Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-03-03655/USCOURTS-ca8-03-03655-0/pdf.json

Parties Involved:
Lenora Banaszewski
Appellant
Carol Harley
Appellant
Minnesota Mining and Manufacturing Company
Appellee
Michael Payton
Appellant
Richard Zoesch
Not Party

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 03-3654

___________

Carol Harley; Lenora Banaszewski; *

Michael Payton, individually, and on *

behalf of all others similarly situated, *

*

Plaintiffs - Appellants, *

* 

v. * 

* 

Richard Zoesch, *

*

Plaintiff, * Appeals from the United States

* District Court for the

v. * District of Minnesota.

*

Guilio Agostini; Michael J. Barrett; *

Larry E. Eaton; Harry A. Hammerly; *

Richard A. Lidstad; Dwight A. *

Peterson; John J. Ursu, *

*

Defendants - Appellees. *

__________

No. 03-3655

__________

Carol Harley; Lenora Banaszewski; *

Michael Payton, individually, and on *

behalf of all others similarly situated; *

*

Plaintiffs - Appellants, *

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The Honorable John R. Tunheim, District Judge for the United States District

Court for the District of Minnesota.

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*

Richard Zoesch, *

*

Plaintiff, *

*

v. *

*

Minnesota Mining and Manufacturing *

Company, *

*

Defendant - Appellee. *

___________

Submitted: June 16, 2004

Filed: June 28, 2005

___________

Before LOKEN, Chief Judge, JOHN R. GIBSON, and BYE, Circuit Judges.

___________

JOHN R. GIBSON, Circuit Judge.

Participants and beneficiaries (hereinafter "Participants") of a pension plan

appeal from the district court’s orders denying their motions to vacate its judgments

under Federal Rule of Civil Procedure 60(b). In earlier proceedings, Participants of

the Minnesota Mining and Manufacturing Company (“3M”) Employee Retirement

Income Plan brought two class actions against 3M and certain of its employees

alleging that 3M breached its fiduciary duties under ERISA, the Employee Retirement

Income Security Act. The district court1

 entered summary judgments for 3M and its

employees, and this Court affirmed in a consolidated appeal. Within one year of the

filing of this Court's opinion, the Participants moved for relief from judgment in both

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related cases under Rule 60(b), on the grounds that 3M obtained the summary

judgments through misrepresentations about the Plan’s funding. Participants

appealed the district court's denials of both motions, and the appeals were

consolidated. We affirm.

3M sponsors the 3M Employee Retirement Income Plan, a “defined benefit

plan” subject to the terms of ERISA. See 29 U.S.C. § 1002 (35). As a defined benefit

plan, the Plan is obligated to pay a fixed level of benefits to its participants upon

retirement. The Plan included thousands of participants and beneficiaries and

contained total assets in excess of $4 billion. 3M and its Pension Asset Committee,

which directs the investment of Plan assets, are both Plan fiduciaries. 

In 1990 the Committee invested $20 million of Plan assets in the Granite

Corporation, a hedge fund that invested primarily in collateralized mortgage

obligations--fixed income securities that are derived from and secured by pools of

private home mortgages. In March 1994, a significant rise in interest rates devastated

the value of Granite’s portfolio. At the same time, Granite was severely leveraged

and brokerage firms began demanding additional money to serve as margin. Granite

was forced to declare bankruptcy and was ultimately liquidated. The Plan lost its

entire investment in Granite. 

Participants filed suit against 3M in June 1996, alleging that 3M was liable to

the Plan under 29 U.S.C. § 1109 for breaching its fiduciary duties. They claimed that

3M failed to investigate Granite adequately before investing, failed to monitor the

Granite investment properly, and allowed the Plan to enter into a prohibited

performance-based compensation agreement with Granite’s investment advisor that

created a conflict of interest. 

