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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 15, 2006 Decided December 15, 2006
No. 05-7140
MICHAEL STEWART AND ILENE BERGENFELD,
AS TRUSTEES OF THE PHILIP A. STEWART IRREVOCABLE
TRUST, ON BEHALF OF THEMSELVES AND ALL OTHER PERSONS
SIMILARLY SITUATED,
APPELLANTS
v.
NATIONAL EDUCATION ASSOCIATION AND
NATIONAL EDUCATION MEMBERS INSURANCE TRUST,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 02cv02014)
James M. Pietz argued the cause for appellants. With him
on the briefs were Philip Friedman, Michael P. Malakoff, Marc
A. Wites, and Alejandro Perez.
Leon Dayan argued the cause for appellees. With him on
2
the brief were Douglas L. Greenfield and Karen M. Wahle.
Julia P. Clark entered an appearance.
Before: SENTELLE and ROGERS, Circuit Judges, and
SILBERMAN, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge ROGERS.
ROGERS, Circuit Judge: This case concerns a transfer of
money from the Prudential Life Insurance Company to the
National Education Association Members Insurance Trust
(“NEA Trust”) when Prudential converted from a mutual life
insurance company—where the insured mutually own the
company—into a stock life insurance company. On appeal from
the dismissal of the complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6), the trustees of the estate of Philip A. Stewart
(“Stewart”) contend that he is entitled to benefit from the
demutualization. Stewart maintains that the district court erred
in ruling that the Employee Retirement Income Security Act of
1974 (“ERISA”), 29 U.S.C. § 1001 et seq., applied to the NEA
insurance benefit plan and, alternatively, that he failed to state
a cause of action under ERISA for benefits and for breach of
fiduciary duty. In view of the allegations in the amended
complaint, Stewart is estopped from arguing that ERISA does
not apply to the NEA insurance benefit plan. Further, Stewart
identifies no term of the Group Contract that entitles him to
receive the demutualization proceeds, which represent the
capitalization of future dividends, as a benefit. Additionally,
because Stewart does not allege that he was entitled to the
demutualization proceeds as a dividend, but only that no
provision in the Group Contract allowed the NEA Trust to take
control of the insureds’ alleged equity interest in the
demutualization proceeds, he cannot show that the NEA or NEA
Trust (collectively, “the NEA”) breached a fiduciary duty under
ERISA. Accordingly, we affirm.
3
I.
The NEA is a national organization of education
professionals. In 1978, it established a Members Insurance Plan
(“Plan”) to operate voluntary programs providing benefits in the
event of a death, accident, sickness, disability, or other
occurrence affecting participants or their families, either through
self-funding the benefits or by buying group insurance policies.
At the same time, the NEA set up the NEA Trust to hold the
Plan’s assets. The Plan is governed by a “Plan Document” and
the Trust is governed by a “Trust Agreement.” The NEA Trust
entered into a group life insurance contract (“Group Contract”)
with Prudential to provide insurance to participating NEA
members (“Member-Insureds”). The Group Contract
incorporates a Group Insurance Certificate and Member-
Insureds’ individual applications and provides that the NEA
Trust is the contract holder.
NEA members are eligible for life and accident insurance
coverage under the Group Contract, subject to approval by
Prudential. Under the terms of the Group Contract, Prudential
fixes the premium amount, which the Member-Insured pays to
the NEA Trust, which in turn makes a group payment (equal to
the sum of those premiums) to Prudential. Claims are submitted
directly to Prudential. In recognition of the ownership stake of
Prudential’s policyholders, the Group Contract further provides
that “Prudential will determine the share, if any, of its divisible
surplus allocable to the Group Contract as of each Contract
Anniversary.” At some point, Prudential maintained separate
accounts for each Member-Insured, crediting “Paid Up Life
Insurance” with a “Cash Surrender Value” to each account. The
Group Contract gave Member-Insureds the right to obtain an
individual insurance contract if the Group Contract was
terminated.
4
In December 2000, Prudential approved a plan to convert
from mutual ownership to stock ownership. The reorganization
plan was approved by the State of New Jersey, where Prudential
is domiciled. See Plan of Reorganization of the Prudential Ins.
