Geoffrey OSBERG, on behalf of himself and on behalf of all others similarly situated, Plaintiff-Appellee, v. FOOT LOCKER, INC., Foot Locker Retirement Plan, Defendants-Appellants.
Docket No. 15-3602-cv
United States Court of Appeals, Second Circuit.
July 6, 2017
862 F.3d 198
August Term, 2016. Argued: January 25, 2017
III.
Because
JULIA PENNY CLARK, Bredhoff & Kaiser, PLLC, Washington, DC (Eli Gottesdiener, Gottesdiener Law Firm, PLLC, Brooklyn, NY, on the brief), for Plaintiff-Appellee Geoffrey Osberg.
MYRON D. RUMELD, Proskauer Rose LLP, New York, NY (Mark D. Harris, Proskauer Rose LLP, New York, NY; Robert Rachal, Proskauer Rose LLP, New Orleans, LA; John E. Roberts, Proskauer Rose LLP, Boston, MA; Amir C. Tayrani, Gibson, Dunn & Crutcher LLP, Washington, DC, on the brief), for Defendants-Appellants Foot Locker, Inc., Foot Locker Retirement Plan.
EIRIK CHEVERUD, Trial Attorney (M. Patricia Smith, Solicitor of Labor; G. William Scott, Associate Solicitor; Elizabeth Hopkins, Counsel for Appellate and Special Litigation, on the brief) for Amicus Curiae Thomas E. Perez, Secretary of the United States Department of Labor, Washington, DC, in support of Plaintiff-Appellee.
Dara S. Smith, AARP Foundation Litigation, Washington, DC for Amicus Curiae AARP, in support of Plaintiff-Appellee.
Before: WINTER, CABRANES, and LYNCH, Circuit Judges.
GERARD E. LYNCH, Circuit Judge:
Defendants-appellants Foot Locker, Inc. (“Foot Locker” or the “Company“) and Foot Locker Retirement Plan (together with Foot Locker, “Defendants“) appeal from a judgment entered by the United States District Court for the Southern District of New York (Katherine B. Forrest, Judge). Following a two-week bench trial, the district court held that Foot Locker violated
On appeal, Defendants do not challenge the district court‘s determination that Foot Locker violated ERISA. Instead, they quarrel with the district court‘s award of equitable relief under
BACKGROUND
I. Factual Background
The facts as found by the district court in ruling that Foot Locker violated
The switch to a cash balance plan required Foot Locker to convert participants’ existing accrued benefits into a figure that would be used to calculate their initial account balances under the new plan. For that conversion, Foot Locker used a formula that guaranteed that the vast majority of participants’ initial account balances would be worth less than the value of their accrued pension benefits under the old plan.1 Specifically, the formula proceeded by: (1) calculating the aggregate value as of December 31, 1995 of the annuity that a participant would have received at age 65 under the old plan; (2) discounting that aggregate value to its value as of January 1, 1996 to reflect the time value of money; and (3) applying a mortality discount to the January 1, 1996 present value to reflect the possibility that the participant might not live to age 65. At steps one and two of the conversion, a nine-percent discount rate was used, but following conversion, participants received pay credits and an interest credit at only six percent under the new plan. The district court found that the disparity meant that most participants’ account balances would lag behind the value of their old benefits for some period of time—in many cases, for years.
To address that problem, the cash balance plan included a stopgap measure that defined a participant‘s actual benefits as the greater of: (1) the participant‘s benefits under the defined benefit plan as of December 31, 1995; and (2) the participant‘s benefits under the new cash balance plan. The “greater of” provision had the benefit of ensuring that participants would not lose money due to Foot Locker‘s switch to a cash balance plan, consistent with ERISA‘s ban on plan amendments that
The history of the adoption of the cash balance plan makes clear that Foot Locker‘s management recognized that conversion to the new plan would cause wear-away for most of its employees, but embraced the phenomenon as a cost-cutting measure. In late 1994 or early 1995, following a request from Foot Locker‘s then-chief executive officer, Roger N. Farah, a task force of four employees had been formed to investigate cost savings that could be generated from changes to Foot Locker‘s employee pension plan. All four members of the task force testified at trial, including its leader, Patricia Peck, who was ultimately responsible for deciding which changes to propose to management. Peck, whom the district court found “particularly credible,” Osberg II, 138 F.Supp.3d at 526 n.11, testified that she understood that her mission was to cut costs rather than to improve plan benefits, and that the changes she proposed to senior management would result in cost savings by causing a freeze in pension benefits. Peck‘s presentations to senior management expressly stated that the proposed changes would lead to “decreases in future company costs” at the expense of a “permanent loss of retirement benefits.” Id. at 528 (brackets and internal quotation marks omitted). As the district court found, Foot Locker viewed announcing a benefits freeze as a “morale killer,” and “[c]onversion to a cash balance plan had the advantage of being able to obscure what was an effective freeze, without the accompanying negative publicity, loss of morale, and decreased ability to hire and retain workers.” Id. (internal quotation marks omitted). The changes were approved by Foot Locker‘s senior management and board of directors in July and September 1995, respectively.