 The district court granted 3M summary judgment on the prohibited transaction

claim because Participants presented no evidence that the compensation agreement

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was unreasonable. The district court denied summary judgment on the failure to

investigate and monitor claims, indicating that further discovery was needed to

determine whether Participants could establish an essential element of their claim--a

loss to the Plan. The district court relied on the Supreme Court’s decision in Hughes

Aircraft Co. v. Jacobson, 525 U.S. 432 (1999), to conclude that participants in

defined benefit pension plans have no entitlement to surplus funds. If the Plan had

a surplus, Participants would not be able to establish a loss to the Plan. After this

ruling, Participants filed the second action asserting the same claims against seven

members of the Committee. 

After further discovery on the surplus issue, 3M renewed its motion for

summary judgment. The parties proposed a number of possible methods for

measuring whether the Plan had a surplus. The district court determined that, since

“the 3M Plan is a robust, richly-funded, ongoing plan,” it was appropriate to measure

surplus according to the Retirement Protection Act of 1994 (“the Act"), rather than

under the termination method advocated by Participants. Order of March 29, 2000,

slip op. at 18. The Act requires plan sponsors to make contributions when a plan’s

“funded current liability percentage” is less than 90%. The funded current liability

percentage is calculated by dividing the value of the plan’s assets by the plan’s

current liability, using ERISA-mandated interest rates and mortality tables. Because

there was “no dispute that the Plan’s funding has exceeded the 90% threshold every

year since the Granite loss,” the court concluded that the Plan was fully funded and

therefore the Granite investment caused no loss to the Plan. Id. Participants could

not meet an essential element of liability–loss to the Plan–so the court granted 3M’s

motion for summary judgment. In a later order, the court dismissed the Participants’

second suit, holding that the claims against the Committee defendants are barred by

collateral estoppel. 

Participants appealed the summary judgments in both suits to this Court, and

we affirmed. Harley v. Minnesota Mining & Mfg. Co., 284 F.3d 901 (8th Cir. 2002).

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On the prohibited transaction claim, we agreed with the district court that Participants

presented no evidence that the compensation agreement was unreasonable. On the

failure to investigate and monitor claims, we affirmed the district court but disagreed

that the Plan suffered no cognizable harm. The Plan’s $20 million investment in

Granite became worthless after Granite declared bankruptcy in April 1994, and this

constitutes a loss to the Plan according to the plain meaning of section 1109(a). 

Instead, we affirmed the dismissal of these claims because Participants lacked

standing to bring an action under section 1132(a)(2). Hughes Aircraft made clear that

Participants have no claim or entitlement to a defined benefit plan’s surplus. In this

case, the Granite loss may have depleted plan assets, but if the remaining assets were

more than adequate to pay all accrued or accumulated benefits, any loss was to plan

surplus. Because Participants have no claim or entitlement to Plan surplus, “the

reality is that a relatively modest loss to Plan surplus is a loss only to 3M, the Plan’s

sponsor.” Harley, 284 F.3d at 906. Participants failed to meet their burden of

proving the absence of a substantial surplus under any relevant valuation method.

Thus, we held that the Granite loss was a loss only to plan surplus, not to Participants,

and Participants therefore had not suffered a cognizable harm. Allowing Participants

to nonetheless sue under section 1132(a)(2) to recover on behalf of the plan would

violate the constitutional standing requirement in Article III that a “plaintiff must

have suffered an ‘injury in fact.’” Id. (quoting Lujan v. Defenders of Wildlife, 504

U.S. 555, 560 (1992)). Moreover, granting Participants standing would also violate

prudential considerations, since we determined that ERISA’s primary purpose–the

protection of individual pension rights–would not be furthered by allowing

Participants to pursue these claims. Id. at 907.

 Participants allege that approximately two weeks before this Court issued its

March 26, 2002, opinion, 3M began to publicly disclose information that the Plan was

underfunded and had been underfunded since at least September 30, 2001. On March

11, 2002, 3M filed an SEC Form 10-K report. According to the Participants, the

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report indicated that as of September 30, 2001 (the date for measuring Plan funding

for SEC reporting purposes), utilizing optimistic assumptions, the Plan appeared to

be underfunded by $300 million. Participants sought rehearing and rehearing en banc

of the panel's opinion, and they included the allegation of underfunding in their

petition. This Court denied rehearing. 

