Court Opinion

ID: 769423
Source: CourtListenerOpinion
Date Created: 2012-04-18 09:58:46+00
Date Added: 2024-06-11T17:55:42.965165
License: Public Domain

218 F.3d 719 (7th Cir. 2000)
MICHAEL R. KING, MARK D. URBANSKI,  DONALD E. RENFRO, et al.,    Plaintiffs-Appellants,v.NATIONAL HUMAN RESOURCE COMMITTEE, INC.,    Defendant-Appellee.
No. 99-1313
In the  United States Court of Appeals  For the Seventh Circuit
Argued May 11, 2000Decided June 30, 2000

Appeal from the United States District Court  for the Northern District of Indiana, South Bend Division.  No. 3:96CV0907 AS--Allen Sharp, Judge. [Copyrighted Material Omitted]
Before COFFEY, EVANS, and WILLIAMS, Circuit Judges.
EVANS, Circuit Judge.

1
In this action, filed  pursuant to the Employee Retirement Income  Security Act, 29 U.S.C. sec. 1001 et seq., a  large number of workers at a stamping plant in  South Bend, Indiana, alleged violations in the  way their 401(k) plan was handled when the assets  of their employer were sold.

2
The employees who brought the action were  members of a collective bargaining unit  represented by the United Automobile, Aerospace  and Agricultural Implement Workers of America--  the UAW. Their former employer, EWI, Inc., had a  401(k) plan for the collective bargaining unit at  South Bend that was administered by Prudential  Mutual Fund Services. On April 30, 1996, EWI  filed for chapter 11 bankruptcy in the Northern  District of Ohio. On August 2, 1996, EWI and  Tecumseh Metal Products, Inc. executed an asset  purchase agreement for the sale of EWI's assets  in South Bend. The sale was approved by the  bankruptcy court on September 10, 1996. The  agreement provided for Tecumseh to assume the  union contract, to maintain a defined  contribution 401(k) plan, to receive the account  balances for the union members participating in  the EWI plan, and to transfer the balances to a  plan established by Tecumseh for the funds or to  an already existing plan.

3
Tecumseh did not have the capacity to handle  the payroll and benefit issues associated with  the large, unionized work force it acquired from  EWI. For that reason, on September 3, 1996, it  executed a client services agreement with the  Human Resource Committee, an affiliate of the  defendant National Human Resource Committee  (NHRC). The former EWI employees, as employees of  NHRC, kept their jobs in the stamping facility at  the same rates of pay as before. NHRC also had a  pension plan called the H.R. Leasestaff 401(k)  Plan, provided by Allmerica Financial  Institutional Services, in which it originally  intended to enroll the South Bend employees.  However, the union and Tecumseh determined that  Leasestaff was not, in fact, a suitable plan for  the South Bend employees. After negotiations  among the union, Tecumseh, NHRC, and Allmerica,  a new plan called the Human Resource Committee,  Inc. Collective Bargaining Unit 401(k) Plan was  formed. The plan was not ready until April 1997,  but coverage was made retroactive to November 15,  1996.

4
The actual transfer of the funds from the old  EWI plan had occurred before NHRC and Allmerica  were ready to receive them. On November 15, 1996,  Allmerica received the account balances from the  EWI plan in the amount of $2,661,772, but  documentation of the individual accounts was not  provided at this time. For that reason, the total  amount of money transferred was credited with a  short-term interest rate of 5.02 percent through  December 31 and then placed in a money market  fund from December 31, 1996, through mid-April  1997.

5
Tecumseh and NHRC terminated their contractual  relationship sometime in late September 1997, and  workers at the South Bend plant became direct  employees of Tecumseh. On October 1, 1997,  Tecumseh took over the ERISA plan, and it was  "restated" into an Allmerica prototype pension  plan.

6
In part, it is the delay in getting the Human  Resources Committee plan set up which the plan  participants claim violated their rights under  ERISA. One of the things of which they complain  is that their assets were not invested pursuant  to their individual choices. Also, they allege  that nonunion employees at the South Bend plant  were given several options regarding their EWI  balances, including rolling them into their own  Individual Retirement Accounts, but the  plaintiff-union employees were not. The employees  also say they did not receive information about  their funds and did not know until February 1997  whether their employer was Tecumseh or NHRC. The  employees also see a number of things wrong with  the way the new fund was set up. First, they  claim that NHRC and its president, Edward  Gudeman, did not solicit bids other than the one  from Allmerica and did not familiarize themselves  with the EWI Plan to ensure they were getting a  comparable plan. Also, they say that Jeffrey  Perlstein stood to benefit from the establishment  of the new plan. He was the sales agent NHRC used  to acquire the new plan with Allmerica and he was  also a founder of NHRC and an insurance broker  with offices inside NHRC.

