United States Court of Appeals
For the First Circuit
No. 07-1140
KERI EVANS, on behalf of herself and a class of all others
similarly situated; TIMOTHY WHIPPS, on behalf of himself and a
class of all others similarly situated,
Plaintiffs, Appellants,
LAWRENCE BUNCH, individually and on behalf of all others
similarly situated and on behalf of the W.R. Grace & Co. Employee
Savings and Investment Plan and the Grace Stock Fund; JERRY L.
HOWARD, SR.; DAVID MUELLER, individually and on behalf of all
others similarly situated, and on behalf of the W.R. Grace & Co.
Employee Savings and Investment Plan and the Grace Stock Fund,
Plaintiffs,
v.
JOHN F. AKERS; RONALD C. CAMBRE; MARYE ANNE FOX; JOHN J. MURPHY;
PAUL J. NORRIS; THOMAS A. VANDERSLICE; H. FURLONG BALDWIN;
INVESTMENTS AND BENEFITS COMMITTEE; ADMINISTRATIVE COMMITTEE;
BRENDA GOTTLIEB; W. BRIAN MCGOWAN; MICHAEL PIERGROSSI; ROBERT M.
TAROLA; EILEEN WALSH; DAVID NAKASHIGE; ELYSE NAPOLI; MARTIN
HUNTER; REN LAPADARIO,
Defendants, Appellees,
FIDELITY MANAGEMENT TRUST COMPANY; STATE STREET BANK AND TRUST
COMPANY; UNKNOWN FIDUCIARY DEFENDANTS 1-100; STATE STREET GLOBAL
ADVISORS; W.R. GRACE & CO.; W.R. GRACE INVESTMENT AND BENEFITS
COMMITTEE; FRED E. FESTA,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Torruella, Circuit Judge,
Wallace,* Senior Circuit Judge,
and Lipez, Circuit Judge.
Edward W. Coilko, with whom Joseph H. Meltzer, Katherine B.
Bornstein, Schiffrin Barroway Topaz & Kessler, LLP, David Pastor,
and Gilman and Pastor, LLP were on brief, for appellants.
Carol Connor Cohen, with whom Nancy S. Heermans, Caroline
Turner English, Valerie N. Webb, and Arent Fox LLP were on brief,
for appellees.
Jonathan Hammer, with whom Elizabeth Hopkins, Counsel for
Appellate and Special Litigation, Jonathan L. Snare, Acting
Solicitor of Labor, Timothy D. Hauser, Associate Solicitor, and
Nathaniel I. Spiller, Counsel for Appellate and Special Litigation,
were on brief, for Secretary of Labor Elaine L. Chao, amicus
curiae.
July 18, 2008
*
Of the Ninth Circuit, sitting by designation.
LIPEZ, Circuit Judge. This case requires us to decide
whether former employees who have received lump-sum distributions
of the entire balance in their employer's defined contribution plan
may sue on behalf of the plan to recover for alleged fiduciary
breaches that diminished the value of their accounts. The question
turns on whether they are "participants" within the relevant
statutory definition in the Employee Retirement Income Security Act
of 1974 ("ERISA"), 29 U.S.C. §§ 1002(7), 1132. After careful
consideration, we hold that former employees who allege that
fiduciary breaches reduced their lump-sum distribution from a
defined contribution plan have standing to sue as "participants"
under the ERISA statute.
I.
Plaintiffs Keri Evans and Timothy Whipps are former
employees of W.R. Grace & Co. ("Grace"), a large manufacturing
company. While employed at Grace, the plaintiffs participated in
the W.R. Grace & Co. Savings and Investment Plan (the "Plan"), a
"defined contribution" plan under ERISA § 3(34), 29 U.S.C. §
1002(34). Evans and Whipps, who terminated their employment with
Grace on August 30, 2002 and April 27, 2001, respectively, received
lump-sum distributions of the balance of their Plan accounts
shortly after leaving the company. They do not intend to return to
employment at Grace.
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A defined contribution plan provides an individual
account for each participant into which the participant and the
employer make contributions. Upon retirement, the participant's
pension benefit under this type of plan is the balance of the
individual account; the amount of the benefit is directly dependent
on the performance of the investments made with the contributions.
