Jennifer DURAND, Plaintiff, Walter J. Wharton; Michael A. Tedesco, Plaintiffs-Appellants, v. The HANOVER INSURANCE GROUP, INC.; The Allmerica Financial Cash Balance Pension Plan, Defendants-Appellees.
No. 14-5648
United States Court of Appeals, Sixth Circuit
Argued: June 11, 2015. Decided and Filed: Nov. 6, 2015.
806 F.3d 367
Before: KEITH and CLAY, Circuit Judges; MARBLEY, District Judge.*
Fortune‘s argument concerning the merits—that the allocation of the sale proceeds violated substantive bankruptcy law—is unavailing because Fortune must first have standing before the merits can be addressed. Additionally, Fortune‘s argument that it meets the “person aggrieved” standard because it has already received a letter from BOEM mandating that it decommission its Lease misses the mark. Fortune‘s payment of decommissiоning costs may show an injury, but it does not show that the bankruptcy court‘s order caused this injury. This court‘s jurisprudence states that the order of the bankruptcy court must directly and adversely affect the appellant pecuniarily. See Coho, 395 F.3d at 203. Having failed to present sufficient evidence to show that Fortune was directly and adversely affected pecuniarily by the order of the bankruptcy court, Fortune does not meet the “person aggrieved” test. Therefore, the district court properly ruled that Fortune lacks standing. Because this court concludes that Fortune lacks standing to appeal, we need not address the district court‘s holding on statutory mootness. AFFIRMED.
OPINION
CLAY, Circuit Judge.
Named Plaintiffs Walter Wharton and Michael Tedesco appeal the dismissal of their claims from this class action suit filed under the Employee Retirement Income Security Act of 1974,
BACKGROUND
A. Procedural Background
On March 3, 2007, lead Plaintiff Jennifer Durand filed the complaint initiating this ERISA class action against her former employer, The Hanover Insurance Group, Inc. (the “Company“), and the pension plan it sponsors, Allmerica Financial Cash Balance Pension Plan (the “Plan” or the “Allmerica Plan“). The complaint challenged the projection rate used by the Plan to calculate the lump-sum payment Durand elected to receive after ending her employment at the Company in 2003. At the time Durand elected to receive her lump-sum payment, the Plan used a 401(k)-style investment menu to determine the interest earned by members’ hypothetical accounts. Durand alleged that Defendants impermissibly used the 30-year Treasury bond rate instead of the projected rate of return on her investment selections in the “whipsaw” calculation required under pre-2006 law (discussed in more detail below), in violation of
The district court dismissed Durand‘s complaint on November 9, 2007 based on her failure to exhaust administrative remediеs. Another panel of this Court re
The case was remanded and litigation proceeded below. Defendants answered the complaint and raised a number of defenses. Relevant to this appeal is the seventh defense, which asserted that the claims of putative class members “who received lump-sum distributions aftеr December 31, 2003” were barred due to an amendment to the Plan that took effect after that date (the “2004 Amendment“). The 2004 Amendment changed the interest crediting formula from the 401(k)-style investment menu to a uniform 30-year Treasury bond rate.
This was not the first time the 2004 Amendment had been raised in the case. Defendants first introduced it as an exhibit to their motion to dismiss in June 2007 as part of their opposition to Durand‘s claim for prospective equitable relief. At that time, class counsel responded that the 2004 Amendment was “clearly outside the ambit of this Complaint.” (R. 13, Response, PageID 287 n.9.) In December 2009, after Defendants raisеd the amendment as an affirmative defense, class counsel took a different tack and sought to respond by filing an amended complaint with two additional named plaintiffs, Walter Wharton and Michael Tedesco, to assert on behalf of putative subclasses that the 2004 Amendment was an illegal reduction or “cutback” in benefits in violation of
On May 31, 2011, the magistrate judge dismissed the cutback claim asserted by Wharton and Tedesco and the breach of fiduciary duty claims as untimely. On Plaintiffs’ motion for reconsideration, the magistrate judge reinstated the breach of fiduciary duty claims solely as they related to the whipsaw calculation. Sеparately, the parties litigated the merits of Wharton‘s whipsaw claim by means of Defendants’ motion for summary judgment. The magistrate judge held that the 2004 Amendment validly governed lump-sum distributions occurring after 2003, and that Wharton was not entitled to a higher interest crediting rate for any portion of his accrued benefits in the whipsaw calculation.
