UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 95-50860
TEXAS LIFE, ACCIDENT, HEALTH & HOSPITAL
SERVICE INSURANCE GUARANTY ASSOCIATION,
Plaintiff-Appellant,
VERSUS
GAYLORD ENTERTAINMENT COMPANY, formerly known as
Oklahoma Publishing Company, ET AL.,
Defendants,
GAYLORD ENTERTAINMENT COMPANY, formerly known as
Oklahoma Publishing Company, ET AL.,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Texas
January 24, 1997
Before REYNALDO G. GARZA, JOLLY and DeMOSS, Circuit Judges.
DeMOSS, Circuit Judge:
A state insurance guaranty association brought suit against
ERISA1 plan administrators for breach of fiduciary duty, alleging
that the plan administrators imprudently bought investments from a
failing insurance company. We hold that a guaranty association
which receives a valid assignment of an ERISA fiduciary breach
1
Employee Retirement Income Security Act (“ERISA”), 29 U.S.C.
§ 1001 et seq.
claim from a plan administrator can have derivative standing to
bring the action. However, we also hold that ERISA preempts a
state statute purporting to assign such claims by operation of law
and, instead, apply federal common law to determine the validity of
the assignment. Because the fiduciary breach claims were not
expressly and knowingly assigned, the assignment is invalid under
federal common law and the guaranty association does not have
derivative standing. Accordingly, the judgment of the district
court is affirmed.
I. BACKGROUND
The defendants are the current and former trustees and
sponsors (the “Plan Administrators”) of various pension plans
(“Plans”). In the 1980s, the Plans invested in guaranteed
investment contracts (“GICs”) issued by the Executive Life
Insurance Company (“ELIC”), a California insurance company. In
1991, ELIC became insolvent and was placed into receivership; as a
consequence the GICs lost their value, resulting in heavy losses to
the Plans’ assets. In 1993, the California Insurance Commissioner
proposed a rehabilitation plan that allowed holders of GICs from
ELIC to obtain new contracts issued by Aurora National Life
Assurance Company (“Aurora”), another insurer. Some of the Plans
participated and received Aurora GICs, resulting in a waiver of any
claims against the relevant state guaranty association; other Plans
did not participate, allowing them to receive the liquidated cash
2
value of the ELIC GICs as well as the opportunity to challenge the
guaranty association’s coverage determination.
The funds for this bailout were provided in part by the Texas
Life, Accident, Health & Hospital Service Insurance Guaranty
Association (the “Guaranty Association”). The Guaranty Association
is a statutory, nonprofit organization created by the Texas
Legislature in the Texas Life, Accident, Health & Hospital Service
Insurance Guaranty Act (the “Guaranty Act” or the “Act”), TEX. INS.
CODE ANN. Art. 21.28-D § 8, and is supervised by the Texas
Commissioner of Insurance. Its members are insurance companies
doing business in Texas, which are required by law to join the
Guaranty Association as a condition of doing business in the state.
Like similar programs in all other states,2 this system protects
those who buy insurance policies from insurance companies that
become insolvent. The protection can come in cash payments or
substitute policies or contracts. Pursuant to its statutory
mandate, the Guaranty Association in effect bailed out those Plans
under its jurisdiction (i.e., those having the requisite connection
to Texas) by supplementing the diminished assets of ELIC to the
point where Aurora would issue the substitute GICs.3
2
The National Association of Insurance Commissioners (“NAIC”)
has promulgated the Life and Health Insurance Guaranty Association
Model Act. All 50 states, the District of Columbia, Guam, Puerto
Rico and the Virgin Islands have adopted the NAIC model act or
similar laws. The NAIC model act may be found on Westlaw under
NAIC 520-1; the corresponding law in each state or territory may be
found on Westlaw under NAIC 520-27.
3
The Guaranty Association will pay $232 million to cover the
ELIC GICs. Of that $232 million, $11 million is attributable to
the GICS in this case.