See 29 U.S.C. § 1002(34). In this case, the Plan offered, as one
choice on the menu of investment options available to Plan
participants, the Grace Common Stock Fund (the "Fund"), a fund
invested primarily in Grace stock. Additionally, Grace
automatically invested all employer contributions in the Fund, and
employees were not permitted to move those contributions out of
Grace stock and into other investments until they reached age
fifty.
On January 1, 2001, with Grace stock becoming an
increasingly risky investment due to mounting financial pressures
from asbestos-related product-liability litigation, the Plan
stopped investing employer contributions in the Fund and began
allocating them instead in accordance with participants' investment
elections. At this time, the Plan also permitted, but did not
advise or require, participants to move past matching contributions
out of the Fund and into other Plan investments. Despite these
changes in the employer contribution policy, the Fund remained open
to participants as one of the investment options for their own
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contributions under the Plan. Grace and its subsidiaries filed for
bankruptcy protection on April 2, 2001.
On April 17, 2003, the Fund ceased accepting any new
contributions, but past contributions were not transferred to other
funds unless a participant expressly changed her investment
options. Then, on February 27, 2004, Plan fiduciaries announced
their conclusion that investment in Grace stock was "clearly
imprudent." The Fund's investment manager, State Street Bank &
Trust Company, subsequently embarked on a program to sell the Grace
stock and dissolve the Fund. The Fund ceased to exist on April 19,
2004.
The plaintiffs filed a putative class action suit (the
"Evans action") against various Plan fiduciaries, alleging that
they "breached their fiduciary duties by (1) continuing to offer
Grace common stock as a Plan investment option for participant
contributions; (2) utilizing Grace securities for employer
contributions to the Plan; and (3) maintaining the Plan's pre-
existing heavy investment in Grace securities when the stock was no
longer a prudent investment." Evans v. Akers, 466 F. Supp. 2d 371,
374 (D. Mass. 2006). The plaintiffs also alleged that other
fiduciaries had breached their duty to monitor their co-fiduciaries
and advise Plan participants. Id. They brought these claims on
behalf of the Plan to recover alleged losses to the Plan pursuant
to ERISA § 502(a)(2), which permits the Secretary of Labor,
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participants, beneficiaries, or fiduciaries to file suit to hold
fiduciaries personally liable for fiduciary breaches. 29 U.S.C. §§
1109, 1132(a)(2). The plaintiffs' proposed class included all
participants and beneficiaries of the Plan between July 1, 1999 and
April 19, 2004.
Another suit challenging the actions of Plan fiduciaries,
which originally had been filed in Kentucky, was later consolidated
with the Evans action. That suit, led by plaintiff Lawrence Bunch
(the "Bunch action"), alleged fiduciary breaches against a
different set of fiduciaries and asserted a diametrically opposed
theory of liability. It claimed that the Plan fiduciaries had
imprudently divested the Plan of its holdings in Grace common stock
despite the company's solid potential to emerge from bankruptcy
with substantial value for shareholders. Following the transfer of
the Bunch action to Massachusetts, the dockets for the two cases
were combined and the two sets of plaintiffs worked together on
various pretrial discovery and scheduling matters in the district
court. However, the actions otherwise proceeded separately,
maintaining separate complaints and seeking certification of
distinct classes.
On December 6, 2006, the district court denied the motion
by Evans and Whipps seeking class certification for their claims
and dismissed the Evans action, concluding that the plaintiffs
lacked standing and that, as a result, the court lacked subject
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matter jurisdiction over the suit. In the district court's view,
Evans and Whipps were asserting claims for compensatory damages,
rather than for additional Plan benefits, and thus had failed to
meet the statutory definition of "participants" entitled to bring
suit. With the aid of recent decisions by three of our sister
circuits1 – issued after the district court had dismissed the Evans
action – and helpful briefing by the Secretary of Labor as amicus
curiae,2 we conclude that Evans and Whipps are "participants" with
standing to sue and reverse the dismissal.
II.
As a threshold matter, the appellees argue that the Evans
action was consolidated with the Bunch action "for all purposes,"
and that, as a result, the district court's dismissal order is not
a final judgment over which we have jurisdiction pursuant to 28
U.S.C. § 1291. See Global Naps, Inc. v. Verizon New England, Inc.,
396 F.3d 16, 22 (1st Cir. 2005) ("[D]isposition of one case in a
consolidated action is a final and appealable judgment unless the
cases were consolidated 'for all purposes.'"). This argument has
no merit. We see no evidence in the record that the Evans and
1
See Bridges v. American Elec. Power Co., Inc., 498 F.3d 442
(6th Cir. 2007); Graden v. Conexant Sys. Inc., 496 F.3d 291 (3d
Cir. 2007); Harzewski v. Guidant Corp., 489 F.3d 799 (7th Cir.
