Opinion ID: 700665
Heading Depth: 2
Heading Rank: 1

Heading: Has anyone suffered a loss?

Text: 8 The district court relied upon two rationales to find that Roth and Ammon did not produce a prima facie case of loss to the Plan. First, the district court reasoned that in Roth I, this court noted that the plaintiffs have never proffered evidence of loss to the plan. 16 F.3d at 920. Although the district court does not specifically label this as the law of the case, it may have treated this statement as law of the case. Second, in evaluating loss, the district court focused upon the assets of the Plan, but viewed the value of these assets in a snapshot fashion, and thus viewed it too narrowly. 9 The district court's first rationale may be quickly disposed of. Law of the case applies only to issues actually decided, either implicitly or explicitly, in the prior stages of a case. Little Earth of the United Tribes, Inc. v. United States Dep't of Hous. & Urban Dev., 807 F.2d 1433, 1438 (8th Cir.1986); 2A Federal Procedure: Lawyers Edition Sec. 3:705 (1994). However, in Roth I, we addressed the trustees' loss argument as follows: 10 The trustees here argue that the ESOP did not suffer a loss as a result of their decision to secure the plaintiffs' notes with Company stock. We decline to review this argument, however, because the trustees did not raise the loss issue in their memorandum supporting their summary judgment motion. 11 16 F.3d at 920. Thus, we expressly declined to resolve the issue of loss. As there was no decision concerning loss, the doctrine of law of the case does not apply. Although it is impossible to tell from the district court's order exactly how much weight it gave to our observations in Roth I, it is clear that the law of the case doctrine does not support a finding of no loss. 12 The district court's second line of analysis was to focus[ ] on 'a decrease in the value of the Trust estate' to determine whether there has been a loss to the plan. Order at 8 (July 27, 1994). The district court relied upon Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir.1985), and Physicians HealthChoice, Inc. v. Trustees of Automotive Employee Benefit Trust, 784 F.Supp. 1416 (D.Minn.1992), aff'd, 988 F.2d 53 (8th Cir.1993) (PHC ), to support this proposition. We believe that the district court's analysis of Donovan and PHC was incomplete. One cannot determine whether the assets of the ESOP were diminished in the abstract; a comparison must be made between the value of the plan assets before and after the breach. The district court failed to consider the time frame component of the loss calculation, and so doing implicitly focused upon too narrow a time frame. If the Plan's assets are compared immediately before and after the alleged breach (i.e., the decision to secure the notes from the Plan with Company stock), the Plan has suffered no loss. Indeed, the only case in which there could be a loss under this snapshot approach would be when the breach consisted of an overpayment by the ESOP. This measure of loss is appropriate in cases where the loss is due to self-dealing or price manipulation. See Donovan, 754 F.2d at 1054-55. However, this case does not involve an overpayment or a breach of trust by self-dealing or price manipulation. In cases such as this, a broader time frame is appropriate. If the assets of the Plan before the alleged breach are compared with the assets of the Plan after the Company has entered bankruptcy, 5 there is a loss: Some portion of the Plan's predecision assets were used to purchase the now worthless Company stock. 13 Physicians HealthChoice, Inc. v. Trustees of Automotive Employee Benefit Trust, 988 F.2d 53 (8th Cir.1993), supports our conclusion. The PHC opinion cited by the district court is the district court opinion in a case that was affirmed with opinion by the Eighth Circuit. An affirmance by this court, even without opinion, is not equivalent to endorsement of the reasoning or language of the district court. 5 Am.Jur.2d Appeal & Error Sec. 934, at 361-62 (1962 & Supp.1994); 5B C.J.S. Appeal & Error Sec. 1857, at 295 (1958). The opinion of this court, which is the applicable precedent, is directly contrary to the district court's position. PHC involved an attempt by PHC, a health care provider, to recover payments from a defunct multi-employer welfare trust. PHC was neither a participant in nor a beneficiary of the trust; it was merely a creditor that had obtained assignments of all claims, rights or causes of action against the trust and the trustees from members and beneficiaries of the trust. In affirming the district court's grant of summary judgment against PHC on the basis that PHC had not shown a loss to the plan, Judge Loken wrote: 14 PHC responds that 'losses to the plan' should include conduct that frustrates the interest of participants and beneficiaries in the continuing vitality of a plan. We agree that this is a valid ERISA concern. However, this action does not seek relief that will further that interest. [The remedy that PHC seeks] will not revive the Trust and will provide little if any benefit to Trust members and beneficiaries. In other words, although PHC purports to seek relief for the Trust on behalf of participants and beneficiaries, the suit is nothing more than an attempt to use Sec. 1109 to enhance PHC's state law rights as a creditor of the Trust. 