Case Information
*1 United States Court of Appeals
For the First Circuit
No. 13-2128
DENISE MERRIMON and BOBBY S. MOWERY,
Plaintiffs, Appellees,
v.
UNUM LIFE INSURANCE COMPANY OF AMERICA,
Defendant, Appellant.
No. 13-2168
DENISE MERRIMON and BOBBY S. MOWERY, Plaintiffs, Appellants,
v.
UNUM LIFE INSURANCE COMPANY OF AMERICA,
Defendant, Appellee.
______________ APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Nancy Torresen, U.S. District Judge]
Before
Torruella and Selya, Circuit Judges, and McAuliffe, [*] District Judge.
*2 Donald R. Frederico, with whom Catherine R. Connors, Byrne J. Decker, Gavin G. McCarthy, and Pierce Atwood LLP were on brief, for defendant. James F. Jorden, Waldemar J. Pflepsen, Jr., Michael A. Valerio, Ben V. Seessel, John C. Pitblado, Jorden Burt LLP, and Lisa Tate on brief for American Council of Life Insurers, amicus curiae. Jeremy P. Blumenfeld, Morgan, Lewis & Bockius LLP, J. Michael Weston, and Lederer Weston Craig on brief for Defense Research Institute, amicus curiae. John C. Bell, Jr., with whom Lee W. Brigham, Bell & Brigham, Stuart T. Rossman, Arielle Cohen, National Consumer Law Center, M. Scott Barrett, and Barrett Wylie LLC were on brief, for plaintiffs. July 2, 2014
*3
SELYA, Circuit Judge.
In 1974, Congress enacted the
Employee Retirement Income Security Act (ERISA). Pub. L. No. 93-
406, 88 Stat. 829, codified as amended at 29 U.S.C. §§ 1001-1461.
One of ERISA's principal goals is to afford appropriate protection
to employees and their beneficiaries with respect to the
administration of employee welfare benefit plans. See Nachman
Corp. v. Pension Benefit Guar. Corp.,
Here, the plaintiffs challenge the insurer's use of RAAs as a method of paying life insurance benefits in the ERISA context. They presented the district court with two basic questions. First, did the insurer's method of paying death benefits in the form of RAAs constitute self-dealing in plan assets in violation of ERISA section 406(b)? Second, did this redemption method offend the insurer's duty of loyalty toward the class of beneficiaries in violation of ERISA section 404(a)? The district court answered the first question in favor of the insurer and the second in favor of the plaintiff class. It proceeded to award class-wide relief totaling more than $12,000,000.
Both sides appeal. We agree with the district court that the insurer's use of RAAs in the circumstances of this case did not constitute self-dealing in plan assets. We disagree, however, with the district court's answer to the second query and hold that the insurer's use of RAAs did not breach any duty of loyalty owed by the insurer to the plaintiff class. Accordingly, we affirm in part and reverse in part.
I. BACKGROUND
We briefly rehearse the relevant facts, which are largely
undisputed. Readers who hunger for more exegetic detail may
consult the district court's fulsome rescript. See Merrimon v.
Unum Life Ins. Co.,
The plaintiffs, Denise Merrimon and Bobby S. Mowery, represent a class of beneficiaries of ERISA-regulated employee welfare benefit plans funded by certain guaranteed-benefit group life insurance policies that the defendant, Unum Life Insurance Company of America (the insurer), issued. [1] In 2007, each named plaintiff submitted a claim for life insurance benefits. After reviewing the submissions, the insurer approved the claims.
The insurer redeemed the claims by establishing, through a contractor, accounts for the named plaintiffs at State Street Bank and credited to each plaintiff's account the full amount of *5 the benefits owed: $51,000 to Merrimon and $62,300 to Mowery. At the same time, the insurer mailed books of drafts to the plaintiffs, along with informational materials regarding the accounts. The drafts empowered the plaintiffs to withdraw all or any part of the corpus of the RAAs; provided, however, that each withdrawal was in an amount not less than $250.