2007).
2
The parties dispute whether the Secretary's position is
entitled to deference. We do not have to resolve that issue for
the purpose of deciding this case. We simply treat the Secretary's
brief as another source of helpful analysis.
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Bunch actions were consolidated "for all purposes." Moreover,
given that the plaintiffs in each action were pursuing conflicting
theories of fiduciary liability, we think it far more plausible
that the cases were consolidated for purposes of judicial
efficiency in pretrial matters and were not intended to be
consolidated for "all purposes." Indeed, judicial efficiency and
economy was the stated purpose of the defendants' request for
consolidation. Thus, the dismissal of the Evans action is a final
judgment from which the plaintiffs are entitled to appeal.3
III.
We review de novo the district court's dismissal for lack
of subject matter jurisdiction, accepting the plaintiffs' well-
pleaded facts as true and making all reasonable inferences on the
plaintiffs' behalf. Dominion Energy Brayton Point, LLC v. Johnson,
443 F.3d 12, 16 (1st Cir. 2006). As in any case of statutory
construction, we begin our analysis with the plain language of the
statute. Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438
(1999).
Evans and Whipps brought suit under § 502(a)(2) of ERISA,
29 U.S.C. § 1132(a)(2), which provides that "[a] civil action may
3
Relatedly, we note that the Bunch action was certified as a
class action on March 1, 2007. The parties filed cross-motions for
summary judgment. Following a hearing, judgment was entered in
favor of the defendants in the Bunch action on January 30, 2008.
A separate appeal of that disposition is pending. See Bunch, et
al. v. W.R. Grace & Co., No. 08-1406, docketed on April 2, 2008.
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be brought by the Secretary [of Labor], or by a participant,
beneficiary or fiduciary for appropriate relief under section 1109
of this title." Section 1109, in turn, specifies the following
remedies for breaches of the fiduciaries' duties:
[(1)] mak[ing] good to such plan any losses to
the plan resulting from each such breach, . .
. [(2)] . . . restor[ing] to such plan any
profits of such fiduciary which have been made
through use of assets of the plan by the
fiduciary, and [(3)] . . . such other
equitable or remedial relief as the court may
deem appropriate, including removal of such
fiduciary.
29 U.S.C. § 1109(a); see also Graden v. Conexant Sys. Inc.,496 F.3d
291, 295 (3d Cir. 2007).
The appellants contend that they are entitled to bring
suit on behalf of the Plan4 because they are "participants" within
the statutory definition. Section 3(7) of ERISA, 29 U.S.C. §
1002(7), defines "participant" to include "any . . . former
employee . . . who is or may become eligible to receive a benefit
of any type from an employee benefit plan." The Supreme Court has
interpreted this provision to include a former employee who has "a
colorable claim that . . . she will prevail in a suit for
benefits." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117
4
Suits brought pursuant to this provision are derivative in
nature; those who bring suit do so on behalf of the plan and the
plan takes legal title to any recovery. Mass. Mut. Life Ins. Co.
v. Russell, 473 U.S. 134, 141 (1985). The recovery then inures to
the benefit of the plan's participants and beneficiaries. Graden,
496 F.3d at 295.
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(1989); see also Crawford v. Lamantia, 34 F.3d 28, 32 (1st Cir.
1994) (applying Firestone analysis to determine standing of former
employee to sue under ERISA). The appellees concede that this is
the applicable definition of "participant," but they contend that
the appellants have not stated a claim for "benefits." Rather,
they maintain that the relief sought is "damages" and that
plaintiffs thus fall outside the scope of the Firestone definition
of participant.
The Third, Sixth, and Seventh Circuits have each recently
rejected this very argument. See Bridges v. Am. Elec. Power Co.,
Inc., 498 F.3d 442, 445 (6th Cir. 2007) (adopting the Seventh
Circuit's analysis); Graden, 496 F.3d at 299 ("[W]e cannot endorse
the distinction . . . between benefits and damages."); Harzewski v.
Guidant Corp., 489 F.3d 799, 804, 807 (7th Cir. 2007) (rejecting
view of courts that have "strain[ed] to distinguish between
'benefits' and 'damages'"). We fully agree with their analyses and
rely on their thoughtful discussions in explaining our own
reasoning.
