Plummer v. Consolidated City of Indianapolis

Full title: THOMAS F. PLUMMER, JOHN KLINE, JR., DAN L. ROBERTSON, and ROBERT STAFFORD…

Court: United States District Court, S.D. Indiana, Indianapolis Division

Date published: Aug 17, 2004

Cause No. 1:03-cv-00567-DFH-WTL (S.D. Ind. Aug. 17, 2004)

Opinion

Cause No. 1:03-cv-00567-DFH-WTL.

August 17, 2004

ENTRY ON MOTIONS TO DISMISS

DAVID HAMILTON, District Judge

In 2002, the City of Indianapolis acquired ownership of the city's waterworks and contracted with USFilter Operating Services, Inc. to manage the waterworks under a 20-year contract. As a result of the transaction, most of the employees of the privately-owned water company became employees of USFilter. Those employees' benefits changed as a result of the change in their employers. Plaintiffs in this action are waterworks employees who allege that the City of Indianapolis and USFilter violated their rights under the federal Employee Retirement Income Security Act (ERISA), under state law, and under the First Amendment to the United States Constitution. Defendants have filed motions to dismiss all of plaintiffs' claims except for the First Amendment claim for failure to state a claim upon which relief can be granted and for lack of subject matter jurisdiction.

The court grants the motion to dismiss Counts One through Eleven of the complaint. At the times in question, before the City acquired the waterworks and turned over management to USFilter, ERISA did not impose any fiduciary duties on the City or USFilter. In addition, the preemptive force of ERISA is so powerful as to block plaintiffs' efforts to use state law to modify the terms of employee benefit plans governed by ERISA. Counts One, Two, Three, Five, Six, Ten, and Eleven are dismissed for failure to state a claim, and Counts Four, Seven, Eight, and Nine are dismissed for lack of subject matter jurisdiction. Count Twelve, which is the First Amendment claim, remains in the case.

I. Standards for Motions to Dismiss

In considering a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim, the court must assume the truth of all well-pleaded allegations in the complaint. The court may grant the motion to dismiss only if it is clear that plaintiffs would not be entitled to relief under any set of facts that would be consistent with the allegations in the complaint. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002); Hishon v. King Spalding, 467 U.S. 69, 73 (1984); Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In considering the motion to dismiss, the court may consider documents that are attached to or referenced in the complaint. See Fed.R.Civ.P. 10(c); Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 661 (7th Cir. 2002). Defendants have challenged plaintiffs' standing to assert Counts Four, Seven, Eight, and Nine. Those challenges to the court's subject matter jurisdiction are based only on the pleadings, though, so the court has not considered matters outside the pleadings in deciding those issues.

II. Plaintiffs' Allegations

A. The Parties

Plaintiffs are Thomas F. Plummer, John Kline, Jr., Dan L. Robertson, and Robert L. Stafford. All four are non-union employees of defendant USFilter Indianapolis Water, LLC, which now operates the waterworks for the City of Indianapolis. All four plaintiffs had been non-union employees of the Indianapolis Water Company (IWC) and/or IWC Resources Corporation (IWCR) until April 30, 2002. Plaintiffs seek to represent a plaintiff class of all persons who were non-union participants or beneficiaries under the IWC Resources Corporations Employees' Pension Plan on March 21, 2002 and who later became non-union employees of USFilter.¹

1 Plaintiffs also seek to include some retirees in the class, and to exclude some former senior executives of IWC and IWCR, but those are details that need not be resolved at this point. Class issues were postponed until the pending motions to dismiss are resolved, as permitted by Fed.R.Civ.P. 23(c).

Defendants are the Consolidated City of Indianapolis, Marion County ("the City"), USFilter Operating Services, Inc., and USFilter Indianapolis Water, LLC. The court refers to the latter two defendants collectively as "USFilter." Also named as defendants are three employees of USFilter, John Wood, James J. Keene, and Dave Ward.

B. The Waterworks Transaction

In 2000, the public water supply system in Indianapolis was owned by IWC Resources Corporation (IWCR), which was a subsidiary of NiSource, Inc., a public utility holding company. In November 2000, NiSource merged with Columbia Energy Group of Virginia. Pursuant to the federal Public Utility Holding Company Act of 1935, the merged entity was required to divest itself of water utility assets, including IWCR, within three years.

Facing the prospect of an unwanted change in control of the waterworks, the City of Indianapolis asserted that it had the right under Indiana law to purchase the assets of the Indianapolis water system from IWCR even if IWCR did not consent to the purchase. NiSource and IWCR initially disputed the City's claim of power, but they eventually reached an agreement with the City. Under the agreement, the City agreed to purchase the assets of the Indianapolis water system, to assume obligations to pay certain bonds that had previously been issued to pay for improvements in the water system, and to issue new bonds to finance the purchase.² Under the agreement, the City elected not to try to operate the water system itself but to enter into a management agreement with a private entity that would operate the water system. In March 2002, the City entered into a Management Agreement with USFilter Operating Services, Inc. In general, the City and USFilter agreed that USFilter would operate the water system for a term of 20 years and that current IWC and IWCR employees would be offered comparable employment with USFilter.

2 This description summarizes a complex transaction involving multiple legal entities, many municipalities, and consideration valued at more than $600 million. For the sake of simplicity, the court refers to all of the assets in the transaction as the Indianapolis "waterworks" or "water system."

After obtaining approval for the transaction from the Indiana Utility Regulatory Commission, the City closed its purchase of the water system assets from NiSource on April 30, 2002. USFilter immediately began operating the Indianapolis water system pursuant to the Management Agreement with the City. Plaintiffs became USFilter employees.

According to plaintiffs, City and USFilter officials made promises and assurances that plaintiffs' employee benefits would not be changed or adversely affected by the transaction and their transition from IWCR employees to USFilter employees. Plaintiffs allege that in fact the transition resulted in substantial reductions in the value of their employee benefits, including pension benefits and a host of welfare benefits, ranging from health and life insurance to scholarship benefits for their children, as well as reductions in vacations, sick leave, holidays, and personal days. Plaintiffs allege that the promises by City and USFilter officials were deliberately false and that the breach of those promises should be remedied by the court under ERISA and state law.

C. The Mayor's Letter

The first alleged false promise came from Indianapolis Mayor Bart Peterson on July 18, 2001, in a letter to all IWCR employees announcing a letter of intent between the City and NiSource. On July 16, 2001, NiSource and the City signed a letter of intent outlining the structure of the proposed transaction. Regarding employees of IWC and IWCR, the letter of intent stated in part:

4. Employees. (a) The City shall offer Comparable Employment, effective as of the closing, to all employees of the Businesses, provided, however, that all such employees are and will remain employees-at-will and the City shall not be obligated to retain any such employees in the employment of the City for any specified period of time from and after the closing, other than the employment of employees who are represented by a union whose employment shall continue in accordance with the terms and conditions of the collective bargaining agreements. Comparable Employment shall have the definition contained in the NiSource Severance Policy effective September 1, 1999, as amended by Amendment No. 1 thereto, as previously interpreted by NiSource, and for purposes of that definition, "compensation" shall not include any bonus, severance or other benefits.

Cplt. Ex. A ¶ 4(a). The letter of intent contemplated a transaction by which the IWC and IWCR employees would become employees of the City of Indianapolis. The final deal was structured differently, as noted above, as the City contracted with USFilter to operate the waterworks. The letter of intent stated that the key provisions, including Paragraph 4 regarding employees, were not legally binding but would be addressed in a later definitive agreement. Cplt. Ex. A ¶ 11.

Two days later, on July 18, 2001, IWCR Chairman Jim Morris and President David Kelly sent a letter to all IWCR employees announcing that the City and IWCR had signed the letter of intent. Their letter to employees summarized the terms of the agreement and said this about employees:

We want to emphasize that as part of the agreement, the City has made commitments to honor all employee and retiree benefit agreements. The City will also honor all collective bargaining agreements. A copy of the commitment letter from Mayor Bart Peterson is enclosed.

Cplt. Ex. C. The two italicized sentences were both italicized and underlined in the original letter, and were the only emphasized portions of the letter.

Mayor Peterson's July 18, 2001 letter to the IWCR employees stated in relevant part:

The City has committed to hiring a professional third party manager to operate the water company efficiently.

First, the new management structure will honor all employee benefit agreements, including the current bargaining units and collective bargaining agreements. Your benefits, such as vacation and sick time, paid holidays, medical benefits, life insurance and retirement programs, will not change.

Second, there are no plans for layoffs, and no major staff overhauls are anticipated at this time.

Lastly, the new management structure will honor all agreements with Indianapolis Water Company retirees. Retirees have put in years of service and deserve to receive their benefits.

I hope this letter answers your questions and makes it clear that we do not intend to make widespread changes. We hope that the City's purchase of the water company will instill stability and confidence in your job. We thank you for continuing service to the citizens of Indianapolis and central Indiana.

Cplt. Ex. B.