Participants moved in the district court for relief from judgment in both related

cases pursuant to Fed. R. Civ. P. 60(b), arguing that the judgment and this Court's

decision had been predicated on 3M’s misrepresentations that the Plan was

overfunded. According to Participants, 3M misrepresented the level of Plan funding

while the appeal was pending before this Court and only admitted a lack of surplus

when Participants’ appellate rights were exhausted. The district court denied the

motions, and they have been consolidated for appeal. 

I.

Participants moved for relief from judgment under Rule 60(b) of the Federal

Rules of Civil Procedure. The rule allows district courts to vacate a judgment that

was secured through a party's misrepresentations, among other things, and for "any

other reason justifying relief." Fed. R. Civ. P. 60(b)(3), (6). Rule 60(b) “provides for

extraordinary relief which may be granted only upon an adequate showing of

exceptional circumstances.” Atkinson v. Prudential Property Co., Inc., 43 F.3d 367,

371 (8th Cir. 1994) (quoting United States v. Young, 806 F.2d 805, 806 (8th Cir.

1986) (per curiam)). The district court’s decision to deny a Rule 60(b) motion will

be reversed only for an abuse of discretion. MIF Realty L.P. v. Rochester Assocs.,

92 F.3d 752, 755 (8th Cir. 1996). Rule 60(b) is a motion grounded in equity and

exists "to prevent the judgment from becoming a vehicle of injustice." Id. (citation

omitted). "The rule attempts to strike a proper balance between the conflicting

principles that litigation must be brought to an end and that justice should be done."

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11 Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 2851, at 227

(2d ed. 1995). 

II.

Participants argue that 3M misrepresented the level of Plan funding several

times throughout the litigation. To prevail on a Rule 60(b)(3) motion, Participants

must show, "with clear and convincing evidence, that the opposing party engaged in

a fraud or misrepresentation that prevented the movant from fully and fairly

presenting its case." Atkinson, 43 F.3d at 372-73. 

Participants argue that 3M misrepresented Plan funding in its brief filed with

this Court on August 7, 2000. 3M asserted: “Today, and at all times since Granite’s

collapse, the Plan’s assets have exceeded its liabilities (that is, the present value of

the participants' accrued benefits). . . . [T]he Plan has surplus assets of over $2.2

billion.” 3M made similar assertions in its oral argument to this Court on March 12,

2001. Counsel argued, “The money is there. The plan is still in a surplus position.

. . . This is a grossly over-funded Plan. . . . The plan didn’t suffer a loss here because

all the money that’s necessary to pay the beneficiaries is still there.” The Participants

have not demonstrated that these were misrepresentations, as both were made before

September 2001, the date on which the Plan became underfunded according to 3M's

10-K report. Participants have produced no evidence that indicates 3M had any

knowledge of this alleged underfunding before September 2001. 

After September 2001, 3M was called upon to address the underfunding

problem in its response to Participants’ petition for rehearing and rehearing en banc.

On March 11, 2002, two weeks before this Court issued its opinion in the underlying

case, 3M filed its 10-K report with the SEC. Participants noted the report in a

footnote in their petition for rehearing. 3M likewise responded in a footnote by

criticizing the Participants for citing to "a recent SEC filing by 3M" as an

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 Participants also claim that certain statements 3M made about Plan surplus

in response to Participants' petition for rehearing were misrepresentations. We

believe it is clear from the context of the statements that 3M was referring to Plan

funding as it was litigated in the district court. In addition, any statements 3M made

about Plan funding to the press or its investors in 2002 and 2003 are not relevant for

the purposes of this appeal.

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inappropriate attempt to go outside the summary judgment record. 3M also called the

information irrelevant because different valuation methods were used for the SEC

filing and for ERISA purposes. We see no reason why these statements should be

considered misrepresentations.2

 Participants have not presented the kind of clear and

convincing evidence of misrepresentation necessary to prevail on a Rule 60(b)(3)

motion. 

III.

The Participants also argue that they are entitled to relief under Rule 60(b)(6).

Relief is available under Rule 60(b)(6) only where exceptional circumstances have

denied the moving party a full and fair opportunity to litigate his claim and have

prevented the moving party from receiving adequate redress. Atkinson, 43 F.3d at

373. 

