Opinion ID: 3015284
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Heading: in more than one

Text: Investm e n t F u n d allocated in multiples of 1 percent; 17 provided, however, that in no event may a Participant allocate more than 50 percent of future contributions to the Company Stock Fund. If a Participant fails to make an investment election with respect to 100 percent of his or her Accounts, the portion of such Accounts not subject to the Participant’s investment election shall be invested in a money market fund or equivalent investment vehicle. Section 4.03 reads as follows: Each Participant is solely responsible for the selection of his or her investment options. The Trustee, the Committee, the Investm e nt C o m m itte e , a ny Employer, and the officers, supervisors and other employees of any Employer are not empowered to advise a Participant as to the manner in which his or her 18 accounts shall be invested. The fact that an Investment Fund is available to Participants for investment under the Plan shall not be construed as a recommendation for investment in that Investment Fund. Pursuant to Article 4.05, [a] participant may elect to reallocate his or her Accounts among the Investment Funds, in multiples of 1 percent, by giving such Notice as the Committee or its delegate shall prescribe; provided, however, that in no event may a Participant allocate more than 50 percent of the value of his or her Accounts at the time of the reallocation to the Company Stock Fund. The reallocation shall be effective as soon as administratively practicable after the Trustee receives such Notice. 19 Article 5.01 requires the trustee of the Savings Fund to value each of the Investment Funds each business day. “On each Valuation Date there shall be allocated to the Accounts of each Participant his or her proportionate share of the increase or decrease in the fair market value of his or her Accounts in each of the Investment Funds.” Article 5.03 requires the trustee to furnish each participant with a statement setting forth the value of his or her Accounts each calendar quarter. Article 9.06 provides that until the accounts of a participant who is entitled to distribution because of the termination of employment or after the 65th anniversary of the Participant’s date of birth, are completely distributed, “the Accounts of a Participant who is entitled to a distribution shall continue to be invested as part of the funds of the Plan . . . .” In Section 10.09, the Savings Plan provides that “[t]he Committee or its delegate shall maintain, or cause to be maintained, records showing the individual balances in each Participant’s Accounts. However, maintenance of those records and Accounts shall not require any segregation of the funds of the Plan.” In Section 11.01, the Savings Plan provides that “[a]ll the funds of the Plan shall be held by the Trustee appointed from time to time by the Investment Committee or its delegate under 20 a trust agreement adopted, or as amended, by the Board of Directors.” Pursuant to Article 11.03, “Company Stock held by the Trustee shall be voted by the Trustee at each annual meeting and at each special meeting of stockholders of the Company as directed by the Participant to whose Accounts such Company Stock is credited.” (emphasis added). Thus, contrary to the District Court’s interpretation of the provisions of the Savings Plan, each participant’s deferred payroll compensation was held in trust as the assets of the Savings Plan. Each participant in the Savings Plan was provided with an individualized account and periodically informed of the individual balance in his or her account. The Savings Plan also makes clear the fact that each participant has an individual account does not “require any segregation of the funds of the Plan.” Article 10.09. The District Court cited this Court’s decision in Moench in support of its determination that a plan that permits employees to become part owners of their employer is an ESOP and not a traditional pension plan governed by ERISA. As noted above, the Defendants have conceded that the Savings Plan we are considering is not an ESOP. In Moench, this Court held that “in limited circumstances, ESOP fiduciaries can be liable under 21 ERISA for continuing to invest in employer stock according to the plan’s direction . . . .” Id. at 556. It went on to say that “[w]hile fiduciaries of pension benefit plans generally must diversify investments of the plan assets . . ., fiduciaries of ESOPS are exempted from this duty.” Id. at 568. In reversing the District Court’s holding that an ESOP cannot be held liable for investing solely in employer common stock, this Court explained that “an ESOP fiduciary who invests the assets in employer stock is entitled to a presumption that it acted consistently with ERISA by virtue of that decision. However, the plaintiff may overcome that presumption by establishing that the fiduciary abused its decision by investing in employer securities.” Id. at 571. The principle announced in Moench has no application to the duty of a fiduciary of pension benefit plans to diversify investments “so as to minimize the risk of large losses.” Id. at 568. “ESOPs, unlike pension plans, are not intended to guarantee retirement benefits, and indeed, by its very nature, ‘an ESOP places employee retirements assets at much greater risk than does the typical diversified ERISA plan.’” Id. at 568. Because the Savings Plan in this case was not an ESOP, the Moench decision does not resolve the issue presented in this matter. In a letter to this Court filed pursuant to Rule 28(j) of the Federal Rules of Appellate Procedure, the Defendants cited a recent decision of the Fifth Circuit, Milofsky v. American 22 Airlines, Inc., 404 F.3d 338 (5th Cir. 2005) reh’g en banc granted, No. 03-11087, 2005 U.S. App. LEXIS 15122, (5th Cir. July 19, 2005)5 in support of their argument that a participant lacks standing to bring an action on behalf of an individual account pension plan if he or she does not