343 F.3d 833 | 6th Cir. | 2003
RECOMMENDED FOR FULL-TEXT PUBLICATION
2 Gregg, et al. v. Transportation No. 01-4159 Pursuant to Sixth Circuit Rule 206 Workers of America, et al. ELECTRONIC CITATION: 2003 FED App. 0324P (6th Cir.) File Name: 03a0324p.06 Before: KEITH, BATCHELDER, and CLAY, Circuit Judges. UNITED STATES COURT OF APPEALS _________________ FOR THE SIXTH CIRCUIT _________________ COUNSEL ARGUED: Michael F. Dadisman, Independence, Ohio, for L ESTER G REGG , M ICHAEL (cid:88) Appellants. Randy D. Rinicella, ROETZEL & ANDRESS, (cid:45) H UMESTON , F RANK J AEGER , Cleveland, Ohio, for Appellees. ON BRIEF: Michael F. (cid:45) A LFRED K LINGER , E MILIO Dadisman, Independence, Ohio, for Appellants. Randy D. (cid:45) No. 01-4159 P ROCELLI , R OBERT Rinicella, ROETZEL & ANDRESS, for Appellees. (cid:45) > R ICHARDS , T HOMAS S ACK , (cid:44) CLAY, J., delivered the opinion of the court, in which P AUL W INKLER and S HIRLEY (cid:45) KEITH, J., joined. BATCHELDER, J. (pp. 31-32), delivered W INKLER , (cid:45) a separate opinion concurring in the result only. Plaintiffs-Appellants, (cid:45) (cid:45) _________________ (cid:45) v. (cid:45) OPINION (cid:45) _________________ T RANSPORTATION W ORKERS (cid:45) OF A MERICA I NTERNATIONAL , (cid:45) CLAY, Circuit Judge. Plaintiffs Lester Gregg, Michael (cid:45) S ONNY H ALL and J OHN Humeston, Frank Jaeger, Alfred Klinger, Emilio Procelli, (cid:45) Thomas Sack, Robert Richards, Paul Winkler and Shirley O RLANDO , (cid:45) Winkler appeal an October 2, 2001 order granting Defendants Defendants-Appellees. (cid:45) Transportation Workers of America International, Sonny (cid:45) Hall, and John Orlando summary judgment in Plaintiffs’ (cid:45) action alleging breach of fiduciary duty brought pursuant to (cid:78) the Employee Retirement Income Securities Act (“ERISA”),
29 U.S.C. § 1132(a)(1)(B) and (e)(1). For the reasons set Appeal from the United States District Court forth below, we REVERSE the district court. for the Northern District of Ohio at Cleveland. No. 99-02659—Patricia A. Gaughan, District Judge. FACTS Argued: June 11, 2003 With the exception of Shirley Winkler, Paul Winkler’s wife, Plaintiffs are or were members of the Defendant Decided and Filed: September 11, 2003 Transportation Workers Union of America (“TWU”), Air 1 No. 01-4159 Gregg, et al. v. Transportation 3 4 Gregg, et al. v. Transportation No. 01-4159 Workers of America, et al. Workers of America, et al. Transport Division. Plaintiff Sack lives in North Carolina Christian Wozny, an insurance expert holding a Chartered while the others reside in Ohio. Each obtained group term Life Underwriters (“CLU”) designation, to review different
plans. [2] FPA and the actuary determined that the Plan offered life insurance under a master policy issued by Transamerica Assurance Company. [1] Their policies became effective
by Transamerica Assurance Corporation represented the best January 1, 1996. option. Along with TWU’s local presidents, FPA and Silkes negotiated the Plan’s precise terms with Transamerica. TWU is an international union with approximately 100,000 members, including, inter alia , employees of American After reaching an agreement with Transamerica, FPA Airlines. Defendant Hall is the President of TWU and held worked with TWU’s local presidents to disseminate the that post at all times relevant to this action. Defendant Plan’s details to the union membership. This effort included Orlando is the Vice President of TWU’s Air Transport posting information at airports and mailing material to Division and also held this post at all times relevant to this individual members. As one of these bulletins made clear, in action. Both Hall and Orlando participated in acquiring the large print, the policy offered “[a] flat-rate premium that will policies on the behalf of TWU’s members. not increase with age.” (J.A. at 516.) Another contained the
exuberant headline, “NO INCREASES DUE TO AGE.” In 1995, American Airlines announced that it would replace (J.A. at 517.) The union documents also included a question- the prior life insurance policy it provided for its employees, and-answer form and other correspondence explaining the including members of TWU’s Air Transport Division, with an plan’s features. The question-and-answer sheet contained the age-rated group term life insurance policy. The new plan following information: would cause premiums to significantly increase, particularly for older workers. As a result, union members began QUESTION: Can I continue my TWU OTP Plan after contacting their local presidents to express concern about the retirement at the same monthly flat rate? high cost of American Airlines’ new insurance plan. Responding to these concerns, TWU’s Air Transport Division began to investigate alternative insurance options.
Hall asked TWU’s insurance broker, Future Planning Associates (“FPA”) to meet with the Union’s local presidents [2] W ithout any citation to the record, Defendants claim “the Union to determine if more affordable insurance alternatives existed. retained an insurance expert who held the Chartered Life Underwriter FPA received compensation from insurance companies for (CLU) designation to review the various p lans und er consideration.” facilitating the sale of policies. FPA interviewed at least two (Defend ants’ Brief at 4-5.) The CLU designee is not mentioned elsewhere in Defendants’ brief, nor does Orlando mention him at any companies. Additionally, TWU retained an independent
point in his deposition. The district court’s opinion provides his name, actuary, Lawrence Silkes, to review and evaluate the various but cites to one of Hall’s affidavits (merely mentioning Wozny’s name) insurance proposals. TWU also purports to have retained and to a pa ge in Hall’s deposition that never mentio ns Christian W ozny. W ithout the ability to establish what role, if any, Wo zny assumed, we cannot use W ozny’s ephemera l appearan ce in D efendants’ brief and uncertain participation in the policy selection process to support [1] At various points, the policy is called the “TWU OTP” policy. OTP Defend ants’ argument that no genuine issue o f material fact exists as to
stands for “Optional Term Policy.” whether Defendants breached their fiduciary duty. No. 01-4159 Gregg, et al. v. Transportation 5 6 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al. ANSWER: Yes. The TWU OTP Plan can be COUNSEL: And the rate increase you’re referring to, continued indefinitely after retirement at you’ve said it several times, someone told the same monthly rate. you it would just be pennies, correct?
