[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
July 31, 2008
No. 07-14362 THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 07-00197-CV-ODE-1
RAYMOND A. LANFEAR,
TERRY CLARK,
RANDALL W. CLARK,
Plaintiffs-Appellants,
versus
HOME DEPOT, INC.,
ROBERT L. NARDELLI,
JOHN I. CLENDENIN,
MILLEDGE A. HART, III,
KENNETH G. LANGONE, et al.,
Defendants-Appellees,
LARRY M. MERCER, et al.,
Defendants.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(July 31, 2008)
Before EDMONDSON, Chief Judge, PRYOR, Circuit Judge, and JOHNSON,*
District Judge.
PRYOR, Circuit Judge:
This appeal presents an issue of first impression in this circuit: whether a
complaint for breach of fiduciary duty regarding the diminution of value of a
defined contribution retirement plan states a claim for benefits under the Employee
Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001–1461. The plaintiffs,
former employees of The Home Depot, Inc., filed a complaint against Home Depot
and its officials for breach of fiduciary duty in the administration of a retirement
plan. The former employees have received their benefit payments, but they
complain that the payments were less than they should have been. The district
court dismissed the complaint with prejudice for lack of subject-matter jurisdiction
on the ground that the complaint was for damages, not benefits, and the former
employees did not qualify as “participants” entitled to sue for breach of fiduciary
duty. The district court concluded alternatively that the former employees had
failed to exhaust their available administrative remedies, but the district court did
not decide whether it should dismiss the complaint without prejudice on that
*
Honorable Inge P. Johnson, United States District Judge for the Northern District of
Alabama, sitting by designation.
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ground or stay the action to allow the former employees to pursue their
administrative remedies.
We disagree with some of what the district court decided and agree with
other aspects of its ruling, but we are unable to resolve all of the issues in this
appeal. We conclude that the district court erred when it treated the threshold
issue as one of subject-matter jurisdiction and when it dismissed the former
employees’ complaint with prejudice. We conclude that a complaint for breach of
fiduciary duty that seeks restitution of the diminished value of a defined
contribution plan is for benefits, not damages. Although we agree with the district
court that the former employees failed to exhaust their administrative remedies, we
remand this matter for the district court to determine, in the first instance, whether
to dismiss the complaint without prejudice or stay the litigation to allow the
former employees to pursue their administrative remedies. We reverse in part,
affirm in part, and remand.
I. BACKGROUND
Home Depot offers its employees a retirement plan in which assets are
allocated to the account of each participant. The board of directors of Home
Depot appoints both the investment committee and the administrative committee
for the plan. The investment committee makes decisions regarding the investment
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of plan assets, and the administrative committee is responsible for the
administration of the plan, including claims determinations.
The plan provides defined contributions instead of defined benefits. In a
plan for defined benefits, a formula is used to compute the benefits owed to the
participant. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439–40, 119 S.
Ct. 755, 761 (1999). The amount of benefits to which a participant is entitled is
not affected by the value of the plan assets. See id. In a plan for defined
contributions, a formula determines the amount that the employer is required to
contribute, but no formula is used to determine the amount of benefits. See id. at
439, 119 S. Ct. at 761. The participant is entitled to the value of the assets in his
account, whatever that value may be. See id.
The former employees complained that Home Depot violated its fiduciary
duty by allowing the plan to invest in Home Depot stock even though corporate
officials were backdating stock options and making fraudulent transactions, which
artificially inflated the value of Home Depot stock. The complaint named as
defendants Home Depot, current and former members of the investment committee
and the administrative committee of the plan, and current and former members of
the board of directors of Home Depot. In their request for relief, the former
employees sought to compel the defendants to restore to the plan all losses that
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resulted from a breach of fiduciary duty, all profits that a breach of fiduciary duty
prevented the plan from realizing, and all profits made through the misuse of plan
assets. They requested that the court allocate to their individual accounts a
proportionate amount of the restitution of plan losses.
The former employees filed their complaint on behalf of all plan participants
for the period on and after June 30, 2001. The complaint was filed in the Eastern
District of New York, but the action was transferred to the Northern District of
Georgia. None of the former employees pursued administrative remedies before
filing the complaint.
Home Depot moved to dismiss the complaint on the grounds that the former
employees did not qualify as participants of the plan under ERISA, failed to
exhaust their administrative remedies, and failed to state a claim on which relief
could be granted. The district court dismissed the complaint with prejudice under
Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction
because the plaintiffs did not qualify as participants of the plan, 29 U.S.C. §
1132(a)(2), and, as a result, lacked statutory standing to sue for breach of fiduciary
duty, 29 U.S.C. § 1109. Alternatively, the district court found that, under Rule
12(b)(6), the former employees’ failure to exhaust their administrative remedies
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precluded relief. The district court declined to consider whether to stay the
litigation to allow the former employees to pursue their administrative remedies.
