Opinion ID: 2997119
Heading Depth: 2
Heading Rank: 4

Heading: Breach of ERISA Fiduciary Duty (Count III)

Text: ERISA requires a trustee or other fiduciary to “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries.” 29 U.S.C. § 1104(a)(1). In interpreting this statute, the Supreme Court has held that an employer breaches its fiduciary obligation by lying to employees in order to induce them to surrender their benefits. Varity Corp. v. Howe, 516 U.S. 489, 506 (1996). The plaintiffs point us to decisions from the Second, Third and Sixth Circuits which have supported claims for breach No. 03-2090 29 of fiduciary duty on similar facts. The Second Circuit, which has given the broadest scope to ERISA fiduciary duty claims, has held that representing to plan participants that a plan’s benefits are “lifetime” when they are not vested can create a genuine issue of material fact as to whether misrepresentations were made or whether there was a failure to provide complete and accurate information. Abbruscato, 274 F.3d at 102-03. The Third Circuit has held that a fiduciary duty claim could proceed, despite the employer’s reservation of the right to terminate retirement benefits, when oral and written representations were made to employees that the benefits would continue for life and the employer was aware that retirement decisions were being based on the mistaken assumption that the benefits were also vested. In re Unisys Corp. Retiree Med. Benefit “ERISA” Litig., 57 F.3d 1255, 1266-67 (3d Cir. 1995). And the Sixth Circuit has held that a breach of fiduciary duty claim was made out where a company—both of its own accord and in response to specific employee inquiries—misrepresented to employees that a reservation of rights clause in the plan did not allow retirement benefits to be changed when the legal effect of the clause was precisely the opposite. James v. Pirelli, 305 F.3d 439, 455-56 (6th Cir. 2002). In this circuit, a breach of fiduciary duty exists if fiduciaries “mislead plan participants or misrepresent the terms or administration of a plan.” Anweiler v. American Elec. Power Serv. Corp., 3 F.3d 986, 991 (7th Cir. 1993), quoted in Bowerman, 226 F.3d at 590. “Although not every error in communicating information regarding a plan will be found to violate a fiduciary’s duty under ERISA, we have made clear that fiduciaries must communicate material facts affecting the interests of plan participants or beneficiaries and that this duty to communicate exists when a participant or beneficiary ‘asks fiduciaries for information, and even when he or she does not.’ ” Bowerman, 226 F.3d at 590 (citations omitted). However, in Frahm, we found that 30 No. 03-2090 advice to employees stressing the availability of “lifetime” benefits without any qualifiers indicating that the employer reserved the right to change or terminate the benefits was not a breach of fiduciary duty. Frahm, 137 F.3d at 959. As we noted in Frahm: Some readers must have mentally added the word “unreduced” after a word such as “lifetime.” Yet unless § 1104(a)(1) is a guarantor of accurate information at all times and for the indefinite future—unless it creates not only a duty of care, but also a duty of previ- sion—then claims that one or another bit of advice was misleading do not violate this statute. Id. at 959-60. We also found in Frahm that “[t]he district court’s finding that [the employer] did not set out to deceive or disadvantage plan participants therefore forecloses plaintiffs’ claim under § 1104(a)(1).” Id. at 960. Although the plaintiffs attempt to distinguish Frahm, the bases upon which they draw distinctions are irrelevant. The plaintiffs assert that Frahm did not involve a claimed ambiguity in the documents, but rather, conflicting evidence about what representations were made to plaintiffs. But the need to address the claimed ambiguity does not detract from the relevance to the plaintiffs’ situation of Frahm’s legal conclusions, and the plaintiffs don’t explain why Frahm’s legal conclusions are irrelevant. The plaintiffs also assert that, contrary to the district court’s finding, there was a “campaign of disinformation” here as in Varity. If this were correct, that would indeed serve to distinguish Frahm, but there is no evidence of any intent to purposefully mislead employees. Rather, our conclusion that Continental fulfilled its duty of loyalty with respect to the potential early retirees is supported by the district court’s finding that at the time the VSRP was offered, Continental had no intention of eliminating the “lifetime” HCA benefit in the future. The plaintiffs characterize Continental’s No. 03-2090 31 