Crawford v. Lamantia

November 28, 1994
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit

No. 93-2241

PETER A. CRAWFORD,

Plaintiff, Appellant,

v.

CHARLES R. LAMANTIA, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Mark L. Wolf, U.S. District Judge]

ERRATA SHEET
ERRATA SHEET

Add the following sentence to the end of footnote 6 on page 11:

Additionally, unlike the situation in Reich v.

Valley Nat. Bank of Arizona, 837 F. Supp. 1259

(S.D.N.Y. 1993), where the funding of the ESOP
drove the company into bankruptcy, no adverse
economic effect stemming from the overvaluation
was alleged here, and thus that issue is not
before us.

United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit

No. 93-2241

PETER A. CRAWFORD,

Plaintiff, Appellant,

v.

CHARLES R. LAMANTIA, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Mark L. Wolf, U.S. District Judge]

Before

Breyer,* Chief Judge,

Bownes, Senior Circuit Judge,

and Stahl, Circuit Judge.

Alfred D. Ellis with whom Michelle L. Farmer and Cherwin &

Glickman were on brief for appellant.

Peter J. Macdonald with whom Jeffrey B. Rudman, Hale and Dorr,

James J. Dillon, and Goodwin Procter & Hoar were on brief for

appellee.

September 14, 1994

*Chief Judge Stephen Breyer heard oral argument in this matter but
did not participate in the drafting or the issuance of the panel's
opinion. The remaining two panelists therefore issue this opinion
purusant to 28 U.S.C. 46(d).

STAHL, Circuit Judge. Plaintiff-appellant Peter
STAHL, Circuit Judge.

Crawford filed a complaint charging defendants-appellees Paul

Littlefield, Irving Plotkin and Harland Riker, Jr.,

individually and in their capacity as trustees of the Arthur

D. Little, Inc. Employee Stock Ownership Plan and Trust ("the

Plan" or "the ESOP"), with a breach of their fiduciary duties

as defined under the Employees Retirement and Income Security

Act ("ERISA"). Plaintiff now appeals the district court's

grant of summary judgment in favor of defendants. After

careful consideration of plaintiff's arguments, we affirm.

I.
I.

Factual and Procedural Background
Factual and Procedural Background

Arthur D. Little, Inc. ("ADL") is a Cambridge-based

international consulting firm. Plaintiff began working at

ADL as a management consultant on June 7, 1981. In March

1988, ADL's Board of Director's voted to form an ESOP1

pursuant to 26 U.S.C. 4975(e)(7) of the Internal Revenue

Code, and to propose a "going-private" transaction whereby

ADL would 1) acquire all outstanding publicly held shares of

ADL stock; 2) cancel all existing shares of ADL stock; 3)

reissue "New Shares"; and 4) sell a portion of the New Shares

1. The ESOP is an individual account plan, i.e. "a pension
plan which provides for an individual account for each
participant and for benefits based solely upon the amount
contributed to the participant's account, and any income,
expenses, gains and losses, and any forfeitures of accounts
of other participants which may be allocated to such
participant's account." 29 U.S.C. 1102 (34).

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to the ESOP with financing from ADL (which in turn received

bank financing). Plaintiff objected to the transaction for a

variety of reasons, and delivered to the Department of Labor

a thirty-two page memorandum detailing his belief that, as

part of the going-private transaction, the ESOP Trustees were

intending to buy ADL common stock in excess of adequate

consideration within the meaning of 29 U.S.C. 1002 (18).

Plaintiff urged the Department of Labor to seek an injunction

enjoining ADL from consummating its plan. The Department of

Labor declined plaintiff's invitation, and on June 14, 1988,

the ADL disinterested shareholders approved the proposed

transaction.

Thereafter, the ESOP Trustees negotiated a $32.8

million loan from ADL. The agreement provided that the to-

be-purchased ADL stock would act as collateral for the loan,

which was to be paid back to ADL over a seven-year period.

