Opinion
Civil Action No. 3:01CV512.
April 12, 2002
David G. Shuford, Charles M. Sims, Marie D. Carter, For Plaintiffs. Samuel M. Brock, III, James S. Crockett, Jr., Kimberly Errico, pro se For Defendants.
MEMORANDUM OPINION
This matter is before the Court by consent of the parties ( 28 U.S.C. § 636 (c)(1)) on the Defendants' Motion for Summary Judgment Or, in the Alternative, for Partial Summary Judgment (Defs.' Mot.), pursuant to Fed.R.Civ.P. 56. The Plaintiffs, former employees of a now defunct company, Sky Trek International Airlines Inc. (the Company), assert that the Defendants, managing officers of the Company, breached their fiduciary duties in violation of §§ I 132 (a)(2) and 1132(a)(3) of the Employee Retirement Income Security Act (ERISA) by failing to exercise proper discretion and control over the assets of the Company's healtheare plan (the Plan) that resulted in Plaintiffs' and "other similarly situated Plan participants"' claims remaining unpaid following the Company's declaration of bankruptcy and its ensuing liquidation. (Compl., ¶¶ 52-54, Prayer for Relief. The Plaintiffs seek declaratory relief to establish that the Defendants Possati and Herman are personally liable, jointly and severally, for the losses that resulted from their fiduciary breaches as well as judgment providing for individual recovery from them, including pre-judgment interest, attomey's fees, costs, other reasonable costs incurred as provided for by ERISA, and "such other equitable relief for Plaintiffs and other similarly situated Plan participants" as the Court may deem appropriate. (Compl., Prayer for Relief). The Defendants deny that they were acting as fiduciaries of the Plan at least at the time of the alleged breach of fiduciary duty with discretion and control over Plan assets subject to the provisions of ERISA, or that the Plaintiffs can obtain the relief they request in the form of individual benefits. (Defs.' Mot.). For the reasons stated herein, the Defendants' Motion for Summary Judgment is GRANTED in its entirety.
The Defendant Marco Possati (Possati) was Chairman of the Board of Directors of Sky Trek and the Defendant Harris Herman (Herman) served as President and CEO during all relevant periods. The Defendant Kimberly Errico (Errico) is named only as a "nominal defendant," without any potential liability, in her capacity as Manager of Employee Benefits for the Company and a Plan Administrator. (Compl. ¶¶ 13-15).
Standard of Review
Summary judgment is only to be granted when there is no genuine dispute as to any issue of material fact when all justifiable inferences are drawn in favor of the non-moving party and the movant is entitled to judgment as a matter of law. Celotex v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby. Inc., 477 U. 5. 242, 255 (1986). However, unsupported conclusory allegations by the non-moving party are not sufficient to create a genuine dispute of material fact so as to withstand the granting of relief Celotex Corp. v. Catrett, 477 U.S. at 327 (White, J., concurring). In essence, the Court must decide if the evidence when viewed in the light most favorable to the non-moving party "presents a sufficient disagreement to require submission to the [factfinder] or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby. Inc., 477 U.S. at 251-252.
Undisputed Material Facts and Justifiable Inference
The Court deems the following to be the relevant undisputed material facts and justifiable inferences that are relevant to the resolution of the pending motion:
1. The Plan was established in 1998 to provide medical benefits to present and former employees of the Company, including the Plaintiffs. (Compl. ¶¶ 8-12, 23).
2. All claims were processed, decided, and paid by a third party administrator (TPA) pursuant to a third party administration contract. (Compl. ¶ 24; Mem. in Supp. of Defs.' Joint Mot. for Summ. J. or Partial Summ. J. (Defs.' Mem.) Ex. B).
3. The Defendants Possati and Herman had no involvement with the design, implementation, or operation of the Plan. (Defs.' Mem., Ex. C ¶¶ 3-6; Ex. L ¶ 3).
