Case: 10-20664 Document: 00511614283 Page: 1 Date Filed: 09/27/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 27, 2011
No. 10-20664 Lyle W. Cayce
Clerk
KENNETH KUJANEK,
Plaintiff - Appellee
v.
HOUSTON POLY BAG I, LIMITED,
Defendant - Appellant
Appeal from the United States District Court
for the Southern District of Texas
Before SMITH and STEWART, Circuit Judges.*
CARL E. STEWART, Circuit Judge:
Kenneth Kujanek sued his former employer, Houston Poly Bag I, Ltd.
(“Houston Poly”), under the Employee Retirement Income Security Act
(“ERISA”)1 to recover profit sharing and retirement benefits that were allegedly
withheld from him. During Kujanek’s employment with Houston Poly he
accrued a significant amount of vested benefits in a profit-sharing plan that
Houston Poly offered to its employees. After resigning from Houston Poly,
Kujanek made multiple attempts to obtain plan documents and the necessary
*
This case is being decided by a quorum due to the death of Judge William L. Garwood
on July 14, 2011. 28 U.S.C. § 46(d).
1
29 U.S.C. § 1001 et seq.
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forms for electing a “rollover” distribution of his benefits. When his attempts
were unsuccessful, he brought the underlying suit against Houston Poly. The
district court granted summary judgment for Kujanek on his claims that
Houston Poly breached its fiduciary duty of loyalty and violated ERISA’s
disclosure requirements. The district court also awarded Kujanek statutory
penalties and attorney’s fees. We AFFIRM in part and REVERSE in part and
REMAND.
I. BACKGROUND
Houston Poly, a limited partnership in Texas, offers a profit-sharing plan
to its employees to provide them with additional retirement income. The
administrators of the plan are Houston Poly and Pension Benefit Administrators
(“PBA”). The trustees of the plan are William Sumner, Jr., and his son William
E. Sumner III (“Sumner”), who is the manager of the general partner of Houston
Poly.
In September 2007, Kujanek resigned from Houston Poly after seventeen
years with the company as a sales representative. At the end of 2007, Kujanek’s
profit-sharing account with Houston Poly had vested benefits totaling
$490,198.78. Employees were required under company policy to wait at least
one year from the date of termination before they could obtain a distribution of
their account benefits. Kujanek was aware of this one-year rule at the time he
left Houston Poly. To actually request a distribution, employees were generally
required to complete and submit a distribution election form. Kujanek was not
told of the election form nor given any information regarding his profit-sharing
account when he left the company.
Two months after Kujanek resigned, Houston Poly sued Kujanek in state
court for breach of employment contract, breach of fiduciary duty to the
company, and tortious interference with business relations. In April 2008,
during the discovery phase of the state court litigation, Kujanek made a
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production request on Houston Poly for all documents describing the terms and
conditions of Houston Poly’s contribution to its profit-sharing plan, and
documents describing the eligibility requirements for employees to receive
benefits from the plan. Houston Poly objected to the request on relevancy
grounds and refused to provide the documents. The case was ultimately tried
to a jury, and a take-nothing judgment was entered in Kujanek’s favor.
In September 2008, one year after his termination, Kujanek contacted
Houston Poly’s financial advisor Tom Ross to obtain information on his profit-
sharing account. Kujanek asked Ross, the broker of record for the plan, to call
Houston Poly on his behalf and request a distribution of his account benefits.
Ross accordingly called Sumner and informed him of Kujanek’s request. Sumner
responded that any such distribution request needed to come from Kujanek
directly. Kujanek did not contact Sumner, however; nor did Sumner contact
Kujanek or authorize Ross to provide Kujanek with a distribution election form.
In February 2009, after Houston Poly rebuffed Kujanek’s demand for
additional profit-sharing contributions, Kujanek filed the underlying suit against
Houston Poly and PBA. He alleged, among other things, that Houston Poly
wrongfully denied him access to his account funds and documentation related
to those benefits. He also alleged that Houston Poly breached its fiduciary duty
by improperly withholding from him the plan documents and forms necessary
to elect a rollover distribution. In 2009, Kujanek eventually received a rollover
distribution from his profit-sharing account, but he received only $306,000, the
account balance at the end of 2008. Kujanek asserted in his complaint that but
for Houston Poly’s failure to timely give him the necessary plan documents and
forms, he would have submitted his distribution request in 2008 and received
the $490,198.78 amount then vested. Kujanek thus sought in damages the
difference between his 2008 and 2007 balances, an amount over $180,000. In
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addition to damages, Kujanek requested any applicable statutory penalties and
attorney’s fees.