In short order, the plaintiffs fully liquidated their RAAs and the accounts were closed. During the time that funds remained in their RAAs, however, the insurer retained the credited funds in its general account and paid the plaintiffs interest at a rate of one percent (substantially less, the plaintiffs allege, than the return the insurer earned on its portfolio).
The closing of the RAAs did not end the matter. In October of 2010, the plaintiffs filed a putative class action complaint in the United States District Court for the District of Maine. Their complaint alleged that the insurer's method of redeeming their claims violated ERISA sections 404(a) and 406(b), 29 U.S.C. §§ 1104(a), 1106(b), and sought "appropriate equitable relief" under 29 U.S.C. § 1132(a)(3). [2] Following discovery, the parties cross-moved for summary judgment and the plaintiffs moved for class certification. The district court granted partial summary judgment in favor of the insurer on the plaintiffs' section *6 406(b) claims and granted partial summary judgment in favor of the plaintiffs on their section 404(a) claims. See Merrimon, 845 F. Supp. 2d at 327-28. The court then certified the plaintiff class. See id. The insurer moved to reconsider the adverse summary judgment and class certification rulings, but the district court doubled down: it both denied the motion and struck it as untimely.
A bench trial ensued to determine the appropriate measure of relief based on the district court's determination (on partial summary judgment) that the insurer had violated section 404(a). When all was said and done, the court awarded the plaintiff class monetary relief in excess of $12,000,000 (exclusive of prejudgment interest). Neither side was overjoyed, and these cross-appeals followed.
II. JURISDICTION
The insurer argues, albeit conclusorily, that the
plaintiffs lack constitutional standing to pursue their claims.
One of the amici helpfully develops the argument in significantly
greater detail. Although these circumstances might ordinarily give
rise to questions of waiver, see, e.g., United States v. Zannino,
The Constitution carefully confines the power of the
federal courts to deciding cases and controversies. See U.S.
Const. art. III, § 2; Hollingsworth v. Perry,
The pivotal question here involves the injury in fact requirement. The best argument for the absence of constitutional standing is the notion that the plaintiffs did not suffer any *8 demonstrable financial loss as a result of the insurer's alleged transgressions and, therefore, did not sustain any injury in fact. Put another way, the argument is that because the plaintiffs received everything to which they were entitled under the ERISA plans, they suffered no actual harm.
This argument is substantial. When confronted with
essentially the same question, the Second Circuit bypassed it and
asserted jurisdiction on other grounds. See Faber v. Metro. Life
Ins. Co.,
An injury in fact is defined as "an invasion of a legally
protected interest which is (a) concrete and particularized; and
(b) actual or imminent, not conjectural or hypothetical." Lujan,
504 U.S. at 560 (footnote omitted) (internal citations and
quotation marks omitted). But in order to establish standing, a
plaintiff does not need to show that her rights have actually been
abridged: such a requirement "would conflate the issue of standing
with the merits of the suit." Aurora Loan Servs., Inc. v.
Craddieth, 442 F.3d 1018, 1024 (7th Cir. 2006). Instead, a
plaintiff need only show that she has "a colorable claim to such a
*9
right." Id. (emphasis omitted). The evaluation of whether such a
showing has been made must take into account the role of Congress.
After all, Congress has the power to define "the status of legally
cognizable injuries." Katz,
These principles are dispositive here. Congress has mandated ERISA fiduciaries to abide by certain strictures and has granted ERISA beneficiaries corresponding rights to sue for violations of those strictures. See 29 U.S.C. § 1132(a)(3) (authorizing beneficiaries to sue "to obtain . . . appropriate equitable relief" in order "to redress . . . violations" of ERISA). An ERISA beneficiary thus has a legally cognizable right to have her plan fiduciaries perform those duties that ERISA mandates.
We hasten to add a caveat. It is common ground that
Congress cannot confer standing beyond the scope of Article III.
See Summers v. Earth Island Inst.,
Here, however, the plaintiffs make colorable claims that
they have suffered just such a harm. They contend that the insurer
*10
has wrongfully retained and misused their assets. If proven, this
would constitute a tangible harm even if no economic loss results.
