Opinion ID: 777035
Heading Depth: 1
Heading Rank: 2

Heading: The Failure To Investigate and Monitor Claims.

Text: 9 Plaintiffs allege that 3M violated the prudent-man standard of care when it invested Plan assets in Granite without adequate investigation and monitoring. To recover, plaintiffs must prove a breach of this fiduciary duty and loss to the Plan. See Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 917 (8th Cir.1994). The district court concluded that plaintiffs could not prove the requisite loss to the Plan: 10 The Court believes, in the unique circumstances of this case, that if 3M indeed has contributed amounts sufficient to put the Plan's portfolio in a surplus position, the Granite investment has not caused [plaintiffs] or the Plan any cognizable harm. 11 42 F.Supp.2d at 912. The unique circumstances to which the court referred are the relevant features of a defined benefit plan, which were recently described by the Supreme Court in Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439-40, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999) (quotations omitted): 12 Such a plan, as its name implies, is one where the employee, upon retirement, is entitled to a fixed periodic payment.... [T]he employer typically bears the entire investment risk and — short of the consequences of plan termination — must cover any underfunding as the result of a shortfall that may occur from the plan's investments.... Given the employer's obligation to make up any shortfall, no plan member has a claim to any particular asset that composes a part of the plan's general asset pool.... Since a decline in the value of a plan's assets does not alter accrued benefits, members similarly have no entitlement to share in a plan's surplus.... 13 On appeal, plaintiffs and the Secretary of Labor as amicus vigorously attack the district court's conclusion that there was no loss to the Plan. The Secretary warns that a decision that an employer-fiduciary is not liable for losses caused by fiduciary breaches when a defined benefit pension plan is overfunded will have a substantial impact on the ability of the Secretary to enforce the statute. We agree that the district court's focus on losses to the plan — an essential element of the fiduciary's liability under § 1109(a) — was misplaced. If there is no loss to the plan, then no one may recover from the fiduciary on behalf of the plan, including the Secretary. That is far more than need be decided in this case. Moreover, the district court's conclusion that there was no loss to the Plan seems contrary to the plain meaning of § 1109(a). 3M concedes, as it must, that the Plan's $20 million investment in Granite became worthless after Granite declared bankruptcy in April 1994. This loss reduced the pool of Plan assets. We cannot agree with the court that the Granite investment has not caused ... the Plan any cognizable harm. 42 F.Supp.2d at 912. 14 But that does not mean we disagree with the district court's decision to dismiss these claims. In our view, the proper focus is on whether plaintiffs have standing to bring an action under § 1132(a)(2) to seek relief under § 1109 for this particular breach of duty, given the unique features of a defined benefit plan as identified in Hughes Aircraft. In a defined benefit plan, if plan assets are depleted but the remaining pool of assets is more than adequate to pay all accrued or accumulated benefits, then any loss is to plan surplus. As Hughes Aircraft made clear, plaintiffs as Plan beneficiaries have no claim or entitlement to its surplus. If the Plan is overfunded, 3M may reduce or suspend its contributions. See Hughes Aircraft, 525 U.S. at 440, 119 S.Ct. 755. If the Plan's surplus disappears, it is 3M's obligation to make up any underfunding with additional contributions. If the Plan terminates with a surplus, the surplus may be distributed to 3M. See 29 U.S.C. § 1344(d); Dame v. First Nat'l Bank of Omaha, 217 F.3d 1018, 1019 (8th Cir.2000). Thus, the reality is that a relatively modest loss to Plan surplus is a loss only to 3M, the Plan's sponsor. 15 In these circumstances, we agree with the other half of the district court's conclusion — the Granite investment has not caused [plaintiffs] ... any cognizable harm. 42 F.Supp.2d at 912. The question, then, is whether plaintiffs may nonetheless sue under 29 U.S.C. § 1132(a)(2) to recover on behalf of the Plan. We answer that question in the negative because, in our view, two critical factors support this construction of these ERISA remedial provisions. 16 First, a contrary construction would raise serious Article III case or controversy concerns. The doctrine of standing serves to identify cases and controversies that are justiciable under Article III. An irreducible constitutional minimum of standing is that plaintiff must have suffered an `injury in fact' — an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (quotations and citations omitted). Although a statute may broaden the class of redressable injuries, the Supreme Court has never held that Congress may do away with the Article III requirement of concrete injury. Id. at 578. These concerns have led the Court to construe the antitrust standing conferred by Section 4 of the Clayton Act, 15 U.S.C. § 15 (any person... injured in his business or property by reason of anything forbidden in the antitrust laws) as not extending to injuries that are too remote or indirect or speculative. See, e.g., Associated Gen'l Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 535-46, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983). Thus, the limits on judicial power imposed by Article III counsel against permitting participants or beneficiaries who have suffered no injury in fact from suing to enforce ERISA fiduciary duties on behalf of the Plan. 17 Unlike the dissent, we do not find this concern resolved by dicta in the Supreme Court's recent decision in Vermont Agency of Natural Res. v. United