FILED
United States Court of Appeals
Tenth Circuit
July 21, 2009
Elisabeth A. Shumaker
Clerk of Court
PUBLISH
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
TERRENCE D. HOLDEMAN,
Plaintiff-Appellant,
v. No. 07-4235
MICHAEL W. DEVINE,
Defendant-Appellee,
and
LEON FLINDERS; MEDICAL
GROUP INSURANCE SERVICES;
JAMES W. SMITH; MARY CAROL
JOHNSON; MARIAN BARNWELL;
BILLIE A. DEVINE; GENE L.
JONES; LARRY HERRON,
Defendants.
Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:02-CV-00365-PGC)
Brian S. King (Marcie E. Schapp with him on brief), Salt Lake City, Utah, for
Plaintiff-Appellant.
Michael W. Homer (Carl F. Huefner, Jesse C. Trentadue with him on brief) of
Suitter Axland, PLLC, Salt Lake City, Utah, for Defendant-Appellee.
Before McCONNELL, EBEL, and GORSUCH, Circuit Judges.
EBEL, Circuit Judge.
Plaintiff Terrence Holdeman, the representative of a class of employees and
dependents of employees who were participants in a self-funded employee benefit
plan, appeals the district court’s decision that defendant Michael Devine, as
trustee of the plan, is not personally liable for outstanding medical claims that the
plan did not pay or never fully paid prior to the employer’s termination of the
plan and declaration of bankruptcy. The district court’s judgment was imposed
after this court’s remand directing the lower court to consider several bases for
fiduciary liability that had been raised by the plaintiff but were not specifically
addressed by the lower court’s initial ruling. We have jurisdiction pursuant to 28
U.S.C. § 1291 and affirm based on an alternative factual finding by the district
court.
I. BACKGROUND
The underlying facts in this case are set forth in Plaintiff’s previous appeal.
See Holdeman v. Devine, 474 F.3d 770 (10th Cir. 2007). Plaintiff Holdeman is a
class representative of a group of employees and dependents of employees of the
State Line Hotel and Silver Smith Casino in Wendover, Nevada. The employees
and their dependents were participants in a self-funded employee benefit plan, the
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State Line & Silver Smith Casino Resorts Employee Benefits Plan (“the Plan”),
that was sponsored and funded by State Line Hotel, Inc., and its related entities
(“State Line”), and governed by the Employee Retirement Income Security Act of
1974 (“ERISA”). Plaintiff’s class was left with significant outstanding medical
bills when State Line failed properly to fund the Plan, and then terminated the
Plan and filed for bankruptcy. Holdeman, on behalf of himself and a purported
class comprised of former beneficiaries of the Plan, sued Michael Devine, in his
capacity as the Plan’s fiduciary, for violations of ERISA, alleging that Devine
failed to assure adequate funding of the Plan to pay all submitted medical claims.
Devine was not only the trustee of the Plan and the plan administrator, he also
served simultaneously as an officer, and eventually the Chief Executive Officer,
of State Line.
Following a bench trial, the district court entered judgment in favor of
Devine. Plaintiff Holdeman, on behalf of himself and the class, appealed, and we
reversed and remanded for the district court to consider four issues raised by
plaintiff but not specifically addressed by the district court in its final order:
whether Devine breached his fiduciary duty to the Plan because he should have
“(1) resigned as the fiduciary and obtained the appointment of a person or entity
who was free from a conflict of interest, (2) hired separate, outside counsel for
the Plan, . . . (3) informed the beneficiaries that the Plan was not a reliable source
of health benefits and that they might need to make alternative arrangements to
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obtain medical coverage[,]” or (4) “considered suing, threatened [to sue], and/or
sued State Line on behalf of the Plan for unpaid contributions.” Holdeman, 474
F.3d at 782-83.