Foot Locker introduced the new cash balance plan to its employees in a series of written communications, all of which the district court found to have “failed to describe wear-away,” to have “failed to clearly discuss the reasons for the difference” between the value of a participant‘s old and new benefits, and to have been “intentionally false and misleading.” Osberg II, 138 F.Supp.3d at 529. For example, in a letter dated September 15, 1995, the Company‘s senior management announced that it was “excited” to introduce “important changes” to Foot Locker‘s employee pension plan that would give participants “a more competitive retirement benefits package” and “more flexibility and a better ability to monitor their benefits.” J.A. 2137. The letter also stated that participants would be able “to see their individual account balance grow each year, and know its value.” Id. Peck acknowledged in her testimony that the September 15, 1995 letter was designed to be a “good news letter”
The fact of wear-away was also deliberately left out of later communications sent to participants, including the December 1996 summary plan description (“SPD“)—a document that “ERISA contemplates ... will be an employee‘s primary source of information regarding employment benefits,” Layaou v. Xerox Corp., 238 F.3d 205, 209 (2d Cir. 2001) (brackets and internal quotation marks omitted). While the SPD provided a general description of the methodology by which participants’ account balances would be calculated under the cash balance plan,2 it lacked any description of wear-away or any indication that the conversion would cause a benefits freeze for most participants. In fact, the district court found that the SPD and other Foot Locker communications not only failed to disclose wear-away, but “were designed to conceal that information.” Osberg II, 138 F.Supp.3d at 537. The SPD, for example, “falsely indicated to [p]articipants that their actual retirement benefits were fully reflected in the[] account balances” to which their pay and interest credits would apply, id. at 531, when in fact any participant whose account was in wear-away would instead receive the frozen value of the benefits they had accrued under the old plan for a period of time that could extend for years. Similarly, the Highlights Memo distributed in November 1995 stated that participants would, upon retirement, “have the option of taking the lump sum payment equal to your account balance,” which the district court found to “obscure[] the fact that the accrued benefit was the sole true benefit for anyone in wear-away.” Id. at 530 (internal quotation marks omitted). That false impression was further reinforced by “total compensation” statements that participants began receiving annually and which showed participants’ account balances increasing each year due to the receipt of pay and interest credits.
Foot Locker‘s efforts to conceal wear-away were apparently successful. The district court found that “not a single employee ever complained about [wear-away],” id. at 535, and numerous class members—including Michael Steven, the former chief financial officer of the Company‘s Woolworth division, as well as Foot Locker employees whose job responsibilities involved calculating pension benefits—testified at trial that they did not understand that the conversion to a new pension plan had effectively frozen their retirement benefits. Steven testified, for example, that while he requested and received an individualized statement showing the calculations underlying his account balance and
II. Procedural History
In 2007, plaintiff-appellee Geoffrey Osberg (“Plaintiff“) brought suit against Defendants on behalf of a proposed class of plan participants and beneficiaries claiming, inter alia, that Foot Locker violated
Upon remand, the district court certified a class of plan participants and their beneficiaries under Federal Rule of Civil Procedure 23(a) and 23(b)(3), and held a two-week bench trial in July 2015 at which twenty-one fact witnesses and three expert witnesses testified, some by deposition. In October 2015, the district court ruled that Foot Locker had violated
DISCUSSION
We reverse a district court‘s award of equitable relief “only for an abuse of discretion or for a clear error of law.” Amara II, 775 F.3d at 519, quoting Malarkey v. Texaco, Inc., 983 F.2d 1204, 1214 (2d Cir. 1993). Where the award of equitable relief is supported by findings of fact, such findings are reviewed for clear error. Amara II, 775 F.3d at 519. Where the award relies on conclusions of law, those legal conclusions are reviewed de novo. Id.
I. Statute of Limitations
In challenging the district court‘s award of equitable relief, Defendants first contend that the district court erred when it granted relief to participants whose claims under
A. Timeliness of § 102 Claims
Section 102 of ERISA requires, inter alia, that a summary plan description be “written in a manner calculated to be understood by the average plan participant” and be “sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.”