Plaintiffs point out that the letter of intent signed by the mayor two days earlier did not include any express agreement to honor employee benefit agreements for non-union employees, and that in fact the definition of "compensation" in Paragraph 4(a) of the letter of intent specifically excluded benefits. Plaintiffs also emphasize the mayor's statement that he hoped the City's purchase would instill stability and employees' confidence in their jobs. Plaintiffs allege that they relied on this statement and the mayor's assurance that benefits would not change in deciding to continue their employment with IWCR.

D. IURC Approval

The City and NiSource sought approval from the Indiana Utility Regulatory Commission for the proposed acquisition of the waterworks. On December 21, 2001, Chairman John Dillon of the Indianapolis Local Public Improvement Bond Bank stated the following in his written IURC testimony in support of the transaction:

Q.20. What commitments has the City made concerning the employees of IWC and the other companies whose assets it is acquiring?

A.20. The Agreement provides that as of the closing, the City will offer employment to every salaried and hourly employee of IWCR, IWC and the other affiliated companies whose primary responsibilities relate to those entities' water utility business. The City has agreed further that it will provide each such employee with a substantially comparable position and substantially comparable wages or salary as they were receiving as of the closing date. The City must also provide comparable employee benefits to all such employees, either by the City's assumption of the assets and liabilities of the seller's benefit plans, or where it cannot lawfully do so, by offering those employees participation in benefit plans that are comparable to the benefit plans City employees participate in.

Cplt. ¶ 46.

On March 28, 2002, the IURC issued an order approving the City's acquisition of the waterworks. The IURC's order noted: "the evidence shows that all current employees of IWC, IWCR, and the IWC Intervenors will be offered employment after the acquisition on substantially the same terms as those persons are now employed, and that the vast majority of current employees are expected to accept that offer." Cplt. ¶ 48.

E. City-County Council Approval of Purchase and USFilter Contract

After further negotiations, the City issued on December 21, 2001 a Request for Proposals (RFP) for a management agreement for operating what would become the City-owned waterworks. The RFP did not include any requirement regarding employee benefit levels.

USFilter responded to the RFP, and on February 19, 2002, USFilter made a presentation to City officials concerning its proposal. Plaintiffs allege that USFilter Vice President of Human Resources David Ward said: "Let me step back and reconfirm what is in the proposal right [now] . . . we feel strongly that individuals who have accrued and earned a benefit should remain with those benefits and protect those benefits . . . anyone who is out there getting those benefits right now, will continue getting those benefits. That's done." Cplt. ¶ 35. At the same meeting, USFilter Senior Vice President James J. Keene told the City officials that USFilter's proposal included "all the employees' benefits." Cplt. ¶ 36.

On March 5, 2002, the City's Board of Waterworks met with officials from USFilter and from another applicant, United Water. The United Water officials said that if their company were awarded the contract, they would "take the defined benefit pension plan and continue it for all employees for twenty years," that the company was committed to continue current health benefits and retiree health benefits, and that the company was committed to provide employee benefits that were equal to or better than the benefits currently enjoyed by the IWCR employees. The United Water officials told the board several times that they had been asked to assume the current level of retirement benefits. Cplt. ¶ 37. In contrast, say plaintiffs, USFilter's representatives told the board on March 5th that they had not learned of the mayor's July 18, 2001 letter until the weekend of final negotiations and that they had not included in their proposal protection for the existing level of employee benefits. At the March 5th meeting, the Waterworks Board voted to award the Management Agreement to USFilter.

On March 18, 2002, the City-County Council met and gave its final approval to the City's acquisition of the waterworks, to the issuance of bonds to pay for the acquisition, and to the proposed Management Agreement with USFilter. Plaintiffs allege that several misrepresentations were made at the meeting, and they have attached the meeting minutes to their complaint. Councillor Coonrod criticized the proposed deal, in part because it would not protect employees:

[Councillor Coonrod] said that in order to pay back these bonds the City will have to either raise rates or cut personnel. He said that the other bidder [United Water] complied with the request to keep the employees whole and guarantee full compensation, retirement, and benefits, as the City promised last July. Instead USFilter made a proposal to cut those costs and scored higher by the City's consultants due to these cost savings, contrary to the request for proposal (RFP). Even with these contradictions, USFilter offered a proposal that has a higher cost overall.

Cplt. Ex. D at 450-51.

Councillor Coughenour was a sponsor of the proposed ordinance and resolution to carry out the transaction. She responded to Coonrod. The minutes reflect the following:

Councillor Coughenour said that there is a guarantee in the contract for no raise in water rates for five years. She said that when all factors were weighed, USFilter was the best bid for the money. USFilter has testified that there will be no change to any benefits the union personnel are now receiving, and the audience and Councillor Coonrod do not seem to understand this. She said that the union contract is due to be re-negotiated in December 2003, and USFilter testified that nothing would be signed that did not satisfy both sides. Councillor Coughenour said that the letter to which Councillor Coonrod referred [from a union official] was written before her Committee hearing, and therefore a representative from USFilter may be able to clear up some of these issues as they did in Committee. There is no guarantee that if an outside company bought the water company that they would do any better for the employees or provide any guarantees.

Id. at 451. Officials of USFilter then addressed the Council:

Jim King, Senior Vice President of USFilter's Operating Services, said that USFilter has great respect for Local 131, and with respect for the rules of the procurement, have not been able to have discussions with them, as yet. He said that USFilter will respect the collective bargaining agreement that is in place currently and there will be no change to that agreement unless asked for or accepted by Local 131. John Wood, General Manager of USFilter's Central Business Center, said that USFilter spent a lot of time researching employee issues during this process and are committed to honoring all agreements in place at this time. He said they have some additional programs they would like to introduce that they believe are equal to or better than what is in place at this time, but if not agreed upon, there will be no changes.

Id. at 451. The Council voted at the meeting to approve the transaction. Plaintiffs allege that Councillor Sanders voted in favor of the transaction, saying "she did not take these votes lightly, but she is taking USFilter representatives at their word to ensure that the employees have equal benefits." Cplt. ¶ 44.

Plaintiffs further allege that defendant Wood, whose statements were noted in the minutes,

knew at the time he made said commitments that USFilter had no similar employee benefit plans at any of its other locations; that it did not intend to honor the agreements in place at that time; that it would not offer equal or better employee benefits to IWCR employees; that the Management Agreement which would be signed three days later on March 21, 2002 would not continue employee benefits; and that USFilter would take steps immediately upon Council approval to cut, diminish and terminate IWC and IWCR employee benefits.

Cplt. ¶ 45.

F. Changes to Employee Benefits

In Paragraph 51 of the Complaint, plaintiffs allege that USFilter, after taking over operation of the waterworks, made changes adverse to them in a number of employee benefit plans. According to plaintiffs, USFilter terminated the old defined benefit pension plan for non-union employees and transferred participants to USFilter's defined contribution plan, which plaintiffs view as less desirable. Plaintiffs also allege that the new health insurance is much less generous to employees and their families and that USFilter has reduced benefits in the life insurance program, the long term disability program, vacations, holidays, sick and personal days, the 401K plan, the employee stock ownership plan, retirement health and life insurance, and scholarship benefits for children of employees. Plaintiffs contend that the changes have had the overall effect of reducing employee benefit expenses by more than $9,000 per employee per year.

III. The Legal Issues

Plaintiffs' complaint includes twelve separate counts. As fair warning to the reader, the City's brief in support of its motion to dismiss identified 23 separate issues presented; USFilter's motion added some more questions specific to the claims against it. Counts One and Two allege that defendants breached fiduciary duties under ERISA, 29 U.S.C. §§ 1104 and 1105, by misleading plan participants and by failing to disclose information to them. Count Three alleges that defendants are estopped under ERISA from failing to honor the prior terms of the IWC and IWCR employee benefit plans. Count Four alleges that the defendants have violated ERISA's "anti-cutback" rule in 29 U.S.C. § 1054(g). Count Five alleges a breach of the Management Agreement between USFilter and the City, and plaintiffs claim to be third party beneficiaries of that contract. Count Six alleges a claim for common law fraud. Count Seven alleges that the City-County Council actions approving the purchase of the waterworks and the Management Agreement with USFilter are invalid and amount to a denial of benefits under ERISA. Count Eight seeks a declaration that the Management Agreement is invalid and amounts to a denial of benefits under ERISA. Count Nine seeks a declaration that the Indiana Utility Regulatory Commission's approval of the City's acquisition of the waterworks is invalid and also amounted to a denial of benefits under ERISA. Count Ten alleges a claim for conversion. Count Eleven does not allege any new wrongdoing or legal theory but prays for injunctive relief restoring all prior benefits to plaintiffs. Count Twelve alleges that the City's Waterworks Board has violated plaintiffs' First Amendment rights by limiting their speech during board meetings. Defendants' motions to dismiss do not address Count Twelve.