Co., Order No. A01-153 (N.J. Dep’t of Banking & Ins. Oct. 15,
2001), http://www.state.nj.us/dobi/a01_153.htm. When the
conversion occurred on December 13, 2001, Prudential’s mutual
insurance policies were converted to non-participating policies
in the name of the new stock company. At this time, Prudential
transferred to the NEA Trust $17 million in “demutualization
proceeds,” which Stewart describes as “the residual value of
Member-Insureds’ prior premium payments.” Appellants’ Br. at
8. The NEA Trust treated the demutualization proceeds as a
general Plan asset to be used for the benefit of all Plan
participants, regardless of whether they participated in the
Prudential Group Contract. Because the Plan’s documents did
not specifically refer to the treatment of demutualization
proceeds, the NEA amended the Plan Document to specify how
such a transfer of money was to be treated.
Stewart sued the NEA in a putative class action on behalf
of other Member-Insureds in the same Prudential life insurance
program sponsored by the NEA. Stewart’s basic claim was that
the demutualization proceeds constituted the share of Prudential
attributable to premiums from Group Contract participants and
that the NEA Trust accordingly was required to distribute the
funds to the individual Member-Insureds or to segregate the
funds for their benefit. The NEA Trust had treated the funds as
Plan assets that could be used for the benefit of Plan members
not participating in the Group Contract. Stewart also claimed
that the demutualization terminated the preexisting policies,
triggering Member-Insureds’ privilege to convert their Group
Contract certificates to individual insurance contracts. In the
alternative, Stewart alleged claims under ERISA, federal
common law, and state law. Appended to the amended
5
complaint were the Group Contract, the Group Insurance
Certificate, the Individual Contract Enrollment Form and
Certificates, the Plan Document with its 2002 amendment, and
the Trust Agreement. Upon the NEA’s motion, the district court
dismissed all of Stewart’s claims, ruling that ERISA applied and
preempted the six state-law claims and that Stewart failed to
state a claim under ERISA. Stewart v. Nat’l Educ. Ass’n, 404 F.
Supp. 2d 122 (D.D.C. 2005). Stewart appeals the dismissal of
the two ERISA and the state-law counts.
II.
ERISA sets out an “interlocking, interrelated, and
interdependent remedial scheme,” Mass. Mut. Life Ins. Co. v.
Russell, 473 U.S. 134, 146 (1985), for violations of its
substantive regulatory requirements relating to employee benefit
plans. When ERISA applies, it “supersede[s] any and all State
laws insofar as they may now or hereafter relate to any
employee benefit plan.” 29 U.S.C. § 1144(a). The district court
found that it was “factually undeniable that the Group Contract
and the Plan are ‘employee welfare benefit plans’ within the
meaning of ERISA” and that each of Stewart’s state-law causes
of action “relate[d] to” the plan such that they were preempted
by ERISA’s federal causes of action. Stewart, 404 F. Supp. 2d
at 137-39. On appeal, Stewart challenges whether his pleadings
require the conclusion that the Group Contract is an employee
benefit plan covered by ERISA. He does not challenge whether
the state-law causes of action “relate to” those plans.
We review de novo both the district court’s statutory
interpretation, see Kaseman v. District of Columbia, 444 F.3d
637, 640 (D.C. Cir. 2006), and its dismissal of the complaint for
failure to state a cause of action, see Barr v. Clinton, 370 F.3d
1196, 1201 (D.C. Cir. 2004). Of course, a complaint should not
be dismissed unless the plaintiff can prove no set of facts that
6
would entitle the plaintiff to relief, see Conley v. Gibson, 355
U.S. 41, 45-46 (1957), construing the complaint liberally in the
plaintiff’s favor with the benefit of all reasonable inferences
derived from the facts alleged, see Kowal v. MCI Commc’ns
Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). But the court need
not “accept legal conclusions cast in the form of factual
allegations.” Id. In determining whether a complaint states a
claim, the court may consider the facts alleged in the complaint,
documents attached thereto or incorporated therein, and matters
of which it may take judicial notice. See EEOC v. St. Francis
Xavier Parochial Sch., 117 F.3d 621, 624-25 (D.C. Cir. 1997).