In determining when the statute of limitations begins to run in the analogous context of an ERISA miscalculation claim, we have applied a “reasonableness approach” that looks to “when there is enough information available to the pensioner to assure that he knows or reasonably should know of the miscalculation.” Novella, 661 F.3d at 147 & n.22. That approach does not require a participant to “confirm the correctness of his pension award immediately upon the first payment of benefits.” Id. at 146. Where, however, the miscalculation is “apparent from the face of a payment check” or “readily discoverable from information furnished to pensioners by the pension plan,” a court may conclude that the participant had enough information at the time of the first payment of benefits to assure that he rea-
In analyzing the accrual of the
Defendants’ constructive notice argument proceeds as follows. Upon retirement, participants were each sent a statement that showed their account balance and asked whether the participant wished to receive his or her pension benefits in the form of a lump sum payment or an annuity. For participants whose accounts were experiencing wear-away at the time of retirement, the value of the lump sum payment exceeded the value of their cash balance account. Osberg, for example, received a “Pension Options Form” upon retirement that showed his “[a]ccount [b]alance” to be $20,093.78, but stated that he could “select one of the following forms of benefits available to [him]“: a lump sum payment of $25,695.96 or an annuity of $138.41. J.A. 2563. At that point, Defendants argue, participants should have realized that something was amiss and consulted the plan communications that they had received over the years to piece together the fact that their accounts had been suffering from wear-away.
But arriving at that realization was far from straightforward. As a threshold matter, participants would have had not only to notice the disparity between the lump sum payment and account balance, but also to recognize that the disparity had some significance worth further investigation. For participants who had been assured by Foot Locker that they were receiving “a more competitive retirement benefits package” in which their account balance would “grow each year,” id. at 2137, the fact that they were receiving the larger of two numbers on a page would not necessarily make “apparent” to them that their benefits had in fact been frozen for months or years, Novella, 661 F.3d at 147 n.22; cf. Young v. Verizon‘s Bell Atl. Cash Balance Plan, 615 F.3d 808, 816 (7th Cir. 2010) (rejecting the argument that a lump sum payment served as a “red flag” that the participant had been underpaid where the payment was not “so inconsistent” with the participant‘s understanding of her benefits “as to serve as a clear repudiation“).
Even assuming that participants picked up on the disparity, in order to discover wear-away, participants would still have had to make a sophisticated chain of deductions about the meaning of the information on their statements and the mechanics underlying their benefits, with the opaque guidance contained in the SPD as their guide. Specifically, a participant would have had to deduce at the very least that: (1) the “account balance” on the pension options form represented the value of his cash balance account, whereas the lump sum payment represented the value of the benefits he had earned under the old plan; (2) the actual value of his benefits was determined on the basis of a “greater of” provision that set a participant‘s benefits at the greater of the value of his account balance and old plan benefits; (3) the pay and interest credits he had earned since January 1, 1996 applied only to his account balance; and (4) because of the operation of the “greater of” provision, his benefit
That is a heroic chain of deductions to expect the average plan participant to make, particularly on the basis of materials that were designed by Foot Locker to conceal from participants the very phenomenon that Defendants now argue should have been “readily ... discoverable.” Novella, 661 F.3d at 147 n.22. Indeed, as discussed above, even after noticing the disparity identified by Defendants and having the benefit of an individualized explanation of the calculations used to arrive at his account balance and expected lump sum payment, the CFO of the Company‘s Woolworth division was not able to divine that his account was suffering from wear-away. To expect the average plan participant, who the district court found had a high-school level of education, to do so on the basis of the opaque guidance in the SPD would be unreasonable. Accepting Foot Locker‘s argument, moreover, would effectively impose upon participants an obligation to identify problems such as wear-away “immediately upon the first payment of benefits, regardless of the complexity of the calculations, or of the adequacy of the defendants’ explanation of the basis for the calculation“—a rule that we rejected in Novella as “too harsh.” Id. at 146. Such a rule, we reasoned, would place the burden on the party “less likely to have a clear understanding of the terms of the pension plan.” Id. In this case, it is not merely “likely,” but indeed certain, that plan par-
ticipants would have a muddled understanding of wear-away, given that Foot Locker took steps to conceal the phenomenon from participants.
Defendants and their amici fall back on the argument that failing to start the clock on participants’
B. Timeliness of § 404(a) Claims
Defendants also challenge the district court‘s ruling that participants’ breach of fiduciary duty claims under
tions period for such claims is governed by
The crux of Defendants’ argument is that because we have referred to
therefore defined the exception as applying “to cases in which a fiduciary engaged in acts to hinder the discovery of a breach of fiduciary duty.” Caputo, 267 F.3d at 190. In so defining the concealment exception, we noted that the
With that understanding of the concealment exception, we have little trouble concluding that “concealment” was shown on the factual record before the district court. As we noted in Caputo, application of the concealment exception requires that “in addition to alleging a breach of fiduciary duty (be it fraud or any other act or omission), the plaintiff
II. Detrimental Reliance
Defendants argue next that detrimental reliance was a necessary element of participants’
In Amara I, the Supreme Court had occasion, under circumstances similar to those here, to clarify the standard of harm that a plaintiff must show to receive equitable relief pursuant to
On writ of certiorari, the Supreme Court vacated the district court‘s judgment, concluding that the remedy of plan reformation was not available under
The relevant substantive provisions of ERISA [i.e.,
§§ 102(a) ,104(b) and204(h) ] do not set forth any particular standard for determining harm. ... Hence, any requirement of harm must come from the law of equity. Looking to the law of equity, there is no general principle that “detrimental reliance” must be proved before a remedy is decreed. To the extent any such require-ment arises, it is because the specific remedy being contemplated imposes such a requirement.