Before diving into the specific legal issues, it bears repeating that, because the defendants have moved to dismiss for failure to state a claim, the court must assume that the factual allegations in the complaint are true. That principle applies to the allegations that the statements made by Mayor Peterson and others were deliberately false when they were made. Those statements include the statement in the mayor's letter of July 18, 2001: "Your benefits, such as vacation and sick time, paid holidays, medical benefits, life insurance and retirement programs, will not change." Plaintiffs contend that this assurance was a binding promise that there would never be any adverse changes in any employee benefit plans.

Whether that assurance is legally enforceable is considered at length below. At the hearing on the motion to dismiss, though, counsel for the City tried to argue that plaintiffs have simply misunderstood the mayor's statement. Counsel suggested that the letter stated not a firm promise but only a "tentative position at this point in time by the Mayor." Tr. at 8. Counsel also suggested that, because the letter contained no promise of lifetime employment, a reader could not reasonably rely on an assurance that there would be no changes to benefit plans tied to employment. Counsel further suggested that the mayor's assurance should be understood as an assurance of only the same types of benefits, not the same levels of benefits.

At some other stage of litigation, perhaps the City would be able to argue those interpretations of the mayor's letter. In considering a motion to dismiss for failure to state a claim, however, the court must give the plaintiffs the benefit of their factual allegations and of the most favorable reasonable interpretations of documents. The court must assume, therefore, that the assurances in the mayor's letter were deliberately false. Turning now to the specific claims:

A. Counts One and Two — Breach of Fiduciary Duty Under ERISA

In Counts One and Two, plaintiffs allege that USFilter and the City breached fiduciary duties under ERISA by making material misrepresentations and by failing to disclose material facts about the benefits plaintiffs would receive after the City's purchase of the Indianapolis water system. Both sides agree that the relevant communications (or lack thereof) occurred prior to the City's purchase of the IWC and IWCR assets and the subsequent transfer of sponsorship of the employee benefit plans to USFilter. The City and USFilter argue that they owed no fiduciary duty to participants in the IWC plans prior to the closing date of the transaction.

Essentially, the question is whether the purchaser of a business can be considered an ERISA fiduciary with respect to participants in the target company's employee benefit plans before the purchase actually occurs. The two courts that have considered this question previously in published opinions have both answered no.

Coleman v. General Elec. Co., 643 F. Supp. 1229 (E.D. Tenn. 1986), aff'd mem., 822 F.2d 59 (6th Cir. 1987) (describing district court's decision as a "thorough and well-reasoned opinion"), arose from General Electric's purchase of the 3M Company's ceramic tiles business. The plaintiffs were former 3M employees who had been participants in various employee benefit plans sponsored by 3M. The plaintiffs alleged that during the negotiations preceding the sale, GE assured them that their benefits at GE would be "equal to or greater than the benefits" provided by 3M. Id. at 1232. They claimed that once the transaction had been completed, however, their benefits at GE were inferior to their previous benefits. The plaintiffs sued GE alleging a breach of fiduciary duty under ERISA.

In a decision affirmed by the Sixth Circuit, Judge Edgar found that GE was not a fiduciary with respect to the participants in the 3M plans. Id. Reasoning that "[a] fiduciary relationship only arises towards participants in an ERISA plan," Judge Edgar concluded that since at the time of the alleged misrepresentations none of the plaintiffs had been participants in a plan sponsored by GE, GE did not owe a fiduciary duty to them. Id. at 1235 (citation omitted); see also 29 U.S.C. § 1104(a)(1). "A fiduciary relationship does not exist towards potential participants in a plan and such potential participants have no standing to sue for misrepresentation and breach of fiduciary duty under ERISA." 643 F. Supp. at 1235.

The Second Circuit came to the same conclusion in a nearly identical case, this time involving GE's own sale of a business. In Flanigan v. General Elec. Co., 242 F.3d 78 (2d Cir. 2001), the plaintiffs were former employees of GE's aerospace division, which was acquired by Lockheed Martin. Before the deal closed, Lockheed allegedly communicated to the plaintiffs that their employee benefits with Lockheed would be "substantially similar to their GE benefits." Id. at 82. When their actual benefits turned out to be different from what they had expected, the plaintiffs sued Lockheed for breach of fiduciary duty.

Affirming the district court's grant of summary judgment for the defendants, the Second Circuit found the breach of fiduciary duty claim to be "invalid because Lockheed was not a fiduciary when these communications occurred." Id. at 85. In the court's view, ERISA fiduciary duties run only to "participants" in an ERISA plan. "Participants are only those `employees in, or reasonably expected to be in, currently covered employment . . . or former employees who have . . . a reasonable expectation of returning to covered employment.'" Id., quoting Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989) (internal citations omitted). At the time the communications were made — prior to the transaction — "there was not yet any `currently covered employment' of which to speak." Flanigan, 242 F.3d at 85. Accordingly, Lockheed did not owe a fiduciary duty to the plaintiffs.

Plaintiffs have not cited and the court has not found authority contrary to Coleman and Flanigan on this point. The cases that the plaintiffs have cited all involve situations in which the entity determined to be a fiduciary was an administrator or sponsor of an ERISA plan at the time it made the communications at issue. See Varity Corp. v. Howe, 516 U.S. 489, 491-92 (1996); Devlin v. Empire Blue Cross Blue Shield, 274 F.3d 76, 79 (2d Cir. 2001); Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574, 577 (7th Cir. 2000); Anderson v. Resolution Trust Corp., 66 F.3d 956, 959 (8th Cir. 1995); Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226, 229 (3d Cir. 1994); Smith v. Hartford Ins. Group, 6 F.3d 131, 133 (3d Cir. 1993); Pineiro v. Pension Benefit Guar. Corp., 1997 WL 739581, *5 (S.D.N.Y. Nov. 26, 1997).

ERISA's definitions provide that a person is a fiduciary of an ERISA plan only to the extent:

(i) he exercises any discretionary authority or discretionary 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.

29 U.S.C. § 1002(21)(A). Neither the City nor USFilter was a fiduciary of an ERISA plan with respect to the plaintiffs at the time the allegedly misleading communications were made. Put differently, at the time of the communications, the plaintiffs were not "participants" in any ERISA plan in which the City or USFilter was involved, let alone toward which they had any fiduciary duties. Plaintiffs have not alleged that the City or USFilter misrepresented or concealed any aspects of the employee benefit plans after the deal closed and after USFilter took over sponsorship of the plans.³

3 Plaintiffs point out the Seventh Circuit's recent observation: "In this circuit, a breach of fiduciary duty exists if fiduciaries `mislead plan participants or misrepresent the terms or administration of a plan.'" Vallone v. CNA Financial Corp., 375 F.3d 623, 640-41 (7th Cir. 2004). Because plaintiffs have not alleged misrepresentations by defendants at any time when they might be deemed to have had fiduciary duties to plaintiffs, the Seventh Circuit's observation in Vallone does not apply here.

Since neither the City nor USFilter was a fiduciary of a plan at any relevant time, the plaintiffs' alternative theory that defendants engaged in a conspiracy to breach a fiduciary duty must also fail. Accordingly, under the reasoning of Coleman and Flanigan, Counts One and Two must be dismissed.

B. Count Three — Estoppel Under ERISA

In Count Three, plaintiffs claim that because of the alleged misrepresentations, the City and USFilter should be estopped from making changes adverse to them in the pension plan. For purposes of the motion to dismiss, the court must assume that the communications at issue were knowingly false. That is, the court assumes that the City and USFilter knowingly misled the plaintiffs about their intentions with regard to the pension plan. The court must also assume that the plaintiffs relied upon those assurances in some material way, such as by turning down other employment opportunities and staying on the job at the Indianapolis waterworks.

Defendants argue that the estoppel claim falls outside the narrow category of cases in which the doctrine of estoppel has been applied to ERISA claims. In the City's view, three criteria are necessary in ERISA estoppel cases: (1) the ERISA plan in question must be an unfunded welfare benefit plan, as opposed to a pension plan; (2) the defendant must be within a category of persons who may be held liable under ERISA's terms; (3) the defendant's alleged conduct must have misled the plaintiff not to take some action necessary to perfect his or her entitlement to benefits.

Defendants are correct that ERISA estoppel has a "narrow scope" and should be applied only in "extreme circumstances." Sandstrom v. Cultor Food Science, 214 F.3d 795, 797 (7th Cir. 2000). Nonetheless, with the exception of the second element, defendants' proposed test seems more descriptive than prescriptive.⁴ A more straightforward place to start is with the requirements that the Seventh Circuit itself has set forth in previous ERISA estoppel cases. To prevail on an estoppel claim brought under ERISA, a plaintiff must show: (1) a knowing misrepresentation; (2) in writing; (3) with reasonable reliance by the plaintiff on that misrepresentation; (4) to the plaintiff's detriment. Vallone v. CNA Financial Corp., 375 F.3d 623, 639 (7th Cir. 2004), citing Coker v. TWA, 165 F.3d 579 (7th Cir. 1999).

