USCA1 Opinion
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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