In this context, the term "benefits" denotes "the money
to which a person is entitled under an ERISA plan." Graden, 496
F.3d at 297 (quoting a dictionary definition of "benefit" as a
"payment or service provided for under an annuity, pension plan, or
insurance policy."). A defined contribution plan "promises the
participant the value of an individual account at retirement."
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LaRue v. DeWolff, Boberg & Assocs., Inc., 128 S. Ct. 1020, 1023 n.1
(2008). This value is a function of the employee's contributions,
plus vested employer matching contributions and investment gains,
minus investment losses and any allocable expenses. 29 U.S.C. §
1002(34); see also Graden, 496 F.3d at 297; Harzewski, 489 F.3d at
804-05. Under ERISA, a participant is also promised that the funds
in her individual account will be managed prudently by the plan
fiduciary. 29 U.S.C. § 1104; see also Graden, 496 F.3d at 297.
Consequently, the full "benefit" to which the participant is
entitled by a defined contribution plan is "the value of [her]
account unencumbered by any fiduciary impropriety." Graden, 496
F.3d at 297. Put differently, the "benefit" in a defined
contribution plan is equal to "whatever is in the retirement
account when the employee retires or whatever would have been there
had the plan honored the employee's entitlement, which includes an
entitlement to prudent management." Harzewski, 489 F.3d at 804-05
(emphasis in original).
Plaintiffs' claim fits within this understanding of the
statutory language. They were participants in the Plan during the
class period and portions of their individual accounts were
invested in Grace stock. They allege that fiduciary breaches by
the defendants diminished the value of their accounts, such that
they received less money on the day they cashed out of the Plan
than they would have received in the absence of any fiduciary
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breach. See Graden, 496 F.3d at 300 ("If the plaintiff colorably
claims that under the plan and ERISA he was entitled to more than
he received on the day he cashed out, then he presses a claim for
vested benefits and must be accorded participant standing."). In
other words, plaintiffs seek only the amount that should have been
in their accounts but for the defendants' "fiduciary impropriety."
Thus, basic statutory construction supports the plaintiffs'
argument that their "benefits" are at stake in this suit.
Moreover, drawing all inferences in the plaintiffs' favor, as is
appropriate at this stage in the proceedings, the claim meets the
Firestone requirement that it be "colorable."
Our conclusion that the appellants have standing to sue
as "participants" under ERISA § 502(a)(2) is also supported by our
previous cases considering ERISA standing. In Vartanian v.
Monsanto Co., 14 F.3d 697 (1st Cir. 1994), we observed that
"Congress intended the federal courts to construe [ERISA's]
jurisdictional requirements broadly in order to facilitate
enforcement of its remedial provisions." Id. at 702. That case
involved a former employee who was a participant in a defined
benefit plan.5 Before retiring, the employee asked his employer
5
Under a defined benefit plan, participants are typically
promised a fixed level of retirement income, computed on the basis
of a formula contained in the plan documents. See 29 U.S.C. §
1002(35). The formula generally accounts for an employee's years of
service and compensation level at retirement. Graden, 496 F.3d at
297 n.10. In contrast with a defined contribution plan, where the
amount of benefits is directly related to the investment income
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whether the plan would be altered to provide more generous benefits
in the near future. He explained that he would delay his
retirement if the plan was going to be changed. The employer
assured him that no changes were likely. The employee retired, and
the plan was changed less than two months later. We held the
administrators of the plan had a fiduciary duty not to mislead
Vartanian and that, as a result, his claims fell "squarely within
the 'zone of interests' ERISA was designed to protect." Id. at
702. We reasoned that "where the employee shows that in the
absence of the employer's breach of fiduciary duty he would have
been entitled to greater benefits than those which he received,
then his receipt of payment cannot be used to deprive him of
'participant' status and hence, standing to sue under ERISA." Id.
at 703.
Seven months after our decision in Vartanian we
considered a claim brought by a former employee who had
participated in a defined contribution plan. Crawford, 34 F.3d at
30. In Crawford, the plaintiff sued plan fiduciaries for alleged
misconduct in a complicated loan transaction that was part of a
strategy to take the employer private. We concluded that even if
earned in an individual account, the investment performance of the
portfolio held by a defined benefit plan has no effect on the level
of benefits to which a participant is entitled, provided that the
plan remains solvent. See LaRue,128 S. Ct. at 1025 ("Misconduct by
the administrators of a defined benefit plan will not affect an
individual's entitlement to a defined benefit unless it creates or
enhances the risk of default by the entire plan.").