seek plan-wide relief. In Milofsky, the plaintiffs were employed as pilots by Business Express, Inc. (“BEX”) when it was acquired by AMR Eagle Holding Corporation, the holding company of American Eagle, Inc. (“American Eagle”). While employed by BEX, the plaintiffs participated in its individual account pension plan. Id. at 340. At the time of the acquisition of BEX, the plaintiffs were given notice that the balance of their accounts in the BEX plan would be transferred to a comparable American Eagle 401k plan. The notices advised the plaintiffs when the transfers would occur. The transfers did not occur, however, until months after the time written in the notice. Id. at 340-41. The plaintiffs filed a class action against American Airlines and Towers Perrin, a benefits consulting firm hired by American Airlines to render administrative services in 5 Fifth Circuit Rule 41.3 states that “[u]nless otherwise expressly provided, the granting of a rehearing en banc vacates the panel opinion and judgment of the court and stays the mandate.” 23 connection with the plan. Id. at 340. The action, which was filed under 29 U.S.C. § 1132(a)(2), alleged that American Airlines and Towers Perrin had violated fiduciary duties in misrepresenting how and when their accounts would be transferred to the American Eagle 401(k) plan. Id. “They alleged that because of the failure to effect the transfer of the class members’ account balances in a timely and prudent manner, the values of their accounts decreased because the assets remained invested in the floundering BEX Plan longer than expected.” Id. at 341. The plaintiffs requested “actual damages to be paid to the [American Eagle] $ uper $ aver Plan, to be allocated among their individual accounts proportionately to their losses resulting from the alleged breach.” Id. The majority of the three-judge panel in Milofsky held that “plaintiffs lack standing because this case in essence is about an alleged particularized harm targeting a specific subset of plan beneficiaries, with claims for damages to benefits [sic] members of the subclass only, and not the plan generally.” Id. at 347. The facts in Milofsky are clearly distinguishable from those in the matter sub judice. In Milofsky, the plaintiffs alleged that the value of their investments in the BEX plan decreased because of the failure of the defendants to transfer the funds to the American Eagle 401(k) plan. Id. at 351. Thus, this alleged 24 loss occurred prior to the transfer of the BEX plan participants’ investments to the American Eagle 401(k) plan. In Milofsky, the plaintiffs sought damages on behalf of the BEX plan members, and did not seek to restore assets of the American Eagle 401(k) fund. Here, the Plaintiffs seek damages from the fiduciaries for their violation of their duty to a subclass which had transferred its funds to the trustee of the Savings Fund. In Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995), the Sixth Circuit held that a subset of employee benefit participants has standing to bring an action for breach of fiduciary duty under 29 U.S.C. §1109. The Court rejected the same argument presented by the Defendants in this matter that “an action under 29 U.S.C. § 1109 must be brought on behalf of a plan as a whole and that a claim brought by a subclass of plan participants fails to satisfy this requirement.” Id. at 1452. The Sixth Circuit in Kuper concluded that the plaintiffs had standing to bring this action pursuant to §1132(a)(2). Citing Moench, however, it affirmed the dismissal of the action on the merits, adopting this Court’s rule that a fiduciary who invests in an employer’s stock is entitled to a rebuttable presumption that it acted consistently with ERISA in continuing to invest in an employer’s securities. Kuper, 66 F.3d at 1458-59. The Sixth Circuit affirmed because it concluded that the plaintiffs had failed “to rebut the presumption that defendants acted reasonably in continuing to hold Quantum stock.” Id. at 1459. In sum, the court concluded 25 in Kuper that § 1132(a)(2) does not authorize a plaintiff to recover damages on his or her own behalf. Instead, a plaintiff must seek to have the fiduciary reimburse the plan. Id. at 1453.6 6 At least one other circuit court, and several district courts, have reached a similar conclusion. In Roth v. SawyerCleator Lumber Co., 61 F.3d 599 (8th Cir. 1995), the Eighth Circuit addressed the issue of whether plaintiffs were bringing their action under Section 1132(a)(2) individually or on behalf of the plan. Id. at 605. The court explained that the defendants’ breach of fiduciary duty resulted in two types of loss: individual loss to the beneficiaries, which is not actionable under Russell, and a loss to the plan, which is actionable under Section 1132(a)(2), because the plan itself was also harmed due to the breach. Id; see also In re Honeywell International ERISA Litg., No. 03-1214, 2004 U.S. Dist. LEXIS 21585, at -52. (D.N.J. Sept. 14, 2004) (holding that even though plaintiffs could choose the investment vehicles in which their funds were invested, those funds were still held by the plan, and therefore plaintiffs were permitted to bring their claim under Section 1132(a)(2)); In re CMS Energy ERISA Litg., 312 F. Supp. 2d 898, 913 (E.D. Mich. 2004) (citing Kuper in support of the Court’s decision to reject defendant’s argument that a claim must be dismissed under Section 1132(a)(2) unless it alleges harm to all of a plan’s participants); Kayes v. Pac. Lumber Co., Nos. C-89-3500 SBA, C-91-1812 SBA, 1993 U.S. Dist. LEXIS 21090, -7 (N.D. Cal. Mar. 8, 1993), aff’d in part and rev’d in part on other grounds, 51 F.3d 1449, 1462 (9th Cir. 1995) 26 The majority in Milofsky stated that the Court’s reasoning in Kuper is directly contrary to the principle announced in Supreme Court’s decision in Massachusetts Mutual Life Insurance Company v. Russell, 473 U.S. 134 (1985), that a participant’s action filed pursuant to § 1132(a)(2) must seek remedies that provide a “benefit to the plan as a whole . . . .”