Court Opinion

ID: 2994428
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:14:37.088228+00
Date Added: 2024-06-11T09:35:35.938383
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 99-1313

MICHAEL R. KING, MARK D. URBANSKI,
DONALD E. RENFRO, et al.,

Plaintiffs-Appellants,

v.

NATIONAL HUMAN RESOURCE COMMITTEE, INC.,

Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of Indiana, South Bend Division.
No. 3:96CV0907 AS--Allen Sharp, Judge.

Argued May 11, 2000--Decided June 30, 2000

  Before COFFEY, EVANS, and WILLIAMS, Circuit Judges.

  EVANS, Circuit Judge. 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.

  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.
  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.

  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.

  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.

  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.

  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 defendants/1 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.

  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).

  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.
  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.

  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).

  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:

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.

At 757. The choice of the Human Resources plan
does not implicate NHRC’s fiduciary duties.

  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:

[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.

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.

  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.

  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).

  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.

  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.

  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.

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