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the shares purchased by the plan with loaned funds were overvalued,
as the plaintiff alleged, the result of proper valuation would have
been a smaller loan, not a distribution of excess cash or
additional shares to the accounts of participants. Accordingly, we
analyzed the plaintiff's claim under Firestone and concluded that
he had "failed to show that defendants' alleged breach of fiduciary
duty had a direct and inevitable effect on his benefits." Id. at
33 (emphasis in original). Thus, we concluded that the plaintiff
did not have standing.
In reviewing these precedents, the district court agreed
with the defendants' contention that Crawford meant that Vartanian
should be read narrowly because "it create[d] a unique exception to
the Firestone definition of participant exclusively in cases where
the employee would still be part of the plan (and thus entitled to
higher benefit levels) but for the employer's malfeasance." Evans,
466 F. Supp. 2d at 376. The district court then determined that
"there is no evidence suggesting that the Plaintiffs' cessation of
employment was causally connected to the defendant's alleged
misconduct" and that, as a result, the plaintiffs did not fit
within the "Firestone exception" created by Vartanian. Id. With
no "exception" to Firestone available, the district court proceeded
to analyze whether the plaintiffs could, under Firestone, "assert
a colorable claim to vested benefits." Id. The district court
concluded that the plaintiffs had not done so because they had
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asserted "a claim not for benefits but for damages to the Plan."
Id. Accordingly, the district court dismissed the suit for lack of
standing.
The defendants assert numerous reasons for embracing this
reasoning of the district court. We find none of them persuasive.
First, they argue that we should draw a bright line between suits
brought under ERISA § 502(a)(1)(B), which permits a participant to
bring suit "to recover benefits due to him under the terms of his
plan," 29 U.S.C. § 1132(a)(1)(B), and those brought under
§ 502(a)(2), the provision relied upon here, which enables
participants to sue on behalf of the plan to recover for fiduciary
breaches. Appellees contend that the former provision authorizes
a "suit for benefits" while the latter is an "action for damages."
This dichotomy is untenable. The chief difference between an
action brought under § 502(a)(1)(B) and § 502(a)(2) is the proper
defendant, not the proper plaintiff. Graden, 496 F.3d at 301.
Whereas a suit "to recover benefits" under § 502(a)(1)(B) is
brought against the plan itself (or the plan administrators in
their official capacities), a suit brought under § 502(a)(2) seeks
to hold the plan's fiduciaries liable in their personal capacities
for breaches of their duty to the plan. Id.
In the context of a defined contribution plan, where all
of the plan's money is allocable to plan participants' individual
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accounts, a plaintiff has good reason to bring his claims for
additional benefits as § 502(a)(2) claims:
Using a § [502](a)(1)(B) suit to force the
plan to use money already allocated to others'
accounts to make good on [the plaintiff's]
loss would present a host of difficulties with
which few sensible plaintiffs would want to
contend. Indeed, it may be that ERISA's
fiduciary obligations prevent plans from
paying judgments out of funds allocable to
other participants, in which case the plan,
though liable, would be judgment proof. Thus,
for most plaintiffs the sensible route is to
use § [502](a)(2) to get the money in the
first instance from a solvent party liable to
make good on the loss, not from the plan
itself.
Graden, 496 F.3d at 301. Bringing the suit under § 502(a)(2) does
not "change the underlying nature" of the plaintiffs' claim as one
for benefits. It simply provides an avenue for restoring those
benefits to the plan coffers so that they may then be allocated to
those who were harmed by the fiduciary breach. Id.; see also
LaRue, 128 S. Ct. at 1026 (holding that § 502(a)(2) "authorize[s]
recovery for fiduciary breaches that impair the value of plan
assets in a participant's individual account").
We thus see no merit in appellee's strained distinction
between suits for "benefits" and those for "money damages." But
see Sommers Drug Stores Co. Employee Profit Sharing Trust v.
Corrigan, 883 F.2d 345 (5th Cir. 1989) (drawing a distinction
between "benefits" and "damages" and classifying former employees'
claims as falling "between these poles"). Indeed, any claim for
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breach of fiduciary duty is to some extent a claim for damages
arising from the breach. Great-West Life & Annuity Ins. Co. v.
