Court Opinion

ID: 4283653
Source: CourtListenerOpinion
Date Created: 2018-06-12 17:00:34.840432+00
Date Added: 2024-06-11T14:35:07.383575
License: Public Domain

Case: 17-15360    Date Filed: 06/12/2018   Page: 1 of 15

                                                         [DO NOT PUBLISH]

            IN THE UNITED STATES COURT OF APPEALS

                     FOR THE ELEVENTH CIRCUIT
                       ________________________

                             No. 17-15360
                         Non-Argument Calendar
                       ________________________

                D.C. Docket No. 2:14-cv-01074-WKW-DAB

DAVE BRYANT,
VIKKI BRYANT,

                                                           Plaintiffs-Appellees,

                                  versus

COMMUNITY BANKSHARES, INC.,

                                                          Defendant-Appellant,

THE ESTATE OF STEVEN C. ADAMS, et al.,

                                                                     Defendants.

                       ________________________

                Appeal from the United States District Court
                    for the Middle District of Alabama
                      ________________________

                              (June 12, 2018)
              Case: 17-15360     Date Filed: 06/12/2018   Page: 2 of 15

Before WILLIAM PRYOR, MARTIN and JILL PRYOR, Circuit Judges.

PER CURIAM:

      Community Bankshares Inc., appeals the summary judgment in favor of and

the award of prejudgment interest to Dave and Vikki Bryant on their complaint to

enforce their rights to the distribution and redemption of stock in an employee

stock ownership plan maintained by Bankshares. The district court ruled that the

plan administrator acted arbitrarily and capriciously by disregarding “specific and

mandatory provisions of the plan” that required Bankshares to honor the Bryants’

elections to diversify. We affirm.

                                I. BACKGROUND

      Bankshares served as the holding company for several banks, including

Community Bank & Trust in Union Springs, Alabama, where the Bryants worked.

Dave served as the president of the bank, its chief executive officer, and the vice

chairperson of its board, and he and his wife, Vikki, participated in the employee

stock ownership plan.

      The written plan document defined the role of the plan administrator.

Paragraph 8.4 required the plan administrator to act “in accordance with the Plan

and consistent with the fiduciary responsibility provisions of ERISA Title I[.]”

Paragraph 7.5 gave the plan administrator “duties and powers as may be necessary

to discharge its duties,” which included the rights “to construe and interpret the

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Plan, decide all questions of eligibility and determine the amount, manner and time

of payment of any benefits.” Paragraph 7.5 also stated that “[t]he plan

administrator shall have no power to add to, subtract from or modify any of the

terms of[,] . . . to change or add to any benefits provided by . . ., or to waive or fail

to apply any requirements of eligibility for a benefit under the Plan.”

      The written plan document entitled employees, like the Bryants, who

participated in the plan for ten years and were at least 55 years old to diversify part

of the company stock in their individual plan accounts. Paragraph 8.3 of the written

plan stated that “eligible Participant[s] shall, during any Qualified Election Period,

be permitted to diversify the investment of a portion of [their] Employer

Contribution Account[s].” Consistent with the plan, in February 2009 Bankshares

mailed the Bryants written notices on which they could elect, by April 15, 2009, to

diversify their plan accounts. The election forms stated that the Bryants’ elections

would “be implemented no later than June 30, 2009.”

      The Bryants elected to have part of their plan accounts transferred to their

individual retirement accounts. As provided in paragraph 8.3 of the plan, Vikki

“elect[ed] . . . to diversify the investment of twenty-five percent . . . of [her]

Account in the Plan, determined as of the Annual Valuation Date for the Plan Year

preceding the Plan Year in which such election is made[.]” And “in [Dave’s] case

. . . [because] the election year . . . [was his] last such election, [he was allowed to

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diversify] fifty percent (50%)” of his account. Paragraph 1.36 identified the

“annual valuation date” as “December 31 of each Plan Year.”

      As of December 31, 2008, the value of Bankshares stock was $11 per share.

At the time of election, Vikki’s account had 880.205842 shares valued at

$9,682.26 and $1,704.12 in cash. Dave’s account had 9,197.930607 shares valued

at $101,177.24 and $8,946.30 in cash.