15 For these reasons, we agree with the district court's decision to dismiss PHC's Sec. 1109 claim. PHC has failed to identify a concrete loss to the Trust, and the remedy PHC seeks would further no cognizable ERISA interest of the Trust or its participants and beneficiaries. Although we would not hesitate to construe 'losses to the plan' in Sec. 1109 broadly in order to further the remedial purposes of ERISA, we find no suggestion that Congress intended to provide third-party creditors with a new federal weapon to pierce a plan's organizational veil solely for their own benefit. This case, at bottom, involves nothing more. 16 988 F.2d at 55-56 (emphasis added). Judge Loken's opinion makes clear that the finding of no loss in PHC was based on application of the policy underlying ERISA: ERISA was intended to protect beneficiaries, not creditors. This policy resulted in a denial of Sec. 1109 relief to PHC, a creditor. The same policy counsels in favor of making relief available to beneficiaries such as Roth and Ammon, as Judge Loken specifically noted. 6 17 Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir.1985), confirms our analysis. In Donovan, trustees breached a duty of loyalty to the ESOP by making a stock purchase at prevailing prices averaging $38.34 per share when fair market value as determined by an expert was $23 per share. Each share yielded dividends of $2.20 and was later sold for $47.55, resulting in a net profit of $11.41 per share. The Secretary of Labor sought to hold the trustees personally liable under Sec. 409(a) for the amount of overpayment at the time the shares were purchased (i.e., $15.34 per share). The Donovan court rejected this measure of loss and determined loss by comparing the ESOP's actual profit to potential profit that could have been realized in the absence of breach. This measure of loss compared the respective performances over an extended period of time. Id. at 1058. Donovan thus stands squarely for the proposition that loss must be determined by examining the assets of the plan as a whole, not at an instant as was done by the district court, but over a period of time. We have favorably cited Donovan for the measure of loss in a stock manipulation case, and have approved a district court case that relied extensively on Donovan. Martin v. Feilen, 965 F.2d 660, 671 (8th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 979, 122 L.Ed.2d 133 (1993). We believe that Donovan provides the appropriate analysis of the measure of loss in a case such as this. 18 Our analysis of loss is supported not only by ERISA cases from this and other circuits, but is reinforced by the analogous trust law which uniformly establishes trustee liability where a breach of fiduciary duty by the trustee results in later losses. The loss requirement of ERISA Sec. 409(a) has been interpreted by looking to principles developed in the common law of trusts, which in large measure remain applicable under ERISA. Donovan, 754 F.2d at 1055. One treatise summarizes the relevant trust law as broadly defining the types of losses that will result in trustee liability: 19 [I]f a breach of trust results in a loss to the trust estate, the trustee is chargeable with the amount of the loss. Thus the trustee is subject to a surcharge if in breach of trust he invests trust funds in improper securities that fall in value.... 20 3 William F. Fratcher, Scott on Trusts Sec. 205, at 238-39 (4th ed. 1987). The facts of this case present allegations that in breach of trust [the trustees] invest[ed] trust funds in improper securities that f[e]ll in value. We see no reason why, since such actions cause a loss to a trust estate, similar actions should not be determined to cause a loss to the Plan. Thus, just as a trustee bank was held personally liable for loss to the trust estate where it purchased shares of a stock or equity fund in breach and these shares declined in value, Heller v. First Nat'l Bank of Denver, N.A., 657 P.2d 992 (Colo.App.1982), we find a loss to the Plan where the trustees' decisions to make the Plan the obligated party and to secure the Plan's notes resulted in the Plan's acquisition of worthless stock. 21