failure to explain, expressly and clearly, that the HCA benefit could be altered or terminated—just like the other welfare benefits offered to all retiring Continental employees—as “an intentional failure to warn VSRP participants” that Continental or a future merger partner could terminate the HCA at any time (Appellants’ Br. at 34), and, even more egregiously, as “a concerted effort by CNA to remain silent about the HCA termination potential, in order to achieve its goals of maximizing retirements” (Appellants’ Br. at 36). But just because Continental wanted as many of its eligible employees as possible to accept the VSRP does not mean that it purposefully violated its duty of loyalty by failing to provide an explicit warning when the necessary information was already in the early retirees’ hands. If anything, the failure to provide an explicit warning is just as easily explainable by non-actionable negligence as by a disloyal intent, and in that sense, Frahm is on all fours. See Frahm, 137 F.3d at 959 (“[S]lipups in managing any complex enterprise are inevitable, and negligence—a violation of the duty of care— is not actionable.”). In this respect, it is significant that the reduction of retiree welfare benefits in the face of rising health care costs is generally a relatively recent development, and warning of that possibility only recently became important. Cf. Bidlack, 993 F.2d at 613-14 & n.3 (Cudahy, J., concurring) (noting that the idea that retiree health benefits could be granted on anything less than a “lifetime” basis was a fairly recent development and that a presumption that silence indicated vesting was probably more in keeping with the parties’ expectations at the time the agreement at issue was made). The district court was correct that Frahm demonstrates a narrower interpretation of Varity than exists in other circuits. Specifically, while there is a duty to provide accurate information under ERISA, negligence in fulfilling that duty is not actionable. See Frahm, 137 F.3d at 959. That is why the employer must have set out to disadvan32 No. 03-2090 tage or deceive its employees, as in Varity, in order for a breach of fiduciary duty to be made out. See id. at 960. Here, there is no evidence that Continental purposefully intended to confuse plan participants by “packag[ing] the HCA with pension incentives” when “[t]hey knew that welfare benefits can be terminated, yet they never warned the retirees.” (Appellants’ Br. at 35.) For one thing, Continental’s general retirement plan also “packaged” pension benefits with welfare benefits. We believe that this is a common practice, and we cannot find that it evinces an intent to confuse or deceive on Continental’s part. For another, as we have already noted, the mere fact that pension and welfare benefits are part of the same retirement package does not mean, up to this point at least, that employers are required to warn employees that the welfare benefits, unlike the pension benefits, are terminable. As we have repeatedly held, silence indicates that welfare benefits are not vested, see Rossetto, 217 F.3d at 544, and we have not limited these holdings to retirement plans containing only welfare benefits. Thus, the lack of a specific warning that welfare benefits are terminable would not alone create a breach of fiduciary duty. There is simply no evidence that Continental set out to deceive its employees by its actions, and the district court therefore correctly found that the plaintiffs’ claimed breach of fiduciary duty fails under Frahm. In fact, it is not even clear that the information provided was inaccurate. As we found earlier, the general retirement plan documents containing reservation of rights clauses were made part of the VSRP by the documents setting out the VSRP’s enhancements. There was no evidence that any employee ever specifically asked about the irrevocability of the HCA benefit, that Continental falsely indicated to any employee that the HCA benefit was irrevocable or that Continental was aware that the early retirees were coming to the mistaken conclusion that “lifetime” equated to No. 03-2090 33 “vested.” And in this circuit, if accurate written information is provided, as it was here, then the plaintiffs are unfortunately out of luck. See Kamler v. H/N Telcom. Servs., 305 F.3d 672, 682 (7th Cir. 2002), cert. denied, 2003 U.S. LEXIS 2536 (U.S. Mar. 31, 2003); Librizzi v. Children’s Mem. Med. Ctr., 134 F.3d 1102, 1305 (7th Cir. 1998). In law, the inclusion of reservation of rights clauses in an agreement accurately conveys that benefits may be altered or terminated. Thus, the plaintiffs’ fiduciary duty claim fails.