4 For instance, the third element of the City's test seems to be contradicted by Miller v. Taylor Insulation, 39 F.3d 755, 758 (7th Cir. 1994), where the Seventh Circuit applied promissory estoppel to an employer's written assurance that a retiring plaintiff would be covered by a heath benefit plan despite the fact that, under the terms of the plan, the plaintiff would not have been entitled to benefits under any circumstances. Also, while it is true that the Seventh Circuit has never applied ERISA estoppel to a funded pension plan, it also has not ruled out such claims. See Downs v. World Color Press, 214 F.3d 802, 806 (7th Cir. 2000) ("Likewise in this case, we again express no opinion whether estoppel may be applied to ERISA plans other than unfunded welfare plans because Downs fails in the first place to establish the elements of estoppel.").

The requirement that the statements be in writing disposes of many of the communications alleged by the plaintiffs, including all of the oral statements made by USFilter executives at the February 19, 2002 committee meeting and March 18, 2002 City-County Council meeting. Aware of the rule barring oral amendments to ERISA plans, plaintiffs attempt to distinguish the alleged misrepresentations by characterizing them as oral promises not to amend the pension plan. This is a semantic distinction without any practical weight, for the pension plan itself included a clause reserving the sponsor's right to modify or terminate the plan. That provision is no more subject to oral amendments (purporting to eliminate the right to amend) than is any other provision in the plan. Under plaintiffs' theory, the defendants would be deemed to have modified the plans by revoking this reservation of rights clause (by making statements before they were fiduciaries of the plans). That theory is not viable.

The Seventh Circuit has held that oral representations may be considered where plan documents are ambiguous or misleading. Vallone, 375 F.3d at 639, citing Bowerman v. Wal-Mart Stores, 226 F.3d 574, 588 (7th Cir. 2000). The exception does not apply here because there is nothing confusing about the provisions in the pension plan giving the sponsor the right to modify or terminate the plan at any time for any reason. See Frahm v. Equitable Life Assurance Society of the United States, 137 F.3d 955, 961 (7th Cir. 1998); USFilter Ex. A, IWC Pension Plan §§ 15.01, 15.04.

The written representations fare no better. Although "written modification of an ERISA plan is permissible, a plan may be amended only pursuant to its express terms." Downs v. World Color Press, 214 F.3d 802, 805-06 (7th Cir. 2000) ("whether based on oral or written representations, any application of estoppel to an ERISA plan is problematic in light of the requirements that modification of a plan occur only in writing and through the express procedures for amendment"), citing 29 U.S.C. § 1102(a)(1), (b)(3). Section 15.01 of the IWC Plan — which provided the pension benefits that plaintiffs contend can never be changed — provides that the plan may be amended only by action of the company's Board of Directors. IWC Pension Plan §§ 15.01. Neither Mayor Peterson's letter nor any of the other written communications constituted or related to an action by the Board of Directors. The USFilter pension plan similarly includes a right to amend or terminate the plan. In the face of the clear plan terms reserving the sponsor's right to change or terminate the plan, it was not reasonable, as a matter of law, for the plaintiffs to rely on communications to the contrary. On this point, Vallone is directly applicable. In Vallone, the Seventh Circuit affirmed summary judgment in favor of a plan on an estoppel claim based on assurances that employees who accepted an early retirement package would receive special "lifetime" health benefits. After several years, the employer decided to eliminate the special "lifetime" benefits. The Seventh Circuit affirmed summary judgment on the estoppel claim on two independent grounds. The first, that plaintiffs had not shown a knowing misrepresentation, does not apply here because the court must assume at this stage that defendants made deliberate misrepresentations about retirement benefits. Cf. Vallone, 375 F.3d at 639. The second reason was that, as a matter of law, the plaintiffs could not show reasonable reliance: "We agree with the district court that, even if there were material written misrepresentations as to the nature of the HCA benefit, the plaintiffs unreasonably ignored the reservations of rights clauses in the general retirement plan documents that put them on notice that the HCA benefit could be terminated or modified." Id. at 640. That reasoning applies directly to this case. In fact, it is doubtful that even a formal action abandoning the sponsor's right to amend a plan would even be valid under ERISA. ERISA provides: "Every employee benefit plan shall — * * * (3) provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan." 29 U.S.C. § 1102(b)(3). If a plan must include a procedure for amending the plan, how could a sponsor lawfully promise never to amend it?⁵

5 The estoppel claim poses another difficult problem for plaintiffs — for exactly how long should the alleged promises be enforced? Both sides agree that if the City had acquired the waterworks and contracted with USFilter to run them without having made any representations about maintaining benefits at the current level, USFilter would have been free to reduce employee benefits the very next day after the closing. At the core of their claims, plaintiffs want to hold the defendants to the alleged false promises not to change the pension plan or other benefit plans. From plaintiffs' perspective, those promises were not qualified or limited in terms of time, at least so long as plaintiffs are employed with USFilter. When asked, plaintiffs were unwilling to assert that the promises they seek to enforce would require USFilter to maintain the plans unmodified for the rest of their careers. See Tr. 39-42. At the same time, plaintiffs are unwilling to take a specific position as to how long the status quo should have been preserved. That vagueness suggests a troubling uncertainty about the force of plaintiffs' logic.

The court recognizes that the strict limitations the law places on plan amendment and estoppel produce what seems like a harsh result in this case, assuming as the court must that plaintiffs' allegations are true. See generally Vallone, 375 F.3d at 642-43 (affirming summary judgment for defendants holding that promises of "lifetime" health benefits to early retirees were not enforceable under ERISA; plan sponsor retained right to terminate or modify benefits). These aspects of ERISA law, however, are designed for the greater good of plan participants throughout the economy. "One of ERISA's purposes is to protect the financial integrity of pension and welfare plans by confining benefits to the terms of the plans as written, thus ruling out oral modifications." Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, 128 (7th Cir. 1992). Similarly, a sponsor's power to change the plan also benefits employees over time:

When setting and changing the terms of a plan, the employer may act to promote its own interests, just as it may do when setting wages. In the short run use of this power may injure retirees; but in the longer run, knowledge that plans may be changed encourages employers to make better offers to their labor force. If employers knew that they were locked in, they would be more conservative in making promises, to the potential detriment of the workers. What protects retirees is not a legal rule of fiduciary duty or estoppel, but the employer's desire to maintain a reputation for honest dealing with its workers; otherwise it will have difficulty attracting and retaining a skilled work force.

Frahm, 137 F.3d at 962 (citations omitted). These thoughts are likely to be cold comfort to the plaintiffs, but USFilter retained the right to alter employee benefit plans. As a matter of law, none of the alleged statements could remove that right. Count Three must accordingly be dismissed.

C. Count Four — ERISA "Anti-Cutback" Claim

In Count Four, plaintiffs allege that the termination of the IWC Pension Plan and the transition of non-union employees to USFilter's pension plan had the effect of reducing accrued early retirement benefits and other unspecified employee benefits. Plaintiffs allege that such effects violate the "anti-cutback" rule in § 204(g) of ERISA, codified as 29 U.S.C. § 1054(g).

The central purpose of ERISA was to prevent the loss of accrued and vested retirement benefits. Central Laborers' Pension Fund v. Heinz, 541 U.S. ___, ___, 124 S. Ct. 2230, 2235 (2004); J. Langbein B. Wolk, Pension and Employee Benefit Law 121 (3d ed. 2000). For judges, lawyers, employers, and others who may occasionally feel frustrated by ERISA's complexity, it is helpful to remember the compelling accounts of lost pensions that prompted enactment of this sweeping federal legislation. In 1972, 1,227 plan terminations were reported to the Internal Revenue Service, which corresponded to a loss of benefits with a then-present value of $49 million by about 19,400 pension claimants (participants, retirees, and beneficiaries) in 546 of the terminated plans. See S. Rep. No. 93-383 (1974), reprinted in 1974 U.S.C.C.A.N. 4889, 4902; see also id. at 4962-63 (citing as a "classic illustration" of the problem the 1964 closing of the Studebaker factory in South Bend, Indiana, in which 4,000 employees between the ages of 40 and 60 received only approximately 15 percent of their "vested" benefits).

The "anti-cutback" provision in § 204 of ERISA is "crucial to this object" of preventing the loss of accrued benefits. Central Laborers' Pension Trust v. Heinz, 541 U.S. at ___, 124 S. Ct. at 2235. The provision states, with certain exceptions: "The accrued benefit of a participant under a plan may not be decreased by an amendment of the plan. . . ." 29 U.S.C. § 1054(g)(1).

The anti-cutback provision does not prohibit all plan amendments that may be adverse to participants; the key concept is the "accrued benefit." One core application of the provision is to pension benefits paid after retirement at normal retirement age. Most pension plans have specific, detailed, and complex provisions for determining the level of pension benefits that a plan participant has accrued at any given time. Early retirement benefits pose some special problems, however, especially as applied to employees who are still working but who hope to take advantage of early retirement benefits after they become eligible for them. In 1984, Congress added § 204(g)(2), which provides more specifically for early retirement benefits:

(2) For purposes of paragraph (1), a plan amendment which has the effect of —

(A) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as described in regulations), or

(B) eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits.