7
These ERISA allegations are sorted--not entirely  successfully--into three counts. Count I alleges  a violation of 29 U.S.C. sec. 1103(c)(1), which  says that the assets of a plan "shall never inure  to the benefit of any employer and shall be held  for the exclusive purposes of providing benefits  to participants . . . and defraying reasonable  expenses of administering the plan." Count II is  for a violation of 29 U.S.C. sec. 1103(d), which  deals with duties upon the termination of a plan  and provides that upon termination the assets  shall be distributed in accordance with the terms  of the plan. Count III alleges a violation of 9  U.S.C. sec. 1104: that the defendants1 violated  their fiduciary duty in the selection of a new  plan and in the investment decisions which were  made. Specifically, the claim is that the  defendants failed to timely effectuate the  employees' investment decisions and wrongly invested the assets in a money market fund while  the difficulty with the transfer of the records  was going on.

8
Both sides moved for summary judgment in the  district court. The motion of NHRC and Tecumseh  was granted and judgment was entered dismissing  the case against all defendants, including Frank  Beardman, an administrator of the EWI plan, who  plays no part in this appeal. After the judgment  was entered, Tecumseh itself filed a petition for  reorganization under chapter 11 of the Bankruptcy  Code. The action is therefore stayed as to  Tecumseh, 11 U.S.C. sec. 362(a), leaving NHRC as  the only appellee before us. We review the  decision on summary judgment de novo, keeping in  mind that summary judgment is proper if there is  no genuine issue of material fact and the moving  party is entitled to a judgment as a matter of  law. Fed. R. Civ. P. 56(c); Celotex Corp. v.  Catrett, 477 U.S. 317 (1986).

9
On appeal, the employees raise three issues:  whether officials at NHRC were fiduciaries under  ERISA; whether they breached their duty; and  whether certain evidence regarding damages should  have been considered by the district court.

10
Before we tackle those issues, we will note  that some of the employees' claims are undermined  simply on the basis of uncontested facts in the  record. For instance, there is nothing except  bare allegations to indicate that Mr. Perlstein  received any benefit, even a commission, from the  establishment of the Human Resources plan. Nor is  there anything else in the record to show any  violation of the anti-inurement provisions of  ERISA. Thus, Count I fails.

11
Also, the employees claim that they should have  received their funds so that they could invest  them as they pleased when the plan was  terminated. But the facts show that what happened  was not a plan termination; it was a spin-off to  a new plan. The employees remained employed at  the same jobs as before, and at the same  location. The only difference was that they were  employed by a different entity. Spin-offs and  transfers of assets from one qualified plan to  another are allowed under both the Internal  Revenue Code and ERISA. See 26 U.S.C. sec.  414(I), 26 C.F.R. sec. 1.414(I)-1, and 29 U.S.C.  sec. 1058. Furthermore, a spin-off is what was  contemplated in the asset purchase agreement and  the order approving it; plus, the union contract  required the establishment and maintenance of a  pension plan. Additionally, there are specific  provisions in the code regulating when assets may  be distributed to participants or beneficiaries  and this was not one of them. See 26 U.S.C.  sec.sec. 401(k)(2)(B)(i) and 401(k)(10)(A).

12
Which brings us to whether NHRC was acting as a  fiduciary when it set up the Human Resources  plan. The short and well-established answer is  that it was not. It is clear that a person can be  a fiduciary for some purposes but not others. See  Lockheed Corp. v. Spink, 517 U.S. 882 (1996);  Hughes Aircraft Co. v. Jacobson, 119 S. Ct. 755  (1999); Ames v. American National Can Co., 170 F.3d 751 (7th Cir. 1999). It is also clear that  the defined functions of a fiduciary do not  include plan design, the amendment of a plan, or  the termination of a plan. Ames; McNab v. General  Motors Corp., 162 F.3d 959 (7th Cir. 1998). This  is not the first time we have considered this  issue in the context of a spin-off and the  attendant dissatisfaction with transitional plan  provisions. In Ames we said:

13
Plaintiffs wish that ANC had designed its  transitional programs so that their group would  be entitled to the bridging benefits given to the  corporate staff department, or at least to the  extra credit for ANC pensions that the unionized  employees won for themselves. But in order to  maximize the value of Food Metal when it conveyed  that division to Silgan, ANC chose to structure  its plan differently. This is a design decision,  not a decision implicating an individual's rights  to specific benefits, and as such, ANC was free  to make it for business reasons.