In March 2009, while this litigation was pending, Kujanek sent Houston
Poly a letter requesting a full copy of the plan documents. Those documents are
the Adoption Agreement, Defined Contribution Prototype Plan and Trust, and
Summary Plan Description. On March 13, Houston Poly sent Kujanek the
Adoption Agreement and Summary Plan Description, but did not provide
information on how to request a rollover distribution. On March 18, Kujanek
wrote to Houston Poly and requested the information necessary to rollover his
account funds. Houston Poly responded the same day with instruction
documents and the requisite distribution election form. Kujanek submitted a
completed election form the next day. In April 2009, Kujanek’s counsel again
requested from Houston Poly a complete set of the plan documents. Houston
Poly responded by sending Kujanek a complete copy of the plan documents and
a rollover distribution of $306,000.
In February 2010, after the parties had engaged in discovery, Kujanek
moved for summary judgment. The magistrate judge granted the motion after
concluding that Houston Poly breached its fiduciary duty of loyalty by failing to
earlier provide plan documents and instructions on how Kujanek could obtain
his profit-sharing account funds. The judge also found that Houston Poly had
violated its reporting and disclosure obligations as a plan administrator when
it declined to respond to Kujanek’s April 2008 discovery request in the state
court litigation.
In August 2010, the district court adopted the magistrate judge’s
recommendations in whole and granted summary judgment for Kujanek on his
claims of breach of fiduciary duty and statutory penalties.2 See Kujanek v.
2
The district court also granted judgment for PBA, who is not a party to this appeal.
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Houston Poly Bag I, Ltd., 716 F. Supp. 2d 670 (S.D. Tex. 2010). The district
court awarded Kujanek $183,881.88 in damages “to restore plan losses”; $25,025
in statutory penalties; and attorney’s fees in the amount of $60,030. Houston
Poly has timely appealed.
II. DISCUSSION
A. Standard of review
We review a district court’s grant of summary judgment de novo, applying
the same standards as the district court. Performance Autoplex II Ltd. v. Mid-
Continent Cas. Co., 322 F.3d 847, 853 (5th Cir. 2003). A “court shall grant
summary judgment if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.”
FED . R. CIV. P. 56(a). An issue as to a material fact is genuine “if the evidence
is such that a reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining
whether there is a genuine issue of material fact, we review the evidence in the
light most favorable to the nonmoving party. Performance Autoplex, 322 F.3d
at 853.
B. Fiduciary duty of loyalty
ERISA “imposes on the employer-fiduciary . . . strict statutory duties,
including loyalty, prudence, and diversification.” Kirschbaum v. Reliant Energy,
Inc., 526 F.3d 243, 248 (5th Cir. 2008); see also Langbecker v. Elec. Data Sys.
Corp., 476 F.3d 299, 307 (5th Cir. 2007) (“An ERISA fiduciary must act with
prudence, loyalty and disinterestedness, requirements carefully delineated in
the statute.”). ERISA Section 404(a) specifies that “a fiduciary shall discharge
his duties with respect to a plan solely in the interest of the participants,” and
“for the exclusive purpose of providing benefits to participants” and “defraying
reasonable expenses of administering the plan.” 29 U.S.C. § 1104(a)(1)(A). Such
duties shall be discharged “with the care, skill, prudence, and diligence under
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the circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims.” Id. § 1104(a)(1)(B).
We have noted that “[o]ther than including these general dictates, ERISA
does not expressly enumerate the particular duties of a fiduciary, but rather
relies on the common law of trusts to define the general scope of a fiduciary's
responsibilities.” Martinez v. Schlumberger, Ltd., 338 F.3d 407, 412 (5th Cir.
2003) (internal quotation marks omitted); see also LaRue v. DeWolff, Boberg &
Assoc., 552 U.S. 248, 253 n.4 (2008) (stating that the “common law of trusts . .
. informs our interpretation of ERISA’s fiduciary duties.” (citing Varity Corp. v.
Howe, 516 U.S. 489, 496-97 (1996)). Under the common law of trusts, a trustee
has a duty of loyalty “to administer the trust solely in the interest of the
beneficiaries, or solely in furtherance of its charitable purpose,” and “the trustee
is strictly prohibited from engaging in transactions that involve self-dealing or
that otherwise involve or create a conflict between the trustee’s fiduciary duties
and personal interests.” RESTATEMENT (THIRD) OF TRUSTS § 78 (2007). In
addition, “a trustee has a duty in dealing with a beneficiary to deal fairly and to
communicate to the beneficiary all material facts the trustee knows or should
know in connection with the matter.” Id.; see also Pegram v. Herdrich, 530 U.S.
211, 224 (2000) (“The most fundamental duty owed by the trustee to the
beneficiaries of the trust is the duty of loyalty . . . . It is the duty of a trustee to
administer the trust solely in the interest of the beneficiaries.” (internal
quotation marks omitted)).