States ex. rel Stevens, 529 U.S. 765, 772, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000), that designation as a statutory agent for another party would perhaps suffice to confer standing to recover an injury suffered by that party. In § 1132(a)(2), Congress generally authorized the Secretary, participants, beneficiaries, and fiduciaries to sue for appropriate relief on behalf of the plan. If the statute authorized any stranger to the plan to bring such an action, would that suffice to confer standing? Surely not, for Article III forecloses the conversion of courts of the United States into judicial versions of college debating forums. Valley Forge Christian College v. Americans United for Separation of Church & State, Inc., 454 U.S. 464, 473, 102 S.Ct. 752, 70 L.Ed.2d 700 (1982). The question in Vermont Agency was the standing of private parties to bring qui tam lawsuits on behalf of the United States. The Court answered that question in the affirmative for two reasons. First, the qui tam statute partially assigned the government's claim to the private qui tam relator; here, on the other hand, § 1132(a)(2) contains no such assignment. Second, the long tradition of qui tam actions in England and the American colonies persuaded the Court that such actions are cases and controversies for purposes of Article III standing. By contrast, the law of trusts is the starting point in interpreting and applying ERISA's fiduciary duties. See, e.g., Varity Corp. v. Howe, 516 U.S. 489, 496-97, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996). Under the law of trusts, [a] particular beneficiary cannot maintain a suit for a breach of trust which does not involve any violation of duty to him. RESTATEMENT (SECOND) OF TRUSTS § 214 cmt. b. 18 Second, [t]he primary purpose of [ERISA] is the protection of individual pension rights. H.R. REP. NO. 93-533 (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4639. Thus, the basic remedy for a breach of fiduciary duty is to restor[e] plan participants to the position in which they would have occupied but for the breach of trust. Martin v. Feilen, 965 F.2d 660, 671 (8th Cir.1992) (quotation omitted). Here, the ongoing Plan had a substantial surplus before and after the alleged breach and a financially sound settlor responsible for making up any future underfunding. The individual pension rights of Plan participants and beneficiaries are fully protected. Indeed, those rights would if anything be adversely affected by subjecting the Plan and its fiduciaries to costly litigation brought by parties who have suffered no injury from a relatively modest but allegedly imprudent investment. Thus, the purposes underlying ERISA's imposition of strict fiduciary duties are not furthered by granting plaintiffs standing to pursue these claims. In addition to the Article III constitutional limitations, prudential principles bear on the question of standing. One of those principles is to require that plaintiff's complaint fall within the zone of interests to be protected or regulated by the statute... in question. Valley Forge, 454 U.S. at 475, 102 S.Ct. 752 (quotation omitted). 19 For these reasons, we conclude that plaintiffs' failure to investigate and monitor claims were properly dismissed if the Plan's surplus was sufficiently large that the Granite investment loss did not cause actual injury to plaintiffs' interests in the Plan. 20 Plaintiffs challenge the district court's conclusion that the Plan's surplus is adequate for this purpose as a matter of law. Plaintiffs argue that 3M must establish that the Plan is fully funded using the methodology mandated by ERISA. In this regard, plaintiffs posit that ERISA mandates use of either the plan-termination valuation method prescribed when a defined benefit plan is spun off, transferred, or merged into another, see 29 U.S.C. § 1058; or the method of determining whether a plan is fully funded in the RPA 94 minimum funding standard adopted by Congress in 1994 to assure that defined benefit plans are adequately funded, see 29 U.S.C. § 1082(d). (For an explanation of the RPA 94 standard, see H.R. REP. NO. 103-826, at 209 (1994), reprinted in 1994 U.S.C.C.A.N. 3773, 3981.) 21 In our view, plaintiffs frame this issue incorrectly. Surplus is not an affirmative defense that 3M must prove. Rather, absence of adequate surplus is an element of plaintiffs' standing under § 1132(a)(2) — proof they are suing to redress a loss to the Plan that is an actual injury to themselves. Plaintiffs have no evidence that the Plan will terminate in the foreseeable future. Therefore, they may not satisfy this element by proposing a termination valuation method because a hypothetical termination has no relevance to the issue of whether they have suffered injury in fact. As the district court observed, ERISA does not require [ongoing] plans to maintain funding at termination levels, a fact that the Supreme Court implicitly recognized in Hughes.  (Mar. 29, 2000 Mem. & Order at 13.) Likewise, the district court properly rejected plaintiffs' contention that the Plan must be 100% fully-funded under the RPA 94 valuation method. The statute does not use that funding level to determine whether additional contributions are required, and 3M has never been required to make an additional contribution. 22 We agree with the district court that [b]y nearly any measure, the 3M Plan is a robust, richly-funded, ongoing plan. ( Id. at 18.) The actuarial value of the Plan's assets exceeded its actuarial accrued liabilities in 1993, before Granite's bankruptcy, and in every year thereafter. 3M has contributed $683 million more than its minimum funding requirements since the loss of the $20 million Granite investment. Plaintiffs failed to prove the absence of a substantial surplus under any relevant valuation method. In these circumstances, the failure to investigate and monitor claims were properly dismissed because plaintiffs suffered no injury-in-fact. 5 23