3
The Guaranty Association sued in federal court, claiming that
the Plan Administrators breached their fiduciary duties under ERISA
when they invested in the ELIC GICs. The Guaranty Association
asserts that there was a host of warning signs that ELIC was on the
brink of insolvency due to its heavy investing in high-risk junk
bonds. The Guaranty Association further contends that it has the
right to pursue these claims on behalf of the beneficiaries of the
Plans due to the Guaranty Act’s assignment of the beneficiaries’
rights to sue the Plan Administrators for this breach. Through
this assignment, the Guaranty Association claims that it has
derivative standing to sue under ERISA. 29 U.S.C. § 1132(a)(2).
The ultimate claim of the Guaranty Association is violation of 29
U.S.C. § 1109(a), which establishes fiduciary duties under ERISA.
The parties consented to the jurisdiction of a magistrate
judge for the case. The magistrate judge granted the defendants’
pretrial motions for summary judgment, finding that the Guaranty
Association did not have standing to bring an ERISA breach of
fiduciary duty action. In support of his conclusion, the
magistrate judge first found that the Guaranty Association did not
fall into the enumerated list of potential plaintiffs under 29
U.S.C. § 1132(a)(2). He next found that because of ERISA
preemption, no valid assignment of rights had occurred and,
therefore, the Guaranty Association could not have derivative
standing. The Guaranty Association appeals.
4
II. STANDING
A. Derivative Standing
ERISA allows suits against plan administrators for breaches of
fiduciary duty. 29 U.S.C. § 1109. The list of parties allowed to
bring these actions is limited, however. Only the Secretary of
Labor, participants, beneficiaries or fiduciaries of plans may
bring suit under § 1109.4
The Guaranty Association contends that even though it is not
an enumerated party, it has derivative standing to sue. The
Guaranty Association maintains that, because it was assigned the
plans’ fiduciary duty breach causes of action, it steps into the
shoes of an enumerated party and thus has standing. In Hermann
Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286, 1289 (5th
Cir. 1988), we recognized derivative standing in the context of
employee welfare benefit plans (“welfare plans”).5 The plans in
this case are not welfare plans, but rather are employee pension
benefit plans (“pension plans”).6 We have never decided whether
derivative standing is allowed for breach of fiduciary duty claims
arising from pension plans.
4
29 U.S.C. § 1132(a)(2) (“A civil action may be brought . . .
by the Secretary [of Labor], or by a participant or fiduciary for
appropriate relief under section 1109 of this title.”); Hermann
Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286, 1289 (5th
Cir. 1988) (“Hermann”).
5
A welfare plan is a plan established to provide medical or
similar benefits. 29 U.S.C. § 1002(1).
6
A pension plan is a plan established to provide retirement
income or to enable savings for retirement. 29 U.S.C. § 1002(2).
Welfare plans and pension plans are collectively referred to as
“employee benefit plans.” 29 U.S.C. § 1002(3).
5
The Plan Administrators argue that while derivative standing
is appropriate for welfare plans, ERISA’s anti-assignment provision
for pension plans makes derivative standing improper for pension
plans.7 In deciding that derivative standing was allowed for
welfare plans, the Hermann Court noted that “the existence of an
elaborate and complex statutory anti-assignment clause for ERISA
pension benefits makes significant the complete absence of an anti-
assignment clause applicable to ERISA health benefits, especially
in light of the Supreme Court’s recognition of ERISA as
‘comprehensive and reticulated.’” Hermann, 845 F.2d at 1289
(internal citation omitted), quoting Nachman Corp. v. Pension
Benefits Guaranty Corp., 446 U.S. 359, 361 (1980). The Court in
Hermann observed that “the purpose of ERISA’s proscription on
assignment of pension benefits, to further insure that the
employees’ accrued benefits are actually available for retirement
purposes, would not be served by applying it to health care
benefits.” Id. (internal quotation and bracket omitted).
The Guaranty Association agrees that, because of the anti-
assignment provision, derivative standing is not possible in the
typical pension plan case. The Guaranty Association argues that
this case is different because the thing which has been assigned
(the right to sue for breach of fiduciary duty) is neither
7
ERISA’s anti-assignment provision states that “[e]ach pension
plan shall provide that benefits provided under the plan may not be
assigned or alienated.” 29 U.S.C. § 1056(d).
6
“benefits” nor “provided under the plan.” 29 U.S.C. § 1056(d).