      The Bryants’ elections entitled them to receive shares of company stock that

they could “put to the Company and the Plan” to redeem. Paragraph 8.3 of the plan

stated that, after a participant “direct[ed] the Plan Administrator to distribute (or

transfer to an Individual Retirement Account or another qualified retirement plan)

shares of Company Stock . . . equal to that portion of the Participant’s . . . Account

that is covered by the election,” the “transfer or distribution shall be made no later

than ninety (90) days after the last day of the Qualified Election Period during

which such Participant directed such investment.” Under paragraph 5.8, “[a]ny

Participant . . . receiving a distribution of Company Stock from the Plan . . . shall

have a ‘put option’ on such shares, giving him the right to have the Company

purchase such shares” at a price equaling “the fair market value as of the Annual

Valuation Date which precedes the date the put option is exercised.” The plan also

had “the opportunity” to “assume[] the rights and obligations of the Company

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under the put option.” The plan stated that the company “shall . . . [c]los[e] . . . the

sale . . . within thirty (30) days after the put option is exercised.”

      Bankshares was struggling financially, which reduced the value of its stock.

Bankshares entered into an agreement effective September 16, 2009, in which it

agreed to refrain from purchasing or redeeming its stock without the consent of the

Federal Reserve Bank and the Bank Commissioner. In October 2009, Bankshares

obtained a special valuation of its stock. An independent appraiser valued

Bankshares stock at $2.30 per share as of September 30, 2009.

      On November 2, 2009, Bankshares informed its plan participants about its

written agreement with the Federal Reserve. Bankshares stated that it lacked “cash,

or the ability to raise additional cash, to implement fairly participants’

diversification elections” and that participants had the right to change or retain

their earlier elections to diversify. If Bankshares “honor[ed]” an election to

diversify, it warned that it would distribute shares of common stock, the plan

would not offer a put option until the Federal Reserve lifted the restriction on

redemption, the price for redemption would be the “fair market value at that time

and in accordance with such rules as the Plan Administrator may establish,” and

the stock distribution would be a taxable event. Bankshares sent plan participants a

revised election form, which was a copy of its original election form with a line

drawn through its February 2009 date and above which was written “11-30-09.”

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      The Bryants submitted revised election forms that requested their shares

remain invested in the plan. As of December 31, 2009, the value of Bankshares

stock had dropped to $0.15 per share. In January 2010, the Georgia Department of

Banking and Finance closed a bank held by Bankshares and named the Federal

Deposit Insurance Company as receiver.

      In June 2011, the Bryants received a distribution of the cash in their

accounts. Vikki received $1,667.31 and Dave received $8,806.53. In 2012, the

board of directors for Bankshares became the plan administrator and voted to

terminate the plan, but as of May 28, 2016, the plan had yet to terminate.

      In March 2014, the Bryants demanded payments from Bankshares that

equaled 50 percent of the value of Dave’s account and 25 percent of the value of

Vikki’s account, but the plan administrator denied the Bryants’ demands. The plan

administrator responded that Bankshares had been fiscally incapable of honoring

the Bryants’ elections to diversify and that they had “revoked” their initial requests

by electing to leave their shares in the plan. The denial letters stated,

             Ordinarily, the Plan Administrator would have been obligated
      to implement [the Bryants’] April 2009 Diversification Request[s] on
      or before June 30, 2009. At the time, however, [Bankshares] stock had
      dramatically declined in value . . ., and [Bankshares] financial
      situation was deteriorating further. [Bankshares] knew that the value
      would continue to decrease (and indeed, [it] fell to just $2.30 by
      November 2009). If the stock had been transferred to IRA[s],
      [Bankshares] was not in a position to honor the put option to
      repurchase the stock, nor did [Bankshares] have a good valuation for
      the stock since it was declining so rapidly in value. The Plan also
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      could not distribute cash . . . for the value of stock because that would
      have had an adverse effect on other Plan participants. [Bankshares]
      decided to suspend all diversification requests until it could develop a
      plan that would be fair and equitable to all Plan participants.
      [Bankshares] had a fiduciary responsibility to act for the benefit of all
      participants and could not honor diversification elections to the
      detriment of other Plan participants. As a result, [Bankshares]
      properly concluded that it could not grant [the Bryants’] April 2009
      Diversification Request[s].