Participants argue that the Plan is now so underfunded that justice will not be

served unless we revisit the standing analysis in our first opinion. We held that

Participants suffered no injury in fact because the challenged investment caused a loss

in Plan surplus only. Without injury, they lacked standing to bring an action. We

further held that, in order to demonstrate standing, the Participants had an affirmative

burden to prove that the Plan did not have an adequate surplus. Participants claim

that 3M’s 2002 10-K report shows at least a $300 million deficit since September

2001, and 3M's 2003 IRS filing shows a $1.5 billion deficit since January 2002. They

argue that our first decision was fact-specific. If we had known the Plan was not in

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fact a “robust, richly funded, ongoing plan,” we would not have denied Participants

standing to recover for 3M's alleged fiduciary breaches.

The district court did not abuse its discretion in denying Participants’ Rule

60(b) motion. The district court denied Participants’ motion because Participants'

claims do not alter the standing analysis as stated in this Court’s first decision. The

funding levels in the SEC and IRS filings resulted from different valuation methods,

and Participants advance no convincing arguments as to why these valuation

measures are relevant. More importantly, “[b]ecause standing is determined as of the

lawsuit’s commencement, we consider the facts as they existed at that time.” Steger

v. Franco, Inc., 228 F.3d 889, 892 (8th Cir. 2000). Participants filed their amended

complaint in this case on November 27, 1996. The district court determined that the

Plan's funding status had a surplus under the appropriate level during every year from

1994 to 2000. We recognize that, if market conditions had been different when

Participants brought suit, or if a different valuation method had been used, they might

have met their burden of proof for standing. However, the first indication that this

may no longer be a well-funded Plan was not until nearly five years after Participants

filed suit, when 3M’s 10-K raised the specter that the Plan had been underfunded

since September 2001. The policy in favor of finality weighs too heavily here to

grant Participants' Rule 60(b) motion. 

This case does not present the exceptional circumstances which make the

extraordinary relief of Rule 60(b) appropriate. We affirm the judgment of the district

court.

BYE, Circuit Judge, concurring.

The district court correctly concluded standing depends on the facts as they

exist when a lawsuit is commenced. This Court concluded in the first appeal the plan

participants lack standing because there was no loss to the plan when this action was

filed in June 1996. See Harley v. Minn. Mining & Mfg. Co., 284 F.3d 901, 904, 906-

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08 (8th Cir. 2002) (Harley I). Thus, I agree the district court did not abuse its

discretion in denying the plan participants' motion for relief under Federal Rule of

Civil Procedure 60(b). Although I am bound by the Court's conclusion the plan

participants lacked standing when this lawsuit was commenced, I write separately to

express again my disagreement with the standing analysis in the first appeal. See id.

at 909-10 (Bye, J., concurring in part and dissenting in part).

Under the approach adopted in Harley I, a plan participant's standing to bring

suit under 29 U.S.C. § 1132(a)(2) on behalf of a defined benefit plan may depend on

nothing more than how the stock market is performing. When the market is doing

well – as it was in the late 1990s – a defined benefit plan is more likely to have a

surplus, and thus a plan participant will lack standing to bring a lawsuit on behalf of

the plan. When the market is performing poorly, plan participants are more likely to

have standing to recoup a loss to a defined benefit plan because the plan is more

likely to be underfunded.

 I do not see the sense in tying a plan participant's standing under § 1132(a)

to the stock market's performance. A defined plan's ability to recover losses caused

by a fiduciary's breach should not depend upon the vagaries of the stock market.

Under Harley I, plan fiduciaries are partially insulated from liability during times

when the market is good. But in the long run – as this case demonstrates – the loss

will still affect plan participants when the market is down. Thus, I still believe a suit

by plan participants under § 1132(a)(2) should be recognized for what it is – an action

by the plan itself, but brought by plan participants "in a representative capacity to

remedy an injury to the Plan itself." Harley I, 284 F.3d at 910 (Bye, J., dissenting).

The question of standing for bringing such a suit should be tied to whether the plan

had a loss, period, not whether the plan participants arguably suffered a loss at any

particular snapshot in time, based on fluctuations in the stock market.

______________________________

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