Court Opinion

ID: 6930675
Source: CourtListenerOpinion
Date Created: 2022-07-23 23:58:16.129812+00
Date Added: 2024-06-11T16:07:10.070135
License: Public Domain

NIEMEYER, Circuit Judge,
concurring in part and dissenting in part:
The court’s opinion, in which I concur, concludes that the letters of December 13 and 15,1983, do not constitute a “plan” regulated by ERISA and that therefore the plaintiffs cannot make a claim for plan benefits based on those letters. By an equally divided vote, however, the court has left open the plaintiffs’ claim for $14 million based on an equitable estoppel theory. As an alternative basis to justify plaintiffs’ claim, the district court fashioned federal common law under ERISA, giving plaintiffs a claim based on equitable estoppel. The court indicated that if the theory were upheld on appeal, it still had to take evidence and make findings on the existence of any reliance on the part of the plaintiffs. By our equally divided vote, we have left standing the district court’s theory and now must remand to permit the district court to pursue that course. Because the equitable estoppel claim formulated by the district court is not justified by its own findings and because ERISA does not authorize any other causes of action to award the plaintiffs $14 million, I would reverse. Accordingly, I dissent from our affirmance of the district court on this issue.
I
In connection with a campaign by Cone Mills’ management to persuade stockholders and employees that a leveraged buy-out by management, would be more desirable to stockholders and employees than a hostile takeover by Western Pacific Industries, management published to employees several communications during the period between November 1983 and March 1984. Management stated in these letters that it opposed the hostile takeover effort and advised the employees what management was prepared to do if a leveraged buyout were approved. One of the proposals involved the current pension plan, about which management advised the employees that not only would existing pension benefits'be preserved, but surplus monies due to past overfunding of the pension plan, estimated at the time to be about $50 million, would be invested in a to-be-formed employee stock ownership plan (an “ESOP”). In a letter dated December 12, 1983, management explained:
Currently, it is difficult for me to give details, but subject to legal and tax rulings, it appears that in -the first' two years (1984-85), over fifty million dollars of stock could be contributed to your ESOP. At this point I am not allowed to legally guarantee that amount, nor will it be the same amount in future years. However, the estimated contribution does give you a good indication that our ESOP will become a very large stockholder of Cone Mills.
Speaking more specifically, in a letter dated December 15, 1983, management said:
The third factor for discussion involves disposition of surplus funds in -the [pension] Plan due to over-funding by the Company for a period of years. These surplus funds belong to the Company (the current stockholders), or anyone else who would purchase the Company or its stock. You and I as employees are entitled to certain guaranteed benefits from the Plan in accordance -with established Plan formulas. We have no title to surplus funds contributed by the Company beyond what it takes to fund our pension benefits.
If the management and bank proposal to buy the Company is successful, there is agreement among management and the banks that we will contribute the surplus, or its equivalent in Company stock, to the ESOP. When the transaction is executed and the contribution is made, you, I, and all other Cone employees will “take title” to a substantial asset in which we currently have no rights or ownership.
Neither the data nor the precise mechanisms for accomplishing the expressed intention of management were finalized at the time these letters were written. These plans of management were discussed in further detail in subsequent bulletin board notices and video presentations to the employees. By late December 1983 and early 1984, however, the discussion had moved from the estimated $50 million surplus to a contribution based on 10% of the participant’s pay for each of the years 1983 and 1984, and 1% for the ‘ year thereafter, the so-called 10%/10%/1% formula. Under this formula, it *874was still estimated that the ESOP contribution would be over $50 million.
In late February or early March of 1984, Cone Mills circulated a proxy statement to stockholders (including employees who were stockholders) in which it finally advised that the ESOP would be funded on the basis of the 10%/10%/1% formula set forth in the ESOP plan documents, stating that “the actual contribution [to the ESOP] will be determined by the Board of Directors of Cone.”