. . . . GREGG: If anything, it would go up a few cents or a couple of pennies. QUESTION: Can the monthly flat rate for the TWU OTP Plan increase because of age? COUNSEL: That was told to you on one occasion, right? ANSWER: No. GREGG: At the meeting. At the meeting from the . . . . representative, whoever those gentlemen were from. QUESTION: Can the monthly flat rate for the TWU OTP Plan increase for any other reason? . . . . ANSWER: Yes. The rate may increase like all other COUNSEL: And you’re not sure the person who spoke plans of this type if the death claims those words about the pennies increase, experience is higher than it has been in you don’t know that person’s name, the past for TWU members. . . . If death correct? claims experience is lower than it has been for TWU members, the monthly GREGG: No, I don’t know his name, no. flat rate for the TWU OTP Plan
COUNSEL: And you don’t know who they represented, members could be reduced . do you? (J.A. at 521-23) (emphasis in original). GREGG: I understand they represented the union, Defendants also made in-person presentations to union because the union sent them there. It was members, including Plaintiffs. At one of these information a union meeting, so it had to be the union, sessions, several Plaintiffs asked questions about possible rate that’s what I thought. increases and the ability to keep their coverage when retired. (J.A. at 433.) The presenters also informed Plaintiffs that TWU’s representatives and FPA members told the audience coverage would not decrease nor would rates increase due to that the current premium would not increase for three years the age of the policyholder, and that coverage would continue and that any eventual increase would be minimal. As into retirement. Plaintiff Paul Winkler testified in his deposition, the union claimed that “if the cost went up at all, it would only be a
TWU and FPA made policy applications available at these penny or two, and that wouldn’t be for at least three years.” meetings. Members enrolled using a standard enrollment (J.A. at 533.) Plaintiff Gregg gave similar testimony: form. Every union member who chose to enroll received a No. 01-4159 Gregg, et al. v. Transportation 7 8 Gregg, et al. v. Transportation No. 01-4159 Workers of America, et al. Workers of America, et al. document titled “Group Term Life Insurance Certificate.” HALL: Yes. The Certificate described the insured’s right to review the
COUNSEL: Did you read the policy? Group Master Policy, although Transamerica retained its copy in New York City and TWU kept the union’s copy at its
HALL: No. Dallas offices. Defendants claim that each Certificate “expressly described . . . the conditions under which the Plan
COUNSEL: Why not? could be terminated.” (Defendants’ Brief at 6.) Defendants, however, do not cite to a specific page in the record. ( See id .)
HALL: Because my broker and my ATD [Air Under the heading “WHEN INSURANCE STOPS,” the Transportation Division] Director Certificate explains: [Orlando] said this is all that has been agreed to. Just the policy the International
Your insurance stops at the earliest of: (1) the date of President would sign and I believe your death; (2) 31 days after a premium due date, if the everything in it was accurate. No, I didn’t premiums for your insurance have not been paid; (3) the read it. date your membership with the Organization ends; (4) the date the Group Master Policy is amended so that
(J.A. at 590.) Defendant Hall also did not know that your insurance stops ; (5) the date the Group Master Transamerica could unilaterally terminate the policy on sixty Policy stops ; or (6) the date you ask, in writing, for it to days notice after January 1, 1999, or that Transamerica could stop. unilaterally terminate the Master Policy if it covered fewer than fifty insureds:
(J.A. at 359) (emphasis added). The Certificate does not explain the circumstances that could cause TWU and
COUNSEL: None of these four documents Transamerica to amend the Group Master Policy, nor does the [distributed to the membership] mention Certificate describe when (or how) the Group Master Policy the fact that there has to be at least fifty could stop. Following their union’s advice, Plaintiffs people in this plan? enrolled. . . . . Actually, Transamerica could terminate the policy or modify its terms after a three-year period. What Defendants HALL: None of these documents say that. Hall and Orlando knew is unclear. In his deposition, Orlando generally denied any inconsistency between the Group Master
QUESTION: When did you—when were you first Policy’s terms and what TWU informed its membership. Hall informed that there has to be at least a evidently never read the Group Master Policy: minimum of fifty people? COUNSEL: Mr. Hall, you signed the group master HALL: Just now. policy for the Transamerica policy for all members?
COUNSEL: Today? No. 01-4159 Gregg, et al. v. Transportation 9 10 Gregg, et al. v. Transportation No. 01-4159 Workers of America, et al. Workers of America, et al. HALL: You just informed me of that. Age Rate Per $1000 of Coverage . . . . Under 50 $0.45 COUNSEL: Is there anything in any of these exhibits 50-59 $0.73 [the documents distributed to membership] that even notifies the
Over 59 $0.76 bargaining units that in sixty days it can be unilaterally terminated?