29 U.S.C. § 1054(g)(2). In Ahng v. Allsteel, Inc., 96 F.3d 1033 (7th Cir. 1996), the Seventh Circuit made it clear that an early retirement benefit plan can be an "accrued benefit" for purposes of § 1054(g) even if an employee has not yet met the eligibility criteria for the benefit, as long as the employee has some pre-amendment service that would count toward the benefit: "we therefore hold that employees like the Ahng plaintiffs here who complain about a cut-back of early retirement benefits have stated a claim under § 204(g), as long as each employee satisfies (either before or after the plan amendment) the relevant eligibility requirements in place at the time of the amendment." 96 F.3d at 1036-37. In essence, efforts to impose retroactive restrictions on eligibility for such benefits can violate the anti-cutback rule. Most important for present purposes, a restriction can be deemed retroactive if it is applied to employees who have already started earning credit toward an early retirement plan, so as to deny the benefit when they eventually meet all of the original criteria of the plan.

USFilter argues that Count Four should be dismissed because plaintiffs have not alleged that any benefit attributable to service before the 2002 plan amendment has been eliminated or reduced. Plaintiffs allege in conclusory terms that the termination of the old IWC pension plan has the effect of violating the anti-cutback rule as applied to early retirement benefits. The court is fully aware of the liberal notice pleading standards applicable here. Nevertheless, under Rule 8 of the Federal Rules of Civil Procedure, the court may still insist on a short and plain statement of the facts upon which relief is sought.

No plaintiff has alleged that he or she (a) has qualified for an early retirement benefit under the old plan, (b) has sought that benefit, and (c) has been denied that benefit. At the hearing on the motions to dismiss, plaintiffs could not be more specific about the factual basis for the claim.⁶ Therefore, it appears to the court that there is no ripe case or controversy with respect to early retirement benefits. Count Four of the complaint will be dismissed for lack of a ripe case or controversy, and for lack of a plaintiff with standing to assert such a claim. See generally Reno v. Catholic Social Services, Inc., 509 U.S. 43, 58 (1993) (finding no standing where regulations had not yet affected plaintiffs). Such dismissal will not prevent any plaintiffs or any other affected employees from making a more specific and ripe claim if either (a) they are actually denied an early retirement benefit, or (b) it becomes sufficiently clear they will be denied an expected early retirement benefit, so that declaratory relief would be warranted.

6 In fact, ERISA lays out very specific steps that an employer must take when it terminates a plan. See 29 U.S.C. § 1341. These steps are designed in part to insure that employees who have not yet qualified for a benefit (such as early retirement) but who may qualify for that benefit in the future are provided for, often through the purchase of an annuity contract. See 29 C.F.R. § 4041.28(c)(4). Plaintiffs have not alleged that defendants have failed to comply with ERISA's plan termination provisions.

D. Count Five — Breach of Management Agreement

Count Five alleges that USFilter and the City breached the Management Agreement by making changes to employee benefit plans. Plaintiffs argue that they are third party beneficiaries of the Management Agreement. USFilter argues that the breach of contract claim is preempted by ERISA. All defendants argue that the text of the Management Agreement shows both (a) that it contains no promise that was breached, and (b) that plaintiffs are not third party beneficiaries of the agreement.

Defendants have submitted the text of the Management Agreement to the court. Because the document is mentioned in the complaint and is central to Count Five, the court may consider the text without converting the motion into a motion for summary judgment. E.g., Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002) (defendants may submit copies of documents referenced in complaint without converting Rule 12(b)(6) motion into Rule 56 motion).

1. ERISA Preemption

ERISA is often said to preempt the field of employee benefits, in the sense that a claim for benefits is deemed to arise necessarily under ERISA itself rather than any state law. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 66-67 (1987). In other words, the federal law so completely occupies the field that there is no room for a state law claim. Lehmann v. Brown, 230 F.3d 916, 919 (7th Cir. 2000); Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073, 1075 (7th Cir. 1992) ("Sometimes, however, federal law so fills every nook and cranny that it is not possible to frame a complaint under state law."). The Seventh Circuit has identified three factors to apply in deciding whether ERISA field preemption applies:

(1) "whether the plaintiff is eligible to bring a claim under [§ 502(a)]"; (2) "whether the plaintiff's cause of action falls within the scope of an ERISA provision that the plaintiff can enforce via § 502(a)"; and (3) "whether the plaintiff's state law claim cannot be resolved without an interpretation of the contract governed by federal law." 88 F.3d at 1487 (quotation marks and citations omitted). When all three factors are present, the state law claim is properly recharacterized as an ERISA claim under § 502(a).

Moran v. Rush Prudential HMO, Inc., 230 F.3d 959, 967 (7th Cir. 2000), aff'd, 536 U.S. 355 (2002), quoting Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1489-90 (7th Cir. 1996).

Plaintiffs' attempt to assert a contract claim in Count Five satisfies all three of these criteria. First, plaintiffs are all participants in ERISA benefit plans and are eligible to assert rights to benefits under those plans. Second, the contract claim seeks restoration of lost benefits under earlier versions of applicable plans, so that the claim is equivalent to a claim for benefits that can and should be made, if at all, under 29 U.S.C. § 1132(a). Third, deciding plaintiffs' claim for breach of contract on the merits would require the court to interpret the existing plans and to compare them to the promises for benefits that plaintiffs say should be enforced. See Bartholet, 953 F.2d at 1076-77 (ERISA preempted claim for breach of alleged contract to establish pension plan); Wise v. Harris Information Systems, 1995 WL 548742, *4 (N.D. Ill. Sept. 13, 1995) (ERISA preempted claim for breach of promise to increase benefits); see also Vallone v. CNA Financial Corp., 375 F.3d 623, 638-39 (7th Cir. 2004) (affirming summary judgment for plan; holding that breach of contract claim regarding promises of "lifetime" health benefits for early retirees was preempted by ERISA).

To show that their claim for breach of contract is not preempted, plaintiffs rely on Tatom v. Ameritech Corp., 305 F.3d 737 (7th Cir. 2002). The decision does not help them. The plaintiff in Tatom took early retirement from his executive position with Ameritech and began working for a competitor. Ameritech responded by deciding not to pay the plaintiff an annual bonus, by cancelling some unvested stock options and, and by stopping payment of premiums on a life insurance policy. The plaintiff asserted claims under ERISA and under state law. The district court granted summary judgment on all claims, and the plaintiff appealed only on his breach of contract claims concerning the bonus and stock options. The Seventh Circuit affirmed. Plaintiffs in this case argue that, because the district and appellate courts even considered the breach of contract claims on the merits, ERISA could not have preempted those claims. In Tatom, the district court applied ERISA to the life insurance premium issue, presumably because that benefit was governed by an ERISA plan. See Tatom v. Ameritech Corp., 2000 WL 1648931 (N.D. Ill. Sept. 28, 2000). It applied state law to the bonus and stock option claims, presumably because those alleged benefits and claims were not governed by an ERISA plan. The Seventh Circuit did not indicate any disagreement with that approach, which is perfectly understandable when an employee asserts rights under both an individual contract and under benefit plans governed by ERISA. Tatom provides no support, however, for plaintiffs' argument that a claim for a breach of a contract to provide a certain level of benefits under ERISA benefit plans can be asserted outside of ERISA itself. Bartholet and the case it cited on this point, Lister v. Stark, 890 F.2d 941 (7th Cir. 1989), are on point and are not undermined by the silence in Tatom. Plaintiffs' claim for breach of contract pursuant to the Management Agreement is preempted by ERISA, and for the reasons discussed above regarding Counts One, Two, and Three, they are not entitled to relief under ERISA.

2. Merits of Contract Claim

Even if Count Five were not preempted by ERISA, it would still fail as a matter of law. Count Five conflicts with the earlier counts, which complain that the terms of the Management Agreement violate obligations under ERISA precisely because the Management Agreement did not require employee benefits to be left unchanged. Plaintiffs may of course plead in the alternative, but the text of the Management Agreement here shows that Count Five fails to state a claim upon which relief can be granted.

First, plaintiffs have failed to identify any specific provision of the Management Agreement that defendants have allegedly violated. When the court raised that question at the hearing on defendants' motions, plaintiffs referred to Section 4.02(b), which provides that USFilter

shall offer employment to IWC employees listed on Schedule 5.9(a) of the Asset purchase Agreement provided at Closing and employed as of the Commencement Date. Such offer to each non-Bargaining Unit Employee shall include (1) position and wages or salary substantially comparable to such employee's position and wages or salary at IWC at the time such employee's employment with IWC ended, and (2) except as otherwise provided herein, the same retirement and welfare benefits that are offered to similarly situated employees of the Company. The Company shall assume sponsorship of, and all rights and obligations of IWC under, the following plans of IWC, and may at its own expense, and except as otherwise provided herein, amend or terminate such plans or merge them into its own retirement plans or provide a comparable benefit program, to the extent permitted by the CBA, as amended from time to time: (there follows a list of eight employee benefit plans).