4. The Company reimbursed NEF through a bank account that the Company funded from its general assets and from which NEF was authorized to withdraw amounts on a regular basis in the amount of claims and authorized costs incurred on behalf of the Plan. (Compl. ¶¶ 26-27; Defs.' Mem., Ex. B; Ex. D ¶¶ 4-5).
5. Employee participants contributed to the Plan through payroll deductions in amounts that depended on the coverage obtained and the Company was contractually required as Plan Sponsor and Administrator to provide sufficient funding for the Plan. (Compl. ¶¶ 27-28; Defs.' Mem., Ex. A at 14; Ex. C ¶ 5; Ex. D ¶ 6).
6. At no time did the Company place any of the funds received from Plan participants in a separate trust, nor was it required to do so by any Plan document or other agreement. All employee contributions were processed through a general operating account from which the Company reimbursed the TPA for claims it paid on a monthly basis. (Compl. ¶ 29; Defs.' Mem., Ex. C ¶ 8; Ex. D ¶¶ 7-8).
7. The terms provided that the Plan would terminate if the Company decided to terminate the Plan. The TPA contract was also subject to termination if the Company failed to make the required reimbursement payments. (Defs.' Mem., Ex.Aat2;Ex.B, art. 7).
8. Although the Company encountered difficult financial circumstances that eventually forced it into bankruptcy, it never failed to make required contributions to the Plan or failed to reimburse the TPA for benefit payments until the bankruptcy court ordered the Company to stop making such disbursements. (Compl. ¶¶ 30,38,41; Defs.' Mem., Ex. C ¶¶ 13,15; Ex. D ¶ 10).
9. The Defendants (Herman) communicated with Plan participants on a regular basis regarding the deteriorating financial condition of the Company before bankruptcy protection was sought. (Defs.' Mem., Ex. C ¶ 9).
10. No plan participant was misled by any affirmative misrepresentation of the Defendants.
11. The Company specifically requested permission of the bankruptcy court that it be allowed to satisfy benefit claims related to healtheare expenses that had been incurred before the bankruptcy filing (pre-petition), but the court declined permission and the Plan was formally terminated by the court-appointed trustee appointed by the court to oversee the Company's liquidation. (CompL. ¶¶ 2, 42; Defs.' Mem., Ex. C ¶ 15; Ex. G; Ex. H; Ex. I).
12. Although the Defendants Possati and Hennan exercised discretion, if not control, over company assets and activities as officers and investors, including which creditors to pay after seeking bankruptcy protection, the Plan was a "self-funded" or "unfunded" plan (as permitted by ERISA) designed to operate independent of corporate control. (Def.'s Mem., Ex. C ¶¶ 3-6; Ex. L ¶ 3).
The Company retained New England Financial Employee Benefits Group (NEF) as the TPA in regard to current employee claims and the COBRA Company of Virginia (COBRA Company) as the TPA for health care claims by former employees. (Compl. ¶¶ 24-25). Both third party administrators will be referred to collectively as "the TPA" herein.
Former employee participants made direct payments to the COBRA Company that then remitted the appropriate amounts to the Company. (Compl. ¶¶ 28; Defs.' Mem., Ex. C ¶¶ 6-7, Ex. D ¶ 8).
A single $150 payroll deduction was made by one of the named plaintiffs (Pagano) after the Company made its last contribution to the Plan (immediately before the pending bankruptcy was converted into a Chapter 7 liquidation proceeding). The $150 was forwarded to the trustee in bankruptcy, and not the TPA. (Defs.' Mem., Ex. C ¶ 14, Ex. J).
The Plaintiffs have not presented any evidence by affidavit or otherwise to establish that there is even a genuine issue of disputed material fact that there was any alleged misrepresentation.
Analysis
The central issue in the case is whether the Defendants exercised the requisite discretion and control over the Plan andlor its assets as fiduciaries at the time of the alleged breaches such that they could be held personally accountable for adverse consequences. Pursuant to 29 U.S.C. § 1002(21)(A) of ERISA:
"a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan."