II. STANDARDS OF REVIEW
We review de novo a dismissal for lack of subject-matter jurisdiction.
Elend v. Basham, 471 F.3d 1199, 1204 (11th Cir. 2006). We review de novo
whether former employees qualify as participants of a plan under ERISA. See
United States v. Haun, 494 F.3d 1006, 1008 (11th Cir. 2007) (citing United States
v. Searcy, 418 F.3d 1193, 1195 (11th Cir. 2005)). Whether the requirement of
exhaustion of administrative remedies applies to a claim is a question of law that
we review de novo. See Mason v. Cont’l Group, Inc., 763 F.2d 1219, 1224–27
(11th Cir. 1985). We review for a clear abuse of discretion the decision whether
to excuse the failure to exhaust administrative remedies. Perrino v. S. Bell Tel. &
Tel. Co., 209 F.3d 1309, 1315 (11th Cir. 2000).
III. DISCUSSION
The former employees make two arguments on appeal. First, the former
employees argue that the district court erred when it concluded that they did not
qualify as participants and lacked standing to sue for breach of fiduciary duty.
Second, the former employees argue that the district court erred when it
determined that the plaintiffs were required to exhaust their administrative
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remedies and clearly abused its discretion when it declined to excuse their failure
to exhaust administrative remedies. We discuss each argument in turn and then
discuss the disposition of this appeal.
A. The Former Employees Are Participants of the Plan Entitled To Sue for Breach
of Fiduciary Duty.
Our discussion about the standing of the former employees is divided in two
parts. First, we discuss whether the status of the former employees as participants
implicates the subject-matter jurisdiction of the district court or is a question about
the merits of the action. Second, we discuss whether the former employees qualify
as participants under ERISA. The latter issue turns on whether the former
employees assert a claim for benefits or damages.
The district court erroneously dismissed the former employees’ complaint
for lack of subject-matter jurisdiction. When a plaintiff makes a plausible
argument that a federal statute creates his right to relief, the district court has
subject-matter jurisdiction over that complaint. In Blue Cross & Blue Shield of
Alabama v. Sanders, we explained that whether the plaintiff qualified as a
fiduciary entitled to bring an action under section 1132(a)(3) of ERISA involved
the merits of the case, not subject-matter jurisdiction, because the argument of the
plaintiff in favor of fiduciary status was plausible. 138 F.3d 1347, 1351–53 &
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nn.4 & 5 (11th Cir. 1998). We relied on Bell v. Hood, 327 U.S. 678, 66 S. Ct. 773
(1946), for the proposition that “a federal court may dismiss a federal question
claim for lack of subject-matter jurisdiction only if: (1) ‘the alleged claim under
the Constitution or federal statutes clearly appears to be immaterial and made
solely for the purpose of obtaining jurisdiction’; or (2) ‘such a claim is wholly
insubstantial and frivolous.’” Sanders, 138 F.3d at 1352 (quoting Bell, 327 U.S. at
682–83, 66 S. Ct. at 776).
Our decision in Sanders controls here. The former employees plausibly
argue that they are participants entitled to sue for breach of fiduciary duty.
Because the former employees’ argument for participant status is plausible, the
district court had subject-matter jurisdiction. Whether the former employees
qualify as participants involves the merits of the appeal. The district court erred
when it concluded that it lacked subject-matter jurisdiction over this complaint.
The former employees argue that they qualify as participants because, under
ERISA, their complaint asserts a claim for benefits instead of damages. We agree.
A participant or beneficiary of a plan may bring a civil action for breach of
fiduciary duty in the administration of the plan. 29 U.S.C. §§ 1109, 1132(a)(2).
Because the former employees do not argue that they qualify as beneficiaries, they
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may sue for breach of fiduciary duty only if they qualify as participants of the
plan.
The Act defines the term “participant” with reference to entitlement to
benefits:
The term “participant” means 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). The Supreme Court has explained that “the term
‘participant’ is naturally read to mean either ‘employees in, or reasonably expected
to be in, currently covered employment’ or former employees who ‘have . . . a
reasonable expectation of returning to covered employment’ or who have ‘a
colorable claim’ to vested benefits.” Firestone Tire & Rubber Co. v. Bruch, 489
U.S. 101, 117, 109 S. Ct. 948, 958 (1989) (citations omitted) (omission in
original).