The highest new rate still remained lower than the alternative offered by American Airlines, which required premiums of
HALL: Not that I read in there, no. $2.55 per $1000 of coverage. Nevertheless, under the policy the union promised, a fifty-nine-year-old insured would pay
(J.A. at 587-88.) Defendant Hall distributed information to $1,200 annually in monthly premiums for a $250,000 policy, union members based on what FPA broker John Pescitelli but that insured now must pay $2,280 for the same initial told him. He did not verify the information Pescitelli coverage. Worse, the $250,000 policy would only remain provided with any other source. worth $250,000 temporarily because coverage would decrease after age sixty-four: After the group policy became effective on January 1, 1996, Transamerica experienced substantial losses. Various factors contributed to the insurer’s problems, including (1) American
Age Percentage of Coverage Airlines’ offer of early retirement to certain union members, many of whom accepted; (2) a predominately older group of
65 92% insureds; and (3) a surprisingly high number of claims. As early as October of 1996, only nine months after the policy 66 85% became effective, Transamerica’s claims expenses equaled 1.4 times the premiums paid. Consequently, in September of 67 78% 1998, Transamerica notified TWU that it would exercise its 68 72% contractual right to terminate the policy effective January 1, 1999.
69 66% Faced with this forthcoming termination, FPA negotiated 70 61% an amended policy with Transamerica that would become effective January 1, 1999. The parties agreed to new terms,
71 56% pursuant to which union members’ premiums would increase from $0.40 per $1000 of coverage (regardless of age) to a new
72 52% age-based rate schedule: 73 48% No. 01-4159 Gregg, et al. v. Transportation 11 12 Gregg, et al. v. Transportation No. 01-4159 Workers of America, et al. Workers of America, et al. November 9, 2000. Plaintiffs do not contest that decision and 74 44% Transamerica is not a party to this appeal. 75 41% The remaining Defendants moved for summary judgment on June 13, 2001, and Plaintiffs moved for summary Over 75 38% judgment two days later. On October 2, 2001, the district court granted Defendants’ motion. On October 26, 2001,
Thus, when the insured turns seventy-five under the policy Plaintiffs filed a timely notice of appeal. the union promised, he would still pay only $1,200 in annual premiums for a $250,000 policy. Under the new policy, a
DISCUSSION
seventy-five-year-old insured would pay $2,280 for only $95,000 in coverage. The difference between the promised
This case requires us to determine what duties Defendants policy and the new policy becomes increasingly stark as had to Plaintiffs and whether a genuine issue of material fact insureds age: by seventy-five, the new policy forces insured exists as to whether Defendants breached any such duties. to pay an additional $1080 in annual premiums for $155,000 less in coverage.
I.
The union retained the same independent actuary who We review summary judgment de novo . Eastman Kodak reviewed the original policy, and the actuary recommended Co. v. Image Technical Servs., Inc. , 504 U.S. 451, 466 n.10 the new policy. The FPA also negotiated a one-time election (1992). Summary judgment is appropriate when there is no for all retired union members (or members who would retire genuine issue of material fact, thereby entitling the movant by January 1, 1999) age sixty-five or older, to choose non-
to a judgment as a matter of law. Kocsis v. Multi-Care reducing coverage, i.e. , death benefits that would not decrease Mgmt . , Inc. , 97 F.3d 876, 882 (6th Cir. 1996). In Anderson at the same rates established by the new policy. Plaintiffs v. Liberty Lobby, Inc., 477 U.S. 242 (1986), the Supreme Paul Winkler and Gregg availed themselves of this one-time Court explained that “[t]he mere existence of a scintilla of election and remain beneficiaries under the new policy. evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could
Dissatisfied with the premium increases and benefit reasonably find for the plaintiff.” Id . at 322. Thus, our reductions, Plaintiffs filed a complaint in United States “inquiry, therefore, unavoidably asks whether reasonable District Court against TWU, Transamerica, Hall, and jurors could find by a preponderance of evidence that the Orlando. Plaintiffs alleged Hall, Orlando and TWU breached plaintiff is entitled to a verdict.” Id . their fiduciary duty under ERISA. Plaintiffs also alleged breach of contract against Transamerica for terminating the
To defeat summary judgment, the plaintiff "must come original Group Master Policy. forward with more persuasive evidence to support [his or her] claim than would otherwise be necessary." Matsushita Elec.
On July 25, 2000, Transamerica moved for summary Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586 (1986). judgment. The district court granted that motion on If the defendant successfully demonstrates, after a reasonable period of discovery, that the plaintiff cannot produce
No. 01-4159 Gregg, et al. v. Transportation 13 14 Gregg, et al. v. Transportation No. 01-4159 Workers of America, et al. Workers of America, et al. sufficient evidence beyond the bare allegations of the (C) by diversifying the investments of the plan so as complaint to support an essential element of his or her case, to minimize the risk of large losses, unless under summary judgment is appropriate. Celotex Corp. v. Catrett , the circumstances it is clearly prudent not to do 477 U.S. 317, 325 (1986). When determining whether to so; and reach this conclusion, we view the evidence and draw all (D) in accordance with the documents and instruments reasonable inferences in the light most favorable to the non- governing the plan. moving party. Adickes v. S.H. Kress & Co. , 398 U.S. 144, 157 (1970); Williams v. Int’l Paper Co. , 227 F.3d 706, 710
29 U.S.C. § 1104(a)(1). (6th Cir. 2000); Smith v. Thornburg , 136 F.3d 1070; 1074 (6th Cir. 1998).
We have explained that the fiduciary duties enumerated in § 404(a)(1) have three components. See Kuper v. Iovenko , 66
II.
