MICHAEL MILOFSKY, ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, AND ON BEHALF OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES; ROBERT WALSH, ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, AND ON BEHALF OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES, Plаintiffs-Appellants, v. AMERICAN AIRLINES, INC.; JOHN DOES 1-10, AS MEMBERS OF THE PENSION ASSET ADMINISTRATION COMMITTEE OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES; JOHN DOES, 11-20, AS MEMBERS OF THE PENSION BENEFITS ADMINISTRATION COMMITTEE OF THE SUPER SAVER-A 401(K) CAPITAL ACCUMULATION PLAN FOR EMPLOYEES OF PARTICIPATING AMR CORPORATION SUBSIDIARIES; TOWERS PERRIN, Defendants-Appellees.
m 03-11087
United States Court of Appeals for the Fifth Circuit
March 16, 2005
REVISED MAY 12, 2005
Charles R. Fulbruge III Clerk
Before KING, Chief Judge, SMITH and GARZA, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
Michael Milofsky and Robert Walsh brought a class action under the Employee Retirement Income Security Act of 1974 (“ERISA“) against American Airlines, Inc. (“American Airlines“) and Towers Perrin, alleging breach of fiduciary duty with regard to a transfer of their pension plans from their former employer when it was acquired by the parent company of American Airlines. The district court dismissed the action. Finding no error, we affirm.
I.
Milofsky and Walsh were pilots for Business Express, Inc. (“BEX“), when it was acquired by AMR Eagle Holding Corporation, the parent company of American Eagle, Inc. (“American Eagle“). While employed with BEX, the plaintiffs participated in its individual account pension plan, called the “BEX Saving and Profit Sharing Plan” (“BEX Plan“).
At the time of the acquisition, plaintiffs were informed that the balanсes in their accounts in the BEX Plan would be transferred to a comparable American Eagle § 401(k) plan, the “$uper $aver Plan.” The notice regarding this transfer was sent to them by Towers Perrin, a benefits consulting firm hired by American Airlines to render administrative services in connection with the $uper $aver Plan. The notices informed the plaintiffs of when the account transfers would take place and of certain “blackout” periods during which they would not be permitted to have access to their accounts. Allegedly, the transfer of the accounts did not go smoothly, with the account transfers occurring weeks, and in some cases, months after the time written in the notices.
The plaintiffs sued under ERISA § 502(a)(2),
The district court dismissed the action, finding that plaintiffs lack standing to sue under § 502(a)(2) and that they are barred from suing in federal court because they failed to exhaust administrative remedies. The court also found that plaintiffs could not sue Towers
II.
We review action on a
III.
The plaintiffs argue that the district court erred in finding that they inadequately allege that Towers Perrin is a fiduciary under ERISA. According to ERISA § 3(21), “a person is a fiduciary with respect to [an ERISA] plan to the extent ... he has any discretionary authority or discretionary responsibility in the administration of such plan.”
The complaint fails to identify any specific discretion or decisionmaking authority that Towers Perrin had with respect to the alleged breaches of fiduciary duty. Taking all alleged facts as true, the extent of Towers Perrin‘s involvement is that it provided plaintiffs with the notices that contained the alleged misrepresentations.5 There is no allegation that Towers Perrin exercised discretion or control regarding the content of the notices, the transfer of funds from the BEX Plan to the $uper $aver Plan, the length of the blackout periods, or the investment of the accounts. The transmission
The only other references the complaint makes to Towers Perrin‘s status are conclusional allegations that it acted as a fiduciary.7 Such allegations are insufficient to allow this claim to survive a rule 12(b)(6) motion to dismiss.8
IV.
Plaintiffs contend the district court erred in dismissing their complaint for want of standing under ERISA § 502(a)(2), which confers standing on plan participants to bring private causes of action to seek “appropriate relief” under ERISA § 409. That section subjects plan fiduciaries to liability for breaches of duty,9 providing that a fiduciary that breaches any of its duties under the Act “shall be personally liable to make good to such plan any losses to the plan resulting from each such breach.”
In Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985), the Court interpreted the language of § 409 to permit actions only in which the sought-after recovery benefits the plan as a whole, as distinguished from an individual beneficiary.10 In Matassarin v. Lynch, 174 F.3d 549 (5th Cir. 1999), we reiterated the standing requirement established by Russell, that suits under ERISA § 502(a)(2) inure to
Despite plaintiffs’ contrary claims, this suit concerns individualized relief for the particularized harm suffered by a subset of plan participants and does not seek to vindicate the rights or interests of the plan as a whole. The district court properly observed that, apart from conclusional claims that the suit is on behalf of the plan, all the specific allegations deal only with the individual accounts held by the plaintiff class members.12
As in Matassarin, where we dismissed a § 502(a)(2) claim for lack of standing, the plaintiffs have alleged breaches of fiduciary duty that uniquely concern only their individual accounts.13 The complaint contains no allegation that defendants violated fiduciary duties vis-à-vis the entire plan or that the $uper $aver Plan itself sustained losses for which it, and not merely individual participants and beneficiaries, could obtain relief.
We reject the argument that the claim inures to the benefit of the plan as a whole just because the complaint requests that damages be paid to the plan instead of directly to the respective plaintiffs. The plaintiffs attempt to distinguish Russell and Matassarin, highlighting the fact that in those cases, the complaint requested that damages be paid directly to the individuals who are aggrieved—making it akin to a claim for benefits—whereas the plaintiffs in this case seek proceeds to be paid to the plan. Although the complaint demands payment to the $uper $aver Plan as an entity, it specifically requests that the damages be “allocated among plaintiffs’ individual accounts proportionate to plaintiffs’ losses.”14
In an individual account plan, such as the $uper $aver Plan, a participant has rights to the plan based “solely upon the amount cоntributed to the participant‘s account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to that participant‘s account.”
Legal title may be formally in the hands of
Similarly, the fact that the total assets of the plan—defined as the sum of the values of the individual accounts—would increase as a result of a successful suit does not mean that recovery inures to the benefit of the entire plan. Although potential recovery might benefit that substantial number of individual accounts, adopting that logic would dramatically expand standing under § 502(a)(2) to circumstances in which only a single plaintiff alleges that his account was damaged as a result of a breach of fiduciary duty that was uniquely targeted at him and no other plan participants.
We cannot adopt an interpretation that would allow a plaintiff, merely by praying that relief pass through the plan into individual accounts, to eviscerate the standing requirement imposed by § 502(a)(2) by engaging in a legal fiction that the suit benefits the plan as a whole. The increase would be of no benefit to participants outside the plaintiff class, either by augmenting the value of their accounts or by vindicating their rights as to fiduciary breaches directed toward them.16
In this regard, we take special note of the fact that in Russell, 473 U.S. at 141, the Court was careful to distinguish what it called “the entire plan,” on the one hand, from what it termed “the rights of an individual beneficiary,” on the other hand, and to require that an individual claim benefit the former. Each of the plaintiffs has “rights” as a beneficiary. The point of Russell is that a plaintiff who seeks to vindicate those rights, whether by receiving a direct payment or by having his individual account credited with an additional sum certain, may not use the vehicle of § 502(a)(2) unless his claim, if successful, will benefit not just himself, but the whole plan.
It is no accident, therefore, that the Supreme Court has required that a suit benefit not just the plan, but the plan “as a whole.” Russell, 473 U.S. at 140. That is to say, the statute confers only “remedies that would protect the entire plan, rather than with the rights of an individual beneficiary.” Id. at 141. Accordingly, “[a] fair contextual reading of the statute makes it abundantly clear that its draftsmen were primarily concerned with the
This distinction between relief for the plan and relief for individuals is paramount.17 Where, as here, a small segment of the employees bring a claim that, by its very nature, can only benefit them, it cannot be said to help the plan in the sense that the Supreme Court requires.
It is easy to conclude that the instant claim does not meet that test. We need not speculate on every possible situation in which a suit that demands relief beneficial to a large proportion of the beneficiaries can reasonably be said to “protect the entire plan.” Instead, it is enough to say, for present purposes, that the specific relief here requested, affecting only 218 individual accounts out of a much larger plan, is much too narrow to qualify.18
The Supreme Court‘s insistence that the suit seek to “benefit [] the plan as a whole,” Russell, 473 U.S. at 140, highlights the flaw in plaintiffs’ heavy reliance on Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995), in which the court allowed a subclass of beneficiaries to sue for breach of fiduciary duty under § 502(a)(2) over the defendants’ argument that for standing to exist, the breach must harm all participants. There, suit was brought by a subset of all plan participants, a subset consisting of members who had been transferred from one company to another.