Thereafter, the leveraged buy-out was successfully completed and Cone Mills contributed $54,796,638 over a period of two years to the ESOP in accordance with the 10%/10%/1% formula contained in the plan’s terms. During the period of its contributions, however, the surplus in Cone Mill’s pension plan had increased to $69 million. This $69 million surplus exceeded the contribution made under the formula, which was $54,796,638, and Cone Mills retained the additional $14,203,362, the sum for which the plaintiffs are now suing. The plaintiffs allege that they are entitled not to a $50-million-surplus fund or to a 10%/10%/1% contribution, but rather to “the surplus” in whatever amount that might be. To make that claim, they rely largely on the December 15 letter which states that if the leveraged buyout arrangement is successful, Cone Mills “will contribute the surplus, or its equivalent in Company stock, to the ESOP.”
The district court found that this statement constituted a promise that Cone Mills would contribute the pension surplus, in whatever amount, into the ESOP and that this promise was part of the ESOP plan, even though such a promise was not incorporated into the subsequently adopted written plan. The court also found that Cone Mills was equitably estopped from denying the promise, providing an alternative basis for awarding plaintiffs the $14 million surplus. Since this court’s opinion has already addressed the question of whether the December letters constituted a plan, I address only the equitable estoppel issue.
II
As the district court properly noted in its opinion, this circuit has yet to address whether federal common law under ERISA should extend to include an equitable estoppel claim. We have, however, held previously that using estoppel principles to modify a written plan’s terms would conflict with ERISA’s preference for written agreements. In Coleman v. Nationwide Life Ins. Co., 969 F.2d 54 (4th Cir.), cert. denied, — U.S.-, 113 S.Ct. 1051, 122 L.Ed.2d 359 (1992), we held:
[A]ny modification to a plan must be implemented in conformity with the formal amendment procedures and must be in writing.... Equitable estoppel principles, whether denominated as state or federal common law, have not been permitted to vary the written terms of a plan.
Id. at 58-59 (Wilkinson, J.). Likewise, in Singer v. Black & Decker Corp., 964 F.2d 1449 (4th Cir.1992), we held,
resort to federal common law generally is inappropriate when its application would conflict with the statutory provisions of ERISA, discourage employers from implementing plans governed by ERISA, or threaten to override the explicit terms of an established ERISA benefit plan.
Id. at 1452. In a concurring opinion in Singer, Judge Wilkinson commented that “attempts to import state common law principles such as equitable or promissory estoppel to alter and undermine written obligations have been consistently rebuffed by the courts.” Id. at 1454, citing Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1165 n. 10 (3d Cir.1990); Pizlo v. Bethlehem Steel Corp., 884, F.2d 116, 120 (4th Cir.1989).
The rationale for these principles rests on the need to protect plans from undefined liabilities and consequently to protect the plan’s participants and their beneficiaries. See 29 U.S.C. § 1001(b). To allow informal or oral modifications of plans under some theory of common law would undermine the protection afforded by ERISA because “employees would be unable to rely on these plans if their expected retirement benefits could be radically affected by funds dispersed to other employees pursuant to” side agreements. Miller v. Coastal Corp., 978 F.2d 622, 625 (10th Cir.1992) (internal citation omitted). Moreover, if employer obli*875gations could be so casually created outside the written plan, “a substantial disincentive to offering such plans would arise since employers would be potentially exposed to massive future liabilities for which they could not confidently plan.” Singer, 964 F.2d at 1454 (Wilkinson, J., concurring). Finally, “allowing informal modifications would invite costly, litigious evidentiary disputes over what ‘promises’ or ‘representations’ were or were not made,” id., which is precisely the situation before us on this appeal.
Where fraud and misrepresentations by employers are involved, however, courts in other circuits have extended federal common law to include limited equitable estoppel principles, and the district court in this ease relied on such opinions in allowing the plaintiffs an equitable estoppel claim based on the December 15 letter sent by Cone Mills. The district court relied principally on Lockrey v. Leavitt Tube Employees’ Profit Sharing Plan, 748 F.Supp. 662 (N.D.Ill.1990), and Lipscomb v. Transac, Inc., 749 F.Supp. 1128 (M.D.Ga.1990), to allow an equitable estoppel claim. In each of these eases, however, the court enforced pre-plan statements which constituted misrepresentations about the benefits of the plan. In Lipscomb, the court said:
While an employer may rely upon a written plan to protect itself from oral modifications and amendment, its agent may not, before producing a written plan, make false representations to employees with regard to coverage, and only after a claim is filed or a relevant event occurs rely upon a later-composed, conveniently inconsistent version of the “plan” to deny benefits to employees.
