Court Opinion

ID: 2962778
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:01:56.552774+00
Date Added: 2024-06-11T11:42:34.751136
License: Public Domain

USCA1 Opinion

	

          November 28, 1994                            United States Court of Appeals
                            United States Court of Appeals                                For the First Circuit
                                For the First Circuit                                 ____________________        No. 93-2241                                  PETER A. CRAWFORD,                                Plaintiff, Appellant,                                          v.                             CHARLES R. LAMANTIA, ET AL.,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                       [Hon. Mark L. Wolf, U.S. District Judge]
                                           ___________________                                 ____________________                                     ERRATA SHEET
                                     ERRATA SHEET            Add the following sentence to the end of footnote 6 on page 11:                 Additionally, unlike the situation in Reich v.
                                                       _____                 Valley Nat. Bank of Arizona, 837 F. Supp. 1259
                 ___________________________                 (S.D.N.Y. 1993), where the funding of the ESOP                 drove the company into bankruptcy, no adverse                 economic effect stemming from the overvaluation                 was alleged here, and thus that issue is not                 before us.                                 ____________________

                            United States Court of Appeals
                            United States Court of Appeals                                For the First Circuit
                                For the First Circuit                                 ____________________        No. 93-2241                                  PETER A. CRAWFORD,                                Plaintiff, Appellant,                                          v.                             CHARLES R. LAMANTIA, ET AL.,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                       [Hon. Mark L. Wolf, U.S. District Judge]
                                           ___________________                                 ____________________                                        Before                                 Breyer,* Chief Judge,
                                          ___________                            Bownes, Senior Circuit Judge,
                                    ____________________                              and Stahl, Circuit Judge.
                                         _____________                                 ____________________            Alfred  D.  Ellis with  whom  Michelle  L.  Farmer  and Cherwin  &
            _________________             ____________________      __________        Glickman were on brief for appellant.
        ________            Peter  J. Macdonald with  whom Jeffrey  B. Rudman,  Hale and Dorr,
            ___________________            __________________   _____________        James  J.  Dillon,  and Goodwin  Procter  &  Hoar  were on  brief  for
        _________________       _________________________        appellee.                                 ____________________                                  September 14, 1994                                 ____________________        ____________________        *Chief Judge Stephen  Breyer heard  oral argument in  this matter  but        did  not participate in  the drafting or  the issuance  of the panel's        opinion.  The remaining  two  panelists therefore  issue this  opinion        purusant to 28 U.S.C.   46(d).

                      STAHL,  Circuit  Judge.   Plaintiff-appellant Peter
                      STAHL,  Circuit  Judge.
                              ______________            Crawford filed a complaint charging defendants-appellees Paul            Littlefield,   Irving  Plotkin   and   Harland  Riker,   Jr.,            individually and in their capacity as trustees of the  Arthur            D. Little, Inc. Employee Stock Ownership Plan and Trust ("the            Plan" or "the ESOP"), with a breach of their fiduciary duties            as defined under the Employees Retirement and Income Security            Act ("ERISA").   Plaintiff  now appeals the  district court's            grant of  summary judgment  in favor  of  defendants.   After            careful consideration of plaintiff's arguments, we affirm.                                          I.
                                          I.
                                          __                          Factual and Procedural Background
                          Factual and Procedural Background
                          _________________________________                      Arthur D. Little, Inc. ("ADL") is a Cambridge-based            international consulting  firm.   Plaintiff began  working at            ADL as a  management consultant on  June 7, 1981.   In  March            1988, ADL's  Board  of  Director's voted  to  form  an  ESOP1            pursuant  to 26 U.S.C.    4975(e)(7) of  the Internal Revenue            Code,  and to  propose a "going-private"  transaction whereby            ADL would 1) acquire all outstanding  publicly held shares of            ADL stock; 2)  cancel all  existing shares of  ADL stock;  3)            reissue "New Shares"; and 4) sell a portion of the New Shares                                
            ____________________            1.  The ESOP  is an individual account plan,  i.e. "a pension            plan  which  provides  for  an individual  account  for  each            participant  and for  benefits based  solely upon  the amount            contributed to  the  participant's account,  and any  income,            expenses, gains  and losses, and any  forfeitures of accounts            of  other  participants  which   may  be  allocated  to  such            participant's account."  29 U.S.C.   1102 (34).                                          -2-
                                          2