Accordingly, the assignment is outside the scope of the anti-
assignment provision.
Our sister circuits have held that “benefits,” as used in
ERISA, “refers only to payments due to the plan participants or
beneficiaries.” Mack Boring & Parts v. Meeker Sharkey Moffitt, 930
F.2d 267, 273 (3d Cir. 1991); see Acosta v. Pacific Enterprises,
950 F.2d 611, 619 (9th Cir. 1991) (“term ‘benefit’ refers to a
participant’s or beneficiary’s right to receive monies from the
plan administrator or trustees”). We agree that the term
“benefits” in § 1056(d)(1) refers to the right to receive payments.
The right to sue a plan administrator for breach of fiduciary duty
is not a right to receive payments, so it is not “benefits” under
§ 1056(d). Additionally, the right to sue a plan administrator for
breach of fiduciary duty is not “provided under the plan.” 29
U.S.C. § 1056(d). Rather, this right is provided by ERISA itself.
29 U.S.C. §§ 1109, 1132(a)(2). Accordingly, assignment of a claim
for fiduciary duty breach is not prohibited by ERISA’s anti-
assignment provision.
Allowing derivative standing to assignees of breach of
fiduciary duty claims does not frustrate ERISA’s purpose. As
discussed above, the goal of ERISA’s prohibition of assignment of
pension benefits is to “insure that the employees’ accrued benefits
are actually available for retirement purposes.” Hermann, 845 F.2d
at 1289; see also Hightower v. Texas Hosp. Ass’n, 65 F.3d 443, 447
(5th Cir. 1995). The Hermann Court noted that:
7
To deny standing to health care providers as
assignees of beneficiaries of ERISA plans might
undermine Congress’ goal of enhancing employees’
health and welfare benefit coverage. [To not allow
derivative standing] would discourage providers
from becoming assignees and possibly from helping
beneficiaries who were unable to pay them “up-
front.”
Hermann, 845 F.2d at 1289 n.13.
The policy considerations regarding assignment of breach of
fiduciary duty claims are similar. Allowing assignees derivative
standing will help insure that pension funds are available for
retirement. Without derivative standing, plan administrators could
never be held accountable for breaches of fiduciary duty. If a
guaranty association pays a claim that resulted from the plan
administrator’s breach of fiduciary duty, no one would be able to
sue the plan administrator. The plan participants would have no
cause of action because after the claim was paid they would have
suffered no damages.
As discussed above, absent derivative standing, the guaranty
association would have no standing. This would allow plan
administrators to gamble with pension funds covered by guaranty
associations, safe in the knowledge they will never be held
accountable for their actions. Encouraging such reckless behavior,
even with insured pension benefits, does not promote ERISA’s goal
of safeguarding pension benefits for employees’ retirements. The
knowledge that they will be ultimately liable for any breaches of
fiduciary duty, regardless of whether a guaranty association pays,
will make plan administrators more mindful of their important
responsibilities as fiduciaries, thus helping to “insure that the
8
employees’ accrued benefits are actually available for retirement
purposes.” Hermann, 845 F.2d at 1289.
We hold that assignees of breach of fiduciary duty claims
under pension plans can have derivative standing under ERISA.
Assignment of those claims are not prohibited by ERISA’s pension
benefits anti-assignment provision, and allowing derivative
standing advances ERISA’s goal of safeguarding pension funds.
B. Validity of Assignment
1. Assignment Under the Guaranty Act
The fact that an assignee can have derivative standing does
not end our inquiry. We must determine whether the Guaranty
Association has a valid assignment of the claims. The Guaranty Act
provides that any person receiving benefits from the Guaranty
Association under the act “is considered to have assigned the
rights under, and any causes of action relating to, the covered
policy or contract to the [Guaranty A]ssociation to the extent of
the benefits received under this Act.” TEX. INS. CODE Art. 21.28-D
§ 8(t).8 The Guaranty Act further provides that “[t]he [Guaranty
8
Tex. Ins. Code Art. 21.28-D § 8(t) provides that:
A person receiving benefits under this Act is considered
to have assigned the rights under, and any causes of
action relating to, the covered policy or contract to the
association to the extent of the benefits received under
this Act, whether the benefits are payments of or on
account of contractual obligations, continuation of
coverage, or provision of substitute or alternative
coverages. The association may require an assignment to
it of the rights and cause of action by any payee, policy
or contract owner, beneficiary, insured, or annuitant as
a condition to the receipt of a right or benefit under
9
A]ssociation has all common-law rights of subrogation and any other
equitable or legal remedy that would have been available to the
impaired or insolvent insurer or holder of a policy or contract
with respect to such a policy or contract.” TEX. INS. CODE Art.