Knudson, 534 U.S. 204, 210 (2002) ("'Almost invariably . . . suits
seeking . . . to compel the defendant to pay a sum of money to the
plaintiff are suits for 'money damages,' as that phrase has
traditionally been applied, since they seek no more than
compensation for loss resulting from the defendant's breach of
legal duty.'" (quoting Bowen v. Massachusetts, 487 U.S. 879,
918-919 (1988) (Scalia, J., dissenting))). Whether or not they
always overlap, the concepts of "benefits" and "damages" are not
mutually exclusive. Money damages may -- and here clearly would --
represent additional benefits to which participants are properly
entitled under the plan.
The appropriate distinction is not between "benefits" and
"damages," but rather between relief to which a participant is
entitled under ERISA and relief which is not authorized by that
Act. Harzewski, 489 F.3d at 804. As the Seventh Circuit recently
explained, the Supreme Court's refusal to allow suits for "damages"
does not mean that "monetary relief is excluded, but [that] it must
be [monetary] relief to which the plan documents themselves entitle
the participant." Id. Thus, ERISA does not authorize suits for
what the Seventh Circuit calls "extracontractual damages" – i.e.,
damages separate from the benefits to which the plan documents
entitle the participants – such as emotional distress resulting
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from a plan's failure to honor it obligations, Reinking v.
Philadelphia Am. Life Ins. Co., 910 F.2d 1210, 1219-20 (4th Cir.
1990), damages resulting from a plan's failure to advise a
participant of an option that would enable him to avoid taxes,
Fraser v. Lintas: Campbell-Ewald, 56 F.3d 722, 724-26 (6th Cir.
1995), or consequential damages arising from a delay in processing
a benefit claim, Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134,
148 (1985). Evans and Whipps are not seeking "extracontractual
damages"; instead, their claim for fiduciary breach, whether
characterized as a suit for money damages or for additional
benefits, is expressly contemplated and explicitly authorized by
ERISA § 409, which requires fiduciaries who breach their duties "to
make good to such plan the losses to the plan resulting from such
breach." See 29 U.S.C. §§ 1109(a), 1132(a)(2).
Second, appellees argue that the damages sought by the
plaintiffs are too "speculative" and "unascertainable" to be
characterized as a claim for "benefits." However, "there is
nothing in ERISA to suggest that a benefit must be a liquidated
amount in order to be recoverable." Harzewski, 489 F.3d at 807.
Losses to a plan from breaches of the duty of prudence may be
ascertained, with the help of expert analysis, by comparing the
performance of the imprudent investments with the performance of a
prudently invested portfolio. Graden, 496 F.3d at 301; see also
Cal. Ironworkers Field Pension Trust v. Loomis Sayles & Co., 259
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F.3d 1036, 1046 (9th Cir. 2001). At this early stage in the
proceedings, the plaintiffs need not be able to show the precise
amount of additional benefits to which they are entitled. Indeed,
they need not even state a claim on which they are likely to
succeed; they need only state a colorable claim. See Harzewski,
489 F.3d at 807. Evans and Whipps have done so here.
Third, appellees argue that the requirements for
constitutional standing are not met here. They claim that the harm
suffered by Evans and Whipps is unlikely to be redressed because
any relief ordered would be awarded to the Plan rather than to the
plaintiffs individually. Therefore, the Plan fiduciaries could
decide to allocate the recovery only to the accounts of current
employees or to pay current and future Plan expenses, leaving Evans
and Whipps without a remedy.
We doubt that such a decision would be consistent with
the fiduciaries' duty to act in the interest of participants.