Plaintiffs obtained certification of these judgments as a final order under Rule 54(b) of the Federal Rules of Civil Procedure. In this timely appeal, Plaintiffs challenge the dismissal of the cutback claims and breach of fiduciary duty claims related to the 2004 Amendment. Plaintiffs have abandoned the whipsaw claims of Wharton and the class members he sought to represent.
Since 1995, Defendant Hanover Institute has provided a “cash balance” defined-benefit pension plan for its employees. Durand I, 560 F.3d at 437; see also West v. AK Steel Corp., 484 F.3d 395, 399 (6th Cir.2007) (discussing cash balance plans); I.R.S. Notice 96-8, Cash Balance Pension Plans, 1996-1 C.B. 359, 1996 WL 17901 (I.R.S.1996) (same). As described by this Court in Durand I,
[a] cash-balance plan creates an account for each participant, but the account is hypothetical and created only for recordkeeping purposes. The hypothetical account on paper looks much like a tradition[al] 401(k) account. Each participant‘s account is funded by hypothetical allocations, called “pay credits” and hypothetical earnings, called “interest credits,” that are determined under a formula selected by the employer and set forth in the plan.
560 F.3d at 437 (citations and quotation marks omitted). Interest credits, which are at issue in this case, are the earnings attributable to the account balance over time. AK Steel, 484 F.3d at 399. The formula for calculating interest credits may provide for a fixed rate of return on the account balances, or it may use a variable rate tied to an identified index. Id.
From 1995 until early 1997, the Plan provided a fixed rate of return of six percent. Then, from 1997 until the 2004 Amendment, the Plan allowed members to select hypothetical investment options from a “broadly diversified menu” described in Plan documents, including “an Allmerica stock fund and a wide variety of domestic and international equity funds, corporate and United States government bond funds, and a fixed interest fund and money market fund.” (R. 46, Amended Complaint, PageID 623.) Each member‘s interest credits were calculated based on the actual performance of the investment options he or she had selected. As mentioned аbove, the 2004 Amendment eliminated the menu of investment options and provided that all interest credits would be indexed to the 30-year Treasury bond rate.
1. The 2007 Complaint: Durand‘s Whipsaw Claim
The original complaint filed in 2007 focused on the treatment of interest credits in a particular context—the calculation of lump-sum distributions. Employees who leave their employment with the Company may choose either to continue participation in the Plan, in which case they will receive an annuity based on their accrued benefits once they reach the retirement age of 65, or to cash out their benefits and receivе a lump-sum. Durand I, 560 F.3d at 437-38. As Durand I explained, a departing employee “cannot be penalized for choosing the lump-sum distribution; thus, ‘[t]o comply with ERISA, lump-sum payments such as the one[] received by the plaintiff[] in the present case must be the actuarial equivalent of the normal accrued pension benefit.‘” Id. at 438 (quoting AK Steel, 484 F.3d at 400) (alterations and emphasis in original).
In order to derive the proper amount of the lump-sum distribution, cash balance plans were required until 2006 to use a two-part “whipsaw” calculation. Id. “First, the participant‘s account balance was projected forward to its value at the participant‘s normal retirement age, using the rate at which future interest credits would have accrued had the partiсipant remained in the plan.” Id. (quotation marks and emphasis omitted). This projected value yielded an estimation of the value of the participant‘s accrued benefit when she reached retirement age—here,
Jennifer Durand worked for the Company from 1995 until 2003, participating in the Plan for a total of seven and one half years. After ending her employment with the Company at the age of 32, she elected in 2003 to request the pay-out of her vested benefits in the form of a lump-sum distribution. The 2007 complaint alleged that the lump-sum she received understated the present value of her accrued benefit because it applied a reduced rate for projecting interest credits. Rather than using the projected performance of the investment options Durand had individually selected from the 401(k)-style menu, the Plan applied “a uniform projection rate—the 30-Year Treasury [bond] rate.” Durand I, 560 F.3d at 438. The 30-year Treasury bond rate was also applied to discount the projected amount of her benefit at normal retirement age back to its present value in 2003, nullifying the effect of the projection-forward. Id. (“The result in every case was a wash: . . . the lump-sum payout would always equal the participant‘s hypothetical account balance at the time of distribution.” (citation and quotation marks omitted)). Thus, the lump-sum amount Durand received was $17,038.18, identical to the amount in her hypothetical account at the time. Id. at 439.