21.28-D § 8(u).
The Guaranty Association argues that when the Plan
Administrators accepted benefits under the Guaranty Act, by
operation of law they assigned to the Guaranty Association all
policy rights and causes of actions related to the ELIC GICs. TEX.
INS. CODE Art. 21.28-D § 8(t). The Guaranty Association contends
that the Plan Administrators breached their fiduciary duties to the
plan beneficiaries when they imprudently purchased the GICs of a
failing company. The Guaranty Association asserts that the right
to bring the breach of fiduciary duty action is a cause of action
related to the ELIC GICs and, therefore, was assigned to the
Guaranty Association. The Plan Administrators contend that the
Guaranty Act does not assign fiduciary duty breach claims. These
causes of action, they contend, do not relate to the covered
policies. Instead, this provision only assigns the Plans’ right to
sue ELIC.
Both the Guaranty Association’s and the Plan Administrators’
arguments have merit, and it is unclear from the text of the
Guaranty Act whether fiduciary duty breach claims are assigned. We
this Act. The subrogation rights of the association
under this subsection have the same priority against the
assets of the impaired or insolvent insurer as that
possessed by the person entitled to receive benefits
under this Act.
10
have found only one Texas case that even mentions the Guaranty Act,
and it does not discuss the issue of assignment. Unisys Corp. v.
Texas Life Accident Health & Hospital Service Insurance Guaranty
Association, 1996 WL 710769 (Tex. App. -- Austin 1996). We need
not decide this novel and difficult issue of Texas law, though,
because the result is the same under either party’s reading of the
Act. If the Plan Administrators are correct that the Act does not
assign the causes of action, then there is no valid assignment and,
thus, no derivative standing. If the Guaranty Association is
correct that the Act assigns the causes of action, there is also no
valid assignment and no derivative standing, because, as we discuss
below, the Act’s assignment provision is preempted by ERISA and
there is no valid assignment under federal law.
a. Preemption of the Guaranty Act’s Assignment Provision
Congress included a broad preemption provision in ERISA. 29
U.S.C. § 1144. Congress provided that ERISA “shall supersede any
and all State laws insofar as they may now or hereafter relate to
any employee benefit plan.” 29 U.S.C. § 1144(a).9 “Courts have
interpreted this preemption broadly. . . .” CIGNA Healthplan of
9
ERISA’s preemption provision is modified by the “saving
clause,” which leaves in force state laws that regulate “insurance,
banking or securities.” 29 U.S.C. § 1144(b)(2)(A); see II(a)(2)(c)
below. The saving clause is in turn modified by the “deemer
clause,” which provides that an employee benefit plan shall not “be
deemed to be an insurance company or other insurer, bank, trust
company, or investment company or to be engaged in the business of
insurance or banking for purposes of any law of any State
purporting to regulate insurance companies, insurance contracts,
banks, trust companies, or investment companies.” 29 U.S.C. §
1144(b)(2)(B).
11
Louisiana, Inc. v. Louisiana, 82 F.3d 642, 646-47 (5th Cir.), cert.
denied, 117 S. Ct. 387 (1996). ERISA’s pre-emption provisions are
designed to protect plan participants by eliminating the threat of
inconsistent state and local regulation of employee benefit plans
and establishing a uniform standard to govern employee benefit
plans as an exclusive federal concern. See Ingersoll-Rand Co. v.
McClendon, 498 U.S. 133, 138 (1990); Fort Halifax Packing Co. v.
Coyne, 482 U.S. 1, 10-11 (1987).
