Opinion ID: 6934825
Heading Depth: 4
Heading Rank: 2

Heading: Conduct amounting to breach of fiduciary duty

Text: Judge Abram analyzed each of the paragraphs of allegations in plaintiffs’ complaint and concluded that none of the allegations stated a claim for breach of fiduciary duties under 29 U.S.C. § 1132(a)(1)(A) and (B). Judge Abram paid close attention to the allegations of misrepresentations and failures to disclose in paragraph 16 of plaintiffs’ complaint, set forth above. Plaintiffs’ App. at 443-47. In considering those allegations, Judge Abram examined a number of cases, including Berlin v. Michigan Bell Telephone Co., 858 F.2d 1154 (6th Cir.1988), plaintiffs’ primary case authority in support of their breach of fiduciary duties claims. Plaintiffs’ App. at 445. The factual scenario and breach of fiduciary duties claims in Berlin are remarkably similar to those in the present case. The plaintiffs were managers at Michigan Bell, another former AT & T subsidiary which was seeking to reduce its number of management-level employees. 858 F.2d at 1156-57. Like Mountain Bell, Michigan Bell developed a severance incentive package designed to encourage voluntary termination or early retirement. Id. at 1157. This package was called the Management Income Protection Plan or “MIPP” and, like EMTP, operated as an unfunded employee welfare benefit plan subject to ERISA. Id. MIPP could be offered to a specific individual or offered generally to a certain category of management-level employees, depending upon where the need for downsizing arose. Id. Michigan Bell made its first general MIPP offering from October 1,1980 to December 1, 1980. Id. at 1158. Following this offering, there was considerable interest among managers nearing retirement in the possibility of future general MIPP offerings. Id. Because it appeared that some managers were delaying retirement decisions in the hopes of such an offering, Michigan Bell officials made several communications (alleged by plaintiffs to be misrepresentations) regarding the future possibility of an MIPP extension. Id. In a “News for Management Bulletin,” Michigan Bell’s Vice President of Personnel went so far as to indicate that managers considering retirement should not delay plans in anticipation of another MIPP offering. Subsequently, Michigan Bell extended a second general MIPP offering for those managers retiring between June 1, 1982, and July 31, 1982. Id. at 1159. The plaintiffs, who had retired between the first and second offerings, believed that Michigan Bell had intentionally misled them and induced them into retiring too early by indicating that the original MIPP offering had been a one-time application. 4 Id. at 1158. The plaintiffs filed a class action lawsuit against Michigan Bell and the Vice President of Personnel alleging, inter alia, breach of fiduciary duties under 29 U.S.C. § 1104(a)(1)(A) and (B). Id. at 1160. The district court granted summary judgment in favor of defendants on the breach of fiduciary duties claim. The court found that the decision to offer MIPP benefits a second time was a business decision (i.e., a decision made by Michigan Bell and its Vice President while wearing the businessman’s hat, not the fiduciary’s hat) and, therefore, that communications or representations relating to that decision were nonfiduciary. Id. at 1162. The Sixth Circuit reversed the district court, finding as follows: Under the exclusion from fiduciary standards for business decisions, corporate actions by plan administrators seeking to reduce the amount of unacerued plan benefits, West v. Greyhound Corp., 813 F.2d 951, 955-56 (9th Cir.1987), terminating a pension plan, Cunha v. Ward Foods, Inc., 804 F.2d 1418, 1432 (9th Cir.1986), and deciding whether or not to establish a plan, Moore v. Reynolds Metals Co., 740 F.2d 454, 456 (6th Cir.1984), cert. denied, 469 U.S. 1109, 105 S.Ct. 786, 83 L.Ed.2d 780 (1985), have all been found nonfiduciary. Several courts have, however, held that misleading communications to plan participants regarding plan administration (for example, eligibility under a plan, the extent of benefits under a plan) will support a claim for breach of fiduciary duty. Local Union 2134, United Mine Workers of America v. Powhatan Fuel, Inc., 828 F.2d 710, 713 (11th Cir.1987); Peoria Union Stock Yards Co. Retirement Plan v. Penn Mut. Life Ins. Co., 698 F.2d 320, 326 (7th Cir.1983) (“Lying is inconsistent with the duty of loyalty owed by all fiduciaries and codified in [29 U.S.C. § 1104].”); Muenchow v. Parker Pen Co., 615 F.Supp. 1405, 1417 (W.D.Wis.1985) (“ERISA supplies a remedy for the wrong [of misrepresentation by fiduciaries] alleged in [plaintiffs] complaint.”); see also Rosen v. Hotel & Restaurant Employees & Bartenders Union of Philadelphia, 637 F.2d 592, 600 n. 11 (3d Cir.1981) (holding a fiduciary is under a duty to communicate material facts to a plan beneficiary), cert. denied, 454 U.S. 898, 102 S.Ct. 398, 70 L.Ed.2d 213 (1981); District 65, UAW v. Harper & Row Publishers, Inc., 576 F.Supp. 1468, 1480 (S.D.N.Y.1983). Although these cases deal primarily with misrepresentations concerning the terms of an ERISA plan, their supporting rationale applies with equal force to this case — a fiduciary may not materially mislead