749 F.Supp. at 1135. Similarly, the court in Lockrey stated:
Defendants fail to recognize that the alleged statements went beyond a mere description of the plan as it existed, and included representations to plaintiff as to how his benefits would, in the future, be computed if he took certain actions,
748 F.Supp. at 667. The court in Lockrey relied on the Seventh Circuit decision in Black v. TIC Invest. Corp., 900 F.2d 112, 115 (7th Cir.1990), where the court held that “[a]n estoppel arises when one party has made a misleading representation to another party and the other has reasonably relied to his detriment on that representation.” (Emphasis added). The. court explained:
The reasons for the general application of estoppel are simple enough — the doctrine prevents a party from benefitting from its own misrepresentations.... There is no good reason to breach the general rule that misrepresentations can give rise to an estoppel. There is no reason for the employee who reasonably relied to his detriment on his employer’s false representations to suffer. There is no reason for the employer who misled its employee to be allowed to profit from the misrepresentation.
Id. (emphasis added).
In like manner, courts have imposed fiduciary duties on employers under 29 U.S.C. § 1109 for eve-of-plan misrepresentations even though, technically speaking, no fiduciary duty arises until a plan is in place. In all of these eases where the duty was imposed, however, factual misrepresentations were made by the employer. See Berlin v. Michigan Bell Telephone Co., 858 F.2d 1154, 1164 (6th Cir.1988) (once “fiduciary does communicate with potential plan participants after serious consideration has been given [to the plan], then any material misrepresentations may constitute a breach of their fiduciary duties”); Eddy v. Colonial Life Ins. Co., 919 F.2d 747, 750 (D.C.Cir.1990) (citing Berlin with approval and holding that “a fiduciary must convey complete and correct material information to a beneficiary.”).
As may be discerned, the holdings of these cases emanate from the equitable principle that a company should not benefit from its misrepresentations. What is remarkable in the district court’s swift extension of federal common law in this case to include equitable estoppel is the fact that no misrepresentation was found by the district court. What is even more remarkable is that no party has suggested on appeal that the district court’s finding was erroneous.
No case has been found to hold that, in the absence of factual misrepresentation by fidu*876ciaries, a claim for breach of a contract, collateral to the plan, is granted by ERISA, particularly when the alleged contract conflicts with the written plan. On the contrary, we have twice before rejected such a notion in the context of conflicting promises made after the adoption of a plan. See Coleman, 969 F.2d 64; Singer, 964 F.2d 1449. The fact that a plan was in place in those cases does not distinguish them from the circumstances here, where the plan was produced subsequent to the promise. In each case, the promise and the plan conflicted, and in each ease, the plan was held to govern the obligations and benefits, absent extraordinary circumstances such as a fraud or a misrepresentation. Under these circumstances, in my view, it was error for the district court to have relied on federal common law of equitable estoppel, which by definition, requires a misrepresentation as an element. See Black v. TIC Invest., 900 F.2d at 115; Carver v. Westinghouse Hanford Co., 951 F.2d 1083, 1087 (9th Cir.1991) (“In this circuit, estoppel is available against a non-governmental party who has made a knowing false representation, or concealment of material facts.”) (internal citation omitted), cert, denied, — U.S. -, 112 S.Ct. 3036, 120 L.Ed.2d 905 (1992). For that reason alone, the district court’s ruling on equitable estoppel must be reversed.
In applying an equitable estoppel theory to this case, the district court also relied on 29 U.S.C. § 1132(a)(3)(B). This provision, however, which authorizes equitable relief, is limited in its applicability. It provides:
A civil action may be brought—
(3) by a participant ... (B) to obtain other appropriate equitable relief (i) to redress such violations [of this subchap-ter] or (ii) to enforce any provisions of this subchapter or the terms of the plan.
