Opinion ID: 17522
Heading Depth: 2
Heading Rank: 2

Heading: ERISA Violations and Breach of Fiduciary Duty

Text: Matassarin next contends that the Great Empire ESOP fiduciaries failed to satisfy ERISA requirements and violated their fiduciary duty to her and to the Plan generally. She relies upon ERISA §§ 502(a)(2) and (a)(3).
Section 502(a)(2) provides a cause of action for injuries caused by violations of ERISA § 509. Section 509 focuses on fiduciary breaches that cause harm to a plan as a whole: Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. -28- 29 U.S.C. § 1109(a). The Supreme Court, noting ERISA’s primary concern with the possible misuse or poor management of plan assets, has stated that the “loss to the plan” language in § 1109 limits claims to those that inure to the benefit of the plan as a whole and not to the benefit only of individual plan beneficiaries. See McDonald, 60 F.3d at 237 (citing Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 140-42 & nn. 8-9, 105 S. Ct. 3085, 3089-90 & nn. 8-9 (1985)). Based upon this statutory purpose, we find that the district court properly granted summary judgment on Matassarin’s § 502(a)(2) claim. Most of the ERISA breaches that Matassarin alleges concern only her individual account or, at most, those of the sixty-seven Plan participants who were offered lump-sum distributions. The exception to this is Matassarin’s claim that the defendants failed to conform the Great Empire ESOP to 26 U.S.C. § 409(h) and 26 U.S.C. § 4975(e)(7) and thereby jeopardized the Plan’s taxexempt status. It appears that the original Plan document did fail to allow segregated-account holders to purchase company stock. The amended Plan document remedied that error in order to bring the Plan into compliance with the tax code provisions. The defendants have admitted to omitting mistakenly from the May 1995 follow-up correspondence the fact that participants could select Great Empire securities as the form of distribution. But this omission seems to have been a simple oversight. Nothing in the -29- record or pleadings indicates that participants who were entitled to distribution were in fact denied the right to demand employer securities, such as would disqualify the Plan under those tax code provisions. Matassarin has failed to allege any way in which the defendants’ actions caused a loss to the Plan as a whole as envisioned in § 502(a)(2). We therefore affirm the district court’s grant of summary judgment on Matassarin’s § 502(a)(2) claim.
Summary judgment on Matassarin’s § 502(a)(3) claim was appropriate only if Matassarin provided no evidence of any ERISA violation. Under § 502(a)(3), a plan participant may bring an action (A) to enjoin any act or practice which violates any provision of [ERISA’s protection of employee benefit rights] or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of [ERISA’s protection of employee benefit rights] or the terms of the plan. 29 U.S.C. § 1132(a)(3). A plan beneficiary may bring a § 502(a)(3) action against an ERISA fiduciary based on loss to the individual beneficiary as well as based on loss to the plan as a whole. See Varity Corp. v. Howe, 516 U.S. 489, 496, 116 S. -30- Ct. 1065, 1075-76 (1996) (contrasting § 1132(a)(2) with § 1132(a)(3), which does not require loss to the plan as a whole). Matassarin alleges four types of ERISA violations: (1) fiduciary self-dealing, (2) failure to invest prudently, (3) interference with her exercise of protected rights, and (4) failure to provide information.