             [The Bryants’] Claim[s] [are] also denied because [they]
      ultimately elected for [their] share[s] to remain invested in the Plan. In
      [their] November 2009 Diversification Request[s], [the Bryants]
      voluntarily elected for [their] share[s] to remain invested in the Plan.
      [The Bryants] could have directed the Plan to transfer [their] share[s]
      to an IRA and the Plan would have done so. . . . [The Bryants’]
      November 2009 Diversification Request[s] revoked [their] April 2009
      Diversification Request[s] and rendered [them] null and void. There
      [are] no outstanding request[s] by [the Bryants].

      The Bryants filed an administrative appeal, which Bankshares denied.

Bankshares stated that its actions were governed by section 8.4 of the Plan and

federal law, 29 U.S.C. § 1104(a)(1)(A), which imposed on it a fiduciary “duty to

act for the benefit of all Plan participants,” and that it had determined a “payment

for units in the . . . stock fund . . . would have had an adverse effect on the other

Plan participants.” Bankshares disclaimed “breach[ing] . . . the Plan because [it]

was acting in the best interest of all the Plan beneficiaries when it declined to

honor [the Bryants’] April 2009 diversification request[s].” Bankshares also stated

that “there [was] no outstanding diversification request[s] by” the Bryants because

they had responded to the November 2009 letter by “voluntarily electing for [their]

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shares to remain in the Plan and . . . revok[ing]” their earlier election, which

“nullified and voided their April 2009 diversification request[s].”

      The Bryants sued Bankshares, its plan administrators, and its trustees to

enforce their rights as plan participants, for breach of fiduciary duties, and for

attorney’s fees. Bankshares answered that it acted consistent with the written plan

document “and in the interests of all participants and beneficiaries of the Plan.”

Both parties moved for summary judgment.

      The district court denied the motion filed by Bankshares and granted in part

and denied in part the Bryants’ motion. The district court entered an order granting

an injunction that enforced the Bryants’ rights to diversify, to obtain shares of

company stock equaling the part of their accounts covered by the election, and to

redeem the stock based on “the December 31, 2008 annual valuation.” The district

court rejected, for failure to “survive review under the arbitrary-and-capricious

standard,” the arguments of Bankshares that it lacked an accurate valuation of

stock, it was incapable of redeeming stock issued to plan participants, and the plan

could refuse to redeem stock because that was detrimental to other plan

participants. The reasons Bankshares proffered, the district court stated,

“conflict[ed] with the clear, specific, and mandatory terms of the Plan governing

stock valuation, a participant’s right to make a diversification election, and a

participant’s right to exercise a put option on distributed shares[,]” and conflicted

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with “the Plan administrator[’s] . . . written communications to eligible participants

[and] to the Bryants . . . .” The district court also rejected as “[un]reasonable” the

decision to treat “the Bryants’ November 2009 diversification elections . . . [as]

waivers of their” original elections due to their lack of a choice in losing their put

option; their lack of information that they “were releasing any rights under the

Plan”; the failure to advise them of the need to consult with counsel before

changing their election; and the absence of a benefit for making a different

election. The district court denied the Bryants’ claims for breach of fiduciary duties

and for attorney’s fees.

      The district court awarded the Bryants prejudgment interest as compensation

“for their losses . . . and [to] ensure that the Plan administrator does not obtain ‘a

windfall as a result of its wrongdoing.’” The district court “f[ound] that [a]

prejudgment interest rate of 1.5% [per month (18% annually)], by reference to

[Alabama Code] § 27-1-17(c), [was] appropriate . . . [based on] the wrongful

denial of pension benefits under ERISA.” And the district court decided to accrue

interest beginning on March 12, 2014, when the Bryants demanded payment from

Bankshares for “breach[ing] its contractual obligation to diversify [their]

accounts.”