The borrowed funds would then be used to purchase 546,520 New

Shares of ADL common stock at $60 per share. At closing, the

stock would immediately be deposited into a suspense account

within the ESOP to be released over the next seven years, on

a pro rata basis, to the individual accounts of qualified

employee participants of the ESOP pursuant to the following

arrangement. Each quarter, ADL agreed to make cash

contributions to the ESOP in an amount sufficient to defray

the principal and interest payments due ADL on the ESOP loan.

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The ESOP, in turn, agreed to return the contribution

immediately to ADL in repayment of its note. Meanwhile, a

proportionate number of the New Shares held in the suspense

account as collateral would be freed and allocated by formula

to the individual accounts of participating ADL employees.

In effect, ADL was agreeing to repay the loan it was making

to the ESOP to fund the purchase of the New Shares, with the

employees ultimately reaping the benefits.

On November 30, 1988, plaintiff was informed that

due to budget cuts, he was to be terminated.2 Plaintiff

negotiated an extension of salary and benefits until March

24, 1989, with an "unpaid leave of absence" to follow. On

May 12, 1989, plaintiff filed his original complaint, pro

se.3 Plaintiff then resigned from ADL, effective May 18,

2. Plaintiff has not claimed in his amended complaint that
1989. Approximately one year later, on May 7, 1990,
he was terminated improperly in order to deprive him of
standing to initiate or maintain this action under 29 U.S.C.
plaintiff elected to receive his total vested distribution
1140.
from the ESOP in the form of 47 shares of ADL common stock
3. Plaintiff originally named as defendants all trustees of
the Memorial Drive Trust, the Memorial Drive Trust, the
and a check in the amount of $51.49.4 Plaintiff
trustees of the ESOP, the ESOP and Arthur D. Little, Inc.
These original defendants answered the complaint and
thereafter jointly filed a motion for summary judgment. On
June 9, 1993, before the court ruled on defendants' motion,
all parties agreed to a joint stipulation dismissing all non-
ADL ESOP trustee defendants from this action.

4. ESOP participants may elect to receive their vested
benefits in one of two ways. They may either take the shares
then existing in their individual account or ask that the
ESOP cash out their account. In order to cash out a plan
participant, the ESOP Trustees must sell the stock then held
in the participant's individual account to ADL, at a price
based on the most recent appraised value of new shares. The
Trustees, in turn, pay the participant the resulting cash
proceeds.

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subsequently retained an attorney and, on June 10, 1993,

filed a motion to amend his original complaint, together with

an amended complaint seeking "recovery on behalf of the ESOP

for breach of fiduciary duty for the Trustees' failure to act

for the exclusive benefit of the participants and

beneficiaries of the ESOP plan." Plaintiff also sought class

certification at this time. The district court granted

plaintiff's motion to amend on June 24, 1993. The defendants

then renewed their motion for summary judgment, including

further argument directed at the amended complaint. After

accepting additional memoranda and hearing oral argument on

defendants' motion, the district court granted summary

judgment in favor of defendants, citing plaintiff's lack of

standing.

II.
II.

STANDARD OF REVIEW
STANDARD OF REVIEW

As always, we review a district court's grant of

summary judgment de novo and, like the district court, review

the facts in a light most favorable to the non-moving party.

See e.g., Woods v. Friction, No. 93-2296, slip op. at 6 (1st

Cir. July 29, 1994). Our review is limited to the record as

it stood before the district court at the time of its ruling.

Voutour v. Vitale, 761 F.2d 812, 817 (1st Cir. 1985), cert.

denied, 474 U.S. 1100 (1986). Summary judgment is

appropriate when "the pleadings, depositions, answers to

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interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to a

judgment as a matter of law." Fed. R. Civ. P. 56(c). A

material fact is one which has the "potential to affect the

outcome of the suit under the applicable law." Nereida-

Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st. Cir.

1993). Thus, the nonmovant bears the burden of placing at

least one material fact into dispute once the moving party

offers evidence of the absence of a genuine issue. Darr v.

Muratore, 8 F.3d 854, 859 (1st Cir. 1993); see also Celotex

Corp. v. Catrett, 477 U.S. 317, 322 (1986) (Fed. R. Civ. P.