F.3d 1447, 1458 (6th Cir. 1995). The first element is a "duty of loyalty" pursuant to which "all decisions regarding an “ERISA is a comprehensive statute designed to promote the ERISA plan 'must be made with an eye single to the interests interests of employees and their beneficiaries in employee of the participants and beneficiaries.'" Kuper , 66 F.3d at 1458 benefit plans.” Shaw v. Delta Air Lines, Inc. , 463 U.S. 85, 90 (quoting Berlin v. Mich. Bell Tel. Co. , 858 F.2d 1154, 1162 (1983). In § 404(a)(1), the statute establishes that a trustee (6th Cir.1988)). Second, ERISA imposes a "prudent man" administering a plan that ERISA governs has fiduciary obligation, which is "an unwavering duty" to act both "as a responsibilities:
prudent person would act in a similar situation" and "with [A] fiduciary shall discharge his duties with respect to a single-minded devotion" to those same plan participants and beneficiaries. [3] Id . (quoting Berlin , 858 F.2d at 1162). plan solely in the interest of the participants and beneficiaries and— Finally, an ERISA fiduciary must "'act for the exclusive
purpose'" of providing benefits to plan beneficiaries. Id . (A) for the exclusive purpose of: (quoting Donovan v. Bierwirth , 680 F.2d 263, 271 (2d Cir. 1982)). (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan; HALL: That would be John Pescitelli. And at complete and accurate information. Defendants have failed the time some of his representatives, to show, however, that no genuine issue of material fact exists
agents, but I can’t name them other than as to whether Defendants were reasonably justified in relying John Pescitelli. on the expert advice they received. QUESTION: What is Mr. Pescitelli’s title with the A fiduciary’s effort to obtain an independent assessment union? serves as evidence that the fiduciary undertook a thorough investigation. Chao , 285 F.2d at 430; Howard , 100 F.3d at
HALL: He is the broker of record. And he is 1489; Donovan v. Cunningham , 716 F.2d 1455, 1474 (5th also the President of Future Planning. Cir. 1983); Montgomery v. Aetna Plywood, Inc. , 39 F. Supp.2d 915 (N.D. Ill. 1998). As the Fifth Circuit explained:
QUESTION: Is he a member of the International Union too? A determination whether a fiduciary's reliance on an expert advisor is justified is informed by many factors,
HALL: No. including the expert's reputation and experience, the No. 01-4159 Gregg, et al. v. Transportation 17 18 Gregg, et al. v. Transportation No. 01-4159 Workers of America, et al. Workers of America, et al. QUESTION: Does he get paid directly by the union? protect the interests of both buyer and seller or the same attorney can represent both husband and wife in a divorce. HALL: No. FPA, however, had an enormous role relative to Silkes, the union’s actuary. [4] Silkes submitted a brief memorandum QUESTION: Is his compensation from Future Planning Associates? endorsing Transamerica. Other than that, no one seems to know precisely what role Silkes assumed. As Orlando
HALL: Yes. testified: . . . . [T]his Lawrence Silkes guy, he was the actuary that reviewed—and I don’t know what they do really,
QUESTION: And you hired them as the broker for because I’m not—I’m not an insurance salesman by far, about seven years when you became so I don’t know exactly what they do. But he reviewed President? the policies or whatever the plan was, and he’s the one that made the recommendation that it was okay, you
HALL: Yes. We picked up from the Local and know, that we would be good with this plan. [5] then just hired them as broker for the International. When I say “hire,” we don’t pay them, as I said. We use them [4] as consulting. He makes fees, whatever Again, as noted in footnote two, supra , we cannot consider what he gets from the insurance companies, role Christian Wozny had. One would assume that if he had a substantial role, Defendants would have done a be tter job highlighting his whomever.
indep endent input to us. QUESTION: He gets a percentage? [5] Orlando also testified:
HALL: I assume he gets that. ORLANDO: By a letter dated September 6, 1995, I addressed all of the local presidents and gave the outline of (J.A. at 581.) FPA and Pescitelli, therefore, are not what the insurance plan was. A nd alo ng with it independent analysts. FPA does not work for TWU; rather, there was a couple of [sic] two or three pages of insurance companies like Transamerica pay Pescitelli’s questions that were addressed by P escitelli’s firm that I ha d attached to it. salary. As a broker, FPA and its employees have an incentive to close deals, not to investigate which of several policies
QU ESTION : Okay. Yo u say, “Pescitelli’s firm,” right? might serve the union best. A business in FPA’s position must consider both what plan it can convince the union to
ORLANDO: FPA, Future Planning. I think he’s the president accept and the size of the potential commission associated of Future Planning. with each alternative. FPA is not an objective analyst any
QUESTION: But doesn’t he have to re port to you because more than the same real estate broker can simultaneously you’re the Vice President of this area? ORLANDO: No , he do esn’t. No. 01-4159 Gregg, et al. v. Transportation 19 20 Gregg, et al. v. Transportation No. 01-4159 Workers of America, et al. Workers of America, et al. (J.A. at 636-37.) Orlando, the Vice-President of TWU’s Air responsibilities, see Donovan v. Mazzola , 716 F.2d 1226, Transport Division, had no idea what Silkes did except that 1234 (9th Cir. 1983). "An independent appraisal is not a Silkes concluded that the Transamerica plan was acceptable. magic wand that fiduciaries may simply waive over a One can only surmise, for instance, whether Silkes received transaction to ensure that their responsibilities are fulfilled.” the information upon which he based his evaluations directly Donovan v. Cunningham , 716 F.2d 1455, 1474 (5th Cir. from the insurance companies or through Pescitelli. 1983); see also Howard , 100 F.3d at 1489, In re Unisys Sav.