The Great Empire ESOP in early 1995 reabsorbed suspended shares in § 14(h) accounts, paying each account holder the value of his shares as of the December 31 preceding his separation from the Plan. According to Matassarin, the Plan effectively repurchased shares for less than the fair market value on the date of repurchase. Those who benefitted most from this repurchase, she continues, were (1) the Plan fiduciaries, who held the largest share accounts in the Plan; and (2) Lynch and Oatman, whose company, Great Empire, was able to avoid paying fair market value for the shares. Matassarin argues that these actions violated ERISA § 406(b), which prohibits fiduciary selfdealing.17 17. A fiduciary with respect to a plan shall not--
interest or for his own account, (2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or (3) receive any consideration for his own personal account from any party dealing with such plan in connection -31- We need not consider the claim in depth. Under § 502(a)(3), a beneficiary may bring an action to enjoin an ERISA violation or for equitable relief. In this case, Matassarin has nothing to enjoin and no equitable relief available to her on behalf of the Plan as a whole. The “repurchase” took place in 1995. The Plan as a whole did not suffer, and Matassarin’s individual segregated account was unaffected. Even if Matassarin’s § 406(b) allegations are meritorious, the only beneficiaries possibly entitled to relief would be the Plan participants who were allegedly offered less than fair value for the interests in their § 14(h) accounts.18 As we have stated, the district court did not abuse its discretion in finding Matassarin an inappropriate representative for a class that would include those Plan participants. Whereas Matassarin individually has no § 502(a)(3) relief available to her for § 406(b) violations, the district court properly denied her claim for breach of fiduciary duty.19 with a transaction involving the assets of the plan. 29 U.S.C. § 1106(b). 18. We make no finding here as to whether any separated Plan participant with a § 14(h) account would have a claim against the Plan fiduciaries. 19. We have not considered whether the duties set forth in § 406(b) necessarily apply in this ESOP situation. ERISA § 408(e) generally exempts ESOP fiduciaries from § 406 requirements when the questioned transaction involves the acquisition or sale of “qualifying employer securities,” which include stock. 29 U.S.C. § 1108(e); see 29 U.S.C. § 1107(d)(5)(A). Section 408(e) has been interpreted to allow “[a]n ESOP [to] acquire employer securities in circumstances that would otherwise violate Section 406 if the purchase is made for ‘adequate consideration.’” Donovan v. -32-
Matassarin next argues that the defendants’ allowing her segregated account to accrue only minimal interest violates the prudent-person investment standard’s diversification requirement under ERISA § 404. ERISA § 404 requires a plan fiduciary to “discharge his duty with respect to a Plan solely in the interest of the participants and beneficiaries and . . . by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.” 29 U.S.C. § 1104(a)(1)(C); see Metzler v. Graham, 112 F.3d 207, 209 (5th Cir. 1997) (addressing the diversification requirement). The defendants’ failure to diversify Matassarin’s account did not in any way expose it to the risk of large losses and therefore did not breach an explicit § 404 diversification duty. We are mindful, however, that implicit within § 404(a) is the desirability of increasing a plan’s value--preferably ensuring more than passbook interest--through sound investment.20 Cunningham, 716 F.2d 1455, 1465 (5th Cir. 1983). The more likely challenge involving this exemption would question whether an ESOP paid too much for employer securities. We know of none in which a claimant alleged that an ESOP cheated its former participants by paying too little for employer securities. Whereas Matassarin would not be entitled to relief even if § 406(b) does apply, we need not decide the issue here. 20. Section 404(a)(1)(B), for example, requires an ERISA fiduciary to discharge his duties as would “a prudent man acting in like capacity and familiar with such matters,” which would contemplate increasing the plan’s value. 