14
170 F.3d at 757. The choice of the Human Resources plan  does not implicate NHRC's fiduciary duties.

15
But, given that an entity can be a fiduciary  for some purposes and not others, we could arrive  at a different answer when the question involves  the administration of the plan, including the  investment of the money transferred from the EWI  plan. ERISA provides at 29 U.S.C. sec.  1002(21)(A) that:

16
[A] person is a fiduciary with respect to a plan  to the extent (i) he exercises any discretionary  authority or discretionary control respecting  management of such plan or exercises any  authority or control respecting management or  disposition of its assets, (ii) he renders  investment advice for a fee or other  compensation, direct or indirect, with respect to  any moneys or other property of such plan, or has  any authority or responsibility to do so, or  (iii) he has any discretionary authority or  discretionary responsibility in the  administration of such plan.

17
Here, when the money was received from EWI and  deposited in the money market account, there was  no plan, other than the Leasestaff plan, in  effect. While some funds were apparently  deposited in Leasestaff, the employees' biggest  complaint seems to be that the funds were  deposited in money market funds, rather than  accounts which reflected their individual  elections. Even though there was no actual plan  in effect when the funds were precipitously  transferred, these are pension funds, subject to  ERISA, and under the circumstances we think it  fair to say that someone had a fiduciary  obligation to manage the funds appropriately.

18
Thus we reach the next issue, which is whether  those fiduciary duties were breached. The alleged  breach involves the deposit of the funds into a  money market account, rather than into  individually selected investments. For several  reasons, we find no breach. First, it is  uncontested that NHRC--through no fault of its  own--did not have sufficient information to allow  it to invest the funds into individual accounts  until April 1997. Secondly, investing in a money  market fund can hardly be characterized as  irresponsible.

19
Finally, as the district judge said, "No harm;  no foul." The employees suffered no damages. The  evidence in the record shows that during this  time period the participants fared better in the  money market funds than they would have in the  individual investments they had previously  chosen. If one measures the gains the assets made  in the money market accounts and the gains they  would have made had they been invested in  November 1996 according to the employees'  elections, one finds that the employees suffered  no loss. The funds earned $23,886 in the money  market accounts and would have lost $24,983  otherwise, a total benefit of $48,869.  Furthermore, the investment was not a risky  choice which could give rise to liability even in  the absence of damages. Cf. Leigh v. Engle, 727 F.2d 113 (7th Cir. 1984).

20
The facts on which the calculations are made  cause us to detour to the final issue the  employees raise: should affidavits, including  those on which the calculations are based, have  been stricken from the record. The affidavits are  those of Michael Sweeney and Michael Davis.  Sweeney provides factual data regarding earnings,  and based on that information, Davis provides the  expert opinion that plaintiffs did not lose, but  actually gained, from the deposit of the money in  money market accounts.

21
The employees say the affidavits should be  stricken for failure to comply with disclosure  orders entered by the district court. They say  that, in fact, the documents on which Sweeney  relies were never produced or disclosed to the  plaintiffs. Also, plaintiffs say no information  about Davis was disclosed prior to the filing of  the summary judgment motion. Therefore, the  argument goes, NHRC should be precluded from  using his affidavit. NHRC responds by saying that  this is a last-ditch effort to avoid summary  judgment and that the employees knew what NHRC's  position was on damages and how it intended to  prove it early on. Besides, NHRC says, even if  all of the evidence were stricken, it would not  matter because it is plaintiffs' burden to prove  loss and they haven't done so.

22
Our only role on this issue is to determine  whether the ruling was arbitrary and capricious.  Cleveland v. Porca Co., 38 F.3d 289 (7th Cir.  1994). We find that it was not. Accordingly, the  affidavits were properly before the court. The  judgment of the district court is AFFIRMED.

Notes:

1
 The original defendants were Tecumseh and NHRC.  The appeal as to Tecumseh was dismissed on March  13, 2000.