Carol Harley Lenora Banaszewski Michael Payton, Individually, and on Behalf of All Others Similarly Situated v. Richard Zoesch v. Guilio Agostini Michael J. Barrett Larry E. Eaton Harry A. Hammerly Richard A. Lidstad Dwight A. Peterson John J. Ursu, Carol Harley Lenora Banaszewski Michael Payton, Individually, and on Behalf of All Others Similarly Situated Richard Zoesch v. Minnesota Mining and Manufacturing CompanyCarol Harley Lenora Banaszewski Michael Payton, Individually, and on Behalf of All Others Similarly Situated v. Richard Zoesch v. Guilio Agostini Michael J. Barrett Larry E. Eaton Harry A. Hammerly Richard A. Lidstad Dwight A. Peterson John J. Ursu, Carol Harley Lenora Banaszewski Michael Payton, Individually, and on Behalf of All Others Similarly Situated Richard Zoesch v. Minnesota Mining and Manufacturing Company
Steven L. Severenson, argued, Minneapolis, MN (John D. French, Deborah A. Ellingboe, Minneapolis, J. Alan Gailbraith, Washington, D.C., on the brief), for appellee.
JOHN R. GIBSON, Circuit Judge.
1 Participants and beneficiaries (hereinafter “Participants“) of a pension plan appeal from the district court‘s orders denying their motions to vacate its judgments under
2 3M sponsors the 3M Employee Retirement Income Plan, a “defined benefit plan” subject to the terms of ERISA. See
3 In 1990 the Committee invested $20 million of Plan assets in the Granite Corporation, a hedge fund that invested primarily in collateralized mortgagе obligations—fixed income securities that are derived from and secured by pools of private home mortgages. In March 1994, a significant rise in interest rates devastated the value of Granite‘s portfolio. At the same time, Granite was severely leveraged and brokerage firms began demanding additional money to sеrve as margin. Granite was forced to declare bankruptcy and was ultimately liquidated. The Plan lost its entire investment in Granite.
4 Participants filed suit against 3M in June 1996, alleging that 3M was liable to the Plan under
5 The district court granted 3M summary judgment on the prohibited transaction claim because Participants presented no evidence that the compensation agreement was unreasonable. The district court denied summary judgment on the failure to investigate and monitor claims, indicating that further discovery was needed to determine whether Participants could establish an essential element of their claim—a loss to the Plan. The district court relied on the Supreme Court‘s decision in Hughes Aircraft Co. v. Jacobson, 525 U.S. 432 (1999), to conclude that participants in defined benefit pension plans have no entitlement to surplus funds. If the Plan had a surplus, Participants would not be able to establish a loss to the Plan. After this ruling, Participants filed the second action asserting the same claims against seven members of the Committee.
6 After further discovery on the surplus issue, 3M renewed its motion for summary judgment. The parties proposed a number of possible methods for measuring whether the Plan had a surplus. The district court determined that, since “the 3M Plan is a robust, richly-funded, ongoing plan,” it was appropriate to measurе surplus according to the Retirement Protection Act of 1994 (“the Act“), rather than under the termination method advocated by Participants. Order of March 29, 2000, slip op. at 18. The Act requires plan sponsors to make contributions when a plan‘s “funded current liability percentage” is less than 90%. The funded current liability percentage is calculated by dividing the value of the plan‘s assets by the plan‘s current liability, using ERISA-mandated interest rates and mortality tables. Because there was “no dispute that the Plan‘s funding has exceeded the 90% threshold every year since the Granite loss,” the court concluded that the Plan was fully funded and therefore the Granite investment caused no loss to the Plan. Id. Participants could not meet an essential element of liability—loss to the Plan—so the court granted 3M‘s motion for summary judgment. In a later order, the court dismissed the Participants’ second suit, holding that the claims against the Committee defendants are barred by collateral estoppel.
7 Participants appealed the summary judgments in both suits to this Court, and we affirmed. Harley v. Minnesota Mining & Mfg. Co., 284 F.3d 901 (8th Cir. 2002). On the prohibited transaction claim, we agreed with the district court that Participants presented no evidence that the compensation agreement was unreasonable. On the failure to investigate and monitor claims, we affirmed the district court but disagreed that the Plan suffered no cognizable harm. The Plan‘s $20 million investment in Granite became worthless after Granite declared bankruptcy in April 1994, and this constitutes a loss to the Plan according to the plain meaning of section 1109(a).