The whipsaw methodology employed by Defendants was criticized in a 2002 report by the Inspector General (“IG“) of the Department of Labor. Inspector General, Dept. of Labor, PWBA Needs to Improve Oversight of Cash Balance Plan Lump Sum Distributions, Report No. 09-02-001-12-121 (March 29, 2002). The report surveyed a set of cash balance plans and concluded that some of the plans illegally applied a projection rate lower than the rate used to calculate interest credits for continuing plan participants, then used that same lower rate to discount back to present value, resulting in a projected value equal to the account balance. (Id. at 10-11.) Defendants acknowledged that the Plan was among those found by the IG to have violated ERISA. The Plan did not change its calculation methods, but instead publicly announced, “[w]e are very confident that we have been calculating benefits in accordance with the terms of the plan and in accordance with applicable laws and regulations.” (R. 1-5, Complaint Exhibit 4, PageID 20.)
The 2007 complaint squarely focused on the lump-sum calculation and asserted only a “whipsaw” claim under
2. The First Amended Complaint: Claims Related to the 2004 Amendment
The amended complaint, filed in December 2009, added Wharton and Tedesco as named plaintiffs representing putative subclasses in asserting new claims challenging the legality of the 2004 Amendment.
Walter Wharton was employed with the Company from 2001 to 2005. During that time he participated in the Plan. After leaving his employment in 2005, Wharton elected to receive a lump-sum distribution of his accrued benefit, and was given a payment of $10,297.45 on May 1, 2005. Like Durand‘s lump-sum distribution, this amount was identical to the amount reflected in Wharton‘s hypothetical cash account balance. Wharton seeks to represent a putative sub-class of plan participants who received lump-sum distributions between January 1, 2004, i.e., the date the 2004 Amendment took effect, and August 17, 2006, the date on which the Pension Protection Act eliminated the requirement of a whipsaw calculation (the “2004-2006 Distribution Sub-Class“).
Michael Tedesco was employed with the Company from 1993 to 1999 and accrued retirement benefits under the Plan during that period. Tedesco has elected to remain in the Plan rather than to receive a lump-sum distribution, and still has a hypothetical account balance under the Plan. Tedesco seeks to represent a putative sub-class of plan participants who received a lump-sum or other distribution after August 17, 2006, or who will do so in the future (the “Post-2006 Distribution Sub-Class“).
In their сutback claims, Wharton and Tedesco claim that the 2004 Amendment illegally reduced the benefits they had accrued prior to 2004 by eliminating the more valuable 401(k)-style indexing rate governing interest credits and replacing it with a uniform 30-year Treasury bond rate, in violation of
3. The First Amended Complaint: Breach of Fiduciary Duty
The amended complaint also asserted claims on behalf of all putative class members that Defendants had breached their fiduciary duty to plan members in their
DISCUSSION
Standard of Review
We apply de novo review to a ruling dismissing claims as barred by the statute of limitations. In re Vertrue Inc. Mktg. & Sales Litig., 719 F.3d 474, 478 (6th Cir.2013). The same de novo standard applies to “the district court‘s conclusion that allegations in an amended complaint do not relate back tо the original complaint.” U.S. ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 516 (6th Cir.2007).
1. The Cutback Claims
Because ERISA does not provide a statute of limitations for non-fiduciary claims, Plaintiffs’ cutback claims are governed by “the most analogous state statute of limitations.” Santino v. Provident Life & Acc. Ins. Co., 276 F.3d 772, 776 (6th Cir.2001). Relying on our decision in Redmon v. Sud-Chemie Inc. Ret. Plan for Union Emps., 547 F.3d 531 (6th Cir.2008), the district court adopted the five-year limitations period in Kentucky law applicable to statutory claims pursuant to
An amendment of a pleading relates back to the date of the original pleading when . . . (B) the amendment asserts a claim or defense that arose out of the conduct, transаction, or occurrence set out—or attempted to be set out—in the original pleading.