29 U.S.C. § 1104(a)(1)(B). -33- Nonetheless, Matassarin’s QDRO, the terms of which the defendants were bound to apply, requires just passbook interest, rendering it clearly prudent under §404(a)(1)(C) for Great Empire not to diversify in this case. We recognize the aberrancy and difficulty of Matassarin’s situation. In enacting ERISA, Congress sought to ensure that workers who have been promised certain retirement benefits actually receive those benefits. See Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 720, 104 S. Ct. 2709, 2713 (1984). Although the primary purpose of an ESOP differs from that of a pension plan, ESOPs remain subject to ERISA’s general protective restrictions and requirements. See Cunningham, 716 F.2d at 1463-68. From Matassarin’s point of view, the QDRO structure has hurt her retirement prospects. While married to Jenkins, Matassarin no doubt looked forward to enjoying with him ERISA sound-investment requirements do not generally apply to an ESOP, which is “designed to invest primarily in securities issued by its sponsoring company.” Cunningham, 716 F.2d at 1458; see 29 U.S.C. § 1104(a)(2) (exempting ESOPs from diversification requirements); 29 U.S.C. § 1107(b), (d) (same); see also Moench v. Robertson, 62 F.3d 553, 568 (3d Cir. 1995) (“ESOPs, unlike pension plans, are not intended to guarantee retirement benefits, and indeed, by its very nature, ‘an ESOP places employee retirement assets at much greater risk than does the typical diversified ERISA plan.’” (quoting Martin v. Feilen, 965 F.2d 660, 664 (8th Cir. 1992)). If Matassarin were an ordinary ESOP participant, the nature of the Plan would probably exempt her account from standard ERISA diversification requirements. But Matassarin is of course not an ordinary ESOP participant, insofar as her account, per the terms of her QDRO, no longer depends upon employer securities. As such, any ESOP exception seems inapplicable. -34- the retirement benefits of his Great Empire ESOP shares. Presumably, she and Jenkins expected that the shares’ value would increase in the years before Jenkins became eligible for retirement. Because the QDRO requires valuation of Matassarin’s shares as of the date of her divorce, she lost the prospect of significant increase in the shares’ value to fund her retirement. In short, Matassarin’s QDRO removed her savings from the ambit of a more traditional ERISA-qualified ESOP or pension plan, which would focus on increasing savings. This case raises the question, then, of how a plan administrator is to treat a beneficiary whose QDRO appears out of line from the greater goals of ERISA. We believe that both ERISA and case law require a plan administrator to follow the dictates of the QDRO. Once a plan administrator determines that a domestic relations order meets the criteria set forth in 29 U.S.C. § 1056(d)(3) and thus is “qualified,” he is required to act in accordance with the QDRO. See, e.g., In re Gendreau, 122 F.3d 815, 817-18 (9th Cir. 1997); Metropolitan Life Insurance Co. v. Wheaton, 42 F.3d 1080, 1085 (7th Cir. 1994). “ERISA does not require, or even permit, a pension fund to look beneath the surface of the order. Compliance with a QDRO is obligatory. . . . This directive would be empty if pension plans could add to the statutory list of requirements for ‘qualified’ status.” Blue v. UAL Corp., 160 F.3d 383, 385 (7th Cir. 1998). Through its QDRO -35- amendments, federal ERISA law defers to domestic relations orders approved in state court proceedings. We do not find the deference to be affected by whether the QDRO may slow the growth of the subject retirement savings. Matassarin makes several arguments as to why her QDRO should not be enforced. She contends, for example, that Jenkins insisted on the QDRO format as necessary to recognition under the Great Empire ESOP, that Menke & Associates unfairly drafted the order, and that she did not realize the implications of the order for her retirement benefits. A United States district court is not the proper forum in which to raise such arguments. We acknowledge that ERISA supersedes state law insofar as the state law “relate[s] to” an ERISA-qualified employee benefit plan. 29 U.S.C. § 1144(a). Federal courts may be called upon to determine the proper beneficiary under a QDRO or to review a plan administrator’s interpretation of a QDRO, as we have done here. But although we read § 1144(a)’s “relates to” language broadly, see Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S. Ct. 2890, 2900 (1983), we cannot say that a federal court’s role extends as far as examining the circumstances under which a potential beneficiary entered and a state court approved a QDRO. Such a claim affects domestic relations, which is not an area of exclusive federal concern. See Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236, 245 (5th Cir. 1990) -36- (stating that cases in which ERISA preempts state-law claims, the claims address areas of exclusive federal concern). If Matassarin believes that she mistakenly entered the QDRO or was fraudulently induced to do so, then the Kansas state court that approved that order is the entity to hear her complaints. Cf. Perkins v. Time Insurance Co., 898 F.2d 470, 473 (5th Cir. 1990) (holding that a claim that an insurance agent fraudulently induced an insured to surrender his current insurance and participate in an ERISA plan “related to” the ERISA plan only indirectly, so that ERISA would not preempt the state claim). The REA amendments preserve ERISA anti-alienation provisions while leaving domestic relations in the states’ hands. We will not disturb that structure.
