Consideration

Defendants also renew their argument that plaintiffs are not

entitled to demutualization consideration because the

demutualization plan exclusively controls who is entitled to those

proceeds. The court addressed this issue in its previous order and

concluded that plaintiffs may have an ownership interest in

demutualization consideration as a plan asset, relying on Ruocco

v. Bateman, 903 F.2d 1232, 1235 (9th Cir. 1990), and Bank of New

York v. Janowick, 470 F.3d 264, 269 (6th Cir. 2006). July Order

at 17-19.

Defendants now argue that those cases dealt with the question

of who is entitled to demutualization consideration after it has

already been distributed and in accordance with the terms of the

demutualization plan -- not whether one may obtain demutualization

consideration in a manner contrary to the plan or from the insurer

itself. Here, however, it is not clear that plaintiffs are

requesting relief in a manner contrary to the plan. Rather,

plaintiffs allege that they are, in fact, the Valley Board, and

that the Valley Board is entitled to the demutualization

consideration as the named owner of the group annuity contracts.

Moreover, the pre-distribution versus post-distribution distinction

drawn by defendants is immaterial to the question of whether

plaintiffs may be entitled to the demutualization consideration.

See N. Cal. Retail Clerks Unions & Food Employers Joint Pension

Trust Func v. Jumbo Markets, Inc., 906 F.2d 1371, 1372 (9th Cir.

1990) (contributing employer is a fiduciary with respect to

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9

 In fairness, the issue presented by this case is likely very

different than that presented by a situation in which only one or

10

contributions due but not yet paid).

Defendants also argue that even if there was a right to

demutualization consideration, that interest flowed only to the

Valley Trust or Board, neither of whom could have continued to

exist when Prudential demutualized, because there was an

insufficient number of trustees to constitute a quorum. It appears

undisputed that when Prudential demutualized, most of the trustees

had either died or resigned. Pls.’ Opp’n at 18 (“Plaintiffs . .

. admit that in June 2000 the Board of Trustees of the Valley Trust

had a number of vacancies and was at that time inoperative.”).

Nevertheless, plaintiffs maintain that while the Valley Board may

have been inoperative, the board as a legal entity continued to

exist.

In Aslanian, the court held that “resignation of the employer

trustees would have resulted in the inability of the funds to

continue operation.” Aslanian v. Weltz, 1997 U.S. Dist. LEXIS

15351 (S.D.N.Y. Jun. 21, 1977). Defendants rely on this language

to argue that the Valley Board was defunct at the time of

demutualization. Nevertheless, this language merely states the

obvious: that a trust cannot “continue operation” -- that is, take

action -- without its requisite quorum. It does not stand for the

stronger proposition that a board ceases to exist every time a

board member resigns and the board of trustees dips below its

quorum requirements.9 

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two trustees resign and successor trustees are appointed. In the

previous motions to dismiss, the parties disputed the effect of a

1983 letter sent from the Valley Trust to defendants, which

reportedly stated that the “contract holder as referred to in the

[two annuity contracts] no longer exists, and there will be no

successor appointed.” Verpent Decl., Ex. 4. Nevertheless, as this

court has previously ruled, this letter is not properly before the

court on a motion to dismiss. July Order at 21. If defendants

move for summary judgment, the court may then consider it.

11

The powers of the Valley Board are not dependent upon any

particular set of trustees. See, e.g., Moeller v. Superior Court,

16 Cal. 1124, 1131 (1997) (“The powers of a trustee are not

personal to any particular trustee but, rather, are inherent in the

office of trustee.”); Corbin v. Blankenburg, 39 F.3d 650 (6th Cir.

1994) (“Nothing in . . . ERISA suggests that a civil action brought

by an ERISA trustee is personal to the particular individual who

held the office when the suit was filed.”). Accordingly, it is

possible that Valley Board owned the annuity contracts, and was

still in existence, at the time of demutualization.

Defendants also argue that even if the Valley Board was in

existence in 2000, Prudential was prohibited from distributing the

demutualization consideration to the board because the composition

of the board at that time failed to satisfy the LMRA’s equal

employer-employee representation requirement. The argument is

unavailing. The LMRA strictly regulates the payment of money by

employers to employees and labor unions (for fear of corruption and

bribery) subject to certain exceptions, one of which pertains to

employee benefit trust funds with equal representation boards. 29

U.S.C. § 186(c)(5)(B). Nevertheless, it appears that the pertinent

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10 Specifically, the restriction in section a applies to “any

employer or association of employers or any person who acts as a

labor relations expert, adviser, or consultant to an employer or

who acts in the interest of an employer to pay, lend, or deliver,

or agree to pay, lend, or deliver, any money or other thing of

value.” 29 U.S.C. § 186(a).