The cutback claims added by amendment in 2009 do not satisfy the standards of Rule 15(c)(1)(B). The original complaint can be fairly read as challenging only the methodology of Defendants’ whipsaw calculation for those Plan participants who have elected or will elect to receive a lump-sum and exit the Plan.3 The cutback claims, in contrast, challenge the legality of the 2004 Amendment, which changed the rate governing the allocation of interest credits to members’ nominal account balances during their continued participation in the Plan. The claims challenged distinct aspects of the Plan‘s administration—there is no identity with regard to the “general conduct” alleged to cause Plaintiffs’ injury. Miller, 231 F.3d at 250. The lack of interrelationship between the two claims is illustrated by the fact that Durand‘s whipsaw claim fully accrued when she received her lump-sum distribution in 2003, before the 2004 Amendment was adopted and took effect. Similarly, Tedesco and others who have not received a lump-sum payout could assert their claims without any reference to the whipsaw calculation. “[A] claim with entirely different ‘operative facts’ will not relate back.” Id. at 249.
Relying on Bledsoe‘s emphasis on notice to the opposing party regarding the scope of the suit, Plaintiffs argue that statements made in a letter sent in the course of settlement negotiations in January 2008 notified Defendants that Plaintiffs contested the legality of the 2004 Amendment‘s
In short, the two claims challenge different plan policies, which were adopted at different times, as illegal under distinct provisions of ERISA. Where the original complaint was solely concerned with the legality of Defendants’ whipsaw calculation under
2. The Breach of Fiduciary Duty Claims
Plaintiffs argue that their breach of fiduciary duty claims under
ERISA specifies a three- or six-year limitations period for claims of breach of fiduciary duty.
On aрpeal, Plaintiffs identify two instances of nondisclosure that they argue constituted a breach of fiduciary duty. The first is Defendants’ failure to inform Plan participants, while their claims were unquestionably timely, that the IG “had formally concluded following an audit of the Plan that [the Company] and the Plan were using an unlawful interest rate substitution methodology to calculate benefits.” Pl.‘s Br. at 48. The second instance of nondisclosure put forward as a basis for a breach of fiduciary duty claim is that Defendants “never told participants that the purpose of the 2004 amendment was to ‘cut[] off whipsaw liability.‘” Id. (quoting R. 63, Def.‘s Memo, PageID 1169, n.17).
These allegеd nondisclosures, however, simply cannot support a breach of fiduciary duty claim related to the lapse of Plaintiffs’ cutback claims concerning the 2004 Amendment. It must be remembered that class members’ breach of fiduciary duty claims related to the alleged whipsaw violations remain active in the pending litigation below. The instances of nondisclosure argued by Plaintiffs before this Court have nothing to do with the breach of fiduciary duty claims that were dismissed from the suit and are at issue in this appeal—the claims related to the allegedly illegal reduction in the interest crediting rate imposed by the 2004 Amendment.
Plaintiffs’ first theory of breach plainly does not relate to Plan participants’ awareness of their cutback claims. The IG report that Plaintiffs argue should have been disclosed addressed an entirely distinct aspect of Plan policy (i.e., the projection rate used in the whipsaw calculation) and, moreover, was issued years before the 2004 Amendment was adopted. Defendants’ failure to disclose the IG‘s findings therefore has no relevance to the lapse of the cutback claims on January 1, 2009. If Defendants’ failure to disclose the findings of that report did constitute a breach of fiduciary duty for other reasons, a question not before us, the Plaintiff class still has every opportunity to press forward with that theory under the whipsaw-related breach of fiduciary duty claims that remain in the case. Plaintiffs’ second theory fails for similar reasons, as they do not explain how Defendants’ disclosure of the alleged purpose of the 2004 Amendment to prevent whipsaw liability would have alerted continuing plan participants to the existence of a cutback claim.
CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the district court.
CLAY, CIRCUIT JUDGE
Raymond M. PFEIL and Michael Kammer, Individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. STATE STREET BANK AND TRUST COMPANY, Defendant-Appellee.
No. 14-1491
United States Court of Appeals, Sixth Circuit.
Argued: April 29, 2015. Decided and Filed: Nov. 10, 2015.
Rehearing En Banc Denied Jan. 14, 2016.*
806 F.3d 377