8 Instead, we affirmed the dismissal of these claims because Participants lacked standing to bring an action under section 1132(a)(2). Hughes Aircraft made clear that Participants have no claim or entitlement to a defined benefit plan‘s surplus. In this case, the Granite loss may have depleted plan assets, but if the remaining assets were more than adequate to pay all accrued or accumulated benefits, any loss was to plan surplus. Because Participants have no claim or entitlement to Plan surplus, “the reality is that a relatively modest loss to Plan surplus is a loss only to 3M, the Plan‘s sponsor.” Harley, 284 F.3d at 906. Participants failed to meet their burden of proving the absence of a substantial surplus under any relevant valuation method. Thus, we held that the Granite loss was a loss only to plan surplus, not to Participants, and Participants therefore had not suffered a cognizable harm. Allowing Participants to nonetheless sue under section 1132(a)(2) to recover on behalf of the plan would violate the constitutional standing requirement in
9 Participants allege that approximately two weeks before this Court issuеd its March 26, 2002, opinion, 3M began to publicly disclose information that the Plan was underfunded and had been underfunded since at least September 30, 2001. On March 11, 2002, 3M filed an SEC Form 10-K report. According to the Participants, the report indicated that as of September 30, 2001 (the date for measuring Plan funding for SEC reporting purposes), utilizing optimistic assumptions, the Plan appeared to be underfunded by $300 million. Participants sought rehearing and rehearing en banc of the panel‘s opinion, and they included the allegation of underfunding in their petition. This Court denied rehearing.
10 Participants moved in the district court for relief from judgment in both related cases pursuant to
I.
11 Participants moved for relief from judgment under
II.
12 Participants argue that 3M misrepresented the level of Plan funding several times throughout the litigation. To prevail on a
13 Participants argue that 3M misrepresented Plan funding in its brief filed with this Court on August 7, 2000. 3M asserted: “Today, and at all times since Granite‘s collapse, the Plan‘s assets have exceeded its liabilities (that is, the present value of the participants’ accrued benefits).... [T]he Plan has surplus assets of over $2.2 billion.” 3M made similar assertions in its oral argument to this Court on March 12, 2001. Counsel argued, “The money is there. The plan is still in a surplus position.... This is a grossly over-funded Plan.... The plan didn‘t suffer a loss here because all the money that‘s necessary to pay the beneficiaries is still there.” The Participants have not demonstrated that these were misrepresentations, as both were made before September 2001, the date on which the Plan became underfunded according to 3M‘s 10-K report. Participants have produced no evidence that indicates 3M had any knowledge of this alleged underfunding before September 2001.
14 After September 2001, 3M was called upon to address the underfunding problem in its response to Participants’ petition for rehearing and rehearing en banc. On March 11, 2002, two weeks before this Court issued its opinion in the underlying case, 3M filed its 10-K report with the SEC. Participants noted the report in a footnote in their petition for rehearing. 3M likewise responded in a footnote by criticizing the Participants for citing to “a recent SEC filing by 3M” as an inappropriate attempt to go outside the summary judgment record. 3M also called the information irrelevant because different valuation methods were used for the SEC filing and for ERISA purposes. We see no reason why these statеments should be considered misrepresentations.2 Participants have not presented the kind of clear and convincing evidence of misrepresentation necessary to prevail on a
III.
15 The Participants also argue that they are entitled to relief under
16 Participants argue that the Plan is now so underfunded that justice will not be served unless we revisit the standing analysis in our first opinion. We held that Participants suffered no injury in fact because the challenged investment caused a loss in Plan surplus only. Without injury, they lacked standing to bring an action. We further held that, in order to demonstrate standing, the Participants had an affirmative burden to prove that the Plan did not have an adequate surplus. Participants claim that 3M‘s 2002 10-K report shows at least a $300 million defiсit since September 2001, and 3M‘s 2003 IRS filing shows a $1.5 billion deficit since January 2002. They argue that our first decision was fact-specific. If we had known the Plan was not in fact a “robust, richly funded, ongoing plan,” we would not have denied Participants standing to recover for 3M‘s alleged fiduciary breaches.
17 The district court did not abuse its discretion in denying Participants’
18 This case does not present the exceptional circumstances which make the extraordinary relief of
19 BYE, Circuit Judge, concurring.
20 The district court correctly concluded standing depends on the facts as they exist when a lawsuit is commenced. This Court concluded in the first appeal the plan participants lack standing because there was no loss to the plan when this action was filed in June 1996. See Harley v. Minn. Mining & Mfg. Co., 284 F.3d 901, 904, 906-08 (8th Cir.2002) (Harley I). Thus, I agree the district court did not abuse its discretion in denying the plan participants’ motion for relief under
21 Under the approach adopted in Harley I, a plan participant‘s standing to bring suit under
22 I do not see the sense in tying a plan participant‘s standing under section 1132(a) to the stock market‘s performance. A defined plan‘s ability to recover losses caused by a fiduciary‘s breach should not depend upon the vagaries of the stock market. Under Harley I, plan fiduciaries are partially insulated from liability during times when the market is good. But in the long run—as this case demonstrates—the loss will still affect plan participants when the market is down. Thus, I still believe a suit by plan participants under section 1132(a)(2) should be recognized for what it is—an аction by the plan itself, but brought by plan participants ”in a representative capacity to remedy an injury to the Plan itself.” Harley I, 284 F.3d at 910 (Bye, J., dissenting). The question of standing for bringing such a suit should be tied to whether the plan had a loss, period, not whether the plan participants arguably suffered a loss at any particular snapshot in time, based on fluctuations in