Opinion ID: 6935449
Heading Depth: 1
Heading Rank: 4

Heading: The 1990 Plan Amendments

Text: Next we turn to Lockheed’s amendment of the Plan to allow “purchases” of releases of potential claims. Spink contends that Lockheed violated ERISA when it adopted the 1990 Plan amendments, which required employees to execute a release of all potential claims before they could elect the SRO or VRP options and receive enhanced benefits. He contends that this arrangement involved the use of existing plan assets to benefit Lockheed and constituted a prohibited transaction with a party in interest, a per se violation of ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D) (1988). 5 We agree. ERISA provides, in pertinent part: A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect ... transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan.... ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D). “Party in interest” is defined in ERISA § 3(14X0), 29 U.S.C. § 1002(14)(C) (1988), to include “an employer any of whose employees are covered by such plan.” Undeniably Lockheed is a party in interest under 29 U.S.C. § 1002(14)(C). It is equally indisputable that a party in interest who benefitted from an impermissible transaction can be held liable under ERISA. See, e.g, ERISA § 602(a)(3), 29 U.S.C. § 1132(a)(3) (1988); Nieto v. Ecker, 845 F.2d 868, 873-74 (9th Cir.1988) (stating that ERISA § 502(a)(3) gives plan participants the right to seek equitable relief against both the trustees who engaged in prohibited transaction and the party in interest who profited from it); Kyle Rys. v. Pacific Admin. Servs., 990 F.2d 513, 516 (9th Cir.1993) (“Under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), equitable relief for non-fiducia-• ry liability is available only where a ‘party in interest’ has participated in prohibited transactions”). The only remaining question, then, is whether the 1990 Plan amendments were a transaction that directly or indirectly benefitted Lockheed. Lockheed advances two arguments why we should answer this question in the negative. First, Lockheed suggests that by amending the Plan, it was merely imposing an eligibility requirement (signing a release of employment-related claims) on the SRP or VRP benefits. Employers have free rein under ERISA, Lockheed proclaims, to impose eligibility requirements and amend plans. Alternatively, Lockheed argues that the releases it obtained as a result of the 1990 Plan amendments were not a “benefit” to Lockheed in violation of ERISA. We address these arguments in turn. Relying on Trenton v. Scott Paper Co., 832 F.2d 806, 809 (3d Cir.1987), cert. denied, 485 U.S. 1022, 108 S.Ct. 1576, 99 L.Ed.2d 891 (1988), and Harlan v. Sohio Petroleum Co., 677 F.Supp. 1021, 1026 (N.D.Cal.1988), Lockheed claims that it has the unfettered right to amend the Plan and to establish eligibility requirements. Indeed, this court has held that “[employers] remain free to unilaterally amend or eliminate [severance] plans, without considering the employees’ interests.” Joanou v. Coca-Cola Co., 26 F.3d 96, 98 (9th Cir.1994) (emphasis supplied). Lockheed misinterprets these statements, however, and overstates its freedom to amend. An employer’s freedom to amend, while extensive, is not boundless. Lockheed is free to disregard employees’ interests in amending the Plan, but it is not free to disregard the prohibitions of ERISA. “The substantive terms of ... employee benefit plans must comply with the detailed and comprehensive standards of ERISA.” United Mine Workers of Am. Health and Retirement Funds v. Robinson, 455 U.S. 562, 575, 102 S.Ct. 1226, 1234, 71 L.Ed.2d 419 (1982). ERISA prohibits use of plan assets by or for the benefit of sponsoring parties in interest. ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D). This prohibition would clearly forbid Lockheed from writing checks drawn on pension funds to buy the releases in question. Similarly, those provisions prohibit plan documents from providing for use of plan funds to buy the releases. In other words, Lockheed cannot avoid the prohibitions of ERISA by writing an amendment instead of a check. See Amalgamated Clothing and Textile Workers Union v. Murdock, 861 F.2d 1406, 1419 (9th Cir.1988) (finding plaintiff stated a viable claim by alleging that through amending and terminating plan, fiduciaries misused plan assets to further interests other than those of plan participants). Lockheed’s second argument is that the releases either were not a net benefit to Lockheed, or that they were merely an incidental benefit. Lockheed urges that the releases do not yield any net benefit to Lockheed because funds paid in exchange for the releases ultimately reduced the amount of surplus that will revert back to Lockheed upon termination of the Plan. Additionally, Lockheed reasons that the releases did not come free to Lockheed because it is ultimately responsible for any Plan shortfall. Lockheed’s astute examination of the economic realities of this situation ignores the central purpose of ERISA. The statute does not require employers to provide employee benefit plans; however, once an employer places assets in trust for the benefit of employees, it can no longer treat those assets as its own. “[T]he crucible of congressional concern was misuse and mismanagement of plan assets by plan adminis-trators_” Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 141 n. 8, 105 5.Ct. 3085, 3089 n. 8, 87 L.Ed.2d 96 (1985). Indeed, Lockheed’s reasoning proves too much: It would justify an employer spending plan assets freely, without regard to any of ERISA’s prohibitions. The logic of Lockheed’s argument collapses under its own weight. The releases at issue cannot be accurately characterized as an incidental benefit. Although no copy of the release appears in the record, the Plan describes the releases as waiving “any claims the Eligible Member may have against [Lockheed] arising from termination of employment or otherwise.” Plan § 15.03(B)(4). The releases purport to be all-encompassing, 6 and assuming arguen-do that such releases are valid despite their breadth, they relieved Lockheed of countless liabilities or potential liabilities to thousands of employees. This windfall can hardly be considered an incidental benefit. The fact that the amount of Lockheed’s liability is not readily quantifiable does not render it incidental. For these reasons, we conclude that the Lockheed’s adoption of the 1990 Plan amendments violated ERISA because the amendments provided for use of Plan assets to purchase a significant benefit for Lockheed. Spink’s second cause of action therefore states a viable claim. Y. Collateral Estoppel Spink’s next contention is that the district court erred when it declined to apply the doctrine of nonmutual offensive collateral estoppel to bar Lockheed from contesting the allegation that it breached its fiduciary duties under ERISA. He argues that Lockheed had a full and fair opportunity to litigate the same issue when it moved to dismiss a nearly identical claim pending before Judge Rafeedie, see Engineers and Scientists Guild v. Lockheed Corp., No. CV 90-6891 ER (GHKx) (C.D.Cal.1990) (unpublished order), and should be bound by the adverse ruling in that case. Trial courts have broad discretion to determine when to apply offensive collateral estoppel. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331, 99 S.Ct. 645, 651-52, 58 L.Ed.2d 552 (1979). The district court did not abuse its discretion by declining to do so here. “Only a final judgment that is ‘sufficiently firm’ can be issue preclusive.” Robi v. Five Platters, Inc., 838 F.2d 318, 326 (9th Cir.1988) (citing Luben Indus. v. United States, 707 F.2d 1037, 1040 (9th Cir.1983)). To ascertain the “firmness” of a judgment, courts look to various factors, including whether the decision was tentative, whether the parties were fully heard, whether the court supported its decision with a reasoned opinion, and whether the decision was subject to appeal or was actually reviewed on appeal. Luben, 707 F.2d at 1040 (quoting Restatement (Second) of Judgments § 13 cmt. g (1982)). In Luben, we affirmed the district court’s determination that an interlocutory order issued by another judge in the same district was not “sufficiently firm” because “it could not have been the subject of an appeal.” Id. Judge Rafeedie’s denial of Lockheed’s motion to dismiss in Engineers and Scientists Guild was not appealable and the parties subsequently settled the case. Under those circumstances, the district court did not abuse its discretion by refusing to apply issue preclusion to bar Lockheed from contesting Spink’s fiduciary breach claim.