A law is preempted if it “relates to” an employee benefit
plan. 29 U.S.C. § 1144(a). “A law ‘relates to’ an employee
benefit plan . . . if it has a connection with or reference to such
a plan.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983).
The relevant portion of the Guaranty Act does not refer to ERISA
plans.10 See New York Conference of Blue Cross v. Travelers Ins.,
115 S. Ct. 1671, 1677 (1995) (noting that statute in question did
not “make ‘reference to’ ERISA plans in any manner”); District of
Columbia v. Greater Wash. Bd. of Trade, 113 S. Ct. 580, 583 (1992)
(striking down law that “specifically refers to welfare benefit
plans regulated by ERISA and on that basis alone is pre-empted”).
Because the Guaranty Act does not refer to ERISA, it will be
preempted only if it has a connection with an ERISA plan.
Travelers, 115 S. Ct. at 1677.
10
The Guaranty Act does state that it does not provide coverage
for “a multiple employer welfare arrangement as defined by the
Employee Retirement Income Security Act of 1974 (29 U.S.C. Section
1002).” TEX. INS. CODE Art. 21.28-D §3(4)(A). That provision has
no connection whatsoever to this case or the Guaranty Act’s
assignment provisions, so we do not consider it to be a sufficient
reference to ERISA for preemption purposes.
12
The Supreme Court has cautioned that “[p]reemption does not
occur . . . if the state law has only a tenuous, remote, or
peripheral connection with covered plans, as is the case with many
laws of general applicability.” Greater Wash., 113 S. Ct. at 583
n.1 (internal quotation and citations omitted). The Supreme Court
recently held that ERISA did not preempt a state law that had “only
an indirect economic effect on the relative costs of various health
insurance packages” available to ERISA qualified plans. Travelers,
115 S. Ct. at 1680. Therefore, the Guaranty Act is connected with,
and thereby related to, an ERISA plan only if its association is
more than tenuous, remote or peripheral. If the Guaranty Act is
related to an ERISA plan, it is preempted.
The Guaranty Act’s assignment provision is connected with an
ERISA plan. Upon the receipt of benefits, the Guaranty Act assigns
by operation of law all causes of action related to the insurance
policy. This includes assignment of causes of action for breaches
of fiduciary duty under ERISA. 29 U.S.C. § 1109. A state law
which has the effect of assigning an ERISA cause of action clearly
is connected with and relates to an ERISA plan. The connection is
direct and substantial, not indirect, tenuous, remote or
peripheral. See Travelers, 115 S. Ct. at 1680; Greater Wash., 113
S. Ct. at 583 n.1.
b. Insurance Saving Clause
Because the Guaranty Act’s assignment provision relates to an
ERISA plan, it is preempted unless it falls under an exception in
13
the saving clause.11 The Guaranty Association contends that the
Guaranty Act regulates insurance and thus is rescued by the saving
clause. In deciding whether a law regulates insurance for saving
clause purposes, we apply a conjunctive two-step analysis. First,
we determine whether the law in question fits the common sense
definition of insurance regulation. Second, we consider three
factors drawn from the McCarran-Ferguson Act, 15 U.S.C. § 1011 et
seq.: (1) Whether the statute has the effect of spreading
policyholders’ risk; (2) whether the practice is an integral part
of the policy relationship between the insurer and the insured; and
(3) whether the practice is limited to entities within the
insurance industry. Metropolitan Life Ins. Co. v. Massachusetts,
471 U.S. 724, 742-43 (1985); CIGNA, 82 F.3d at 650. If the statute
fits the common sense definition of insurance regulation and we
answer yes to each of the questions in the three part test, then
the statute falls within the savings clause, and is not preempted.
CIGNA, 82 F.3d at 650.
The relevant statute in the case at bar is the Guaranty Act
and, more specifically, its provision that a policyholder assigns
by operation of law all claims related to the policy when the
Guaranty Association provides benefits. The Guaranty Act’s assign-
ment provision applies to policyholders; it is, therefore, not
limited to “entities within the insurance industry.” Metropolitan
11
The saving clause provides, in relevant part, that “[e]xcept
as provided in subparagraph (b) [the deemer clause], nothing in
this subchapter shall be construed to exempt or relieve any person
from any law of any State which regulates insurance, banking, or
securities.” 29 U.S.C. § 1144(a)(2)(A).