            to the ESOP with  financing from ADL (which in  turn received            bank financing).  Plaintiff objected to the transaction for a            variety of reasons, and delivered  to the Department of Labor            a thirty-two  page memorandum  detailing his belief  that, as            part of the going-private transaction, the ESOP Trustees were            intending  to buy  ADL  common stock  in  excess of  adequate            consideration within the  meaning of 29  U.S.C.   1002  (18).            Plaintiff urged the Department of Labor to seek an injunction            enjoining ADL  from consummating its plan.  The Department of            Labor declined plaintiff's invitation,  and on June 14, 1988,            the  ADL  disinterested  shareholders  approved  the proposed            transaction.                        Thereafter,  the ESOP  Trustees negotiated  a $32.8            million loan from ADL.   The agreement provided that  the to-            be-purchased ADL stock would act as collateral for  the loan,            which was to  be paid back to  ADL over a  seven-year period.            The borrowed funds would then be used to purchase 546,520 New            Shares of ADL common stock at $60 per share.  At closing, the            stock would immediately be  deposited into a suspense account            within the ESOP to be released over the  next seven years, on            a pro  rata basis,  to the  individual accounts  of qualified            employee participants  of the ESOP pursuant  to the following            arrangement.     Each  quarter,  ADL  agreed   to  make  cash            contributions  to the ESOP in an  amount sufficient to defray            the principal and interest payments due ADL on the ESOP loan.                                         -3-
                                          3

            The  ESOP,  in  turn,   agreed  to  return  the  contribution            immediately  to ADL in repayment  of its note.   Meanwhile, a            proportionate number of  the New Shares held  in the suspense            account as collateral would be freed and allocated by formula            to the  individual accounts  of participating ADL  employees.            In effect, ADL was  agreeing to repay the loan it  was making            to the ESOP to fund the purchase of the New  Shares, with the            employees ultimately reaping the benefits.                          On  November 30, 1988,  plaintiff was informed that            due  to budget  cuts, he  was to  be terminated.2   Plaintiff            negotiated an  extension of  salary and benefits  until March            24, 1989,  with an "unpaid  leave of absence" to  follow.  On            May  12, 1989,  plaintiff filed  his original  complaint, pro
                                                                      ___            se.3   Plaintiff then  resigned from  ADL, effective  May 18,
            __
                                
            ____________________            2.  Plaintiff has  not claimed in his  amended complaint that
            1989.    Approximately  one  year  later,  on  May  7,  1990,            he  was  terminated improperly  in  order to  deprive  him of            standing to initiate or maintain this action under  29 U.S.C.
            plaintiff  elected to receive  his total  vested distribution              1140.            from the  ESOP in the form  of 47 shares of  ADL common stock            3.  Plaintiff originally named as defendants all  trustees of            the  Memorial  Drive Trust,  the  Memorial  Drive Trust,  the
            and   a  check   in  the   amount  of  $51.49.4     Plaintiff            trustees of the  ESOP, the  ESOP and Arthur  D. Little,  Inc.            These   original  defendants   answered  the   complaint  and            thereafter jointly filed  a motion for summary  judgment.  On            June 9, 1993, before  the court ruled on  defendants' motion,            all parties agreed to a joint stipulation dismissing all non-            ADL ESOP trustee defendants from this action.             4.  ESOP  participants  may  elect  to  receive  their vested            benefits in one of two ways.  They may either take the shares            then  existing in  their individual account  or ask  that the            ESOP cash  out their account.   In order  to cash out  a plan            participant, the ESOP Trustees must  sell the stock then held            in the participant's  individual account to  ADL, at a  price            based on the most recent appraised value of new shares.   The            Trustees,  in turn,  pay the  participant the  resulting cash            proceeds.                                         -4-
                                          4