The Plaintiffs argue that the Defendants must be held individually accountable as Plan fiduciaries because they exercised requisite discretion and control over the administration and management of the Plan as well as its assets. (Compl. ¶¶ 13, 14, 49-51; Pls.' Mem. at 7-11, 20-22). The undisputed material evidence is clear. The Defendants had nothing to do with the design, implementation, or operation of the Plan. (Undisp. Material Facts and Justifiable Inferences ¶ 3 (Findings)). The Plan was "self-funded" or "unfunded" as permitted by ERISA and contributions were not required to be segregated into a designated trust upon receipt such that the Defendants could not have worn "two hats" in regard to general Company assets as corporate officers and Plan fiduciaries before the contributions were transmitted to the TSP so as to expose them to liability for any Plan failure. (Findings ¶¶ 4, 12). At all relevant times, the Defendants kept Plan participants informed of the Company's status. (Findings ¶ 9). There is no evidence that the Defendant gave any false or misleading information to Plan participants constituting a fiduciary breach. (Findings ¶¶ 9-10). Furthermore, although the Defendants exercised authority over corporate assets, all required contributions or payments to fund the Plan from corporate assets were made until the Company was prohibited from doing so by court order — a development beyond the Defendants' control. (Findings ¶ 8).
Conceded by the Plaintiffs. (Pls.' Mem. at 10; 29 C.F.R. § 2510.3-102 (a)).
The Plaintiffs argue that the Defendants' conduct should not be excused by the bankruptcy court's directive because the Defendants only sought permission to fund certain pending, pre-petition claims and "[jt]hey just didn't try very hard" in seeking "authorization to keep the Plan in full force and effect." (Pls.' Mem. at 23). Suffice it to say that it is fair to infer that the bankruptcy court would hardly be inclined to authorize indefinite funding of unknown claims if it was not going to allow payment of known, finite sums.
Plan Administration and Management
Although the Plaintiffs concede that the Defendants did not have "day-to-da/' responsibility for the administration of "ministerial" duties in the Plan, the Plaintiffs nevertheless assert in purely conclusory fashion, without any evidentiary support, that they did have such discretion and control in regard to other aspects so as to make them Plan fiduciaries:
While it is undisputed that Possati and Herman were not involved in the day-to-day ministerial administration of the Plan, such as enrolling employees, answering questions about benefit coverage or sending COBRA documents to terminated employees, they clearly had discretionary responsibility and discretionary responsibility in the administration of the Plan... (Pls. Mem. at 20-21).
More specifically, but still in conclusory fashion, the Plaintiffs assert that the Defendants, and only the Defendants:
had the discretionary authority and responsibility to earmark corporate funds to administer the Plan's funding requirement [and] by virtue of their respective positions as Chairman of the Board and President of the Company, Possati and Herman had the authority, for example, to select the third party claims processor, to hire and fire personnel to handle the ministerial administration of the Plan, and, if they so chose, to change the entire design of the Plan back to a fully-insured arrangement.
(Id. at 21).
The Plaintiffs also assert as part of the same fiduciary responsibility that the Defendants "had to keep employees informed about the status of their insurance coverage," including warning them that "their medical coverage was in jeopardy," at least by the time it was decided by the Company's Board of Directors to seek bankruptcy protection. Id.
The Plaintiffs even suggest that the Defendant Possati, as the primary personal investor in the Company, had a fiduciary responsibility to continue to fund the Plan himself if necessary. (Pls.' Mem. at 25). Surely, such a concept stretches any reasonable standard of fiduciary responsibility beyond any measure of reality or the law where otherwise it would make every stockholder or other investor liable in regard to a fiduciary's breach that created a failure in the funding of a plan.