Application of Amara I‘s reasoning mandates the conclusion that detrimental reliance need not be shown where, as here, a plaintiff alleging a violation of
Accordingly, because neither the statutory text of
III. Mistake
Defendants also contend that the district court erred in concluding that mistake, a prerequisite to the equitable remedy of contract reformation, was proven by clear and convincing evidence. A contract may be reformed in the ERISA context where, inter alia, one party is mistaken and the other commits fraud or engages in inequitable conduct. Amara II, 775 F.3d at 525. Because Defendants do not challenge the district court‘s ruling that Foot Locker committed equitable fraud and engaged in inequitable conduct, the only question before us is whether the district court erred
As we stated in Amara II, to prove mistake for the purposes of the remedy of reformation under
Defendants do not challenge the district court‘s reliance on that evidence, arguing instead that individualized communications received by plan participants who had inquired about various aspects of their benefits dispelled any mistake for those participants. The district court rejected that interpretation of the factual record, and we discern no clear error in the district court‘s finding. While the individualized communications in question provided an explanation of some of the calculations used to determine participants’ benefits, they did not disclose the existence of wear-away or the fact that participants’ benefits were not increasing despite the accumulation of pay and interest credits.
In sum, having considered Foot Locker‘s arguments and reviewed the record as a whole, we conclude that the district court did not err, much less clearly err, in concluding that class-wide mistake was demonstrated by clear and convincing evidence.
IV. The District Court‘s Remedy
Finally, Defendants argue that the district court‘s award of equitable relief should have been tailored to account for
As explained above, the A benefit converts a participant‘s benefits under the old plan into an initial account balance under the new plan, using a six-percent discount rate and no mortality discount. That formula remedies wear-away because—unlike the original conversion formula, which applied a nine-percent discount rate and mortality discount—the district court‘s formula yields an initial account balance equivalent to a participant‘s benefits under the old plan. With that adjusted initial account balance, the pay and interest credits awarded as part of the B benefit are no longer rendered worthless by wear-away, but result in actual increases to the value of a participant‘s benefits.
That much of the relief Defendants do not seriously challenge.14 They do argue, however, that the district court erred when, in fashioning the B benefit, it failed to account for the fact that participants who received seniority enhancements under the cash balance plan experienced less wear-away and had already, in Defendants’ view, been made whole by receipt of the A benefit. Under the plan as originally designed, Defendants contend, the seniority enhancement closed the initial gap between a participant‘s account balance and the value of the participant‘s old plan benefits, thus reducing the amount of time that the account would otherwise have spent in wear-away.15 Defendants argue
Defendants’ arguments are not completely without theoretical appeal, but we review a district court‘s award of equitable relief “only for an abuse of discretion or for a clear error of law,” Amara II, 775 F.3d at 519 (internal quotation marks omitted), and we detect none here. As we stated in Amara II, the equitable remedy of reformation is governed by contract principles, and a district court may “properly reform[] [a pension] plan to reflect the representations that the defendants made to the plaintiffs.” Id. at 525. Here, the district court awarded the seniority enhancement as part of the B benefit because the SPD expressly promised to eligible participants that they would receive the enhancement as part of their benefit under the cash balance plan. Accordingly, we conclude that the district court‘s award of an “A benefit” and “B benefit” to all participants did not fall outside the “range of permissible decisions” available under
ment” (emphasis in original)). In any event, we note that the district court found, and Defendants do not challenge on appeal, that all participants suffered from wear-away as measured on an “annuity” basis (measured by comparing a participant‘s account balance and the benefits earned under the old plan on an annuity-to-annuity basis), even if approximately 1.4 percent of participants did not experience wear-away as measured on a lump sum basis.
an abuse of discretion standard. In re Sims, 534 F.3d 117, 132 (2d Cir. 2008).16
CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the district court.
Constance HINES, Marshay Hines, Plaintiffs-Appellants, v. The CITY OF ALBANY, Brian Quinn, Albany Police Officer, James W. Tuffey, Albany Chief of Police, Jeff Roberts, Robert Mulligan, Albany Police Officer, Michael Haggerty, Albany Police Officer, Robert Shunck, Albany Police Officer, Jeffrey Hyde, Albany Police Officer, Tim Haggerty, Albany Police Officer, Defendants-Appellees.*
* The Clerk of Court is directed to amend the caption as set forth above.