In Kuper, 66 F.3d at 1452, the defendants “claim[ed] that an action under [] § 1109 must be brought on behalf of a plan as a whole and that a claim brought by a subclass of plan participants fails to satisfy this requirement.” The court began its analysis by correctly stating that “ERISA does not permit recovery by an individual who claims a breach of fiduciary duty. Instead, ... any recovery ... must go to the plan.” Id. at 1452-53 (citations omitted). The distinction drawn in Kuper is “between a plaintiff‘s attempt to recover on his own behalf and a plaintiff‘s attempt to have the fiduciary reimburse the plan.” Id. at 1453.
The court went awry, however, in then rejecting “[d]efendants’ argumеnt that a breach must harm the entire plan to give rise to liability under § 1109.” Id. (emphasis added). The court‘s reasoning is directly contrary to the insistence in Russell on “benefit to the plan as a whole,” Russell, 473 U.S. at 140, and contravenes the Court‘s emphasis on “remedies that would protect the entire plan,” id. at 141.
We can only guess that the Kuper court was unaware of Russell or overlooked this crucial language in fashioning its opinion. In any event, Kuper, being from another circuit,
Moreover, Kuper appears to drive an artificial wedge between the concept of “the entire plan,” which it openly rejects despite the Supreme Court‘s blessing, and the notion of “the plan as a whole,” which it appears to embrace. After rejecting, as we have stated, the defendants’ argument that a breach must harm “the entire plan,” the court inexplicably closes with the comment that a ruling for plaintiffs “would benefit the Plan as a whole [and] would cure any harm that the Plan suffered.” Kuper, 66 F.3d at 1453. By this latter stаtement, taken alone, the opinion appears to be internally inconsistent, because the court seems to be adopting the correct test, i.e., that a successful claim must help the “plan as a whole” after discarding the seemingly identical “entire plan” test.
In the alternative, the Kuper court‘s closing observation renders irrelevant its rejection of the “entire plan” requirement, because the court is saying that under the facts of the case, the claim meets the “plan as a whole” test in any event. By this specific mode of analysis, the court‘s rejection of the “entire plan” test is arguably rendered dictum. To the extent it is a holding, however, it flies in the face of the Supreme Court‘s directive, and we decline to follow it for the reasons explained.19
Similarly, the plaintiffs’ citation of Smith v. Sydnor, 184 F.3d 356 (4th Cir. 1999), is inapposite, because there the plaintiffs sought disgorgement of profits, rescission of a stock sale, and reinstatement of a “put” option—relief that would benefit all participants of the plan and thus inure to the benefit of the plan as a whole.20 Finally, Steinman v. Hicks, 352 F.3d 1101 (7th Cir. 2003), did not involve a subset of participants, but rather a claim that there was a breach of fiduciary duty for failure to diversify plan assets, a claim that inured to the benefit of the entire plan because the breach targeted all plan participants. The claim in this case is distinguishable because it pertains only to alleged misrepresentations and untimely transfers made with respect to a specific subclass of participants, the former BEX pilots who were transferred to American Eagle.21
Contrary to plaintiffs’ assertions, denying standing here will not close off all claims by beneficiaries of individual account plans against fiduciaries for violations of their duties. At the very least, standing exists under ERISA § 502(a)(3), under which participants may directly seek equitable relief for any practice that violates any term of ERISA or the plan. Section 502(a)(3) makes no reference to § 409, which the Court interpreted in Russell, 473 U.S. at 140-41, to engraft a standing requirement that the suit would benefit the plan as a whole under § 502(a)(2).
Section 502(a)(3) is available for individualized relief such as that sought in this case.22
In summary, plaintiffs lack standing because this case in essence is about an alleged particularized harm targeting a specific subset of plan beneficiaries, with claims for damages to benefits members of the subclass only, and not the рlan generally. This is the kind of case that, under Russell and its progeny, falls outside § 502(a)(2), despite the formalistic distinction that recovery from the suit would be paid into individual accounts and not directly to plaintiffs. Even though the complaint may allege that damage occurred to the plan as a whole, we agree with the district court when it saw the essence of the complaint as a claim decrying particularized harm to individual plaintiffs who seek only to benefit themselves and not the entire plan as required by § 502(a)(2).26
AFFIRMED.
I respectfully dissent from the majority‘s unprecedented holding that participants in an individual account plan lack standing under § 502(a)(2) of ERISA to recover losses to the plan under § 409 of ERISA for a fiduciary breach unless all plan participants would benefit from the litigation. ERISA governs two types of pension plans: (1) individual account plans such as the 401(k) plan at issue here; and (2) defined benefit plans.1 See
A. Russell and Matassarin Do Not Support the Majority‘s Holding
The majority relies on two cases in support of its holding, Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134 (1985), and Matassarin v. Lynch, 174 F.3d 549 (5th Cir. 1999). Both of these cases are distinguishable from the present case, and neither justifies the majority‘s conclusions.