14
Life, 471 U.S. at 743. Because the Guaranty Act fails the third-
prong of the McCarran-Ferguson factors, we need go no further.
Accordingly, the Guaranty Act’s assignment provision does not fall
within the saving clause and is, thus, preempted by ERISA.
2. Assignment Under Federal Common Law
We have determined that the Guaranty Act’s assignment
provision is preempted. We must therefore look to federal law for
guidance in determining the validity of the Plan Administrators’
assignment of the breach of fiduciary duty claims.
The text of ERISA gives us no guidance in determining the
proper method for assigning ERISA breach of fiduciary duty claims
against pension plan administrators. The Supreme Court has
instructed that in the absence of statutory guidance, courts should
develop federal common law regarding ERISA rights. Pilot Life Ins.
Co. v. DeDeaux, 481 U.S. 41, 56 (1987) (Congress “expect[ed] that
a federal common law of rights and obligations under ERISA-
regulated plans would develop.”).
Because an assignment of a fiduciary duty breach claim affects
all plan participants, and unsuccessful claims can waste plan
resources that are meant to be available for employees’
retirements, these claims are not assigned by implication or by
operation of law. Instead, only an express and knowing assignment
of an ERISA fiduciary breach claim is valid. Cf. Gulfstream III
Assoc., Inc. v. Gulfstream Aerospace Corp., 995 F.2d 425, 439 (3d
Cir. 1993) (Greenberg, J., concurring) (“only an express assignment
15
of an antitrust claim can be valid”); RESTATEMENT (SECOND) OF CONTRACTS
§ 324 (1981) (“It is essential to an assignment of a right that the
obligee manifest an intention to transfer the right to another
person without further action or manifestation of intention by the
obligee.”).12
There is no evidence in the record that the Plan
Administrators expressly and knowingly assigned the fiduciary duty
breach claims. Instead, the only putative assignment is the
Guaranty Act’s broad provision that anyone accepting benefits under
the Act “is considered to have assigned the rights under, and any
causes of action relating to, the covered policy or contract to the
[Guaranty A]ssociation to the extent of the benefits received under
this Act.” TEX. INS. CODE Art. 21.28-D § 8(t). This assignment by
operation of law is not an express and knowing assignment and,
thus, is insufficient to assign the fiduciary breach claims.
Because the fiduciary breach claims were not validly assigned,
the Guaranty Association does not have derivative standing to bring
suit against the Plan Administrators.
12
While an express assignment by a plan administrator is
sufficient to transfer the cause of action, it may not be
sufficient to comply with all of ERISA’s fiduciary requirements.
Because the decision to assign a fiduciary breach claim is itself
a fiduciary act, ERISA plan fiduciaries must comply with all
fiduciary duties when assigning an ERISA claim, including the
duties of loyalty and prudence. As the Secretary of Labor notes in
his amicus curiae brief, where a plan administrator is asked to
assign a claim against himself or his co-fiduciaries arising from
imprudent investments, he faces a conflict of interest which may
require him to appoint an independent fiduciary to decide whether
to assign the claim. See, e.g., Leigh v. Engle, 727 F.2d 113,
135026 (7th Cir. 1984); Schwartz v. Interfaith Medical Ctr., 715 F.
Supp. 1190, 1196 (E.D.N.Y. 1989).
16
III. Conclusion
An assignee of an ERISA fiduciary breach claim can have
derivative standing to bring suit. Because the Guaranty Act’s
assignment provision has the effect of assigning ERISA claims, it
is preempted. As the state assignment provision is preempted, we
look to federal common law, which requires an express assignment.
The Plan Administrators did not expressly and knowingly assign the
fiduciary breach claims, so the Guaranty Association is not an
assignee and, thus, does not have derivative standing to bring this
action. The judgment of the district court is AFFIRMED.13
13
The Guaranty Association complains that the magistrate judge
erred in dismissing as moot its motion for leave to amend its
complaint. As the Plan Administrators point out, the Guaranty
Association agreed to the dismissal as moot, thereby waiving any
error.
17