See, e.g., Restatement (Third) of Restitution and Unjust Enrichment
§ 3 reporter's note a (2011) ("[T]here can be restitution of
wrongful gain in cases where the plaintiff has suffered an
interference with protected interests but no measurable loss
whatsoever."); see also CIGNA Corp. v. Amara,
The Supreme Court has "often said that history and
tradition offer a meaningful guide to the types of cases that
Article III empowers federal courts to consider." Sprint Commc'ns
Co. v. APCC Servs., Inc.,
To say more about the issue of constitutional standing would be to paint the lily. We hold that the plaintiffs have asserted colorable and cognizable claims of injuries in fact. Nothing more is needed here, from a jurisdictional standpoint, to wrap the plaintiffs in the cloak of constitutional standing. [3] III. THE MERITS
The district court made two pertinent liability rulings
at the summary judgment stage. One of these is challenged by the
plaintiffs and the other by the insurer. We review both rulings de
novo. See Kouvchinov v. Parametric Tech. Corp.,
A. The DOL Guidance.
The Second Circuit, puzzling over essentially the same
riddle that confronts us today, asked the DOL to provide its
interpretation of how the relevant ERISA provisions affect
insurers' decisions to use RAAs as a method of claim redemption.
See Faber,
The insurer, citing Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944), exhorts us to defer to the DOL Guidance. The plaintiffs demur, arguing that the DOL Guidance was hastily prepared and is inconsistent with other authority.
It is important to note that the DOL "shares enforcement
responsibility for ERISA." John Hancock Mut. Life Ins. Co. v.
Harris Trust & Sav. Bank,
While agencies are generally presumed to have particular expertise with respect to the statutes that they administer, agencies speak in a variety of ways. As a result, authoritativeness often depends, at least in part, on context. For example, when an agency speaks with the force of law, as through a binding regulation, its interpretation of ambiguous provisions of a statute that falls within its purview is due judicial deference as long as that interpretation is reasonable. See id. at 229-30; Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-45 (1984).
But when an agency speaks with something less than the
force of law, its interpretations are entitled to deference "only
to the extent that those interpretations have the 'power to
persuade.'" Christensen v. Harris Cnty.,
To gauge persuasiveness, an inquiring court should look
to a "mix of factors" that "either contributes to or detracts from
the power of an agency's interpretation to persuade." Doe v.
Leavitt ,
We appraise the DOL Guidance with these factors in mind. In doing so, we are acutely aware that if this inquiry is to have any real utility, it must involve something more than merely determining whether the agency's views comport with the court's independent interpretation of the relevant statutory provisions. See id. at 80-81. If the relevant factors tilt in favor of giving weight to the agency's views, it would be an exercise in vanity for a court to disregard those views.
The DOL Guidance is plainly well-reasoned. Here, as in Doe, "the agency has consulted appropriate sources, employed sensible heuristic tools, and adequately substantiated its ultimate conclusion." Id. at 82. The meticulous nature of the agency's statement of its views, coupled with the logic of its position, combine to lend the DOL Guidance credibility.
To be sure, the DOL Guidance was not forged through a
transparent and structured process, nor was it tempered in the
crucible of public comment. Such accouterments would have given
*15
added heft to the DOL Guidance — but none of them is a condition
precedent to deference. See Sun Capital Partners III, LP. v. New
Eng. Teamsters & Trucking Indus. Pension Fund,
So, too, the fact that the DOL's position is of
relatively recent vintage is not fatal. While the longstanding
nature of an agency interpretation may constitute an added reason
for deference, see Lapine v. Town of Wellesley,
In the last analysis, we are satisfied that the
considerations of process and duration stressed by the plaintiffs
are insufficient to sully the well-reasoned DOL Guidance. The
amicus brief filed by the DOL bears the hallmarks of reliability.
There is no good reason to dismiss it, especially since the agency
was not a party to the litigation in which the amicus brief was
filed but articulated its views only in response to the Second
*16
Circuit's direct request. See Conn. Office of Prot. & Advocacy,
B. Section 406(b).
The plaintiffs' remaining contention is that the
insurer's method of redeeming life insurance policies by paying
death benefits in the form of RAAs constituted self-dealing in plan
assets in violation of ERISA section 406(b). ERISA section 406(b)
prohibits a plan fiduciary from "deal[ing] with the assets of the
plan in [its] own interest or for [its] own account." 29 U.S.C.