Plan Litig. , 74 F.3d 420, 434-36 (3d Cir. 1996); Roth v. Throughout the process, FPA, not Silkes, had the primary Sawyer-Cleator Lumber Co. , 16 F.3d 915, 918 (8th Cir. role. Orlando testified that FPA “handle[d] everything as far 1994); Mazzola , 716 F.2d at 1234. Fiduciaries are ultimately as communication and as far as working with the responsible for making a careful and perspicacious choice. Transamerica people.” (J.A. at 637.) Orlando explained that
Bussian , 223 F.3d at 301 (explaining that fiduciaries may not FPA managed the in-person meetings with union members. [6] “rely blindly” on advice); In re Unisys. , 74 F.3d at 435-36 Orlando also stated that “Future Planning was the one that did ("[W]e believe that ERISA's duty to investigate requires all of the communication as far as the mail-outs to the homes fiduciaries to review the data a consultant gathers, to assess its [and] the solicitation.” (J.A. at 639.) In fact, Hall concedes significance and to supplement it where necessary."); that, other than with Pescetelli, he never double-checked any Katsoaros v. Cody , 744 F.2d 270, 279 (2d Cir. 1984) (“A of the information related to the policy with any source, trustee’s lack of familiarity with investments is no excuse: including Silkes. Thus, TWU, Hall and Orlando apparently under an objective standard trustees are to be judged relied almost entirely on FPA, which was not an impartial
‘according to the standards of others “acting in a like capacity analyst. and familiar with such matters.”’”) (citation omitted); Withers v. Teachers Retirement Sys. , 447 F.Supp. 1248, 1254
Independent expert advice is not a “whitewash,” Bierwirth , (S.D.N.Y. 1978), aff'd mem ., 595 F.2d 1210 (2d Cir.1979) 680 F.2d at 272, and it does not provide a complete defense ("In the area of investment decisions, the obligation to to the allegation that plan administrators neglected their exercise prudence [includes] an obligation to . . . make independent inquiry into the merits of particular investments rather than to rely wholly on the advice of others.").
As noted above, both Orlando and Hall relied primarily on QUESTION: Who does he report to? FPA. Hall, TWU’s President, did not learn of the group policy’s termination provision or its fifty-insured minimum ORLANDO: Yo u’d have to ask him. I think—I don’t know. until his deposition. Hall concedes he never bothered to read the policy. Fiduciaries need not become experts in employee
(J.A. at 637.) This exchange further demonstrates FPA’s une xplained ro le in the pro cess. It is hard to imagine that Orlando justifiably relied on benefits, and may rely on independent expert advice, but counsel from an advisor responsible to someone—worse, an unknown requiring that a fiduciary read the policy he signs and that he party— other than O rlando himself.
have a basic understanding of its most important provisions does not ask too much. [6] Orlando testified that “the FPA had their representatives going to the
various locales and conducting meetings either in the union halls or on the property.” (J.A. at 639.) No. 01-4159 Gregg, et al. v. Transportation 21 22 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al. IV. QUESTION: Well, you understand that you’d have the
right to inspect the Group Master Policy, The district court also determined that Defendants did not didn’t you? breach their duty of loyalty. Plaintiffs argue Defendants either lied about or omitted material information regarding WINKLER: I’m supposed to go to New York during (1) the size of possible premium increases and the possibility their normal business hours? that benefits would decrease with age; (2) Transamerica’s (J.A. at 535-36.) A fiduciary has not satisfied his right to terminate the plan; and (3) the requirement that the responsibilities by disseminating information in a manner not plan maintain at least fifty enrollees.
reasonably calculated to reach beneficiaries. As one would expect, “[l]ying is inconsistent with the duty Defendants’ second argument warrants more extensive of loyalty owed by all fiduciaries and codified in § 404(a)(1).” attention. ERISA distinguishes between pension plans and Peoria Union Stock Yards Co. Retirement Plan v. Penn. Mut. welfare plans . A pension plan “provides retirement income Life Ins. Co. , 698 F.2d 320, 326 (7th Cir. 1983). A fiduciary
to employees” or “results in a deferral of income by also may not materially mislead beneficiaries. Varity Corp. v. employees for periods extending to the termination of . . . Howe , 516 U.S. 489, 505 (1996). We have explained that “a employment or beyond.” 29 U.S.C. § 1002(2). Unlike misrepresentation is material if there is a substantial pension plans, welfare plans include those “established or . . . likelihood that it would mislead a reasonable employee in maintained for the purpose of providing . . . medical, surgical making an adequately informed decision in pursuing . . . or hospital care or benefits.” Id . at § 1002(1). Life insurance benefits to which she may be entitled.” Krohn v. Huron plans qualify as welfare plans. Metro. Life Ins. Co. v. Memorial Hosp. , 173 F.3d 542, 547 (6th Cir. 1999) (citing In Bigelow , 283 F.3d 436, 440 n.3 (2d Cir. 2000); Filipowicz v. re Unisys , 57 F.3d at 435-36). Significantly, “a fiduciary
Am. Stores Benefit Plans Comm. , 56 F.3d 807, 815 (7th Cir. breaches its duties by materially misleading plan participants, 1995); Brandon v. Travelers Ins. Co. , 18 F.3d 1321, 1324 regardless of whether the fiduciary’s statements were made (5th Cir. 1994). negligently or intentionally.” Id. at 547 (citing Berlin , 858 F.2d at 1163-64).