On remand, the district court denied plaintiff’s request to reopen the case
for additional discovery or to receive additional evidence because plaintiff had
“ample opportunity to be fully and fairly heard” during the evidentiary bench
trial. (Aplt. App. 1492.) After receiving supplemental briefing from the parties,
the district court issued a thirty-one page order of its findings of fact and
conclusions of law and again entered judgment in favor of Devine. To begin
with, the district court explained that it had previously determined that Devine did
not breach his fiduciary duty by failing to inform plan participants of funding
problems with the Plan and it declined to revisit the issue. The district court then
determined that Holdeman failed to prove that Devine breached his fiduciary duty
by failing to resign and appoint some other person or entity without a conflict of
interest, by failing to hire outside counsel for the Plan, or by failing to consider
suing, threatening to sue, or actually suing State Line. Finally, the district court
found that Holdeman did not prove that it was more likely than not that Devine’s
alleged breaches actually resulted in losses to the Plan.
II. STANDARD OF REVIEW
“In an appeal from a bench trial,” such as in this case, “we review the
district court’s factual findings for clear error, and its legal conclusions de novo.”
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La Resolana Architects, PA v. Reno, Inc., 555 F.3d 1171, 1177 (10th Cir. 2009)
(internal quotation omitted). It is not the role of an appellate court to retry the
facts, because “[t]he court below has the exclusive function of appraising
credibility, determining the weight to be given testimony, drawing inferences
from facts established, and resolving conflicts in the evidence.” State
Distributors, Inc. v. Glenmore Distilleries Co., 738 F.2d 405, 411-12 (10th Cir.
1984). That the record supports a view of the evidence that is permissible but
contrary to the trial court’s findings is not sufficient to warrant upsetting the
lower court’s findings. See id. at 412. Instead, “[f]indings of fact are clearly
erroneous when they are unsupported in the record, or if after our review of the
record we have the definite and firm conviction that a mistake has been made.”
La Resolana Architects, 555 F.3d at 1177 (internal quotation omitted).
III. DISCUSSION
Under the liability-creating provision of section 409 of ERISA, any
individual or entity “who is a fiduciary with respect to a plan,” and breaches any
of its fiduciary duties, is liable for “any losses . . . resulting from each such
breach” of the fiduciary’s duty. 29 U.S.C. § 1109(a). And section 502(a)(2) of
ERISA, 29 U.S.C. § 1132(a)(2), provides that beneficiaries of the plan may bring
a private cause of action against a fiduciary to enforce section 409. See LaRue v.
DeWolff, Boberg & Assocs., Inc. 128 S.Ct. 1020, 1023 (2008). In order for an
ERISA plaintiff to prevail on such a claim, “there must be a showing of some
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causal link between the alleged breach . . . and the loss plaintiff seeks to recover.”
Allison v. Bank One-Denver, 289 F.3d 1223, 1239 (10th Cir. 2002) (internal
quotation and citation omitted).
Under ERISA, trustees have a fiduciary duty to “act to ensure that a plan
receives all funds to which it is entitled, so that those funds can be used on behalf
of participants and beneficiaries.” Central States, Se. & Sw. Areas Pension Fund
v. Central Transp., Inc., 472 U.S. 559, 571 (1985); see also Tassinare v. American
Nat’l Ins. Co., 32 F.3d 220, 224 (6th Cir. 1994) (ERISA incorporates the
“common law of trusts,” so a trustee of an ERISA plan is duty-bound to enforce
the obligations of an employer under the plan for the benefit of the plan’s
beneficiaries.). A trustee must discharge his fiduciary duties prudently and
“solely in the interest[s] of the participants and beneficiaries” of the plan. 29
U.S.C. § 1104(a). Although a conflict of interest can be created when corporate
officers and directors serve in a dual fiduciary capacity, with simultaneous duties
running both to beneficiaries, in their capacity as plan trustees, and to
shareholders, as directors of the corporation, “[i]t is well-established that an
ERISA fiduciary can ‘wear two hats,’ meaning an individual can be both an
employer and a fiduciary.” In re Luna, 406 F.3d 1192, 1207 (10th Cir. 2005)
(dicta). “ERISA does require, however, that the fiduciary with two hats wear
only one at a time, and wear the fiduciary hat when making fiduciary decisions.”