§ 1106(b)(1). The plaintiffs assert that the insurer violated this
prohibition on self-dealing in plan assets by retaining and
investing RAA funds for its own enrichment. The district court
rejected this assertion, see Merrimon,
ERISA nowhere contains a comprehensive definition of what
constitutes "plan assets." See Harris Trust,
The plaintiffs concede that, prior to the creation of an RAA, funds held in the insurer's general account are not plan assets. That is because
[i]n the case of a plan to which a guaranteed benefit policy is issued by an insurer, the assets of such plan shall be deemed to include such policy, but shall not, solely by reason of the issuance of such policy, be deemed to include any assets of such insurer.
29 U.S.C. § 1101(b)(2).
The plaintiffs nonetheless posit that when a death benefit accrues and is redeemed by means of the establishment of an RAA, the RAA funds become plan assets if those funds are retained in the insurer's general account. As a corollary, they posit that those retained funds remain plan assets until the RAA is fully liquidated.
This argument lacks force. There is no basis, either in the case law or in common sense, for the proposition that funds held in an insurer's general account are somehow transmogrified into plan assets when they are credited to a beneficiary's account. *18 Indeed, the DOL Guidance — to which a modicum of respect is owed — indicates exactly the opposite. See DOL Guidance at 7.
We add, more generally, that ordinary notions of property
rights counsel strongly against the plaintiffs' proposition. It is
the beneficiary, not the plan itself, who has acquired an ownership
interest in the assets backing the RAA. See Edmonson,
The decision in Mogel v. Unum Life Insurance Co., 547
F.3d 23, 26 (1st Cir. 2008), is not at odds with the conclusion
that the monies retained by the insurer are not plan assets. Mogel
involved a plan that contained a specific directive to pay
beneficiaries in a lump sum. See id. at 25. The insurer ignored
this specific directive and sought instead to redeem claims through
the establishment of RAAs. See id. As has been widely recognized,
this particularized policy provision explains this court's holding
that the insurer, which had not paid the policy proceeds in a
manner permitted by the plan documents, had violated its fiduciary
duties. See Edmonson,
As a fallback, the plaintiffs invite us to adopt the
Ninth Circuit's functional approach to determining which assets are
plan assets. See Acosta v. Pac. Enters.,
The plaintiffs have one final shot in their sling. They say that even if the court below appropriately determined that the retained funds were not plan assets, its ultimate conclusion that the insurer did not offend section 406(b) was nevertheless incorrect. This is so, the plaintiffs' thesis runs, because the life insurance policies themselves were plan assets and the insurer *20 exercised control respecting the management of the policies when it established the RAAs, retained and invested the RAA funds to its own behoof, and decided how much of the investment profit to keep and how much to pay in interest.
The insurer's first line of defense is that this claim was waived because it was not proffered below. The plaintiffs' disavowal points only to a single paragraph in their complaint. Standing alone, this solitary paragraph is too thin a reed by which to exorcize the evils of waiver. We explain briefly.
"Even an issue raised in the complaint but ignored at summary judgment may be deemed waived. If a party fails to assert a legal reason why summary judgment should not be granted, that ground is waived and cannot be considered or raised on appeal." Grenier v. Cyanamid Plastics, Inc., 70 F.3d 667, 678 (1st Cir. 1995) (internal quotation marks omitted). That is precisely what happened here. After filing their complaint, the plaintiffs did nothing to develop this particular claim, and the summary judgment papers disclose no development of it. The claim is, therefore, waived.
This brings us to the end of the road. We hold that the funds backing the plaintiffs' RAAs were not, and never became, plan assets. Consequently, the court below did not err in holding that there was no showing of self-dealing sufficient to ground a section 406(b) claim.