A business entity's officer or director who has responsibility for corporate affairs does not also have fiduciary responsibility with regard to an employee benefit plan simply by virtue of that corporate position.Thomas v. Tru-Tech. Inc., 1990 WL 48865, at *3 (4th Cir. April 3, 1990) (unpublished) (citing Anderson v. Ciba-Geigy Corp.. 759 F.2d 1518, 1522 (11th Cir. 1985)). Rather, the relevant analysis to determine whether one is properly considered as a plan fiduciary with responsibility for taking certain action and potential exposure to liability for failing to do so is based on the nature of the activity involved when fulfulling clearly-defined functions. Lockheed Corp. v. Spink, 517 U.S. 882, 890 (1996); Covne Delaney Co. v. Selman, 98 F.3d 1457, 1465 (4th Cir. 1996) (citations omitted) (explaining that "[o]f course, fiduciary status is not "an all-or-nothing concept' . . . [t]he inclusion of the phrase "to the extent' in ERISA's definition of fiduciary means that a party is a fiduciary only as to the activities which bring the person within the definition"); Great Coastal Exp.. Inc. v. Blue Cross Blue Shield of Virginia, 782 F. Supp. 302, 306 (E.D. Va. Feb. 5, 1992). Furthermore, it is not just a question of whether a fiduciary had the requisite authority to administer or manage the Plan or to exercise control over its assets, it must also be established that the party was acting in the capacity of fiduciary at the time of any alleged breach. See Varitv Corp. v. Howe, 516 U.S. 489 (1996) (finding that an employer assumed the responsibility as fiduciary of a plan when providing detailed, false information to plan participants regarding benefits);Pegram v. Herdrich, 530 U.S. 211, 225-226 (2000) (holding that an employer can "wear two hats" in regard to corporate affairs and a benefit plan, but only one at a time). Pegram is particularly instructive in confirming that even though an employer may be designated as a plan administrator, as in this case, it must act as such to a greater extent to be held liable for fiduciary breaches than, for example, deciding on the contents of the plan:
The Court is mindful of such precedent as Shade v. Panhandle Motor Svc. Corp., 1996 U.S. App. LEXIS 16703, at *1, *3 (4th Cir. July 11, 1996) (unpublished), cited by the Plaintiffs, in which the court summarily states that an employer who is also a plan administrator is thereby a plan fiduciary by wearing the "two hats" of employer and plan administrator. However, such language must be qualified by noting that the dual roles can generate or merge into fiduciary responsibility "only when and to the extent" the employer functions in the capacity of plan administrator. See, e.g., Barnes v. Lacy, 927 F.2d 539, 544 (1991) (cited by the Court in Shade).
Thus, the statute does not describe fiduciaries simply as administrators of the plan, or managers or advisers. Instead, it defines an administrator, for example, as a fiduciary only "to the extent' that he acts in such a capacity in relation to a plan 29 U.S.C. § 1002 (21)(A). In every case charging breach of ERISA fiduciary duty, then, the threshold question is not whether the actions of some person employed to provide services under a plan adversely affected a plan beneficiary's interest, but whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint.
Pegram v. Herdrich, 530 U.S. at 225-226 (emphasis added). See, e.g., Sutton v. Weirton Steel Div. of Nat'l Steel Corp., 724 F.2d 406 (4th Cir. 1983) (holding that an employer may change the contents of an unfunded, contingent benefits plan without acquiring fiduciary status).
The Eleventh Circuit, in a decision pre-dating Pegram, likewise held that even where a corporate officer was: (1) also designated as a healtheare plan fiduciary and had solicited the insurance coverage used for his company's plan; (2) was responsible for the payment of the related premiums; and (3) exercised sole authority over the dissemination of information regarding the plan, he still did not breach his fiduciary duties to the plan by wearing "two hats" as corporate officer and plan fiduciary when he decided to pay other corporate creditors rather than the insurance premiums necessary to fund the plan. Local Union 2134. United Mine Workers of America v. Powhatan Fuel. Inc., 828 F.2d 710, 713-714 (11th Cir. 1987). The Plaintiffs simply disagree with the holding in Powhatan Fuel and emphasize that it must be limited to its facts. (Pls.' Mem., at 12). To the contrary, however, the facts in Powhatan Fuel illustrate that even where the defendants' association with and responsibilities to the plan are highly intertwined with their duties as corporate officers, corporate decisions that effect the plan can be bifurcated from the defendants' duties as fiducianes.