Defined contribution plans pursuant to ERISA have their roots in
the common law of trusts. Graden, 496 F.3d at 295-96; see also
Firestone, 489 U.S. at 110 ("ERISA abounds with the language and
terminology of trust law."). These plans are collections of
individual accounts, managed for the benefit of the participants
and beneficiaries. Unlike shareholder derivative suits, where
recovery for a fiduciary breach goes into the coffers of the
corporation and is not generally paid out to the shareholders,
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recovery made on behalf of a defined contribution plan must be
allocated to the individual accounts injured by the breach. See
Graden, 496 F.3d at 296 n.6. Although there may be certain
circumstances where the transaction costs of allocating additional
benefits to individual plan accounts or to those who have cashed
out of the plan would exceed the amount of the recovery itself, we
have no reason to think that such circumstances would be present in
this case. Instead, if the plaintiffs are ultimately successful in
this suit, the fiduciaries should, in accord with their statutory
duty of care, strive to allocate any recovery to the affected
participants in relation to the impact the fiduciary breaches had
on their particular accounts.6 Thus, the plaintiffs' allegation of
fiduciary mismanagement, which at this stage in the proceedings we
assume to be true, identifies a concrete injury that is redressable
6
Appellees claim that "pronouncements from the Department of
Labor," in the form of a Field Assistance Bulletin ("FAB") issued
by the Secretary of Labor in 2006, support their contention that
fiduciaries could allocate recovered funds to current participants
to the exclusion of former participants. See U.S. Dep't of Labor,
Field Assistance Bulletin No. 2006-01 (Apr. 19, 2006), available at
https://www.dol.gov/ebsa/pdf/fab_2006-1.pdf. We disagree. The
FAB, which concerned only the allocation by plans of proceeds from
an SEC settlement with mutual funds involved in certain market
timing practices, states that the plan fiduciary should allocate
proceeds, "where possible, to the affected participants in relation
to the impact the market timing and late trading activities may
have had on the particular account." Id. at 8. The FAB
acknowledges only that this may not be possible, or may be
excessively costly, where, for example, "records are insufficient
to reasonably determine the extent to which participants invested
in mutual funds during the relevant period." Id. There is no
reason to think that the records in this case would be insufficient
to afford a remedy to Evans and Whipps for their alleged losses.
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by a court and falls within the scope of Article III standing. See
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992); see
also Graden, 496 F.3d at 295 (describing the distinction between
constitutional, prudential, and statutory standing, and
characterizing a similar ERISA claim as raising no constitutional
standing issue); Harzewski, 489 F.3d at 803 ("Obviously the [former
employee plaintiffs] have standing to sue in the sense of being
entitled to ask for an exercise of the judicial power of the United
States as that term in Article III of the Constitution has been
interpreted, because if they win they will obtain a tangible
benefit.").
Finally, appellees raise the concern that, by adopting a
broad view of the term "participants" for standing purposes, we
would greatly increase the costs of plan administration by
requiring that costly disclosures, which must routinely be
distributed to each "participant covered under the plan," see 29
U.S.C. § 1021(a), be sent to all former employees who have received
lump-sum distributions of their benefits under the plan. This
concern is overstated. Pursuant to 29 C.F.R. § 2510.3-
3(d)(2)(ii)(B), a plan need not send disclosures to individuals who
have "received from the plan a lump-sum distribution or a series of
distributions of cash or other property which represents the
balance of his or her credit under the plan." Plan administrators
could still rely on that regulation because, as the Third Circuit
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explained, "we cannot imagine holding a plan fiduciary liable for
failing to provide information to someone who, as far as the
fiduciary knows, is cashed out." Graden, 496 F.3d at 302.
Although informational obligations may reattach once the
administrator is on notice that a former employee is asserting a
colorable claim that the lump-sum she received did not, in fact,
represent the full balance of her credit under the plan, id. at
302-03, the marginal costs associated with this additional
reporting cannot alter our reading of the plain language of the
statute itself and of the Supreme Court's definition of
"participant" in Firestone.
We perceive far greater risks to the ERISA framework that
would flow from denying these plaintiffs standing to sue for breach
of fiduciary duty. Such a result would draw arbitrary distinctions
between current and former employees: those individuals who had
continued their employment with the company and their investment in
the plan could recover for fiduciary breaches while those who had,
for reasons unconnected with the breach, cashed out their benefits
before the breach was discovered could not. Further, as we noted
in Vartanian, such a restricted view of standing "would enable an
employer to defeat the employee's right to sue for breach of
fiduciary duty by keeping his breach a well guarded secret until
the employee receives his benefits or[] by distributing a lump sum
and terminating benefits before the employee can file suit." 14
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F.3d at 702. Congress, in crafting the protections in ERISA,
certainly did not intend such arbitrary and unjust results. Id.
IV.
In sum, Evans and Whipps have stated a colorable claim
that their benefit payments were deficient on the day they were
paid due to fiduciary breaches by the defendants. As a result,
they are "participants" with standing to maintain their suit under
ERISA § 502(a)(2). We therefore vacate the district court's order
dismissing the Evans action and remand for further proceedings
consistent with this decision.
So ordered.
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