As a matter of law under ERISA, one of the key differences between welfare and pension plans is that welfare plan Defendants make two arguments. First, Defendants argue benefits do not vest. 29 U.S.C. §§ 1051, 1084; Wulf v. that all of the relevant information “was contained in the Quantum Chem. Corp. , 26 F.3d 1368, 1377 (6th Cir. 1994). Group Master Policy, available to the union members for the Consequently, plan administrators may modify a welfare asking.” (Defendants’ Brief at 14.) Although each individual plan’s terms at any time, whether or not the employer or policyholder’s certificate explained the insured’s right to union reserved the right to do so. See, e.g. , Lockheed Corp. inspect the Group Master Policy during normal business
v. Spink , 517 U.S. 882, 890 (1996) (citing Curtiss-Wright hours, this does not constitute “disclosure” in any meaningful Corp. v. Schoonejongen , 514 U.S. 73, 78 (1995)); Helwig v. sense because Transamerica kept its copy in New York and Kelsey-Hayes Co. , 93 F.3d 243, 248 (6th Cir. 1996). As TWU retained the union’s copy in Dallas. (J.A. at 358.) Defendants correctly note, fiduciary duties do not apply to the When deposed by Defendants’ counsel, Paul Winkler amendment or termination of an unfunded, contingent benefit complained: No. 01-4159 Gregg, et al. v. Transportation 23 24 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al. plan. Pope v. Cent. States Southeast and Southwest Areas duty by failing to disclose that it could amend or terminate the Health & Welfare Fund , 27 F.3d 211, 212 (6th Cir. 1994); plan. Id . at 405-06. Defendants are correct that this Court Sutter v. BASF Corp. , 964 F.2d 556, 562 (6th Cir. 1992); held “GM was not required to disclose in its summary plan Adams v. Avondale Indus., Inc. , 905 F.2d 943, 947 (6th Cir. descriptions that the plan was subject to amendment or 1990). termination.” Id . at 405. This Court wrote:
At this point, however, Defendants make a leap We are not aware of any court of appeals decision unsupported by ERISA or case law by arguing that because imposing fiduciary liability for failure to disclose fiduciary duties do not apply to the amendment or termination information that is not required to be disclosed. A of a welfare plan, “a plan administrator need not disclose the fortiori , there can be no fiduciary duty to disclose the fact that an employee welfare benefit plan is subject to possibility of a future change in benefits. Had an early amendment or termination.” (Defendants’ Brief at 14.) This retiree asked about the possibility of the plan changing, is only true if plan administrators are not otherwise providing and had he received a misleading answer, or had GM on beneficiaries with information. Defendants cite Sprague v. its own initiative provided misleading information about Gen. Motors Corp. , 133 F.3d 388 (6th Cir. 1998) (en banc), the future of the plan . . . a different case would have in which this Court interpreted, inter alia , ERISA’s disclosure been presented. But we do not think that GM’s accurate provisions contained in 29 U.S.C. § 1022(b). Several representations of its current program can reasonably be decisions from other circuits appear to support Defendants’ deemed misleading. GM having given out no inaccurate position; for instance, in Wise v. El Paso Natural Gas Co. , information, there was no breach of fiduciary duty. 986 F.2d 929, 935 (5th Cir. 1993), the Fifth Circuit wrote that Id . at 406 (citations omitted) (first emphasis of “possibility” "[s]ection 1022(b) relates to an individual employee's
in original; other emphasis added). To reiterate, “[h]ad an eligibility under then existing, current terms of the Plan and early retiree asked about the possibility of the plan changing,” not to the possibility that those terms might later be changed, or “had GM on its own initiative provided misleading as ERISA undeniably permits." See also Jensen v. SIPCO, information,” the fiduciary would have had a responsibility to Inc. , 38 F.3d 945, 952 (8th Cir. 1994) (citing Wise ); Gable v. provide a non-misleading answer. Id . Sweetheart Cup Co. , 35 F.3d 851, 858 (4th Cir. 1994) (citing Wise ). Like these cases, Sprague considered whether a plan
In this regard, our subsequent decision in Krohn v. Huron administrator must provide unrequested information, not Memorial Hospital , 173 F.3d 542 (6th Cir. 1999), developed whether an administrator may mislead when providing Sprague further. Krohn involved a permanently disabled information. See Sprague , 133 F.3d at 406; Jensen , 38 F.3d plaintiff who claimed she lost the opportunity to secure long- at 952; Gable , 35 F.3d at 858; Wise , 986 F.2d at 935. term disability benefits because the defendant, her prior employer, breached its fiduciary duty under ERISA. Id . at
Sprague involved a putative class of retirees who brought 545. The defendant never notified the plaintiff about an action against General Motors alleging that the company available long-term disability benefits despite her husband’s improperly modified a health care plan that would have general requests for information about the availability of provided the beneficiaries with free lifetime basic health disability benefits for his wife. Id . at 548. We held that coverage. 133 F.3d at 389-91. The plaintiffs argued, among “once an ERISA beneficiary has requested information from several things, that General Motors breached its fiduciary No. 01-4159 Gregg, et al. v. Transportation 25 26 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al. an ERISA fiduciary who is aware of the beneficiary’s status own initiative provides misleading information about the and situation, the fiduciary has an obligation to convey future benefits of a plan.” Id . complete and accurate information material to the
Turning to the specific facts this case presents, Plaintiffs beneficiary’s circumstance, even if that requires conveying participated in question-and-answer sessions in which, information about which the beneficiary did not specifically obviously, Plaintiffs questioned Defendants and their inquire .” Id . 547 (emphasis added); see also In re Unisys representatives about the policy. Plaintiff Gregg testified that Sav. Plan Litig. , 74 F.3d 420, 434-36 (3d Cir. 1996) (holding “questions were being asked” at these sessions. (J.A. at 433.) that Unisys breached its fiduciary duty where it "affirmatively Plaintiff Paul Winkler also testified: and systematically represented to its employees that once they retired, their medical benefits would continue for life—even
QUESTION: Did you personally ask questions at the though as the district court concluded in rejecting the retirees’ meeting? contract claim, the plans clearly permitted the company to terminate benefits"); Anweiler v. Am. Elec. Power Serv.