Therefore, there is no general duty of a corporate officer to "earmark" corporate assets to fund a benefit plan, at least in the absence of a specific directive of the plan, specific corporate action, or some other specified obligation such as a specific provision of a collective bargaining agreement. Otherwise, as argued by the Defendants, all corporate officers and directors potentially would be liable without having any assigned fiduciary responsibility. (Defs.' Reply Mem. at 13-14). Furthermore, the authority to select (and change) third party administrators, hire and fire staff responsible for ministerial duties, and change plan design is more accurately described as functions of a corporate officer, plan sponsor (not necessarily just the CEO and/or president of a company), or settlor (to terminate a plan) rather than plan fiduciary, and the Court is otherwise unwilling to speculate on "what might have been," at least in the absence of any evidentiary basis to do so. See Pegram v. Herdrich, 530 U.S. at 226 (citing Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996) ("nothing in ERISA requires employers to establish employee benefit plans. Nor does ERISA mandate what kind of benefits employers must provide if they choose to have such a plan").
The Plaintiffs also assert that either the Defendants were plan fiduciaries by virtue of a duty on their part as corporate officers to keep Plan participants informed about the "health and welfare" of the Plan and to warn them of impending doom, or being Plan fiduciaries under any other theory, they breached their fiduciary responsibilities by failure to warn Plan participants of the potential for a termination of the Plan upon the Company's demise. (Pls.' Mem. at 2 1-22, 25-26). In support of their position, Plaintiffs rely on several case precedents, including Ramey v. Empire Mfg. Co., 1997 U.S. Dist. Lexis 23697 (N.D. Ga. June 18, 1997). However, the Ramey case and the others cited by Plaintiffs either do not stand for the proposition asserted or they are otherwise readily distinguishable. Indeed, in Ramey, the court's conclusion that the defendant corporate officer was a plan fiduciary was based on his admission that he not only understood he held that responsibility, but also because his duties involved obvious fiduciary actions of reviewing claims on an individual basis and deciding if and when to pay them. Id. The conclusion was therefore compelled that the same fiduciary who had misapplied and embezzled funds over time that had been "earmarked" for required employer contributions to a plan had breached his fiduciary duties, especially in light of related misrepresentations by him to plan participants about the plan's continuing vitality. Id. Such is not the case here.
Similarly, Plaintiffs' reliance on such additional authority as Griggs v. E. I. Dupont de Nemours Co., 237 F.3d 371 (C Cir. 2001), and Shade v. Panhandle Motor Svc. Corp., is misplaced. In Griggs, the plaintiff was a plan participant who had been informed by the fiduciary that he would not incur any tax consequences if he elected early retirement and "rolled over" temporary pension benefits into a permanent retirement. Id. The fiduciary later learned, before the plaintiff relied on such information, that the advice was incorrect and that there would be tax consequences. Id. However, the fiduciary made no effort to correct the earlier misunderstanding. The court agreed that there is no "general duty requiring ERISA fiduciaries to ascertain on an individual basis whether each beneficiary understands the collateral consequences of his or her particular election, [but] an ERISA fiduciary that knows or should know that a beneficiary labors under a material misunderstanding of plan benefits that will inure to his detriment cannot remain silent — especially when that misunderstanding was fostered by the fiduciary's own material representations or omissions." Griggs, 237 F.2d at 381. That is not the situation in this case. (Findings ¶¶ 9-10). Likewise, the court in its unpublished opinion in Shade held that a plan fiduciary had the affirmative duty to inform a plan participant of a basic change in his insurance status from third party coverage to self-insured status and in failing to correct the omission when the fiduciary discovered that the plan participant was not covered under the new plan as the fiduciary should have assumed would not have been known by the plan participant. Shade, 1996 U.S. App. LEXIS 16703, at *4.