those to whom the duties of loyalty and prudence described in 29 U.S.C. § 1104 are owed. Thus, while the parties do not dispute the district court’s holding that the decision to offer MIPP benefits was a nonfidu-ciary business decision, we do not agree with the district court’s conclusion that it logically follows that any communications or representations made prior to such a decision were also nonfiduciary. On the contrary, we hold that when serious consideration was given by MBT to implementing MIPP by making a second offering (a question of material fact), then MBT as the plan administrator and/or its Vice President of Personnel Grady, the plan fiduciary, had a fiduciary duty not to make misrepresentations, either negligently or intentionally, to potential plan participants concerning the second offering. Accordingly, any misrepresentations made to the potential plan participants after serious consideration was given to a second offering could constitute a breach of a fiduciary duty. Therefore, since genuine issues of material fact exist as to (1) when serious consideration of the second offering took place, and (2) whether or not any material misrepresentations were made to potential plan participants concerning the second offering, summary judgment was not proper. Id. at 1163-64. The Sixth Circuit emphasized that it was not holding that the defendants (or any fiduciary) had an affirmative duty “to say anything at all or to communicate with potential plan participants about the future availability of MIPP.” Id. at 1164. The court simply held that “if the plan administrator and/or plan fiduciary does communicate with potential plan participants after serious consideration has been given concerning a future implementation or offering under the plan, then any material misrepresentations may constitute a breach of their fiduciary duties.” Id.; see Drennan v. General Motors Corp., 977 F.2d 246, 250-52 (6th Cir.1992), cert. denied, — U.S. —, 113 S.Ct. 2416, 124 L.Ed.2d 639 (1993) (“As observed by the Berlin court, the duty to avoid material misrepresentations does not require the employer to predict an ultimate decision to offer a plan so long as it fairly discloses the progress of its serious considerations to make a plan available to affected employees.”). Judge Abram distinguished Berlin from the present case, finding that “[tjhere are no allegations that US West was giving serious consideration to a modification of the EMTP at the time of their retirement in 1987” and, therefore, that “[ejven under the Berlin decision, the plaintiffs have not stated a claim.” Plaintiffs’ App. at 447. Judge Abram apparently overlooked paragraph 16(f) and (g) of the complaint wherein plaintiffs specifically alleged “[t]hat the Defendants had given serious consideration of future better force reduction offers” and “falsely or recklessly represented that no better early separation incentive offer would follow EMTP.” Plaintiffs’ App. at 409 (emphasis added). As with all motions to dismiss, Judge Abram was required to accept these allegations as true and to construe them in the light most favorable to plaintiffs. See Williams, 926 F.2d at 997 (citation omitted). It appears that he did not. Judge Sparr’s short dismissal order fails to mention this apparent error in Judge Abram’s analysis. 5 The Sixth Circuit is not the only circuit court that has concluded that ERISA prohibits material misrepresentations by fiduciaries. Many other circuits have followed the Sixth Circuit’s lead and held that ERISA imposes a duty on plan fiduciaries not to affirmatively mislead plan participants. Howe v. Varity Corp., 36 F.3d 746, 753-54 (8th Cir.1994); Mullins v. Pfizer, Inc., 23 F.3d 663, 668-69 (2d Cir.1994); Vartanian v. Monsanto Co., 14 F.3d 697, 702 (1st Cir.1994); Fischer v. Philadelphia Elec. Co., 994 F.2d 130, 133-35 (3d Cir.), cert. denied, — U.S. —, 114 S.Ct. 622, 126 L.Ed.2d 586 (1993); Anweiler v. American Elec. Power Serv. Corp., 3 F.3d 986, 991 (7th Cir.1993); Barnes v. Lacy, 927 F.2d 539, 543-44 (11th Cir.), cert. denied, 502 U.S. 938, 112 S.Ct. 372, 116 L.Ed.2d 324 (1991); Eddy v. Colo nial Life Ins. Co. of America, 919 F.2d 747, 750 (D.C.Cir.1990). 6 Accepting as true and construing in plaintiffs’ favor plaintiffs’ allegations of affirmative misrepresentations with respect to future force reduction offers, we find those allegations sufficient to state a claim for breach of fiduciary duties under Berlin. We accordingly reverse Judge Spam’s order of dismissal of plaintiffs’ second and third claims for relief insofar as they purport to assert breach of fiduciary duties claims predicated on the allegations of material misrepresentations in paragraph 16 of the complaint. However, to the extent that plaintiffs seek to base a cause of action for breach of fiduciary duties on some other type of allegation or theory (e.g., failures to disclose, arbitrary and capricious denial of 5 + 5 benefits, discrimination between plaintiffs and other Pension Plan participants, or adding an “active employee” eligibility requirement to EMTP without Board approval), the dismissal of plaintiffs’ second and third claims for relief is affirmed. See our discussion of such claims infra and this court’s decision in Aver-hart, 46 F.3d at 1487-90. 7