56(c) "mandates the entry of summary judgment, . . . upon

motion, against a party who fails to make a showing

sufficient to establish the existence of an element essential

to that party's case, and on which that party will bear the

burden of proof at trial."). In other words, neither

"conclusory allegations, improbable inferences, and

unsupported speculation," Medina-Munoz v. R.J. Reynolds

Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990), nor "[b]rash

conjecture coupled with earnest hope that something concrete

will materialize, is []sufficient to block summary judgment,"

Dow v. United Bhd. of Carpenters, 1 F.3d 56, 58 (1st Cir.

1993).

III.
III.

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DISCUSSION
DISCUSSION

On appeal, plaintiff makes essentially two

arguments. First, plaintiff charges that the district court

erred in ruling that plaintiff lacked standing to pursue his

ERISA action because he was not a current employee throughout

the litigation. Second, plaintiff contends that the court

erred in concluding that he lacked standing because he had

failed to present a colorable claim for benefits. We discuss

each of these arguments below.

Plaintiff brought this action pursuant to 29 U.S.C.

1132(a)(2), which authorizes a "participant," "beneficiary"

or "fiduciary" to bring a civil action for breach of any

fiduciary duty proscribed by 29 U.S.C. 1109(a). Because

plaintiff is neither a beneficiary nor a fiduciary, our

central task is to determine whether plaintiff qualifies as a

plan "participant" within the meaning of ERISA.

ERISA defines the term "participant" to include

any employee or former employee of an
employer, or any member or former member
of an employee organization, who is or

may become eligible to receive a benefit

of any type from an employee benefit plan
which covers employees of such employer
or members of such organization, or whose
beneficiaries may be eligible to receive
any such benefit.

29 U.S.C. 1002 (7) (emphasis supplied). In Firestone Tire

& Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989), the Supreme

Court interpreted this provision as providing for two

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distinct categories of ERISA participants: 1) "employees in,

or reasonably expected to be in, currently covered

employment;" or 2) former employees who have "a reasonable

expectation of returning to covered employment" and/or a

"colorable claim" to vested benefits. Id. at 117 (internal

quotations omitted).

Plaintiff maintains that he has standing under

either prong. First, he argues that he was a current

employee when he initiated this action and should remain a

current employee throughout the litigation for purposes of

standing despite his actual termination of employment. In

the alternative, he asserts that he is a former employee with

a colorable claim to vested benefits. We disagree with each

of plaintiff's contentions.

With regard to plaintiff's argument that he should

be considered an employee under Firestone's first prong, we

note that the basis for "`[s]tanding, since it goes to the

very power of the court to act, must exist at all stages of

the proceeding, and not merely when the action is initiated

or during an initial appeal.'" Sommers Drug Stores Co.

Employee Profit Sharing v. Corrigan, 883 F.2d 345, 348 (5th

Cir. 1989) (emphasis supplied) (quoting Safir v. Dole, 718

F.2d 475, 481 (D.C.Cir. 1983), cert. denied, 467 U.S. 1206

(1984)). Therefore, although plaintiff may have had standing

as a current employee when he brought this action, by the

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time he filed his amended complaint, he lost this standing on

account of having terminated his employment with ADL and

having collected all vested benefits then due him from the

ESOP.5 Accordingly, plaintiff cannot be considered a plan

participant under Firestone's first prong.

Plaintiff's argument that he has standing under

Firestone's second prong fares no better. Plaintiff does not

contend that he has a reasonable expectation of returning to

covered employment; instead, he argues that he has a

colorable claim to benefits as a former employee because,

"but for" defendants breach of duty, he would have received

additional, vested benefits at the time he received his lump

sum payment from the ESOP. Plaintiff reaches this conclusion

in stages. First, he notes that, under 29 U.S.C. 1109(a),

fiduciaries who breach their fiduciary duties must make good

5. In his brief, plaintiff cites Nishimoto v. Federman-

Bachrach & Assoc., 903 F.2d 709 (9th Cir. 1990), as support

for his position that ERISA standing is frozen in time as of
the date of the initial filing of the complaint. Despite
plaintiff's highly suspect manipulation of the language of
Nishimoto, the case contradicts, rather than supports,