ERISA § 510, titled “Interference with Protected Rights,” makes it unlawful to discriminate against an ERISA plan beneficiary for exercising his rights or in order to interfere with his attainment of any right. See 29 U.S.C. § 1140. A violation of § 510 requires specific intent to discriminate. See Unida v. Levi Strauss & Co., 986 F.2d 970, 979-80 (5th Cir. 1993). Matassarin alleges that Lynch, Oatman, Jenkins, and Great Empire discriminated against her for seeking her entitlement under her QDRO. Although her claims are not entirely clear, Matassarin apparently argues that because Great Empire sent her the May 1995 letters--which it claims were sent in error--and -37- later denied that she was entitled to any distribution, Great Empire was in fact discriminating against her for seeking what she was due. We find that summary judgment on this claim was appropriate because Matassarin produced no evidence that her inquiries prompted the defendants’ actions or Plan interpretation. Matassarin also claims more general discrimination based on the appellees’ contention that she was the only segregated account holder who was not entitled to a distribution in May 1995. This claim is likewise without merit. Unlike the sixty-seven separated Plan participants, Matassarin had a QDRO, a separate contract that required different treatment for Matassarin than for the sixty-seven holders of § 14(h) accounts offered distributions. Summary judgment was appropriate as to Matassarin’s claims for interference with her protected rights.
Matassarin argues that the defendants violated ERISA § 105(a), 29 U.S.C. § 1025(a), which concerns statements furnished by an administrator to participants and beneficiaries: Each administrator of an employee pension benefit plan shall furnish to any plan participant or beneficiary who so requests in writing, a statement indicating, on the basis of the latest available information--(1) the total benefits accrued, and (2) -38- the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable. 29 U.S.C. § 1025(a). As the provision states, the plan participant must request the statement in writing in order to trigger the administrator’s § 1025 duty. Matassarin seeks penalties of $100 per day under ERISA § 502(c)(1) against the trustees and other fiduciary defendants for Great Empire’s alleged failure to provide information regarding the value of her stock. Section 502(c)(1), similar to § 1025(a), requires the participant to request information before an administrator may be sanctioned for failing to provide it.21 Matassarin does not state what, if any, material she specifically requested and the defendants failed to provide, such as would allow for penalties under § 502(c)(1). This Court reviews only for abuse of discretion a district court’s decision whether to assess 21. ERISA § 502(c)(1) states, in part: Any administrator . . . who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary (unless such failure or refusal results from matters reasonably beyond the control of the administrator) by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court’s discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper. 29 U.S.C. § 1132(c)(1). -39- penalties under § 502(c)(1). See, e.g., Godwin v. Sun Life Assurance Co., 980 F.2d 323, 327 (5th Cir. 1992) (reviewing only for abuse of discretion the district court’s refusal to award penalties under § 502); Fisher v. Metropolitan Life Insurance Co., 895 F.2d 1073, 1077 (5th Cir. 1990) (same). Given that the defendants do not appear to have denied any request that Matassarin made, the district court did not abuse its discretion in refusing to asses penalties. In her Third Amended Complaint and other pleadings, Matassarin argued that the defendants violated ERISA when they failed to provide her with a summary plan description or with annual reports. She also provided the district court with an affidavit stating that she had not received a summary plan description. We need not examine whether the district court improperly granted summary judgment on this issue,22 insofar as Matassarin fails to brief adequately or otherwise pursue it on appeal and thus has waived it. Accordingly, we affirm the grant of summary judgment as to Matassarin’s ERISA § 502(a)(3) claim.