Management Agreement § 4.02(b) at 31. Plaintiffs emphasize the phrase "similarly situated employees of the Company." They contend this amounts to a promise to give non-union employees the same benefits that union employees receive. However, the term "Company" is defined in the document not to refer to IWC employees but to refer to USFilter Operating Services, Inc. as a whole, which operates many other water systems and has many other union and non-union employees. Section 4.02(b) most certainly does not require USFilter to leave all employee benefits unchanged. Plaintiffs have failed to allege a breach of any provision of the Management Agreement itself.

Second, the Management Agreement specifically bars plaintiffs' efforts to assert rights as third-party beneficiaries under that contract. Section 13.18 provides at page 84:

This Agreement is intended to be solely for the benefit of Company [defined as USFilter Operating Services, Inc.] and Department [the City's Department of Waterworks] and their successors and permitted assigns and is not intended to and shall not infer any rights or benefits on any third party not a signature hereto, except as specifically set forth herein.

Of course, "infer" should read "confer," and "signature" should read "signatory," but otherwise this provision could not be clearer. USFilter and the City did not intend to give employees or anyone else any legally enforceable rights under the terms of the Management Agreement.

In rebuttal, plaintiffs argue (a) that defendants should be estopped from relying on the disclaimer and (b) that the Management Agreement is ambiguous in this respect because there are a number of provisions dealing with USFilter's treatment of employees like plaintiffs. Both arguments are without merit.

There is no sound basis for the estoppel argument. In light of the explicit disclaimer of any third party rights, employees could not reasonably rely on the provisions of the Management Agreement. Such reasonable and foreseen reliance is an essential element of a promissory estoppel claim under Indiana law. See Brown v. Branch, 758 N.E.2d 48, 52 (Ind. 2001) ; First Nat'l Bank of Logansport v. Logan Mfg. Co., 577 N.E.2d 949, 954 (Ind. 1991).

As for the argument based on ambiguity, plaintiffs have failed to identify any genuine ambiguity. Plaintiffs base their argument on the fact that the Management Agreement contains a number of explicit promises by USFilter regarding personnel issues, see § 4.02, though there is no promise that benefit programs for non-union employees would be left unchanged. Based on these promises by USFilter to the City regarding treatment of employees, plaintiffs argue that the court should infer that the parties intended to make them third-party beneficiaries of the contract, who are entitled to sue in their own right to enforce those promises.

There is, however, no contradiction between having the City and USFilter agree on one hand that IWC employees should be treated in a particular way, and having the contracting parties also agree that they do not intend to confer legally enforceable rights on those employees under the contract. Contracting parties often recognize that their agreement may affect the interests of others who are not parties to the contract. They may expressly acknowledge those effects in the contract. They may even extract promises from one another concerning those effects. But it is a very different thing for the contracting parties to bestow upon those third parties the right to sue the contracting parties to enforce those promises. That prospect of third-party enforcement is exactly why disclaimers like Section 13.18 are inserted into contracts like the Management Agreement, especially since courts might otherwise imply from the agreement an intent to confer third-party benefits. See, e.g., Barth Elect. Co. v. Traylor Bros., Inc., 553 N.E.2d 504, 506 (Ind.App. 1990) (reversing dismissal of construction prime contractor's claim to be third party beneficiary where contract lacked an explicit disclaimer of intent to confer such rights).

"The intent necessary to the third-party's right to sue is not a desire or purpose to confer a particular benefit upon the third-party nor a desire to advance his interest or promote his welfare, but an intent that the promising party or parties shall assume a direct obligation to him." Centennial Mortg., Inc. v. Blumenfeld, 745 N.E.2d 268, 276 (Ind.App. 2001), citing Jackman Cigar Mfg. Co. v. John Berger Son Co., 52 N.E.2d 363, 367 (Ind.App. 1944). The Supreme Court of Indiana has explained, in rejecting a claim to third-party beneficiary status: "It is not enough that performance of the contract would be of benefit to the third party. It must appear that it was the intention of one of the parties to require performance of some part of it in favor of such third party and for his benefit, and that the other party to the agreement intended to assume the obligation thus imposed." OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1315 (Ind. 1996). In Section 13.18 of the Management Agreement, the City and USFilter said with unmistakable clarity that they did not intend to assume direct, legally enforceable obligations in favor of the IWC employees or any other persons or entities.

Accordingly, Count Five must be dismissed for failure to state a claim upon which relief can be granted because it is preempted, because plaintiffs have not identified any breach, and because in any event the contract relied upon bars any such third-party attempts to enforce it.

E. Count Six — Common Law Fraud

In Count Six, plaintiffs have attempted to plead an Indiana common law claim for fraud. As fraudulent statements, plaintiffs identify the mayor's promise in the July 18, 2001 that employee benefits would not change, USFilter's March 18, 2002 statement to the City-County Council that USFilter was committed to "honoring all agreements in place at this time," and the Bond Bank chairman's December 21, 2001 testimony to the IURC that the City would offer "comparable" employee benefits to IWC employees. Cplt. ¶¶ 88, 90. Plaintiffs allege and the court assumes that all of these statements were made with fraudulent intent, meaning that the persons who made them knew at the times they made them that the statements were false.

Defendants seek dismissal of Count Six because, among other reasons, it is preempted by ERISA and because none of the alleged fraudulent statements were statements of a past or existing fact, required by Indiana's common law of fraud, as distinct from statements of promises to take future action.

1. ERISA Preemption

Plaintiffs' attempt to assert a common law fraud claim for allegedly false promises regarding benefits governed by ERISA is preempted by ERISA itself. The claim must be re-characterized as a claim for ERISA benefits under 29 U.S.C. § 1132(a)(1), and that claim fails as a matter of law.

The three factors quoted above from Moran v. Rush Prudential HMO, 230 F.3d at 967, also apply here. First, plaintiffs are participants in an ERISA plan and are eligible to assert claims for benefits under 29 U.S.C. § 1132(a). Second, plaintiffs are seeking what amount to benefits that they say should be available under the ERISA-governed benefit plans. Third, the court could not resolve the supposedly state law claim without interpreting the ERISA-governed benefit plans and comparing those to the alleged promises. See, e.g., Lister v. Stark, 890 F.2d at 944 (affirming finding that fraud claim for additional pension benefits was preempted by ERISA).

To avoid preemption, plaintiffs rely on Trustees of AFTRA Health Fund v. Biondi, 303 F.3d 765 (7th Cir. 2002), in which the roles of the parties were reversed. A health benefit plan sued a plan participant for fraud. The defendant Biondi had agreed in a divorce decree to pay health insurance premiums for his ex-wife. Instead, he merely left her on his employer's health insurance policy for five years and falsely told the plan that she was still his wife. The plan learned of the fraud and sued under both ERISA and the common law of fraud. The Seventh Circuit affirmed the district court's decision that ERISA itself offered the plan no relief, but that the plan had a viable state law claim for fraud. The defendant argued that the fraud claim was preempted, but the Seventh Circuit rejected the argument. The Seventh Circuit's discussion of the preemption issue is lengthy, but the Moran/Jass factors show easily that the fraud claim was not preempted.

First, the plan itself was not a proper party under ERISA who could claim benefits wrongfully denied. Second, the plan itself was not claiming benefits under an ERISA plan as authorized by 29 U.S.C. § 1132(a). Where the plan was the victim of the fraud, ERISA simply did not address the situation. See Biondi, 303 F.3d at 782. In other words, although ERISA preempts any state law theory a plan participant might invoke to obtain benefits under an ERISA plan, see Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48 (1987) (ERISA preempted tort claim by plan participant for improper processing of benefit claim), ERISA does not preempt the plan's claims under state law against persons who commit torts against it. Accordingly, Trustees v. Biondi does not help plaintiffs avoid the ERISA preemption defense to their fraud claim in Count Six.

2. State Law Merits

Even if the fraud claim were not preempted by ERISA, the claim fails because the alleged statements were alleged false promises rather than statements of past or existing facts. Indiana law has long barred claims for promissory fraud, i.e., claims that the defendant made a deliberately false promise to take future action and then broke the promise. Anderson v. Indianapolis Indiana AAMCO Dealers Advertising Pool, 678 N.E.2d 832, 837 (Ind.App. 1997) ("Actual fraud may not be based on representations of future conduct, on broken promises, or on representations of existing intent that are not executed."), citing Biberstine v. New York Blower Co., 625 N.E.2d 1308, 1315 (Ind.App. 1993). Federal courts have repeatedly applied this principle of Indiana law. E.g., Wright-Moore Corp. v. Ricoh Corp., 908 F.2d 128, 141 (7th Cir. 1990) (affirming summary judgment: "We have noted that `it has long been the law in Indiana that an action for fraud cannot based upon promises to be performed in the future.'"), quoting Vaughn v. General Foods Corp., 797 F.2d 1403, 1412 (7th Cir. 1986), and citing Sachs v. Blewett, 185 N.E. 856, 858 (Ind. 1933); see also Simon Property Group, L.P. v. mySimon, Inc., 2000 WL 1206575, *2 (S.D. Ind. Aug. 3, 2000) (collecting cases). Recognizing such claims of promissory fraud could undermine the elaborate doctrinal structures of contract law, such as statutes of fraud and requirements that a promise be supported by some consideration before a court will enforce it. See Hayes v. Burkam, 51 Ind. 130, 137 (1875).