The additional cases cited by the Plaintiffs are also of no avail in establishing that the Defendants acted as Plan fiduciaries because they involved distinguishable circumstances. Prof'l Helicopter Pnots Assoc. v. Denison, 804 F. Supp. 1447 (M.D. Ala. Sept. 28, 1992), involved a situation in which the defendants, who were pension plan fiduciaries pursuant to a collective bargaining agreement, failed to segregate employee contributions into a separate trust as required by the agreement and then failed to notify plan participants that they had diverted the funds into corporate assets. In Mira v. Nuclear Measurements Corp., 107 F.3d 466 (7th Cir. 1997), the defendant plan fiduciaries not only failed to make required health plan insurance premium payments that were derived from employer and employee contributions, but they also failed to tell the plan participants that they had diverted the funds for other corporate purposes and that the coverage had been cancelled altogether. Finally, Rosen v. Hotel Restaurant Employees Bartenders Union, 637 F.3d 592 (3rd Cir.), involved a pension trustee who failed to notify a plan participant that the employer had failed to contribute to the plan as required by the agreement that created the pension plan and that pension benefits had been reduced as a result.
Plan Assets
An alternative method to establish that the Defendants acted in a fiduciary capacity in regard to the Plan is to demonstrate that they exercised "any authority or control respecting management or disposition of its assets." 29 U.S.C. § 1002 (21)(A)(i). The question then is whether the Defendants' authority over corporate assets, some of which were used to fund the Plan, and the deduction and processing of employee-participant contributions that were also used to partially fund the Plan, constituted "plan assets" so as to make the Defendants' exercise of authority over either of those contributions a fiduciary act.The Department of Labor (DOL) has issued various regulations and interpretative opinion letters that are to be given deference and which describe what is included within the concept of "plan assets." See e.g., Coyne Delany Co. v. Selman, 98 F.3d at 1465 (deferring to interpretations issued by DOL as the agency responsible for enforcing ERISA). In this regard, employee contributions (in this case the payroll deductions) can constitute plan assets, but only under specified circumstances:
[T]he assets of the plan include amounts (other than union dues) that a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his wages by an employer, for contribution to the plan as of the earliest date on which such con tributions can reasonably be segregated from the employer "s assets. 29 C.F.R. § 25 10.3-102(a) (emphasis added).
Furthermore, in regard to welfare benefit plans such as the healtheare plan in this case, the "earliest date" must in no event be "later than 90 days from the date on which the participant contribution amounts are received by the employer." Id. § 2510.3-102(c). The undisputed evidence in this case is that all contributions (both employer and employee contributions) were transferred as required or, in the instance of the single $150 contribution by one of the Plaintiffs (Pagano), it could not be transferred or segregated within the required time period because of the intervening bankruptcy proceeding. (Findings ¶ 8; see Defs.' Mem. at 26-27 (citing 29 C.F.R. § 25 10.3-102(a); Ex. C ¶ 14; Ex. J)). Therefore, either the employee contributions never constituted plan assets while they were under the control of the Defendants, or even if they can be considered as such, there was no' breach by the Defendants of any related duty.