In Russell, Doris Russell, a participant in two employee benefits plans covered by ERISA, became disabled and began receiving plan benefits. Russell, 473 U.S. at 136. On October 17, 1979, her benefits were terminated. Id. On November 27, 1979, however, they were reinstated, and her retroactive benefits were paid in full. Id. Russell claimed that the interruption of benefit payments to her forced her disabled husband to cash out his retirement savings, which, in turn, allegedly aggravated her psychological and physical ailments. Id. at 137. Accordingly, she sued the plans’ fiduciaries for extra-contractual punitive damages, as well as damages for mental and emotional distress, to be paid dirеctly to her. Id. at 136-38. The Supreme Court held
Russell is distinguishable from the present case. First, Russell requested damages payable directly to her, whereas the plaintiffs in the present case request damages payable to the plan. The majority dismisses this distinction as merely “formalistic,” noting that the damages in the present case would ultimately be distributed to the plaintiffs’ individual plan accounts. Majority Opinion, 6, 9. Those courts that have confronted similar scenarios, however, have reached the opposite conclusion, holding that fiduciary breach claims can be brought under § 502(a)(2) when the relief would ultimately benefit the individual plan participants, so long as the relief flows directly from the breaching fiduciaries to the plan, rather than from the breaching fiduciaries to the plaintiffs’ personal pocketbooks. See, e.g., Smith v. Sydnor, 184 F.3d 356, 363 (4th Cir. 1999) (holding that the plaintiffs’ fiduciary breach claim under § 409 was not precluded even though they ultimately stood to benefit and holding that any recovery must be paid directly to the plan and not to individual participants); Rankin v. Rots, 220 F.R.D. 511, 520 (E.D. Mich. 2004) (finding standing to sue because any damages for a breach of fiduciary duty would initially go to the plan, even even if the damages would ultimately flow to the accounts of plan members); see also Colleen E. Medill, Stock Market Volatility and 401(k) Plans, 34 U. OF MICH. J. L. REFORM, 469, 538-39 (2001) [hereinafter Stock Market Volatility] (“The better judicial interpretation ... is to view the relief as flowing to the plan in accord with section 502(a)(2), so long as the monetary award is initially allocated to each participant‘s plan aсcount rather than to his personal pocketbook.“).
Russell is also distinguishable from the present case because Doris Russell never alleged that the plan itself lost value, but instead claimed that she personally suffered emotional and physical harm due to the interruption of her benefits. See Russell, 473 U.S. at 136-37. Conversely, the plaintiffs in the present case have alleged that their individual accounts decreased in value and that, accordingly, the value of the plan‘s assets as a whole decreased. Thus, Russell did not involve a diminution in the amount of the plan‘s assets, whereas the present case does involve an alleged diminution of the plan‘s assets held in trust. Finally, Russell never reached the conclusion that the majority reaches, i.e., that standing can exist under § 502(a)(2) only if all plan participants would benefit from the litigation.3 In
In Matassarin, the plaintiff Patricia Matassarin was, by virtue of a qualified domestic relations order (the “QDRO“) entered into as part of her divorce, a beneficiary in an employee stock ownership plan (the “ESOP“) offered by Great Empire Broadcasting, Inc. Matassarin, 174 F.3d at 556. Matassarin‘s account, like that of approximately sixty-seven other plan participants (most were terminated employees), was a segregated account. Id. at 556-57. In May 1995, Great Empire decided to pay lump-sum distributions
Matassarin, like Russell, is distinguishable from the present case. First, Patricia Matassarin‘s mission, specifically her claim for relief, sought only a distribution of her benefits to her, whereas the plaintiffs in the present case only seek damages that would be paid to the plan and then distributed within it to individual plan accounts. Second, Matassarin, like Russell, did not involve a diminution of the plan‘s assets, while the present case does involve the alleged diminution of the plan‘s assets held in trust. This follows from the fact that Matassarin never alleged that the total amount of the plan‘s assets was reduced by any of the alleged fiduciary breaches, but instead claimed that several plan participants, who were also plan fiduciaries, benefitted by being able to repurchase Great Empire shares at below market value. See id. at 566-70. Third, Matassarin, unlike the plaintiffs in the present case, did not claim that the defendants mishandled plan assets causing damage to the plan as a whole, but rather alleged that various members of the plan treated her differently from other plan members and benefitted at her expense. See Kling v. Fidelity Management Trust Co., 270 F. Supp. 2d 121, 126 (D. Mass. 2003) (distinguishing Matassarin from a