Against this broad common law backdrop, we have observed that the
express language of ERISA “provides little indication as to whether there is ever
a fiduciary duty to disclose information to participants and beneficiaries,” and
“[n]either ERISA’s fiduciary duty nor reporting and disclosure rules directly
address the relationship between” one another. Martinez, 338 F.3d at 412. We
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have also noted, however, that “trust principles impose a duty of disclosure upon
an ERISA fiduciary when there are material facts affecting the interest of the
beneficiary which the fiduciary knows the beneficiary does not know but needs
to know for his protection.” Id. (internal quotation marks and brackets omitted).
Houston Poly does not dispute that, as plan administrator, it was a
fiduciary of the company’s profit-sharing plan. Nor does it dispute that as part
of its fiduciary duties, it had an obligation to provide Kujanek with the plan
documents. Houston Poly contends, however, that this duty was not triggered
prior to this litigation because Kujanek did not contact the company with a
written request for the plan documents. In support of this contention it cites, as
examples, two provisions of the Summary Plan Description that require requests
to be written. The first provision in the Summary Plan Description states: “You
or your beneficiaries may make a request for any Plan benefits to which you
believe you are entitled. Any such request should be made in writing and should
be made to the Administrator.” The second states: “You may obtain copies of all
Plan documents and other Plan information upon written request to the
Administrator . . . .”
We are not persuaded that the quoted provisions of the Summary Plan
Description control the issue of Houston Poly’s fiduciary duty. As a fiduciary,
Houston Poly was required to act “solely” in the interest of Kujanek, and to
refrain from conduct that would involve or create a conflict between its fiduciary
duties and personal interests. Houston Poly also had a duty “to deal fairly” and
“to communicate . . . all material facts the trustee kn[ew] or should know in
connection with the matter.” RESTATEMENT (THIRD) OF TRUSTS § 78 (2007).
There can be no doubt that Houston Poly was made aware in 2008, if not earlier,
that Kujanek sought information about the profit-sharing plan and how he
might obtain his account funds. Houston Poly also knew, or should have known,
that Kujanek did not already have the crucial information and election form in
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his possession. Sumner testified at his deposition that departing employees at
Houston Poly are not given documents or information that explain how to
rollover their profit-sharing account funds, or what protocol they must follow to
obtain the funds. He also stated that there is nothing in an employee manual
or procedure manual at Houston Poly that contains such information. At a
motions hearing before the magistrate judge in March 2010, Houston Poly’s
attorney conceded that there was no evidence that Kujanek received a copy of
the Summary Plan Description before 2008.
On this record, we conclude that Houston Poly, by withholding plan
documents and rollover information, failed to act in Kujanek’s best interest and
“for the exclusive purpose of providing benefits to participants.” 29 U.S.C.
§ 1104(a)(1)(A). “ERISA’s duty of loyalty is the highest known to the law,”
Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 294 (5th Cir. 2000), and it is clear
that Houston Poly breached that duty in this instance. With respect to the
remedy due to Kujanek, we agree with the district court that under ERISA
§ 502(a)(2), the loss and depreciation in Kujanek’s profit-sharing account from
2007 to 2008 was the appropriate measure of relief.
C. Statutory penalties
Under ERISA’s reporting, disclosure, and notification requirements, the
plan administrator must furnish to each person who becomes a participant
under an employee benefit plan a summary plan description within 90 days after
the person becomes a participant. 29 U.S.C. § 1024(b)(1). Additionally, with
respect to an individual’s current entitlement to benefits, upon written request
any participant may also obtain a copy of the “bargaining agreement, trust
agreement, contract, or other instruments under which the plan is established
or operated.” Id. § 1024(b)(4). That provision states that “[t]he administrator
shall, upon written request of any participant . . . furnish a copy of the latest
updated summary, plan description, and the latest annual report.” Id.
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ERISA § 502(c)(1) provides the applicable remedy for disclosure violations.
Under § 502(c)(1), “[a]ny administrator . . . who fails or refuses to comply with
a request for any information which such administrator is required by this Title
to furnish to a participant . . . within 30 days after such request may in the
court’s discretion be personally liable . . . in the amount of up to $100 a day from
the date of such failure or refusal.” 29 U.S.C. § 1132(c)(1). Although the
statutory language is broad, we have held that “[a]s a penalty provision section
1132(c) must be strictly construed.” Fisher v. Met. Life Ins. Co., 895 F.2d 1073,
1077 (5th Cir. 1990).
The district court concluded that Kujanek’s April 2008 discovery request
in the state court litigation brought by Houston Poly served as a “written
request” for plan documents, and that Houston Poly’s failure to timely provide
those documents rendered it liable for statutory penalties. Specifically, the court
held that the term “written request” in ERISA § 104(b)(4) “encompasses a
written request for documents in discovery,” and that when a plan
administrator’s obligations are triggered under both ERISA and the federal rules
governing discovery, the administrator is required to comply with both.