29 U.S.C. § 1132(a)(3)(B) (emphasis added). Thus, the equitable relief which is authorized under this section is limited to (1) redressing or enforcing the provisions of ERISA, or (2) enforcing the terms of a plan.
The Supreme Court, interpreting this very provision authorizing “other appropriate equitable relief,” stated that the provision “does not, after all, authorize ‘appropriate equitable relief at large, but only ‘appropriate equitable relief for the purpose of ‘redress[ing any] violations or ... enforcing] any provisions’ of ERISA or an ERISA plan.” Mertens v. Hewitt Associates, — U.S.-,-, 113 S.Ct. 2063, 2067, 124 L.Ed.2d 161 (1993). There is no claim here that there was a violation of ERISA or that the equitable estoppel theory was required to enforce any terms of the plan. In fact, as this court’s opinion notes, the December 15 letter did not constitute a plan or any portion of a plan. Thus, 29 U.S.C. § 1132’s “equitable relief’ provision could not serve as a basis for affording relief to the plaintiffs in this case. Although Congress intended for courts to develop a “federal common law of rights and obligations under ERISA-regulated plans,” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S.Ct. 948, 954, 103 L.Ed.2d 80 (1989), this did not give “carte blanche” authority for the courts to develop claims at large. Thus, in relying on 29 U.S.C. § 1132(a)(3)(B) to provide a basis for creating an equitable estoppel claim, the district court also erred.
Ill
The concurring opinion of Judge Murna-ghan apparently recognizes the difficulties that exist with the district court’s theories, since his opinion does not rest on the authorities cited by the district court. Rather, to support the claim based on the December 15 letter, Judge Murnaghan would fashion a common law theory of promissory estoppel, rather than equitable estoppel, to create a new contractual obligation under ERISA. Under this theory, Judge Murnaghan would have the management bear the obligation to fund the ESOP with the “surplus” as described in the single clause of the December 15 letter, regardless of what the executed written plan’s terms state. To accomplish this, Judge Murnaghan relies on common law principles of promissory estoppel described in Restatement (Second) of Contracts, § 90(1) (“A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action is binding if injustice can be avoided *877only by enforcement of the promise.”). See also Allen M. Campbell Co. General Contractors, Inc. v. Virginia Metal Industries, Inc., 708 F.2d 930, 931 (4th Cir.1983) (holding that promissory estoppel will provide a basis' for enforcement of a promise even in the absence of consideration).
Given the fact that the district court below explicitly relied on the theory of equitable estoppel, rather than promissory estoppel, and the fact that the parties briefed the court solely on the theory of equitable estoppel, the reviewing court should not pass judgment on this additional theory not addressed below. See Singleton v. Wulff, 428 U.S. 106, 120, 96 S.Ct. 2868, 2877, 49 L.Ed.2d 826 (1976) (“It is the general rule, of course, that a federal appellate court does not consider an issue not passed upon below.”); Hormel v. Helvering, 312 U.S. 652, 556, 61 S.Ct. 719, 721, 85 L.Ed. 1037 (1941) (the general rule is “essential in order that parties may have the opportunity to offer all the evidence they believe relevant to the issues ... [and] in order that litigants may not be surprised on appeal by final decision there of issues upon which they have had no opportunity to introduce evidence.”). Although the Supreme Court has hinted that there may be some exceptional circumstances where a federal appellate court is justified in resolving an issue not passed on below, in cases where injustice would result otherwise, see Singleton, 428 U.S. at 121, 96 S.Ct. at 2877, it is my opinion that this is not such a case.