C. Section 404(a) .
ERISA section 404(a) provides, with certain reservations not relevant here, that "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries." 29 U.S.C. § 1104(a)(1). Relatedly, ERISA stipulates that
a "person is a fiduciary with respect to a plan," and therefore subject to ERISA fiduciary duties, "to the extent" that he or she "exercises any discretionary authority or discretionary control respecting management" of the plan, or "has any discretionary authority or discretionary responsibility in the administration" of the plan.
Varity, 516 U.S. at 498 (quoting 29 U.S.C. § 1002(21)(A)). The crux of the plaintiffs' section 404(a) claims is that the insurer acted as a fiduciary when setting the RAA interest rate and that it did not set the rate solely in the interest of the beneficiaries.
The district court found this claim persuasive. The
court premised its conclusion that the insurer was acting as a
fiduciary on the insurer's retention of discretion both "to
determine the interest rates and other features accruing to [the
RAAs]" and "to award itself the business of administering the
Plaintiffs' RAAs" while retaining the assets backing these
accounts. Merrimon,
The insurer mounts a formidable challenge to this holding. The centerpiece of its challenge is the assertion that, by establishing the RAAs in accordance with the plan documents, the insurer fully discharged its fiduciary duties. Consequently, the subsequent relationship between the insurer and the beneficiary was in the nature of a debtor-creditor relationship, governed not by ERISA but by state law. In other words, when the insurer invested the retained funds and paid interest to the beneficiaries, it was not acting as an ERISA fiduciary.
The insurer's position makes sense, and it is bulwarked
by relevant authority. To begin, the DOL has stated explicitly
that a life insurer discharges its fiduciary duties when it redeems
a death-benefit claim through the establishment of an RAA as long
as that method of redemption is called for by the plan documents.
See DOL Guidance at 11. We owe a measure of deference to this
view. See supra Part III(A). This deference is especially
appropriate because the only two courts of appeals to have
addressed the issue subsequent to the DOL's statement of its views
have reached the same conclusion. See Edmonson,
The plaintiffs beseech us not to follow these authorities. Their variegated arguments sound two related themes. *23 First, they assert that the insurer continued to act as a fiduciary even after it established the RAAs because it continued to hold the policy proceeds in its general account. Second, they assert that the insurer acted as a fiduciary in setting the interest rate because the plan documents stipulated no specific interest rate. We treat these arguments separately.
1. Retention of Policy Proceeds.
It is clear beyond
hope of contradiction that sponsors of ERISA plans have
considerable latitude in plan design, including the establishment
of methods for paying benefits. See Faber,
In this instance, each of the plans provides that the insurer will, upon proof of claim, pay the death benefit owed by "mak[ing] available to the beneficiary a retained asset *24 account "(emphasis in original). [4] Each plan describes an RAA as "an interest bearing account established through an intermediary bank." The insurer followed this protocol precisely: it made available to each plaintiff an interest-bearing RAA established through an intermediary bank, which was credited with the full amount of the death benefit owed. No more was exigible to carry out the terms of the plans.
Once the insurer fulfilled these requirements, its duties
as an ERISA fiduciary ceased. See Edmonson,
The plaintiffs labor to dull the force of this reasoning.
They start by asseverating that the establishment of an RAA does
not constitute payment of benefits. But this asseveration rests
chiefly on our decision in Mogel,
This analysis also explains why the plaintiffs' insistence that the insurer had to obtain the plaintiffs' informed consent before it invested the retained funds is without merit. This argument, too, is based on general trust principles; and the simple answer to it is that the insurer was not acting as a *26 fiduciary when it invested the retained funds. [5] See Edmonson, 725 F.3d at 426.
2. Setting of Interest Rate.
This leaves the second
theme sounded by the plaintiffs. They contend that because the
insurer retained discretion to set the interest rate to be paid on
the RAAs, rate-setting was a fiduciary act, which the insurer did
not carry out solely in the interest of the beneficiaries. Cf. 29
U.S.C. § 1002(21)(A) (defining a plan fiduciary in terms of
discretion). The plaintiffs' reach exceeds their grasp.