Pegram v. Herdrich, 530 U.S. 211, 225 (2000).
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In performing the duty to enforce valid claims, “trustees have a range of
options – including suing the delinquent employer, randomly auditing the
employer’s records, threatening work stoppages, picketing the employer, or
similar actions – depending upon the circumstances.” Diduck v. Kaszycki & Sons
Contractors, Inc., 874 F.2d 912, 917 (2d Cir. 1989). The steps necessary to
discharge a duty to collect contributions will depend on the circumstances and
there is “no duty to take any particular course of action.” Id. As the Department
of Labor explained in Field Assistance Bulletin No. 2008-01 (Feb. 1, 2008)
(fiduciary responsibility for collection of delinquent contributions), “[i]n
determining what collection actions to take, a fiduciary should weigh the value of
the plan assets involved, the likelihood of a successful recovery, and the expenses
expected to be incurred.” The trustee “may take into account the employer’s
solvency in deciding whether to expend plan assets to pursue a claim.” Id.
(citing Diduck, 874 F.2d 912).
A trustee breaches his duty when he fails to consider his obligations to
collect delinquent contributions. See Diduck, 874 F.2d at 918 (trustees breached
their fiduciary duty by “failing even to investigate the possibility of suing”). In
discharging his duty, a trustee must consider the appropriateness of legal action to
recover plan assets; however, there is no obligation to institute legal action in
every circumstance, regardless of the likelihood of success. See id at 917.
“Rather, the trustees’ duty is to act with ‘care, skill, prudence, and diligence,’ 29
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U.S.C. § 1104(a)(1)(B), in attempting to recover delinquent contributions or in
declining to take a particular course of action to recover those contributions.” Id.
Assuming arguendo that we agree with Holdeman’s argument that Devine,
acting as the Plan’s trustee and fiduciary, breached his fiduciary duty to the Plan
by failing adequately to consider appropriate action against State Line to secure
funding for the Plan’s liabilities, Plaintiff cannot prevail because he has failed to
establish that the district court’s factual finding on causation—that more likely
than not Devine’s breaches did not cause the under-funding of the Plan and
consequently the Plan’s inability to cover participants’ medical bills—was clearly
erroneous.
During the entire time the Plan was in effect, from May 1999 until it was
terminated in December 2001—one month before State Line filed for Chapter 11
bankruptcy protection—State Line faced serious financial difficulties and
continuously operated at a loss. Apart from State Line’s backlog of unpaid
medical claims, State Line juggled many other expenses including monthly
gaming taxes (which if not paid would lead to the casino’s immediate shutdown),
payments on slot machine agreements, bills from food vendors, advertising costs,
maintenance costs, payroll, and FICA and payroll taxes. Additionally, State Line
made a number of distributions to its owners that Devine, as CEO, considered
necessary. Given State Line’s financial situation, the district court determined on
remand that it was more likely than not that Devine’s alleged breaches of his
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duties as trustee of the Plan “did not cause losses to the Plan.” (App. 1508.) The
district court explained that even if Devine, as trustee of the Plan, had pursued
aggressive tactics to obtain funding for the Plan, such as threatening to sue or
actually suing State Line for its outstanding obligations to the Plan—or if he had
appointed outside counsel to represent the Plan or resigned and been replaced by
a non-conflicted trustee, as plaintiff suggested he should have done—it was
highly unlikely that the Plan would have been able to achieve increased funding
from State Line. Indeed, the district court found, as a matter of fact, that “such
actions would have made the situation worse for plaintiffs” and that plaintiffs
losses “did not stem from any violation of ERISA but rather from other
unfortunate business circumstances.” (App. 1506, 1513.)
“[G]iven [State Line’s] cash flow and the receipts payable,” the court
explained that it was “highly unlikely that State Line would have agreed to
increase funding [to the Plan at the expense of other creditors] because failure to
pay other creditors may likely have resulted in the business being shut down,” or
have led to “suspension of operations, if not to complete failure of the business.”