            subsequently  retained an  attorney  and, on  June 10,  1993,            filed a motion to amend his original complaint, together with            an amended complaint seeking "recovery  on behalf of the ESOP            for breach of fiduciary duty for the Trustees' failure to act            for   the   exclusive   benefit  of   the   participants  and            beneficiaries of the ESOP plan."  Plaintiff also sought class            certification  at  this time.    The  district court  granted            plaintiff's motion to amend on June 24, 1993.  The defendants            then renewed  their  motion for  summary judgment,  including            further argument  directed at  the amended complaint.   After            accepting additional memoranda  and hearing oral  argument on            defendants'  motion,  the   district  court  granted  summary            judgment in  favor of defendants, citing  plaintiff's lack of            standing.                                         II.
                                         II.
                                         ___                                  STANDARD OF REVIEW
                                  STANDARD OF REVIEW
                                  __________________                      As always,  we review  a district court's  grant of            summary judgment de novo and, like the district court, review
                             __ ____            the  facts in a light most favorable to the non-moving party.            See e.g., Woods v. Friction, No. 93-2296, slip  op. at 6 (1st
            ___ ____  _____    ________            Cir. July 29, 1994).  Our review is limited to  the record as            it stood before the district court at the time of its ruling.            Voutour v. Vitale, 761  F.2d 812, 817 (1st Cir.  1985), cert.
            _______    ______                                       _____            denied,  474   U.S.  1100   (1986).    Summary   judgment  is
            ______            appropriate  when "the  pleadings,  depositions,  answers  to                                         -5-
                                          5

            interrogatories, and admissions  on file,  together with  the            affidavits, if any, show that there is no genuine issue as to            any material fact and that the  moving party is entitled to a            judgment  as a matter  of law."   Fed. R.  Civ. P.  56(c).  A            material fact is one  which has the "potential to  affect the            outcome  of the  suit  under the  applicable law."   Nereida-
                                                                 ________            Gonzalez  v. Tirado-Delgado,  990  F.2d 701,  703 (1st.  Cir.
            ________     ______________            1993).   Thus, the nonmovant  bears the burden  of placing at            least one  material fact into  dispute once the  moving party            offers evidence of the  absence of a genuine issue.   Darr v.
                                                                  ____            Muratore, 8 F.3d 854, 859 (1st  Cir. 1993);  see also Celotex
            ________                                     ___ ____ _______            Corp.  v. Catrett, 477 U.S. 317,  322 (1986) (Fed. R. Civ. P.
            _____     _______            56(c) "mandates the  entry of  summary judgment, .  . .  upon            motion,  against  a  party  who   fails  to  make  a  showing            sufficient to establish the existence of an element essential            to that party's case, and on  which that party will bear  the            burden  of  proof  at  trial.").    In other  words,  neither            "conclusory    allegations,   improbable    inferences,   and            unsupported  speculation,"  Medina-Munoz  v.   R.J.  Reynolds
                                        ____________       ______________            Tobacco  Co., 896  F.2d 5,  8 (1st  Cir. 1990),  nor "[b]rash
            ____________            conjecture coupled with earnest  hope that something concrete            will materialize, is []sufficient to block summary judgment,"            Dow v.  United Bhd. of  Carpenters, 1 F.3d  56, 58  (1st Cir.
            ___     __________________________            1993).                                          III.
                                         III.
                                         ____                                         -6-
                                          6

                                      DISCUSSION
                                      DISCUSSION
                                      __________                      On   appeal,   plaintiff   makes  essentially   two            arguments.  First, plaintiff  charges that the district court            erred in ruling that plaintiff lacked standing to pursue  his            ERISA action because he was not a current employee throughout            the litigation.   Second,  plaintiff contends that  the court            erred in concluding  that he lacked  standing because he  had            failed to present a colorable claim for benefits.  We discuss            each of these arguments below.                      Plaintiff brought this action pursuant to 29 U.S.C.              1132(a)(2), which authorizes a "participant," "beneficiary"            or  "fiduciary" to  bring a  civil action  for breach  of any            fiduciary duty proscribed  by 29 U.S.C.    1109(a).   Because            plaintiff  is  neither a  beneficiary  nor  a fiduciary,  our            central task is to determine whether plaintiff qualifies as a            plan "participant" within the meaning of ERISA.                        ERISA defines the term "participant" to include                      any  employee or  former  employee of  an                      employer, or any member or  former member                      of  an employee  organization, who  is or
                                                     __________                      may become eligible  to receive a benefit
                      _________________________________________                      of any type from an employee benefit plan                      which covers employees  of such  employer                      or members of such organization, or whose                      beneficiaries may be eligible  to receive                      any such benefit.            29  U.S.C.   1002 (7) (emphasis supplied).  In Firestone Tire
                                                           ______________            & Rubber  Co. v. Bruch, 489 U.S. 101, 117 (1989), the Supreme
            _____________    _____            Court   interpreted  this  provision  as  providing  for  two                                         -7-
                                          7

