Court Opinion

ID: 8916445
Source: CourtListenerOpinion
Date Created: 2022-11-27 05:15:52.804066+00
Date Added: 2024-06-11T17:09:02.159967
License: Public Domain

CLARK, Circuit Judge,
dissenting:
Instead of affirming the district court’s decision, I would remand. There was no evidence to support the district court’s conclusion, which was adopted in the majority opinion.
I certainly agree that the district court was correct in concluding that Semet had shown that his treatment was facially inconsistent with the treatment of earlier departing plan participants. Further, in light of this discriminatory treatment, the district court was correct in holding that the appellees’ refusal to distribute to Semet his vested benefits shifted the burden of proof to the appellees to establish that their actions were consistent with their fiduciary duties under ERISA.
Despite this recognition of the trustees’ burden, the district court concluded that their denial of the lump sum distribution was neither arbitrary nor capricious upon the sole basis of the testimony of the trustees themselves. The district court’s opinion states in part as follows:
... [Tjheir [the trustees’] decision . .. was supported by their valid concern that immediate payment of more than $48,-000.00 of the Plans’ approximately $340,-000.00 in assets would create a “problem in making investment decisions” and could cause a “financial loss to the other participants.” Plaintiffs’ Exhibit 9.... While relatively small lump sum payments over a course of years are unlikely to impact adversely on investment decisions or profitability, the same cannot be said of a sudden loss of some 14% of the Plans, combined with the significant potential for additional requests for immediate payments which are substantial in total.
514 F.Supp. 34, 43.
The majority opinion, with the following language, joins in this factually unsupported investment analysis: “The larger the amount of assets, the more investment diversification possible. This could yield greater benefits for all participants.... ” At 1095.
I do agree that fiduciaries should diversify investments, and manage plans “solely in the interest of the participants and beneficiaries.” 29 U.S.C.A. § 1104. Nonetheless, I believe justice requires a remand because there was no testimony from any investment advisors, analysts, or similar experts to support the trustees’ conclusions. The only evidence in the record was given by the trustees themselves, who are lawyers, former partners of Semet, and who had interests adverse to his, as reflected by the record. The record does not show that these lawyers had expertise as investment analysts. Nor may the district court take judicial notice of what is sound investment policy under Fed.R.Evid. 201.
Indeed, the evidence and the trustees’ testimony hardly display financial finesse. The evidence showed that the fund had approximately $340,000.00 in assets and Semet’s share would have been $48,000.00. One investment was a $300,000.00 certificate of deposit with a March 1981 maturity date and the balance was in miscellaneous stocks, bonds and savings deposits. Attorney Jacobson testified as to possible future handling of the plan: “We would have to diversify and have enough money to invest in real estate, which is a traditional inflation hedge.” Any real estate investment could well consume a sizable part of the plans’ funds, making it difficult to meet the statute’s diversification requirement and prudent man standard. 29 U.S.C.A. § 1104(a)(1)(B).
Testimony reflected that contributions to the plans amounted to approximately $45,-000.00 per year. Evidence based upon technical investment knowledge was necessary to demonstrate that, in the midst of such relative liquidity, distribution to Semet of his lump sum would have had adverse impact on the fund and on the interests of the plans’ other participants and beneficiaries. There was no such evidence. Thus, the district court’s conclusion, “Here the trustees validly premised different treatment [of Semet] on consideration of the greater impact Semet’s request would have on the plan assets as a whole,” 514 F.Supp. at 44, has no support.
*1097One of the cases relied upon by the majority is Pompano v. Michael Schiavone & Sons, Inc., 680 F.2d 911, 915 (2d Cir.1982). In that case there was evidence that the plans’ actuaries had advised the Pension Committee not to make lump sum payments. Thus, “[t]he court found that the Committee did not follow an arbitrary path, but instead listened to advice from its actuaries in formulating this policy.” 680 F.2d at 915. There was no such evidence in the present case.
The present case is similar to that of Frary v. Shorr Paper Products, Inc., 494 F.Supp. 565 (N.D.Ill.1980). There plaintiff, when leaving the employment of Shorr, sought distribution of his share of a plan on the ground that Shorr had in the past honored other departing participants’ requests that they receive their interests in the plan at the time of their departure, rather than at retirement age. In Frary, as in the present case, the district court held that a plan’s manager could not treat employees in a discriminatory fashion and that the plan could not be administered arbitrarily or capriciously. The facts were undisputed that Shorr would not distribute to Frary his benefits because Frary had taken employment with a competitor. Holding for the plaintiff, the court found: “Indeed, defendants have not offered any justification for their policy which serves an interest of the Plan’s participants or beneficiaries.” 494 F.Supp. at 569. The trustees in the instant case, providing no expert testimony, similarly have offered no justification for their policy.
My concern is that the trustees of small businesses’ contribution plans, with no more than an unsubstantiated invocation of certain notions of investment, will exercise unfair leverage over departing employees. Such leverage was exercised in the present case as it was in Frary. The majority opinion gives a green light to fiduciaries to discriminate against a departing employee without being required to prove harmful impact upon the plan and its remaining participants.