                           II. STANDARDS OF REVIEW

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      We apply three standards of review in this appeal. We review de novo a

summary judgment. Alexandra H. v. Oxford Health Ins. Inc. Freedom Access Plan,

833 F.3d 1299, 1306 (11th Cir. 2016). We also review de novo the decision to

“affirm[] or revers[e] a plan administrator’s ERISA benefits decision, applying the

same legal standards that governed the district court’s decision.” Id. (quoting

Blankenship v. Metro. Life Ins. Co., 644 F.3d 1350, 1354 (11th Cir. 2011)). To the

extent an employee “benefit plan gives the administrator or fiduciary discretionary

authority to determine eligibility for benefits or to construe the terms of the plan,”

that determination is reviewed “under the arbitrary and capricious standard.”

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 114, 115 (1989). “The award

of an amount of prejudgment interest in an ERISA case is a matter committed to

the sound discretion of the trial court.” Florence Nightingale Nursing Serv., Inc. v.

Blue Cross/Blue Shield of Ala., 41 F.3d 1476, 1484 (11th Cir. 1995) (internal

quotation marks and citation omitted).

                                 III. DISCUSSION

      The Employee Retirement Income Security Act of 1974 requires that

“[e]very employee benefit plan shall be established and maintained pursuant to a

written instrument,” 29 U.S.C. § 1102(a)(1), which serves at least two important

purposes. First, a written plan enables an employee to determine “exactly what his

rights and obligations are under the plan.” Curtiss-Wright Corp. v. Schoonejongen,

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514 U.S. 73, 83 (1995) (quoting H.R.Rep. No. 93–1280, p. 297 (1974) U.S. Code

Cong. & Admin. News pp. 4639, 5077, 5078). Second, a written plan ensures that

the plan administrator “discharge[s] his duties . . . for the exclusive purpose of

providing benefits to participants and their beneficiaries[] and . . . in accordance

with the documents and instruments governing the plan,” 29 U.S.C.

§ 1104(a)(1)(A)(i), (a)(1)(D). See Heffner v. Blue Cross & Blue Shield of Ala., Inc.,

443 F.3d 1330, 1334 (11th Cir. 2006).

      The written plan for the Bankshares employee stock ownership plan

obligated it to comply with the Bryants’ elections to diversify their plan accounts.

Use of the mandatory term “shall” in the paragraphs governing participant benefits

established that the Bryants were entitled to diversify, to obtain stock, and to have

the company redeem the stock. See Slater v. Energy Servs. Grp. Int’l, Inc., 634

F.3d 1326, 1330 (11th Cir. 2011) (“the use of the term ‘shall’ is one of

requirement”); Antonin Scalia & Bryan A. Garner, Reading Law: The

Interpretation of Legal Texts 114 (2012) (“[W]hen the word shall can reasonably

be read as mandatory, it ought to be so read.”). Paragraph 8.3 of the written plan

stated that plan participants “shall . . . be permitted to diversify” and, if they made

such an election, the “transfer or distribution [of shares of company stock] shall be

made . . . .” After the distribution of stock, paragraph 5.8 provided that participants

“shall have a ‘put option’ on [their] shares, giving [them] the right to have the

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Company purchase such shares” at a price equaling “the fair market value as of the

Annual Valuation Date which precedes the date the put option is exercised.” Under

the “plain and ordinary meaning of the . . . terms” of the written plan, the Bryants

were entitled to elect to diversify. See Alexandra H., 833 F.3d at 1307.

      Bankshares argues that the plan administrator was allowed to disregard the

terms of the plan for three reasons, but these arguments fail. First, Bankshares

argues that the plan administrator was entitled to “interpret[] the contract” in a way

that “uniformly” avoided “harm[] to the Plan and other participants,” but “[a]s a

fiduciary, [the plan administrator was required to] . . . administer [the] plan . . . ‘in

accordance with the documents and instruments governing the plan,’” Heffner, 443

F.3d at 1334 (quoting 29 U.S.C. § 1104(a)(1)(D)). Second, Bankshares argues that

the plan administrator could deny the Bryants’ elections based on paragraph 7.3 of

the plan that allowed him to “determine all questions . . . including . . . any

situation not specifically covered by the provisions of the plan,” but we decline to

address in the first instance an argument that Bankshares did not present to, and

does not argue it was unable to raise in, the district court, see Access Now, Inc. v.