The former employees argue that they qualify as participants because they
have a colorable claim to vested benefits. Whether the plaintiffs have a colorable
claim to vested benefits depends on the distinction between benefits and damages.
ERISA allows the recovery of benefits, but it does not allow suits for
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extracontractual damages. Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134,
146–48, 105 S. Ct. 3085, 3092–93 (1985).
The district court concluded that the former employees asserted a claim for
damages, not benefits, and did not qualify as participants based on the decision of
the Fifth Circuit in Sommers Drug Stores Co. Employee Profit Sharing Trust v.
Corrigan, 883 F.2d 345 (5th Cir. 1989). The Sommers court stated that “a plaintiff
alleging that his benefits were wrongly computed has a claim for vested benefits”
but that “a plaintiff who seeks the recovery for the trust of an unascertainable
amount, with no demonstration that the recovery will directly effect payment to
him, would state a claim for damages.” Id. at 350. The district court reasoned that
the former employees sought damages because their complaint did not seek a
readily ascertainable amount that would directly effect a payment to the plaintiffs.
The Third, Sixth, and Seventh Circuits have rejected the reasoning of the
Fifth Circuit. In Harzewski v. Guidant Corp., Judge Posner explained that nothing
in ERISA suggests that the term “benefits” encompasses only claims for an easily
ascertainable amount. 489 F.3d 799, 807 (7th Cir. 2007). Judge Posner instead
concluded that “[t]he benefit in a defined-contribution pension plan is . . .
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
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includes an entitlement to prudent management.” Id. at 804–05. In Graden v.
Conexant Systems Inc., the Third Circuit followed Harzewski and held that an
employee qualifies as a participant when he sues for a decrease in the value of a
defined contribution account caused by a violation of a fiduciary duty. 496 F.3d
291, 296–98 (3d Cir. 2007). The Graden court explained that, for a defined
contribution plan, “ERISA imposes fiduciary duties on plan administrators, so part
of a participant’s entitlement is the value of his account unencumbered by any
fiduciary impropriety.” Id. at 297 (citation omitted). In Bridges v. American
Electric Power Co., the Sixth Circuit relied on Harzewski and Graden and held
that a former employee could sue to recover the decrease in value of his account in
a defined contribution plan caused by a breach of fiduciary duty. 498 F.3d 442,
445 & n.2 (6th Cir. 2007).
We agree with the Third, Sixth, and Seventh Circuits. A complaint for the
decrease in value of a defined contribution account due to a breach of fiduciary
duty is not for damages because it is limited to the difference between the benefits
actually received and the benefits that would have been received if the plan
management had fulfilled its statutory obligations. Because their complaint is for
benefits, not damages, the former employees qualify as participants. The district
court erred when it concluded that the former employees were not participants.
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B. The Former Employees Were Required To Exhaust Their Administrative
Remedies.
The district court determined that the former employees were required to
exhaust their administrative remedies, and the court chose not to exercise its
discretion to excuse their failure to exhaust administrative remedies. The former
employees present three arguments against the decision of the district court: (1)
the district court erred when it applied the precedent of the Eleventh Circuit
instead of the Second Circuit, where the action was originally filed; (2) Eleventh
Circuit precedent does not require exhaustion of administrative remedies when the
complaint is for breach of fiduciary duty, instead of a denial of benefits, and it
seeks relief on behalf of the entire plan; and (3) the district court clearly abused its
discretion when it declined to excuse the former employees’ failure to exhaust
their administrative remedies. Each of these arguments fails.
The former employees erroneously argue that the district court should have
applied Second Circuit precedent instead of Eleventh Circuit precedent after the
case was transferred to the Northern District of Georgia from the Eastern District
of New York. The former employees cite Van Dusen v. Barrack, 376 U.S. 612, 84
S. Ct. 805 (1964), for the proposition that, after a transfer of venue, 28 U.S.C. §
1404(a), the transferee court must apply the law of the transferor court, but that
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decision held that, in a diversity case, the transferee court must apply the state law
that would have been applied in the transferor court. Murphy v. FDIC, 208 F.3d
959, 965 (11th Cir. 2000). A transferee court is not required to apply the law of
the transferor court when, as here, the transferee court interprets federal law. Id. at
964.
“The law is clear in this circuit that plaintiffs in ERISA actions must
exhaust available administrative remedies before suing in federal court.” Bickley
v. Caremark RX, Inc., 461 F.3d 1325, 1328 (11th Cir. 2006) (quoting Counts v.