It is possible that defendants would have incurred liability

under section d, 29 U.S.C. § 186(d) (“Penalties for violations”),

which is worded somewhat more broadly than section a. That

provision states that “[a]ny person who participates in a

transaction involving a payment . . . to a joint labor-management

trust fund . . . and willfully and with intent to benefit . . .

persons he knows are not permitted to received a payment . . .

shall . . . be guilty of a felony.” Even if true, however, this

defense would turn on questions of fact (e.g., whether defendants

knew at the time that there was no equal representation on the

board) inappropriate for resolution in the present posture.

Moreover, it is not clear the LMRA provision has any application

to the instant issue.

12

LMRA restriction applies primarily to employers.10 Because

defendants were not acting as plaintiffs’ employers, they were not

bound by this restriction.

3. Equitable Relief

Section 502(a)(3) of ERISA only authorizes equitable rather

than legal relief. Here, defendants argue that the relief

requested is legal, given that plaintiffs seek the value of 71,000

shares of Prudential stock plus interest. Nevertheless, at least

some forms of relief requested in the complaint, such as accounting

for profits, are equitable. See Parke v. First Reliance Standard

Life Ins. Co., 368 F.3d 999 (8th Cir. 2004) (permitting award of

interest on wrongfully delayed benefits as equitable relief under

ERISA). Similarly, to the extent that the demutualization

consideration at issue has not been escheated to the State of

California, a constructive trust may also be available to

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plaintiffs. See Sereboff v. Mid Atlantic Med. Servs. Inc., -- U.S.

--, 126 S. Ct. 1869 (2006) (upholding use of constructive trust as

“appropriate equitable relief” under ERISA).

B. Section 502(a)(2) Claim

Section 502(a)(2) of ERISA allows a plan participant,

beneficiary, or fiduciary to bring an action against plan

fiduciaries for appropriate relief. 29 U.S.C. § 1132(a)(2). A

fiduciary “shall be personally liable to make good to such plan any

losses to the plan resulting from each such [fiduciary] breach.”

29 U.S.C. § 1109.

Here, defendants argue that plaintiffs have not adequately

pled that Prudential was acting as an ERISA fiduciary in connection

with its distribution of demutualization consideration. See Pegram

v. Herdrich, 530 U.S. 211, 226 (2000) (the “threshold question” for

a claim of breach of an ERISA fiduciary duty is “whether that

person was acting as a fiduciary . . . when taking the action

subject to complaint.”). Specifically, defendants argue that

compliance with the terms of the demutualization plan and agreement

with New Jersey regulators precludes the possibility of a breach

of an ERISA fiduciary duty, because to hold otherwise would force

defendants to choose between compliance with New Jersey law and

ERISA. As discussed above, however, plaintiffs allege that they

are the Valley Board of Trustees, who were the named owners of the

contracts, and that even under the terms of the demutualization

plan, they were entitled to demutualization consideration.

Accordingly, any supposed conflict between the demutualization plan

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and ERISA is, at this point, merely speculative.

C. Breach of Contract

Plaintiffs’ third amended complain also includes a breach of

contract claim under state law. As discussed in the court’s

previous order, this claim is preempted by ERISA. July Order at

25-27; see also Cleghorn v. Blue Shield of Cal., 408 F.3d 1222,

1225-56 (9th Cir. 2005) (“A state cause of action that would fall

within the scope of [ERISA section 502(a)’s] scheme of remedies is

preempted as conflicting with the intended exclusivity of the ERISA

remedial scheme.”). Accordingly, this claim is dismissed without

leave to amend.

D. Unclaimed Property Law

Defendants argue that the California Unclaimed Property Law

(“UPL”) bars plaintiffs’ claims, because approximately $2 million

dollars have already been escheated to the State of California, and

state law relieves the former property holder of all liability for

the amount escheated. Insofar as plaintiffs claim an alleged

interest in proceeds above that which was already escheated, and

which are still in defendants’ possession, obviously no immunity

would be conferred by the UPL. With regard to the proceeds already

escheated, the court has previously ruled on this issue. To the

extent the UPL “interferes with the relationship between plaintiffs

and defendant,” July Order at 28 -- which is to say, to the extent

that the Valley Board was entitled to demutualization proceeds

under the demutualization plan but such proceeds were escheated --

the immunity conferred by the UPL would not bar plaintiffs’ claim

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under ERISA section 502(a)(2) because of preemption.

IV. Conclusion

For the reasons explained above, the motion to dismiss is

granted in part and denied in part, without leave to amend.

IT IS SO ORDERED.

DATED: November 16, 2007.

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