The Plaintiffs cite several cases in support of their argument that the employee payroll deductions in this case constituted plan assets. (Pls.' Mem. at 18-20). However, each case is distinguishable from the present one where: (1) employee contributions were defined as plan assets by the express terms of a collective bargaining or trust agreement (Lopresti v. Terwilliger, 126 F.3d 34 (2d Cir. 1997); Prof'l Helicopter Pnots Assoc. v. Denison, 804 F. Supp. 1447 (M.D. Ala. Sept. 28, 1992);Bd. of Trs. of Aircond. Refri g. Indus. Health Welfare Trust Fund v. J.R.D. Mech. Servs.. Inc., 99 F. Supp.2d 1115 (C.D. Cal. Dec. 9, 1999); and Pension Benefit Guar. Corp. v. Solmsen, 671 F. Supp. 938 (E.D. N.Y. Sept. 16, 1987) (involving a pension — not health plan)); (2) the issue was whether a constructive trust could be imposed on assets of a debtor in a bankruptcy proceeding to fund withheld contributions to employee benefit plans (In re U.S. Lan Sys. Corp., 235 B.R. 847 (E.D. Va. September 2, 1998); In re College Bound Inc., 172 B.R. 399 (S.D. Fla. Sept. 27, 1994)); and (3) the issue was whether a defendant in a criminal case was properly considered as a fiduciary holding a position of trust in the receipt of contributions for enhanced sentencing purposes or the issue was whether employee contributions to a plan were funds of another entrusted to the defendants who were properly prosecuted for embezzlement for failing to segregate the funds within a reasonable period, i.e., 90 days. (U.S. v. Glick, 142 F.3d 520 (2d Cir. 1998), andU.S. v. Grizzle, 933 F.2d 943 (11th Cir. 1991)).
The same reasoning applies to the status of employer contributions, at least in the absence of any collective bargaining or trust agreement provision that defines an employer funding obligation as a plan asset. Even if an actual trust were to be utilized for receipt of an employer contribution, a plan does not necessarily acquire thereby a sufficient beneficial interest in such segregated funds for them to constitute "plan assets":
Title I of ERISA does not expressly define what property will be regarded as "assets of an employee benefit plan." The Department of Labor ("the Department") has issued regulations describing what constitutes plan assets with respect to a plan's investment in other entities and with respect to participant contributions.... The Department has indicated that the assets of an employee benefit plan generally are to be identified in other situations on the basis of ordinary notions of property rights.... The provisions of Title I further do not impose funding standards on employee welfare benefit plans. Accordingly, the Department has acknowledged that an employer sponsor of a welfare plan may maintain such a plan without identifiable plan assets by paying plan benefits exclusively from the general assets of the employer. This could be the case even the employer sets aside some of its general assets in a separate employer account for the purpose of ensuring that assets are available to provide benefits under the plan. However, if an employer takes steps that cause a plan to gain a beneficial interest in particular assets, under ordinary notions of property rights, such assets would become plan assets.... [Ilt is the Department's view that a welfare plan generally will have a beneficial interest in particular assets if the employer establishes a trust on behalf of the plan, sets up a separate account with a bank or with a third party in the name of the plan, or specifically indicates in the plan documents or instruments that separately maintained funds belong to the plan.... On the other hand, the Department has also explained that the mere segregation of employer funds to facilitate administration of the plan, in the absence of any other actions or representations that would man West an intent to contribute assets to a welfare plan, would not in itself demonstrate an intent to create a beneficial interest in those assets on behalf of the plan.
99 Op. Dept. of Labor 08A (1999) (citations omitted) (emphasis added).
In the present case, there is no language in any plan document or elsewhere that gives the Plan a beneficial interest in the general assets of the Company or the particular employer contributions that were made, at least before the point they were transferred into the TSP bank account. See Connors v. Paybra Mining Co., 807 F. Supp. 1242 (S.D. W.Va. Dec. 1, 1992) (holding that specific contractual language in a collective bargaining agreement did provide for fiduciary liability for the failure to make employer contributions). See also Local Union 2134. United Mine Workers of America v. Powhatan Fuel. Inc., 828 F.2d at 714. It is because there is no plan document or other agreement or directive making the general assets of the Company and/or specific employer contribution Plan assets that the case authority relied on by the Plaintiffs is clearly distinguishable from this case, as correctly contended and discussed in the Defendants' memoranda. (Defs.' Mem., at 17-24; Defs.' Reply Mem. in Supp. of Mot. Summ. J. or for Partial Summ. J. (Defs.' Reply Mem.), at 8-I 1); see, e.g., Connors v. Paybra Mining Co., 807 F. Supp. 1242 (S.D. W. Va. Dec. 1, 1992) (holding that only specific contractual language in a collective bargaining agreement warranted "a departure from the general rule" that employers are not held liable as plan fiduciaries for delinquent contributions).