Plaintiffs offer two grounds for avoiding this entrenched principle of Indiana law. First, plaintiffs have phrased their complaint so as to allege that the "existing facts" were the speakers' intentions or states of mind when they made the allegedly false promises. See Cplt. ¶ 88. In the leading case of Sachs v. Blewett, 185 N.E. 856 (Ind. 1933), the Supreme Court of Indiana squarely rejected such an effort:

The appellee asserts that a state of mind is a fact, and that a misrepresentation as to an intention to carry out a contract is a misrepresentation of a fact upon which an action for fraud may be predicated. There appears to be much conflict of authority upon the subject. 12 R.C.L. 261. But there is no real conflict in the authorities in this state. A fraudulent intent alone is not actionable. There must be some fraudulent, overt act, or failure to act when duty requires it, or a breach of trust or confidence, and such must be the efficient or proximate cause of injury. "Fraud can not be predicated upon acts which the party charged has a right by law to do, nor upon the non-performance of acts which by law he is not bound to do, whatever may be his motive, design or purpose, either in doing or not doing the acts complained of." Franklin Insurance Co. v. Humphrey et al., 65 Ind. 549, 32 Am. Rep. 78. This court has repeatedly said that actionable fraud cannot be predicated upon a promise to do a thing in the future, although there may be no intention of fulfilling the promise. Hayes v. Burkam, 51 Ind. 130; Burt et al. v. Bowles et al., 69 Ind. 1; Bethell v. Bethell, 92 Ind. 318; Balue v. Taylor et al., 136 Ind. 368, 36 N.E. 269; Robinson et al. v. Reinhart et al., 137 Ind. 674, 36 N.E. 519.

185 N.E. at 858.

Second, plaintiffs try to save Count Six by transforming it in effect into a claim for constructive fraud. Plaintiffs argue that defendants owed them fiduciary duties so that defendants engaged in constructive fraud by failing to tell them about the terms of the letter of intent, which did not require protection of employee benefit levels. Plaintiffs argue that defendants had a fiduciary or confidential relationship with plaintiffs that imposed a duty to speak, citing In re Scahill, 767 N.E.2d 976 (Ind. 2002), and Wright v. Pennamped, 657 N.E.2d 1223, 1230-31 (Ind.App. 1995). Scahill was an attorney disciplinary proceeding in which an attorney was admonished for failing to inform a divorce court of a major change in the condition of marital property (the claimed "loss" of all assets in an individual retirement account). The attorney had not only remained silent, but had also introduced evidence that he knew misrepresented the true facts. 767 N.E.2d at 980. In Wright, the Court of Appeals reversed a grant of summary judgment for the defendant on a fraud claim. The defendant attorney for one party to a loan transaction had agreed to prepare loan documents and submitted them to the plaintiff's attorney for review. After the plaintiff's attorney had approved the documents, the defendant attorney had made material changes to the documents and had not informed the other party of those changes before or during the closing. 657 N.E.2d at 1230-31. The Court of Appeals found that the defendant's attorney had taken on a duty to speak under those circumstances.

Plaintiffs' effort to transform Count Six into a claim for constructive fraud will not save the claim. First, plaintiffs have not come forward with any indications that Indiana courts would treat parties interested in acquiring a business as having fiduciary or confidential relationships with the employees of the target company. In fact, Indiana courts have generally limited the duty to speak to truly fiduciary and confidential relationships, such as attorney-client, trustee and beneficiary, etc. See, e.g., Sanders v. Townsend, 582 N.E.2d 355, 358 (Ind. 1991) (identifying attorney-client, principal-agent, husband-wife, and parent-child relationships as sufficient to support claims for constructive fraud); Comfax Corp. v. North American Van Lines, Inc., 587 N.E.2d 118, 125-26 (Ind.App. 1992) (affirming summary judgment for defendant where parties were involved in an arm's length, contractual arrangement); see also Huntington Mortg. Co. v. DeBrota, 703 N.E.2d 160, 168 (Ind.App. 1998) (reversing denial of summary judgment on constructive fraud claim where relationship was only debtor-creditor in arm's length mortgage loan transaction).

Even a recent, relatively expansive application of constructive fraud to the seller of an annuity involved a direct contractual relationship in which the seller had clearly superior knowledge about the suitability of its product for investment in a tax-deferred investment plan. American United Life Ins. Co. v. Douglas, 808 N.E.2d 690, 703 (Ind.App. 2004); accord, Scott v. Bodor, Inc., 571 N.E.2d 313, 324 (Ind.App. 1991) (affirming denial of summary judgment in constructive fraud case where seller had claimed special knowledge and buyer relied upon those claims). Even in those cases, there is no suggestion that Indiana courts would be willing to extend the duty to speak to a situation like this one. If the fact that a party makes a false promise were sufficient to create a relationship that could support a claim for constructive fraud, then the long-established principle against allowing claims of promissory fraud could be avoided by merely re-labeling the claim as one for constructive fraud. Finally, plaintiffs' reliance on their arguments that defendants were fiduciaries under ERISA only underscores why the claim is preempted by ERISA.

For these reasons, the motion to dismiss Count Six must be granted.

F. Count Seven — Challenge to City Ordinance

In Count Seven, plaintiffs seek relief under ERISA for denial of benefits, but the requested relief is a declaration that the Indianapolis City-County Council's ordinance adopted March 18, 2002 approving the waterworks transaction is void. Count Seven cites 29 U.S.C. § 1132(a)(1)(B) and alleges that the City-County Council relied on deliberately false promises by the executive branch and USFilter in approving the ordinance.

Defendants have raised several objections to this imaginative claim. The City and USFilter argue that they are not proper defendants for such a claim under ERISA because neither one is an ERISA plan. The City also argues that the claim is logically circular because it alleges in essence that the City misled itself, since the City-County Council is of course the legislative body that governs the City. The City and USFilter also argue that plaintiffs lack standing on Count Seven because the requested relief would not redress the alleged injuries. USFilter argues that Count Seven makes no sense as an ERISA claim because plaintiffs are actually seeking relief that they acknowledge is contrary to the terms of the applicable benefit plans.

The suggestion that the court should review the legislative record and strike down legislation that was based on false promises or mistaken views of the facts is a sweeping invitation for government by court decree. Opponents of virtually any piece of legislation — at the federal, state, and local levels — could argue plausibly, or could at least allege in complaints, that legislators who voted in favor did so based on false assurances or mistaken assumptions about the effects of the legislation. Discovery and trial on such claims would have the judiciary preside over hostile cross-examination of legislators as to what they knew about the proposal, when they knew it, and what contrary information might have changed their minds. That prospect ought to give pause to anyone concerned with the separation of powers.

The idea that federal judges should have the power to veto legislation on non-constitutional policy grounds recalls the proposal, rejected at the Constitutional Convention, that a Council of Revision — consisting of the president and several members of the judiciary — be empowered with "the authority to examine every act of the National Legislature before it shall operate." 2 Records of the Federal Convention of 1787, at 21 (Max Farrand ed., 1911); see also 1 Records of the Federal Convention, at 97-98 (Elbridge Gerry of Massachusetts observing: "It was quite foreign from the nature of [the judicial] office to make them judges of the policy of public measures."). The role of the federal judiciary under the Constitution as finally drafted and ratified is of course much more limited.

The standing issue, however, addresses the court's subject matter jurisdiction and must be addressed at the threshold. See Steel Co. v. Citizens For A Better Environment, 523 U.S. 83, 94-94 (1998) (rejecting concept of hypothetical jurisdiction and directing lower courts to address jurisdictional issues first even where claims might be more readily dismissed on other grounds). To satisfy the "case or controversy" requirement of Article III of the Constitution, "a plaintiff must show (1) it has suffered an `injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 180 (2000), quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).

The third element, whether the requested relief would likely redress the harm alleged by plaintiffs, is missing here. Even if the ordinance approving the City's acquisition of the waterworks and the Management Agreement with USFilter were declared void, the court could only speculate about whether such action might eventually result in restoring the employee benefits that plaintiffs enjoyed when they worked for IWC. Plaintiffs certainly could not be re-employed by IWC or NiSource, which was required by federal law to divest its water utility assets. Also, if the ordinance were declared void, the City would be free to readopt the ordinance. Such re-adoption is likely, as the City points out, because otherwise the City would not have revenues to pay interest on the $625 million in bonds that it issued. Even if the ordinance were not re-adopted, the effect would be to deprive the City and USFilter of legal authority to operate the waterworks. If that were to happen, the City would need to sell the assets to some other entity, and/or to contract with some other entity to operate the waterworks. In either event, there would be no assurance that plaintiffs would even be hired by the new water company, let alone that their benefits would be restored to the levels provided by IWC.