We do not agree with the district court’s interpretation, and find more
persuasive the approach of the Seventh Circuit in Verkuilen v. South Shore
Building and Mortgage Co., 122 F.3d 410 (7th Cir. 1997). In Verkuilen, an
employee alleged that her employer, who was also the plan administrator, had
not furnished requested information regarding her profit-sharing account. None
of the employee’s pre-suit requests were in writing. For five years the case
remained on the district court’s docket, during which Verkuilen never sent a
written request to the plan administrator. She later argued that the complaint
itself, an amended complaint, and an interrogatory were the necessary written
requests to trigger ERISA duties. On this basis, Verkuilen sought ERISA
penalties.
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The Seventh Circuit held that Verkuilen was not entitled to statutory
penalties, due to the material differences between ERISA requests and discovery
requests under the Federal Rules of Civil Procedure. Under the former, a plan
administrator that receives a request for information must furnish the data
within 30 days “by mailing the material requested to the last known address of
the requesting participant or beneficiary.” Verkuilen, 122 F.3d at 411 (quoting
29 U.S.C. § 1132(c)(1)). In contrast, an interrogatory “under Fed. R. Civ. P. 33
is a lawyer-to-lawyer device, rather than a participant-to-administrator device.”
Id. Moreover, “Rule 33(b)(3) gives 30 days as the norm for answers, but the
court may vary this time; can it be that any request for extra time to answer
interrogatories in an ERISA case places the employer in violation of ERISA?”
Id. The court concluded that “[i]nstead of forcing the defendant to guess whether
to use the approach of ERISA or the Federal Rules of Civil Procedure in response
to litigation documents, participants should do what ERISA contemplates: send
a simple written request to the plan administrator. If 30 days pass and the
administrator does not reply, suit may be filed to collect the statutory penalty.”
Id. at 411-12.
We find the Seventh Circuit’s approach eminently sensible. “Nothing but
confusion could come from treating complaints and interrogatories as ERISA
demands, and replacing Rules 11 and 37 with the penalty provisions of §
1132(c).” Id. at 412. We therefore decline to draw a brightline rule that
discovery requests in an unrelated litigation between an employer and employee
always constitute a “written request” under ERISA’s disclosure rules.
But we note that we are troubled by the lack of evidence in this record that
Houston Poly ever provided Kujanek with the controlling documents for the
profit-sharing plan, as required under ERISA § 104(b)(1). Kujanek has
maintained throughout this litigation that during his employment with Houston
Poly, he never received the Summary Plan Description, Adoption Agreement, or
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Defined Contribution Prototype Plan and Trust. At the March 2010 motions
hearing, Kujanek’s attorney stated that no employee at Houston Poly has
received a copy of the Summary Plan Description. Houston Poly’s attorney
stated that the Summary Plan Description is provided to employees, but only
upon request. At Sumner’s deposition, when asked whether employees are
provided with copies of the Summary Plan Description and Adoption Agreement
while employed at Houston Poly, Sumner replied, “Not that I know of.” And
when asked whether he has provided any information on the Prototype Plan to
any employee, Sumner responded that he has not.
Houston Poly argued below that it provided the requisite plan information
to Kujanek in the summary allocation report it issues to plan participants every
year. The summary allocation report lists the participant’s beginning balance,
contribution, and ending balance for the year on a spreadsheet, and notifies
participants that they have a right to examine documents such as the full
annual report, accountant’s report, and a list of the plan’s assets and liabilities.
But the report contains no information about how a participant may elect to
receive a rollover distribution, nor does it inform the participant of her rights
under the profit-sharing plan. We therefore remand to the district court for
additional findings on whether Houston Poly failed to furnish Kujanek with the
requisite documents under ERISA § 104(b)(1), and if so, whether that omission
serves as a basis for statutory penalties.
D. Attorney’s fees
Finally, Houston Poly contends that the district court erred in granting
Kujanek attorney’s fees in this case. We disagree. The district court was well
within its discretion under 29 U.S.C. § 1132(g)(1) to determine attorney’s fees
prior to the entry of final judgment in this case, and Kujanek’s attorney provided
a reasonable basis on which to calculate the fees due. Additionally, the district
court concluded that Kujanek had demonstrated more than the minimum
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“degree of success on the merits” to support an award of attorney’s fees. As
further support for its conclusion, the district court found that not only was
Houston Poly’s culpability in this case “substantial,” but that Houston Poly had
made misleading and false statements to the court in its pleadings. These
findings are supported by the record, and therefore we hold that the district
court did not abuse its discretion in awarding Kujanek attorney’s fees.
III. CONCLUSION
For the above reasons, we AFFIRM the district court’s award of damages
for breach of fiduciary duty and award of attorney’s fees, and REVERSE and
REMAND on the issue of statutory penalties.
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