(App. 1506-07.) Likewise, it was highly unlikely that State Line would not have
made “distributions to the company owners as these distributions were
specifically earmarked for tax purposes and were addressed in forbearance
agreements worked out between State Line and its creditors to allow the business
to stay open.” (App. 1507.) And if the Plan had sued State Line, the court found
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that “State Line’s bankruptcy would [have] more than likely result[ed],”
providing plaintiffs “no chance” of ever obtaining recovery for their outstanding
unpaid medical claims. (App. 1510.)
Instead of directly attacking the district court’s ultimate factual
finding—that more likely than not Devine’s breaches did not cause losses to the
plan—Holdeman has focused his appeal on arguing that the district court erred as
a matter of law by misapplying the burden of persuasion. Holdeman, relying on
Martin v. Feilen, 965 F.2d 660, 671 (8th Cir. 1992), contends that he
demonstrated Devine’s breach and a prima facie case of loss, and that the district
court erred by not consequently shifting the burden of persuasion to Devine to
demonstrate that Devine’s breach of his fiduciary duty did not result in a loss to
the plan or its participants and beneficiaries. Although Holdeman asserts that he
produced evidence of a prima facie case of loss to the Plan, he does not point, in
his briefs, to any specific evidence that the Plan’s losses were caused by Devine’s
breach of his fiduciary duty to the Plan.
However, regardless of where the burden of persuasion should have rested, 1
the district court’s findings—that it was “more likely than not” that, absent
1
We recognize that courts have apparently split on the proper evidentiary
framework, for analyzing a claim for breach of fiduciary duties under ERISA,
after a plaintiff has proved a breach of duty. See, e.g. In re Unisys Savings Plan
Litig., 173 F.3d 145, 160 n.23 (recognizing circuit split on the issue of which
party bears the burden of proving causation of damages after a breach of fiduciary
duty is established).
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Devine’s breaches, the Plan would not have received more funds; that plaintiffs’
losses “did not stem from any violation of ERISA”; and, that the actions now
advanced by plaintiffs “would have made the situation worse for plaintiffs”—are
dispositive. Even if we assume that plaintiffs established a prima facie case and
that the district court should have shifted the burden of persuasion to Devine to
disprove causation, as plaintiff asserts, the district court’s factual findings of no
causation between any fiduciary breach and any loss persuade us that any burden-
shifting error by the district court was irrelevant.
Moreover, Holdeman has not explicitly challenged the district court’s
ultimate factual finding that Devine’s breach did not cause the class’s losses. 2
But even if he had, the district court’s factual findings are not clearly erroneous
and are supported by substantial evidence. While Devine, as trustee of the Plan,
could have been more aggressive in attempting to get the Plan fully funded, this
does not mean that Devine as CEO of State Line would have increased payments
to the Plan. As CEO, Devine still had to consider State Line’s interest as a
company in maintaining continued operations and solvency. And State Line’s
policy under Devine’s leadership was to pay first whatever was necessary to keep
2
In fact, in plaintiff’s section of his brief entitled “standard of review,” he
explicitly disclaims that he challenges the district court’s findings of fact. (Aplt.
br. at 2 (“[E]ach of the challenged issues in this case involve only the lower
court’s conclusions of law rather than its findings of fact.”).) Generally, when an
appellant does not dispute the district court’s findings of fact, “we accept the
factual findings as articulated by the district court.” United States v. Ozbirn, 189
F.3d 1194, 1197 (10th Cir. 1999).
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the company operating; and under that policy, “late paying medical claims,
although not desirable, was something that happened.” (App. 985.) Although the
district court could possibly have drawn an alternative inference that a more
aggressive stance by Devine as trustee of the Plan could have led State Line to
increase funding to the Plan before it declared bankruptcy, the district court’s
finding that aggressive tactics likely would not have achieved greater funding for
the Plan or would have forced State Line into declaring bankruptcy—in which
case it was unlikely that the Plan or the plan participants, as unsecured creditors,
would have been able to obtain any recovery from State Line for their unpaid
medical claims—was reasonable.
IV.
For the foregoing reasons, the judgment of the district court is AFFIRMED.
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