WINKLER: Yes. Corp. , 3 F.3d 986, 991 (7th Cir.1993) (finding fiduciary duty to communicate material facts affecting interests of
QUESTION: Tell me some of the things that you beneficiaries "exists when a beneficiary asks fiduciaries for recall being interested in that led you to information, and even when he or she does not"); Eddy v. ask some questions. Colonial Life Ins. Co. , 919 F.2d 747, 750 (D.C. Cir.1990) ("At the request of a beneficiary (and in some circumstances
WINKLER: I asked questions pertaining to will the upon his own initiative), a fiduciary must convey complete premium ever go up, number one. The and correct material information to a beneficiary."). answer was the premium is guaranteed for three years. And if it does go up, it
Following this course, we recently decided James v. Pirelli will only be a matter of a couple pennies. Amstrong Tire Co. , 305 F.3d 439 (6th Cir. 2002). Pirelli How long is the policy good for? Policy Armstrong involved an employer that, on its own initiative, is good forever until you die. Is it provided materially misleading and inaccurate information to decreasing insurance? No. Are the the plaintiffs in group meetings designed to convey premiums based upon your age? No. information about benefits. Id . at 443. The employer’s And to verify it, they gave us a hotline to human resources representative also provided materially call, which I most certainly did. misleading and inaccurate information when she indicated to employees that the employer could not change their benefits
(J.A. at 531.) Thus, Plaintiffs have adduced testimony that during retirement. Id . The employer argued that some they asked questions. plaintiffs did not inquire about their benefits, but we held that “it is not necessary that employees ask specific questions
Defendants distributed bulletins encouraging union about future benefits or that they take the affirmative step of members to consider a policy with “a flat rate premium that asking questions about the plan to trigger the fiduciary duty.” would not increase with age.” (J.A. at 516, 517.) Id . at 454. Rather, we stressed that a “breach of fiduciary Defendants’ question-and-answer sheet unequivocally states, duty occurs when the employer or plan administrator on its No. 01-4159 Gregg, et al. v. Transportation 27 28 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al. “Question - Can the monthly flat rate for the TWU OTP Plan See, e.g. , Abbruscato v. Empire Blue Cross & Blue Shield , increase because of age? Answer - No.” (J.A. at 521.) 274 F.3d 90, 103 (2d Cir. 2001) (“Even if, on remand, the According to Paul Winkler’s testimony, in direct response to trier of fact determines that there was no promise to vest the his questions, Defendants (or their representatives) told union life insurance benefits, Empire may have still violated any members that the policy would not base premiums on age, fiduciary duties in its retiree letters and other communications that the premiums would not increase by more than pennies, which promised lifetime benefits but failed to note that and that benefits would not decrease over time. We have held Empire could reduce or terminate these benefits at any that “[a] fiduciary must give complete and accurate time.”); Electro-Mechanical , 9 F.3d at 451; Drennan , 977 information in response to participants’ questions.” Drennan F.2d at 251. v. Gen. Motors Corp. , 977 F.2d 246, 251 (6th Cir. 1992);
Defendants also never informed Plaintiffs that the accord Electro-Mechanical Corp. v. Ogan , 9 F.3d 445, 451 Transamerica Group Master Policy required that at least fifty (6th Cir. 1993) (“ERISA imposes a duty upon fiduciaries to people participate for the insurance coverage to continue. respond promptly and adequately to employee-initiated This important piece of information is material to potential inquiries regarding the plan or any of its terms.”). Each of participants evaluating a life insurance program and the plan Defendants’ answers to Paul Winkler’s questions, however, administrators should have disclosed it in response to was extraordinarily misleading or outright false. Therefore, Plaintiffs’ questions concerning the conditions and Defendants’ answers violated the requirements of Sprague , circumstances under which Transamerica could cancel Krohn , and Pirelli . See Pirelli , 305 F.3d at 454; Krohn , 173
insurance coverage. Although no Plaintiff ever asked whether F.3d at 547; Sprague , 133 F.3d at 406. the policy required a minimum number of insureds, it is Defendants also suggested that Transamerica could not irrelevant that no one asked the precise question because once cancel the policy. According to the question-and-answer an ERISA fiduciary begins affirmatively providing sheet Defendants distributed: information not required by statute, the fiduciary may not
mislead, even if this means disclosing information that the QUESTION: Can I continue my TWU OTP Plan after fiduciary would not otherwise need to disclose. retirement at the same monthly flat rate? ERISA imposes trust-like fiduciary responsibilities, see ANSWER: Yes. The TWU OTP Plan can be Varity , 516 U.S. at 496, and a trustee “is under a duty to continued indefinitely after retirement at communicate to the beneficiary material facts affecting the the same monthly rate. interest of the beneficiary which he knows the beneficiary
does not know and which the beneficiary needs to know for (J.A. at 521) (emphasis added). As recounted above, Paul his protection in dealing with a third person.” R ESTATEMENT Winkler described this exchange from one of the information (S ECOND ) OF T RUSTS § 173, cmt. d (1959). For this reason, sessions: “How long is the policy good for? Policy is good “once an ERISA beneficiary has requested information from forever until you die.” (J.A. at 531.) Actually, Transamerica an ERISA fiduciary who is aware of the beneficiary’s status could terminate the policy at any time after three years, with and situation, the fiduciary has an obligation to convey appropriate notice. Defendants had a duty to honestly complete and accurate information material to the respond to questions about the plan’s termination provisions. beneficiary’s circumstance, even if that requires conveying No. 01-4159 Gregg, et al. v. Transportation 29 30 Gregg, et al. v. Transportation No. 01-4159 Workers of America, et al. Workers of America, et al. information about which the beneficiary did not specifically V. inquire .” Krohn , 173 F.3d at 547 (emphasis added); see also
Plaintiffs have raised a genuine issue of material fact as to In re Unisys Corp. , 57 F.3d at 1264 (holding that Unisys whether Defendants breached their fiduciary duty by breached its fiduciary duty where it "affirmatively and abandoning their responsibilities, overly relying on an systematically represented to its employees that once they untrustworthy advisor, and misleading beneficiaries. For all retired, their medical benefits would continue for life—even the aforementioned reasons, we REVERSE the decision of though as the district court concluded in rejecting the retirees' district court. contract claim, the plans clearly permitted the company to terminate benefits"); Anweiler v. Am. Elec. Power Serv. Corp. , 3 F.3d 986, 991 (7th Cir.1993) (fiduciary duty to communicate material facts affecting interests of beneficiaries "exists when a beneficiary asks fiduciaries for information, and even when he or she does not"); Eddy v. Colonial Life Ins. Co. , 919 F.2d 747, 750 (D.C. Cir.1990) ("At the request of a beneficiary (and in some circumstances upon his own initiative), a fiduciary must convey complete and correct material information to a beneficiary."). By not explaining the Group Master Policy’s minimum participation requirement, Defendants did not provide full and complete information.