            distinct categories of ERISA participants:  1) "employees in,            or  reasonably   expected   to  be   in,  currently   covered            employment;" or  2) former  employees who have  "a reasonable            expectation  of  returning to  covered  employment" and/or  a            "colorable claim" to  vested benefits.  Id.  at 117 (internal
                                                    ___            quotations omitted).                        Plaintiff  maintains that  he  has  standing  under            either  prong.    First, he  argues  that  he  was a  current            employee when  he initiated this  action and should  remain a            current employee  throughout the litigation  for purposes  of            standing despite  his actual  termination of employment.   In            the alternative, he asserts that he is a former employee with            a  colorable claim to vested benefits.  We disagree with each            of plaintiff's contentions.                      With regard to plaintiff's argument  that he should            be considered  an employee under Firestone's  first prong, we
                                             _________            note  that the basis for  "`[s]tanding, since it  goes to the            very power of  the court to act, must exist  at all stages of
                                                            ___ ______            the proceeding, and not  merely when the action  is initiated            or during  an  initial appeal.'"    Sommers Drug  Stores  Co.
                                                _________________________            Employee Profit Sharing  v. Corrigan, 883 F.2d  345, 348 (5th
            _______________________     ________            Cir. 1989)  (emphasis supplied)  (quoting Safir v.  Dole, 718
                                                      _____     ____            F.2d 475,  481 (D.C.Cir. 1983),  cert. denied, 467  U.S. 1206
                                             _____ ______            (1984)).  Therefore, although plaintiff may have had standing            as a current  employee when  he brought this  action, by  the                                         -8-
                                          8

            time he filed his amended complaint, he lost this standing on            account  of having  terminated  his employment  with ADL  and            having collected  all vested benefits  then due him  from the            ESOP.5   Accordingly, plaintiff  cannot be considered  a plan            participant under Firestone's first prong.
                              _________                      Plaintiff's  argument that  he  has standing  under            Firestone's second prong fares no better.  Plaintiff does not
            _________            contend that he has a reasonable expectation  of returning to            covered  employment;  instead,  he   argues  that  he  has  a            colorable  claim to  benefits as  a former  employee because,            "but for" defendants  breach of duty, he would  have received            additional, vested benefits at the  time he received his lump            sum payment from the ESOP.  Plaintiff reaches this conclusion            in stages.  First, he notes  that, under 29 U.S.C.   1109(a),            fiduciaries who breach their  fiduciary duties must make good                                
            ____________________            5.  In  his  brief,  plaintiff cites  Nishimoto  v. Federman-
                                                  _________     _________            Bachrach & Assoc., 903  F.2d 709 (9th Cir. 1990),  as support
            _________________            for his position that  ERISA standing is frozen in time as of            the date of  the initial  filing of the  complaint.   Despite            plaintiff's highly  suspect manipulation  of the  language of            Nishimoto,  the  case  contradicts,  rather   than  supports,
            _________            plaintiff's argument.  The  issue in Nishimoto was  whether a
                                                 _________            court  could adjudicate  pendent state  claims  following the            disposition of the federal claim.   At the time she filed her            complaint, Nishimoto  was a former employee  who was eligible            to receive vested benefits.  She "settled" her ERISA claim by            accepting a lump sum payment during the course of litigation.            The court noted that Nishimoto's "receipt of all the benefits            she was  due under the  plan indicates .  . . that  the ERISA            claim might have become subject  to dismissal at that point."            Id. at 715.  Thus,  Nishimoto's status at the time of  filing
            ___            was critical only as to whether the court was deprived of the            power  to adjudicate the remaining pendent state claims.  See
                                                                      ___            id.  
            ___                                         -9-
                                          9