Sw. Airlines Co., 385 F.3d 1324, 1330–33 (11th Cir. 2004). Third, Bankshares

argues that “the language of the Plan . . . permitted . . . [the plan administrator] not

to strictly follow the diversification and put option terms of the Plan,” but that is

contrary to the language of the plan. Paragraph 7.5 states that “[t]he plan

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administrator shall have no power to add to, subtract from or modify any of the

terms of . . . [or] to change or add to any benefits provided by . . . the Plan.”

(Emphasis added.) Bankshares offers no reasoned basis for the plan administrator’s

decision to override the mandatory and unequivocal terms of the plan.

       Bankshares also argues that “the Plan Administrator’s decision is supported

by the evidence” that the Federal Reserve Bank had “prohibited . . . Bankshares

from redeeming its stock,” but we, like the district court, reject the argument as a

post-hoc explanation for denying the Bryants’ elections to diversify. The plan

administrator did not mention the prohibition on the original election form sent in

February 2009 or on the revised election form dated November 2009. And neither

the plan administrator nor Bankshares mentioned the prohibition in their decisions

denying the Bryants’ demands for payment or their administrative appeal. When

Bankshares told its plan participants about the prohibition in its November 2009

letter, it stated it “is currently subject to a Written Agreement . . . that prohibits [it]

from purchasing its Common Stock” and “cannot honor the obligation under the

put option to purchase Common Stock distributed from the ESOP.” The written

agreement had an effective date of September 16, 2009, well after the June 2009

deadline expired for Bankshares to implement the Bryants’ election.

       The district court did not err in entering judgment against Bankshares and in

favor of the Bryants’ claim to enforce their rights under the plan. The refusal of the

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plan administrator to honor the Bryants’ elections to diversify was arbitrary and

capricious. The explanations given for the plan administrator’s decision conflicted

with the unambiguous and mandatory language in the written plan and with the

information communicated to plan participants. See Yochum v. Barnett Banks, Inc.

Severance Pay Plan, 234 F.3d 541, 547 (11th Cir. 2000) (concluding the denial of

a claim for benefits was arbitrary and capricious “in that the plain language of the

Plan and the Agreement were violated”). The Bryants were entitled to diversify

their accounts, to have company stock transferred to their individual retirement

accounts, and to exercise their rights to have the stock redeemed by the company.

Bankshares does not challenge the findings that Vikki is entitled to 220 shares of

stock and that Dave is entitled to 4,599 shares of stock, which when redeemed at

$11 per share, entitles them, respectively, to $2,420 and $50,589.

       The district court also did not abuse its discretion when it used the Alabama

interest statute to determine the rate by which to calculate prejudgment interest

owed to the Bryants. The Employee Retirement Act does not mandate prejudgment

interest. The Alabama interest statute is intended to compensate beneficiaries when

their “health benefit plan . . . fails to . . . pay a clean written claim . . . within the

[applicable] time periods.” Ala. Code § 27-1-17(c). The district court reasonably

applied section 27-1-17(c) by analogy to make the Bryants whole after Bankshares

wrongfully refused to honor their elections and benefitted from withholding their

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money. See Florence Nightingale, 41 F.3d at 1484 (affirming the use of the

Alabama interest statute “as an analogy to fill a gap in ERISA law”); Smith v. Am.

Int’l Life Assur. Co. of New York, 50 F.3d 956, 958 (11th Cir. 1995) (affirming

prejudgment interest on an award of accidental death benefits under an insurance

policy governed by the Employee Retirement Act). Bankshares argues that section

27-1-17(c) “supplies an interest rate for . . . [health care benefit] claims only,” but

Bankshares identifies no statute that better fits the situation. Bankshares also

argues that the interest rate in section 27-1-17(c) is “exorbitant” and exceeds the

statutory prejudgment rate of 7.5 percent, Ala. Code § 8-8-10(a), but we have

concluded that the “use of [a] higher interest rate [is] not an abuse of discretion,”

Smith, 50 F.3d at 958. We cannot say that the district court abused its discretion

when it “has done nothing more than that which we approved in Nightingale.” Id.

                                 IV. CONCLUSION

      We AFFIRM the judgment in favor of the Bryants.

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