Defendants thus misled Plaintiffs with respect to the size of possible premium increases and the possibility that benefits would decrease with age, Transamerica’s right to terminate the plan, and the requirement that the plan maintain at least fifty enrollees. Defendants had an affirmative obligation to provide Plaintiffs with this material information whether or not they asked for it. See, e.g. , Pirelli Armstrong , 305 F.3d at 454; Krohn ,173 F.3d at 547. The fact that Plaintiffs did request disclosure of this material information renders Defendants’ violations of Pirelli Armstrong and Krohn all the more apparent. See Pirelli Armstrong, 305 F.3d at 454; Krohn , 173 F.3d at 547. No. 01-4159 Gregg, et al. v. Transportation 31 32 Gregg, et al. v. Transportation No. 01-4159
Workers of America, et al. Workers of America, et al. _________________ appears to add to an ERISA fiduciary’s duties in an area already highly regulated by Congress and the Department of
CONCURRENCE
Labor, and gives no clear guidance as to what fiduciaries in _________________ this circuit must disclose to potential plan beneficiaries. Accordingly, I concur only in the result reached by the ALICE M. BATCHELDER, Circuit Judge, concurring in majority. the result only. I concur in the result reached by the majority because I believe that the plaintiffs have set forth just enough evidence to require that a trier of fact determine whether the Defendants breached their duty with respect to the potential change in the amount of the premiums. However, for several reasons I cannot simply concur in the opinion. First, I believe the majority opinion distorts the facts, particularly with regard to the Defendants’ reliance on experts in selecting the plan. Second, even if the majority’s factual picture in that respect were accepted as being correct, the majority’s creation of a new requirement that a fiduciary may not rely on expert advice unless the fiduciary himself has read everything that he signs, regardless of the complexity of the document, the expertise—or lack of expertise—of the fiduciary, or the degree of expertise of the experts or advisors on whom the fiduciary relies to evaluate the document for him, is imprudent and without legal precedent.
Finally, and perhaps most importantly, I believe the majority opinion extends this circuit’s cases of Sprague v. General Motors Corp , 133 F.3d 388 (6th Cir. 1998), Krohn v. Huron Mem’l Hosp. , 173 F.3d 542 (6th Cir. 1999), and James v. Pirelli Armstrong Tire Corp. , 305 F.3d 439 (6th Cir. 2002), beyond their rational application in all respects except with regard to the information disseminated about the potential change in premium amounts. These cases stand for the limited proposition that, if the fiduciary is providing information on its own initiative, then it must not make any materially misleading statements; but if it is responding to inquiry, it must provide accurate and complete information that bears in mind the needs of the particular beneficiary. Ranging far afield of these limited rules, the majority opinion
NOTES
[3] Courts define “prudent person”as that term is employed in the (B) with the care, skill, prudence, and diligence under common law of trusts. See, e.g., Katsoaros v. Cody , 744 F.2d 270, 279 the circumstances then prevailing that a prudent (2d Cir. 1984). “Prudent person” is an objective standard. 29 U.S.C. § 110 4(a)(1)(B ); Marshall v. Glass/Metal Ass’n Pension Plan , 507 F. man acting in a like capacity and familiar with Supp. 378, 384 (D. Haw. 1980) (“If fiduciaries com mit a pe nsion p lan’s such matters would use in the conduct of an assets to investments which they do not fully und erstand , they will enterprise of a like character and with like aims; nonetheless be judged, as provided in [ER ISA], acco rding to the standards of others ‘acting in like capacity and familiar with such matters.’”) (quo ting 29 U.S.C. § 1 104 (a)(1)(B)). No. 01-4159 Gregg, et al. v. Transportation 15 16 Gregg, et al. v. Transportation No. 01-4159 Workers of America, et al. Workers of America, et al. “[T]he duties charged to an ERISA fiduciary are ‘the extensiveness and thoroughness of the expert's highest known to the law.’” Chao v. Hall Holding Co., Inc ., investigation, whether the expert's opinion is supported 285 F.3d 415, 426 (6th Cir. 2002) (quotation omitted). When by relevant material, and whether the expert's methods enforcing these important responsibilities, we “focus[] not and assumptions are appropriate to the decision at hand. only on the merits of the transaction, but also on the Bussian v. RJR Nabisco, Inc. , 223 F.3d 286, 301 (5th Cir. thoroughness of the investigation into the merits of the 2000). One extremely important factor is whether the expert transaction." Id . (citing Howard v. Shay , 100 F.3d 1484, advisor truly offers independent and impartial advice. See id . 1488 (9th Cir. 1996)). at 303 (“[A] reasonable factfinder could conclude that RJR III. failed to structure, let alone conduct, a thorough, impartial investigation of which provider or providers best served the The district court found that Defendants properly relied on interests of the participants and beneficiaries.”) (emphasis expert advice. In Chao v. Hall Holding Co. , this Court added); Donovan v. Bierwirth , 680 F.2d 263, 271 (2d Cir. adopted a three-part test to evaluate a fiduciary’s reliance 1982) (Friendly, J.) (requiring a “careful and impartial upon financial advisors. The fiduciary must (1) “investigate investigation”) (emphasis added). the expert’s qualifications”; (2) “provide the expert with complete and accurate information”; and (3) “make certain Defendants relied on FPA, however, and FPA served as a that reliance on the expert’s advice is reasonably justified broker , not an impartial analyst. As Hall explained in his under the circumstances.” Chao , 285 F.3d at 430 (citing deposition: Howard v. Shay , 100 F.3d 1484, 1489 (9th Cir. 1995)). QUESTION: Who is the liaison between the union and Plaintiffs do not argue that Defendants failed to investigate Future Planning Associates? their experts’ qualifications or provide the experts with