B. All Cases That Are Directly on Point Permit Suits by a Subset of Plan Participants Under § 502(a)(2)
While Russell and Matassarin are distinguishable from the present case, several cases, including one circuit court case, have been decided that are directly on point. In all of these cases, courts that have considered whether a subset of plan participants can sue for a fiduciary breach under § 502(a)(2) have held that such suits are permissible, thereby reaching the exact opposite conclusion from that reached by the majority. For instance, the facts of Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995), are extremely similar to those of the present case. Kuper, like the present case, involved a delay in transferring assets of an individual account plan to a takeover employer. In Kuper, Quantum Chemical Corporation (“Quantum“), which maintained a benefits plan for its employees with 401(k) and ESOP components, sold one of its divisions to Henkel Corporation. As part of the sale, Quantum and Henkel agreed to a trust-to-trust trаnsfer of the plan assets of those Quantum
We conclude that plaintiffs’ position that a subclass of Plan participants may sue for a breach of fiduciary duty is correct. Defendants’ argument that a breach must harm the entire plan to give rise to liability under [§ 409] would insulate fiduciaries whо breach their duty so long as the breach does not harm all of a plan‘s participants. Such a result clearly would contravene ERISA‘s imposition of a fiduciary duty that has been characterized as “the highest known to law.”
Kuper, 66 F.3d at 1453.5 Similarly, in Kling, the court stated:
[The plaintiff] seeks a remedy for only a subset of the plan participants [under § 502(a)(2)] .... [The plaintiff] does not sue on behalf of the Plan .... That the harm alleged did not affect every single participant does not alter this conclusion. To read such a requirement into § 409 that the harm alleged must affect every plan participant would .... “insulate fiduciaries who breach their duty so long as the breach does not harm all of a plan‘s participants.”
Kling, 270 F. Supp. 2d at 125-27 (citing Kuper, 66 F.3d at 1453). The Eighth Circuit likewise has noted that it would “not hesitate to construe ‘losses to the plan’ in [§ 409] broadly in order to further the remedial purposes of ERISA ....” Physicians HealthChoice, Inc. v. Trs. of Auto. Employee Benefit Tr., 988 F.2d 53, 56 (8th Cir. 1993). Additionally, one commentator, arguing that a subset of plan participants should be allowed to bring a fiduciary breach suit under § 502(a)(2), has written:
If the federal court rules that a fiduciary breach
affecting fewer than all of the plan‘s participants can only be remedied under section 502(a)(3) [and not under section 502(a)(2)], the limited traditional equitable remedies available under this section may leave this subset of participants without any relief at all .... Such a result—a fiduciary breach with no available remedy—nullifies the fiduciary responsibility provisions of ERISA. Such an interpretation sends a clear signal to the employee benefits community that employers may disregard their statutory obligations with impunity. The long-term policy consequence is likely to be a significant undermining of the effectiveness of 401(k) plans in providing retirement income security.
Stock Market Volatility at 538-39.
By permitting suits by a subset of plan participants under § 502(a)(2) for damages payаble to the plan to proceed, this court would ensure that plan participants are not left without a remedy when plan fiduciaries harm the plan by breaching their duties.6 For this reason, and because no authority supports the majority‘s denial of standing to the plaintiffs, I would find that the plaintiffs have standing to pursue their claims under § 502(a)(2).
C. The District Court Erred by Requiring Exhaustion of Administrative Remedies
Because I would find that the plaintiffs have standing to sue
ERISA does not require the exhaustion of administrative remedies before a plan participant can file a lawsuit. Nevertheless, § 503 of ERISA does require plans to have procedures in place for the review of benefits claims brought by plan participants. See
When a plan participant brings a fiduciary breach claim, the plan cannot pay the requested damages to the participant, as it could with a benefits claim, since § 410 of ERISA prohibits a plan from relieving a fiduciary of liability for a breach of her
D. Conclusion
I agree with the majority that the plaintiffs have failed to state a claim against Towers Perrin. But I would hold that the plaintiffs have standing to pursue their fiduciary breach claims under § 502(a)(2) of ERISA. I would also find that the district court erred by dismissing the plaintiffs’ § 502(a)(2) claims for failure to exhaust administrative remedies. Accordingly, I would reverse the judgment of the district court dismissing the plaintiffs’ § 502(a)(2) claims against the defendants other than Towers Perrin.