In U.S. v. LaBarbara, 129 F.3d 81 (2d Cir. 1997) (that also appears to be the basis, at least in part, for the court's conclusion inChicago Dist. Council of Carpenters' Pension Fund v. Angulo, 150 F. Supp.2d 976 (N.D. Ill. July 30, 2001)), the court held that unpaid employer contributions are plan assets. However, it is a criminal case in which the issue was considered on a broader basis given far more egregious facts, including the fact that the contributions were specifically designated as plan assets in a collective bargaining agreement and the disputed assets were withheld over an extended period of time (four years). The case of Chicago Dist. Council of Carpenters' Pension Fund v. Angulo is also distinguishable where it involved a pension trust fund with more stringent regulatory requirements and the court nevertheless declined to adopt the argument that a diversion of funds automatically makes an employee a plan fiduciary. The Court is not willing to rely on such authority for the proposition urged by the Plaintiff, especially in light of other, more compelling precedent. 150 F. Supp. 2d at 978.
Bankruptcy
The Plan was terminated as a direct result of the court-ordered liquidation of the Company. (Findings ¶ 8). On behalf of the Company, the Defendants, as corporate officers, sought permission from the bankruptcy court to continue to fund the Plan to satisfy at least all pre-petition claims. (Findings ¶ 11). There is nothing more the Defendants could have done and, therefore, even if they were determined to be fiduciaries of the Plan, they did not breach their responsibilities.
The Plaintiffs again cite case authority that is readily distinguishable for the reasons stated by the Defendants and adopted by the Court. (Pls.' Mem., at 22-24; Defs.' Reply Mem., at 15-17).
Unavailable Relief
The Plaintiffs seek "restitution for unpaid medical insurance benefits" pursuant to 29 U.S.C. § 1132(a)(3). (Compl. ¶ 3). Even assuming that the Plaintiffs would be entitled to the benefits and whether they therefore have an alternate means of adequate relief under ERISA that would preclude their claim for breach of fiduciary duty, the Supreme Court recently held that the equitable relief the Plaintiffs seek (legal restitution) is not available where, as here, Plan assets as well as any corporate asset that could even be considered a plan asset are no longer available for restitution purpose's:
[A]plaintiff could seek restitution in equity, ordinarily in the form of a constructive trust or an equitable lien, where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession. A court of equity could then order a defendant to transfer title (in the case of a constructive trust) or to give a security interest (in the case of an equitable lien) to a plaintiff who was, in the eyes of equity, the true owner. But where "the property or its proceeds have been dissipated so that no product remains, [the plaintiffs] claim is only that of a general creditor," and the plaintiff "cannot enforce a constructive trust of or an equitable lien upon other property of the [defendant]." Thus, for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession.
Great West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 714 (2002).
Conclusion
The Defendants did not act as Plan fiduciaries in such a way and at such a time as to make them individually liable for the Plaintiffs claims; the employer and employee contributions that were required to fund the Plan over which the Defendants maintained authority as corporate officers were not Plan assets so as to make the Defendants Plan fiduciaries; even if the Defendants could be viewed as Plan fiduciaries, they did not breach any responsibility or duty; and even if they are deemed to have done so, the desired relief as demanded is not available.The Plaintiffs have obviously suffered as the unfortunate result of a failed business venture. The law protects against such losses under certain circumstances, but not those in this case.
There being no genuine dispute of material fact to be resolved, the Defendants' Motion for Summary Judgment is GRANTED.
An appropriate Order shall issue.
This matter is before the court on the Defendants' Motion for summary Judgement Or, in the Alternative, for partial Summary Judegment, pursuant to Fed.R.Civ.P. 56. For the reasons ste forth in the accompanying Memorandum Opinion, the motion for summary judgement is hereby GRANTED and the case is DISMISSED.
Let the clerk forward a copy of this Order and the accompanying Memorandum Opinion to all counsel of record.