Plaintiffs acknowledge the uncertainty about the effects the requested declaratory relief might have. Pl. Br. at 42. They point out that if the status quo does not change, their injuries will certainly not be remedied. This argument fails to meet the challenge of showing that a decision would remedy the alleged harms. The court could only speculate as to whether the requested declaratory relief might ever lead to restoration of the benefits plaintiffs seek. Accordingly, they lack standing to assert Count Seven, and the court lacks subject matter jurisdiction over the claim. See Lujan, 504 U.S. at 568-71 (plaintiffs lacked standing to challenge environmental regulations where potential relief requiring consultation on environmental harms resulting from funding for foreign development projects was not likely to remedy alleged harm to endangered species); Pacific Legal Foundation v. State Energy Resources Conservation Dev. Comm'n, 659 F.2d 903, 913 (9th Cir. 1981), aff'd, 461 U.S. 190 (1983) (nuclear engineer who lost job when state agency imposed moratorium on construction of nuclear power plants lacked standing to challenge moratorium because he could not show that relief would revive plant he had worked on, let alone that he would be rehired).

G. Count Eight — Challenge to Management Agreement

Count Eight is a companion to Count Seven. Count Eight also seeks relief under 29 U.S.C. § 1132(a)(1)(B) for denial of benefits, but seeks as relief a declaration that the Management Agreement is void. This claim also fails for lack of standing for essentially the same reasons that apply to Count Seven. A declaration that the Management Agreement is void would leave plaintiffs employed (probably briefly) by USFilter but would deprive USFilter of the authority to manage the waterworks and to collect fees for doing so. The City and USFilter could react to that development in several ways. The City could choose to operate the waterworks itself, or it could contract with some other entity to operate the waterworks. Either response would do plaintiffs no good at all and would be more likely to harm them. Unless the City chose to enter into a new contract with USFilter, it is easy to predict that such a declaration would cause USFilter either to lay off the plaintiffs or to reassign them elsewhere. It's possible that the City could enter into a new contract with USFilter, but such a new contract could be required to protect the old benefit levels only if the court found in plaintiffs' favor under Counts One, Two, or Three. This claim therefore adds nothing to those claims, which must be dismissed for the reasons discussed above. Count Eight must also be dismissed for lack of subject matter jurisdiction.

H. Count Nine — Challenge to State Regulatory Decision

Count Nine alleges that the March 28, 2002 order of the Indiana Utility Regulatory Commission (IURC), which approved the City's acquisition of the IWC assets, amounted to a denial of employee benefits that should be remedied under 29 U.S.C. § 1132(a)(1)(B). The IURC order made it possible for the City to close the purchase from NiSource, to issue the bonds to pay NiSource, and to enter into the Management Agreement with USFilter. Plaintiffs allege in Count Nine that the IURC order is "invalid" because it failed to require that plaintiffs' employee benefits remain unchanged. Plaintiffs allege that the IURC was misled by Bond Bank chairman Dillon's testimony, which informed the IURC that current employees would be offered employment by the new operator "on substantially the same terms as those persons are now employed." According to plaintiffs, the later changes in the various employee benefit plans were significant enough that the plastic phrase "substantially the same terms" did not fairly describe the terms of the new employment.

Defendants move to dismiss Count Nine on several grounds. The jurisdictional objection must be addressed first, and it is that plaintiffs do not have standing under ERISA to challenge the IURC order approving the waterworks transaction. As noted above, one element of constitutional standing is that a favorable judicial decision must be "likely" to redress the alleged injury. E.g., Lujan, 504 U.S. at 561; National Wrestling Coaches Ass'n v. Department of Education, 366 F.3d 930, 937 (D.C. Cir. 2004).

Assuming for purposes of argument that this court could declare the IURC order invalid, there is no reasonable assurance that such a declaration would lead to the restoration of the employee benefits that plaintiffs seek. Such an order would destroy or damage the legal foundation for a $600 million transaction that closed more than two years ago. The parties' responses to such an order could include acquisition of the waterworks by some other entity, acquisition by the City and operation by the City, or acquisition by the City and a management contract with some entity other than USFilter. It is clear that NiSource and IWC would still be out of the Indianapolis water business, as required under the federal Public Utility Holding Company Act. Under any of these scenarios, one could only speculate about whether the new operator of the waterworks would even employ plaintiffs, let alone whether the new operator would restore their former benefit levels. Without a reasonable likelihood that the requested relief would actually remedy the alleged injury, plaintiffs lack standing to seek relief under Count Nine. Wrestling Coaches, 366 F.3d at 939.

Second, even if the plaintiffs had standing under Count Nine, plaintiffs are seeking to avoid the specific and detailed provisions of Indiana law for judicial review of decisions by the IURC. The time to file any such request for review has long since passed. See Ind. Code § 8-1-3-1 ("any person . . . adversely affected by any final decision, ruling, or order of the commission may, within thirty (30) days from the date of entry of such decision, ruling, or order, appeal to the court of appeals of Indiana for errors of law.").

I. Count Ten — Conversion

Plaintiffs' most creative claim is that the defendants committed the tort or crime of conversion by adopting employee benefit plans that were not identical to the IWC plans. The tort of conversion is "the appropriation of the personal property of another to the party's own use and benefit, or in its destruction, or in exercising dominion over it, in exclusion and defiance of the rights of the owner or lawful possessor, or in withholding it from his possession under a claim and title inconsistent with the owner's." Dominiack Mechanical, Inc. v. Dunbar, 757 N.E.2d 186, 188-89 (Ind.App. 2001), quoting Hunter v. Cronkhite, 36 N.E. 924, 925 (Ind.App. 1894). The crime of conversion is committed when a person "knowingly or intentionally exerts unauthorized control over property of another person." Ind. Code § 35-43-4-3. A civil remedy is available for the crime pursuant to Ind. Code § 34-24-3-1.

A conversion claim based on allegedly unauthorized control over money, which is ordinarily fungible, requires proof identifying a specific fund as a "special chattel." Dominiack Mechanical, 757 N.E.2d at 189 n. 3 (affirming dismissal of conversion claim against persons who were entertained by embezzler using embezzled money); Huff v. Biomet, Inc., 654 N.E.2d 830, 835-36 (Ind.App. 1995), abrogated on other grounds, St. Vincent Hosp. and Health Care Center, Inc. v. Steele, 766 N.E.2d 699, 703 (Ind. 2002). Plaintiffs' theory is that defendants converted a stream of income from payments by water customers based on the established water rates, and that those rates were established to cover the costs of water service, including the costs of plaintiffs' old benefits as employees of IWC.

This creative claim for conversion is unprecedented under Indiana law, but more to the point here, it is preempted by ERISA. The court discussed above the doctrine of ERISA preemption as applied to Counts Five and Six. The same principles apply to Count Ten. At bottom, the conversion claim is one by plan participants who seek a remedy that is based on what they believe were improper amendments to ERISA plans. For such an alleged wrong, they must seek any remedy under ERISA. Count Ten must be dismissed.

J. Count Eleven — Injunctive Relief

Count Eleven of the complaint adds no new substantive allegations, but adds requests for injunctive relief to restore all benefits that plaintiffs allege were lost in the wake of USFilter's takeover of the city's water operations. Count Eleven adds nothing substantive to the case. The motion to dismiss it is hereby granted.

K. Claims Against Individual USFilter Officers

Plaintiffs have named as defendants David Ward, James J. Keene and John Wood, who were at relevant times officers of defendant USFilter. Plaintiffs allege that each individual made false statements to the Indianapolis City-County Council or its committees. These individual defendants have moved to dismiss the claims against them individually. The allegations of the complaint show that none of these individuals exercised fiduciary powers over the plans in question at the time such statements were made. Also, plaintiffs have not made any effort to defend the inclusion of these individuals as defendants. Accordingly, the motion to dismiss all claims against defendants Ward, Keene, and Wood is hereby granted.

L. Challenge to Jury Demand

Defendants seek to strike plaintiffs' demand for a jury trial, arguing that all of plaintiffs' ERISA claims must be tried to the court. At this point, Count Twelve remains in the case. That is a claim under 42 U.S.C. § 1983 alleging violations of plaintiffs' First Amendment rights. To the extent plaintiffs seek damages, they have a right to trial by jury. Defendants' request to strike the jury demand is denied.

Conclusion

For the reasons set forth above, Counts One, Two, Three, Five, Six, Ten, and Eleven are dismissed for failure to state a claim upon which relief can be granted. Counts Four, Seven, Eight, and Nine are dismissed for lack of subject matter jurisdiction.

So ordered.