Discretionary acts trigger fiduciary duties under ERISA only when
and to the extent that they relate to plan management or plan
assets. See id.; see also Varity, 516 U.S. at 498; Livick v.
Gillette Co., 524 F.3d 24, 29 (1st Cir. 2008). In the
circumstances of this case, the setting of the interest rate did
not relate to plan management but, rather, related to the
*27
management of the RAAs. The RAAs were not plan assets, see Faber,
This conclusion follows inexorably from our holding that
the establishment of an RAA constitutes payment under the terms of
the plans. When the insurer redeems a death benefit that is due a
beneficiary by establishing an RAA, no other or further ERISA-
related fiduciary duties attach. Thus, the insurer's setting of an
interest rate for the RAAs does not implicate ERISA; rather, its
setting of the interest rate must be viewed as part of the
management of the RAAs, governed by state law.
[6]
See Edmonson, 725
F.3d at 425-26; Faber,
The Supreme Court's decision in Varity, loudly bruited by
the plaintiffs, does not demand a contrary result. There, the
Court was confronted with an employer that lied to its employees
about the effect of a pending corporate reorganization on their
*28
benefits. See Varity,
Like barnacles clinging to the hull of a sinking ship, the plaintiffs cling to these words. Their reliance is mislaid. Varity, which involved a plan administrator that "significantly and deliberately misled the beneficiaries," id. at 492, is plainly distinguishable. The Court's acknowledgment that a plan administrator may have extra-textual fiduciary duties that are implicated in such parlous circumstances does not mean that those duties are implicated here. Varity held that plan administration "includes the activities that are ordinary and natural means of achieving the objective of the plan," whether or not spelled out in the plan. Id. (internal quotation marks omitted). The objective of each of the plans at issue here was the delivery of a guaranteed death benefit to the beneficiary, and the delivery of the benefit through the establishment of an RAA fulfilled that objective. No other or further fiduciary duties attached.
Let us be perfectly clear. This case is not about the desirability, fairness, or social utility of retained asset *29 accounts. It is, rather, about the boundaries of ERISA. The plaintiffs attempt to invoke ERISA to attack practices that fall outside the compass of the ERISA statute. Consequently, they are not entitled to relief.
IV. CONCLUSION
We need go no further. [7] The plaintiffs have not made out their claims that the insurer breached any of its ERISA-related fiduciary duties. Thus, we affirm the district court's order of partial summary judgment in favor of the insurer with respect to ERISA section 406(b) and reverse the district court's order of partial summary judgment in favor of the plaintiffs with respect to section 404(a). Accordingly, the trial (which was devoted to potential relief) was a nullity and the resultant judgment must be vacated. To conclude the matter, we remand to the district court with instructions to enter judgment in favor of the insurer. All parties shall bear their own costs.
So Ordered.
Notes
[*] Of the District of New Hampshire, sitting by designation.
[1] Although the decedents' employers were the named administrators of the plans, each of them delegated to the insurer discretionary authority to make claim determinations.
[2] The complaint also advanced supplemental claims under Maine law. The district court dismissed those claims, and the plaintiffs have not attempted to renew them on appeal.
[3] In its opening brief, the insurer suggests that the
plaintiffs lack statutory standing under ERISA. Statutory standing
is, of course, different than constitutional standing. See Katz,
[4] The plans except death benefits totaling less than $10,000. That exception is not relevant here.
[5] The plaintiffs launch an array of other plaints based on DOL
statements. These statements deal, inter alia, with the practice
of fiduciaries "earn[ing] interest from the 'float' that occurs
between the time a benefits check is issued and the time it is
cashed by the beneficiary," Plaintiffs' Br. at 69 (citing U.S.
Dep't of Labor, Field Assistance Bull. 2002-3,
[6] We are mindful that the district court characterized what
happened here as the insurer "award[ing] itself the business of
administering the Plaintiffs' RAAs." Merrimon,
[7] Inasmuch as we have resolved the liability issues adversely to the plaintiffs, the other issues that have been briefed and argued in connection with these appeals fall by the wayside. Without exception, those issues relate to relief, and we have determined that the plaintiffs are not entitled to any relief.