Am. Gen. Life & Accident Ins. Co., 111 F.3d 105, 108 (11th Cir. 1997)) (internal
quotation marks omitted). “Th[e] exhaustion requirement applies equally to
claims for benefits and claims for violations of ERISA itself.” Id. (citing Perrino,
209 F.3d at 1316 n.6). In Bickley, we applied the exhaustion requirement to a
claim for breach of fiduciary duty in the administration of a plan governed by
ERISA when the claim sought relief on behalf of the plan. Id. at 1327, 1330.
The former employees attempt to distinguish Bickley on the ground that the
breach of fiduciary duty in Bickley, unlike in this appeal, was committed by a
third-party administrator of the plan, but our decision in Bickley did not rest on
this distinction. The exhaustion requirement applies to complaints for breach of
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fiduciary duty under ERISA regardless of whether the breach was committed by a
third-party administrator of the plan or the employer.
The former employees argue that the district court clearly abused its
discretion when it declined to excuse their failure to exhaust administrative
remedies because the plan did not provide an administrative remedy. “[D]istrict
courts have discretion to excuse the exhaustion requirement when resort to
administrative remedies would be futile or the remedy inadequate.” Counts, 111
F.3d at 108 (citing Curry v. Contract Fabricators, Inc. Profit Sharing Plan, 891
F.2d 842, 846 (11th Cir. 1990), abrogated on other grounds by Murphy v. Reliance
Standard Life Ins. Co., 247 F.3d 1313, 1315 (11th Cir. 2001)). The former
employees contend that the provision in the plan regarding initial review of a
claim refers only to “[c]laims for benefits” and the provision regarding appeals
refers only to participants and beneficiaries who have been “denied a benefit.”
They maintain that their complaint is for damages instead of benefits.
This argument fails for two reasons. First, as we explained in the previous
section, the former employees’ complaint is for benefits. Second, the plan
provides an administrative remedy for a wide range of claims, including breach of
fiduciary duty:
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(a) Rights. If a Participant or Beneficiary has any grievance,
complaint or claim concerning any aspect of the operation or
administration of the Plan or Trust, including but not limited to
claims for benefits and complaints concerning the investments of Plan
assets . . . , the Participant or Beneficiary shall submit the claim
within the “applicable limitations period.”
The plan grants its administrators “complete control of the administration of the
Plan . . . , with all discretionary authority and powers necessary to enable it
properly to carry out its duties,” including the duty “to construe the Plan and to
determine all questions that shall arise thereunder.” In Bickley, we concluded that
a similar grant of discretionary authority was sufficient to establish the availability
of an administrative remedy. 461 F.3d at 1329–30.
The former employees also argue that exhaustion of their administrative
remedies would have been futile, but we disagree. The former employees allege
that the same parties who breached their fiduciary duty would have been the
decisionmakers in the administrative proceeding, but the futility exception protects
participants who are denied meaningful access to administrative procedures, not
those whose claims would be heard by an interested party. In Curry, for example,
we found that exhaustion was futile because plan administrators had denied a
participant meaningful access to administrative proceedings by repeatedly
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ignoring requests for documents supporting the denial of benefits. 891 F.2d at
844, 846–47.
Our decisions in Bickley and Springer v. Wal-Mart Associates’ Group
Health Plan, 908 F.2d 897 (11th Cir. 1990), also establish that the futility
exception is about meaningful access to administrative proceedings, not a
potential conflict of interest of the decisionmakers. In Bickley, we rejected an
argument of futility as speculative because the participant had not attempted to
pursue administrative remedies. 461 F.3d at 1330. In Springer, we ruled that a
participant may not invoke the futility exception to avoid recourse to an
administrative procedure on the ground that the reviewer is “basically the same
entity as the initial internal decider and . . . both deciders have an interest in
‘holding costs down.’” 908 F.2d at 901 (quoting Springer v. Wal-Mart
Associates’ Group Health Plan, 714 F. Supp. 1168, 1176 (N.D. Ala. 1989), rev’d,
908 F.2d 897) (omission in original) (internal quotation mark omitted).
C. On Remand, the District Court Should Rule on the Former Employees’ Request
for a Stay.
Because the district court dismissed with prejudice on the ground that the
former employees lacked standing, the district court did not determine whether it
would have stayed the proceeding or dismissed without prejudice based on the
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former employees’ failure to exhaust their administrative remedies. The former
employees requested a stay as an alternative to a dismissal without prejudice to
allow their pursuit of administrative remedies. The district court expressly
declined to consider the request for a stay. Without expressing any opinion
regarding the appropriateness of a stay in this context, we remand this matter to
the district court to rule first on the former employees’ request for a stay.
IV. CONCLUSION
We REVERSE the dismissal with prejudice, AFFIRM the finding that the
former employees have failed to exhaust their administrative remedies, and
REMAND for further proceedings.
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