            to the plan any losses resulting from their breach.   In this            case, therefore, defendants would  have to reimburse the plan            the difference between the  amount of money paid for  the New            Shares of  ADL stock and the true  market value.  In deciding            how that money should be allocated once returned to the fund,            plaintiff asks the court,  under the equitable powers granted            by 29  U.S.C.    1109(a), to allocate  the funds  to him  and            those members of  the ESOP  who were "cashed  out" after  the            date of the transaction.   Relying upon Sommers, 883  F.2d at
                                                    _______            350, plaintiff  contends that his share  should be calculated            by dividing the  number of  shares he received  when he  left            (47) by  the total  number of  shares (546,520)  and multiply            that fraction (.00008) by the overpayment.                         In  Sommers, however,  plan participants  brought a
                          _______            class  action   suit  to   recover  money  lost   during  the            liquidation of  a retirement trust.   Plaintiffs claimed that            their lump sum payments were less than the amount due because            the  trustees had  sold the  trust stock  for less  than fair            market value.  Each claimant had a set number of shares which            were  undervalued when it  came time to cash  them in.  Thus,            they were  not paid the  full extent of  their benefits.   We            have no such claim before us.                        Unlike  the  claimants  in  Sommers,  plaintiff has
                                                  _______            failed to  show that defendants' alleged  breach of fiduciary            duty  had a  direct and  inevitable effect  on  his benefits.
                                                            ___                                         -10-
                                          10

            Defendants borrowed funds from ADL to acquire a set number of            ADL New Shares, i.e., 546,520.  Had defendants not overvalued            the shares, they would  not have borrowed as much  money from            ADL.   Instead,  a recalculation  of the  price of  the stock            would have resulted  only in a smaller  loan, lower principal            and  interest payments to be  paid quarterly by  ADL, and the            same number of New Shares placed in the suspense account.  It            would  not have resulted in a similar  loan being made to the
                   ___            ESOP with any excess  cash to be distributed to  the accounts            of the participants.   The borrowed funds were  not available            for distribution;  they were  to be used  exclusively to  buy
                                                      ___________            stock, or in the alternative, to pay back the loan.6                                
            ____________________            6.  We acknowledge that because the ESOP note would have been            for less money,  the formula by  which the encumbered  shares            were  to be  released  to qualified  participants might  have
                                                              _____            altered the  rate of release of  stock one way or  the other.
                                             _____            The  district court was in no position to know this, however,            since plaintiff failed to argue this point and further failed            to  provide it with  the ESOP agreement.   Accordingly, there            was no  basis for the court to infer standing from a putative            accelerated  release  of   stock.  Additionally,  unlike  the            situation in Reich  v. Valley  Nat. Bank of  Arizona, 837  F.
                         _____     _____________________________            Supp.  1259(S.D.N.Y. 1993),  where  the funding  of the  ESOP            drove the company into bankruptcy, no adverse economic effect            stemming from  the overvaluation  was alleged here,  and thus            that issue is not before us.                                         -11-
                                          11

                                         III.
                                         III.
                                         ____                                      Conclusion
                                      Conclusion
                                      __________                      As we have explained, plaintiff failed to establish            standing  to sue under ERISA.7  The district court's grant of            summary judgment in favor of defendant is therefore                           Affirmed.  Costs to appellees.
                           Affirmed.  Costs to appellees.
                           _________  ___________________                                
            ____________________            7.  Plaintiff makes a final argument that our recent decision            in  Vartanian v. Monsanto Co.,  14 F.3d 697  (1st Cir. 1994),
                _________    ____________            requires a  more expansive view of ERISA  standing.  Whatever            merits  plaintiff's  argument   might  have,  we  note   that            Vartanian did  not involve  a situation,  as here,  where the
            _________            plaintiffs  could  not  "establish  that  they   were  former            employees  with a  colorable claim  to vested  benefits" when            faced  with a motion for summary judgment.  See id. at 702-03
                                                        ___ ___            n.4.  Accordingly, Vartanian is inapposite.
                               _________                                         -12-
                                          12