In response to my opinion, Judge Murna-ghan has added footnote 5 to his opinion which suggests that either branch of estop-pel, equitable or promissory, should be open for consideration by the district court. Indeed, he observes that it is “abundantly clear” that “the district court’s concern was actually with promissory estoppel.” Judge Murnaghan relies heavily on excerpts from the district court’s opinion which characterize the December letters as “promises” to support his thesis that the district court was only relying on the theory of promissory estoppel. Such a conclusion, however, requires a somewhat creative interpretation that is not fully justified by the district court’s opinion. First, the excerpts on which Judge Murnaghan relies are mostly from the “Background” portion of the district court’s opinion, rather than the “Conclusions of Law” portion. The Background section relates, to any one of the many legal issues in the case, ranging from simple state law breach of contract to civil RICO. Indeed, the district court concluded, as its central holding, that the December letter constituted a written promise that formed part of an ERISA plan, a holding that we have today reversed. It is therefore not surprising that the district court used the term “promise.” It is, at best, questionable that the use of the term “promise” related to the alternative theory of recovery based on equitable estop-pel. It certainly cannot be maintained that there is conclusive evidence that the district court was relying solely on promissory estop-pel.
Judge Murnaghan also asserts that “it is plain that the district court merely mislabeled the branch of estoppel it considered.” This statement is also unsubstantiated by the opinion. In the paragraph immediately preceding the district court’s legal conclusion that “all of the other elements of equitable estoppel [except reliance element] are present here,” the district court explicitly adopted the following definition of equitable estoppel stated in Black v. TIC Investment Corp., 900 F.2d 112, 115 (7th Cir.1990): “An estoppel arises when one party has made misleading statements to another party and the other has reasonably relied to his detriment on that representation.” District Court’s Findings of Fact, Conclusions of Law, and Order, C/A No. 6:88-3258-17 (Sept. 18, 1991), at 47-48 (emphasis added). To me, it could not be clearer that the district court relied only on the theory of equitable estop-pel and not promissory estoppel (a term never used by the district court)', to provide an alternative means of recovery.
Judge Murnaghan also argues that because the district court reserved judgment on the reliance element of an estoppel theory, the court must have been referring to promissory estoppel. Judge Murnaghan seems to be suggesting that because reliance is an element of promissory estoppel, the district court could only have been discussing the *878theory of promissory estoppel in referring to reliance. That conclusion does not follow, however, in view of-the fact that reliance is also an element of equitable estoppel. See Black v. TIC Investment Corp., 900 F.2d at 115.
Finally, Judge Murnaghan argues that we should not be so formalistic in interpreting the district court’s opinion as to preclude the possibility of that court’s having relied on promissory estoppel, especially in light of the fact that “courts often conflate the doctrines.” However, recognizing that other courts, as well as this Court, suffer from “doctrinal confusion” is no basis for the assertion that such confusion must be extended in this case. Such justification is' particularly untenable in an ERISA federal common law case, where the courts must be cautious not to create new causes of action out of whole cloth, in violation of the explicit statutory enforcement scheme which limits the causes of action available under the Act. See Mertens v. Hewitt Assoc., — - U.S. --, -, 113 S.Ct. 2063, 2067, 124 L.Ed.2d 161 (1993) (limiting ‘“appropriate equitable relief for the purpose of ‘redressing any] violations or ... enforcing] any provision’ of ERISA or an ERISA plan.”).
Moreover, the extension of ERISA by federal common law to include a promissory estoppel claim has been rejected by other circuit courts that have passed on the issue. See Miller v. Coastal Corp., 978 F.2d at 625 (“we will not import notions of promissory estoppel into ERISA”); Alday v. Container Corp. of America, 906 F.2d 660, 666 (11th Cir.1990) (“the Eleventh Circuit explicitly held that there was no federal common law right'to promissory estoppel under ERISA”), cert. denied, 498 U.S. 1026, 111 S.Ct. 675, 112 L.Ed.2d 668 (1991); Williams v. Bridgestone/Firestone, Inc., 954 F.2d 1070, 1072 (5th Cir.1992) (reiterating its prior holding that “claims of promissory estoppel are not cognizable in suits seeking to enforce rights to pension benefits”). And in this case, such claim is unwarranted by the facts which show that at best, any promise that could be relied on was to invest approximately $50 million, as discussed in Part I above and in the separate opinion by Judge Wilkins.
In the circumstances of this case, the district court erred in recognizing an equitable estoppel claim without finding a misrepresentation. I would therefore reverse on this issue.
Judge LUTTIG and Judge WILLIAMS advise that they join in this separate opinion.