plaintiff's argument. The issue in Nishimoto was whether a

court could adjudicate pendent state claims following the
disposition of the federal claim. At the time she filed her
complaint, Nishimoto was a former employee who was eligible
to receive vested benefits. She "settled" her ERISA claim by
accepting a lump sum payment during the course of litigation.
The court noted that Nishimoto's "receipt of all the benefits
she was due under the plan indicates . . . that the ERISA
claim might have become subject to dismissal at that point."
Id. at 715. Thus, Nishimoto's status at the time of filing

was critical only as to whether the court was deprived of the
power to adjudicate the remaining pendent state claims. See

id.

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to the plan any losses resulting from their breach. In this

case, therefore, defendants would have to reimburse the plan

the difference between the amount of money paid for the New

Shares of ADL stock and the true market value. In deciding

how that money should be allocated once returned to the fund,

plaintiff asks the court, under the equitable powers granted

by 29 U.S.C. 1109(a), to allocate the funds to him and

those members of the ESOP who were "cashed out" after the

date of the transaction. Relying upon Sommers, 883 F.2d at

350, plaintiff contends that his share should be calculated

by dividing the number of shares he received when he left

(47) by the total number of shares (546,520) and multiply

that fraction (.00008) by the overpayment.

In Sommers, however, plan participants brought a

class action suit to recover money lost during the

liquidation of a retirement trust. Plaintiffs claimed that

their lump sum payments were less than the amount due because

the trustees had sold the trust stock for less than fair

market value. Each claimant had a set number of shares which

were undervalued when it came time to cash them in. Thus,

they were not paid the full extent of their benefits. We

have no such claim before us.

Unlike the claimants in Sommers, plaintiff has

failed to show that defendants' alleged breach of fiduciary

duty had a direct and inevitable effect on his benefits.

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Defendants borrowed funds from ADL to acquire a set number of

ADL New Shares, i.e., 546,520. Had defendants not overvalued

the shares, they would not have borrowed as much money from

ADL. Instead, a recalculation of the price of the stock

would have resulted only in a smaller loan, lower principal

and interest payments to be paid quarterly by ADL, and the

same number of New Shares placed in the suspense account. It

would not have resulted in a similar loan being made to the

ESOP with any excess cash to be distributed to the accounts

of the participants. The borrowed funds were not available

for distribution; they were to be used exclusively to buy

stock, or in the alternative, to pay back the loan.6

6. We acknowledge that because the ESOP note would have been
for less money, the formula by which the encumbered shares
were to be released to qualified participants might have

altered the rate of release of stock one way or the other.

The district court was in no position to know this, however,
since plaintiff failed to argue this point and further failed
to provide it with the ESOP agreement. Accordingly, there
was no basis for the court to infer standing from a putative
accelerated release of stock. Additionally, unlike the
situation in Reich v. Valley Nat. Bank of Arizona, 837 F.

Supp. 1259(S.D.N.Y. 1993), where the funding of the ESOP
drove the company into bankruptcy, no adverse economic effect
stemming from the overvaluation was alleged here, and thus
that issue is not before us.

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III.
III.

Conclusion
Conclusion

As we have explained, plaintiff failed to establish

standing to sue under ERISA.7 The district court's grant of

summary judgment in favor of defendant is therefore

Affirmed. Costs to appellees.
Affirmed. Costs to appellees.

7. Plaintiff makes a final argument that our recent decision
in Vartanian v. Monsanto Co., 14 F.3d 697 (1st Cir. 1994),

requires a more expansive view of ERISA standing. Whatever
merits plaintiff's argument might have, we note that
Vartanian did not involve a situation, as here, where the

plaintiffs could not "establish that they were former
employees with a colorable claim to vested benefits" when
faced with a motion for summary judgment. See id. at 702-03

n.4. Accordingly, Vartanian is inapposite.

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