ERISA “shall apply to any employee benefit plan if it is
established or maintained . . . by any employee organization or
organizations representing employees.” 29 U.S.C. § 1003(a).
“The terms ‘employee welfare benefit plan’ and ‘welfare plan’
mean any plan, fund, or program . . . established or . . .
maintained for the purpose of providing for its participants or
their beneficiaries, through the purchase of insurance or
otherwise . . . benefits in the event of sickness, accident,
disability, death or unemployment . . . .” Id. § 1002(1).
Stewart’s complaint, on its face, places the Plan, and the Group
Contract, within ERISA’s ambit. He alleges that the NEA is an
organization representing school teachers, that “the NEA
established the Members Insurance Plan” of which the Group
Contract is part, and that the NEA was “an administrator of the
Plan.” This ends the matter, as the district court concluded,
because Stewart has affirmatively pleaded the precise legal
conclusions he must avoid for coverage under ERISA and has
incorporated these allegations into each of his claims. Similarly,
because Stewart has pleaded the statutory requirements for an
“employee welfare benefit plan,” he is estopped from relying
upon the regulatory interpretations of that same term, see 29
C.F.R. § 2510.3-1(j).
7
III.
Because ERISA applies, and thus preempts Stewart’s state-
law claims, all that remains of the complaint are two counts
alleging claims under ERISA.
A.
Count I of the complaint, styled a “Claim for Benefits,”
relies on the provision that permits a “participant or beneficiary”
to bring suit “to recover benefits due to him under the terms of
his plan, to enforce his rights under the terms of the plan, or to
clarify his rights to future benefits under the terms of the plan,”
29 U.S.C. § 1132(a)(1), or “to obtain other appropriate equitable
relief . . . to enforce . . . the terms of the plan,” id. § 1132(a)(3).
Stewart alleges that the NEA failed to segregate or transfer the
demutualization proceeds for the benefit of the Member-
Insureds, and that it failed to provide him with “conversion
privileges,” i.e., the right to convert his participation in the
Group Contract into an individual contract upon
demutualization. In dismissing Count I, the district court relied
on the principle that a plaintiff bringing an ERISA claim “must
identify a specific plan term that confers the benefit in
question.” Stewart, 404 F. Supp. 2d at 130; see Clair v. Harris
Trust & Sav. Bank, 190 F.3d 495, 497 (7th Cir. 1999). On
appeal, Stewart contends that, viewed in the light most favorable
to him, the Plan documents render the demutualization proceeds
a benefit. Again, our review of the proper interpretation of
ERISA plans is de novo. Bd. of Trs. of the Hotel & Rest.
Employees Local 25 v. JPR, Inc., 136 F.3d 794, 798 (D.C. Cir.
1998).
Although Stewart must show that “the terms of his plan”
entitle him to a demutualization benefit, he does not principally
rely on a specific term but instead asserts that “[i]nherent in a
policy issued by a mutual company is the right to share in the
8
surplus of the company,” Appellants’ Br. at 23, and that
“[p]olicies of group insurance are well known to be obtained for
the benefit of the employees even though the employer, or in
this case the employee organization, is designated as a
policyholder,” id. at 24-25.1 He does identify language in the
contract between the NEA Trust and Prudential establishing a
“participating contract” for which Prudential would “determine
the share, if any, of its divisible surplus allocable to the Group
Contract” on a periodic basis. In light of his structural
assumptions about mutual insurance contracts, Stewart contends
that “if a policy of insurance provides such a financial interest,
it is by definition a benefit.” Id. at 24. For this general principle,
Stewart refers the court to Ruocco v. Bateman, Eichler, Hill,
Richards, Inc., 903 F.2d 1232 (9th Cir. 1990), in which
employees who had paid the entire cost of premiums for a group
long-term disability policy were found entitled to the
demutualization proceeds. See id. at 1238. However, Ruocco
addresses a different question in a different context. As Stewart
admits, Ruocco did not involve a claim for benefits under
ERISA. Moreover, the case addressed whether the employer
itself—and not a plan—could appropriate demutualization
proceeds for its own benefit—and not for the benefit of plan
participants. See id. at 1235. While Ruocco lends support to the
1
By conceding that the NEA Trust is the contract holder,
Stewart distinguishes his case from Bank of New York v. Janowick,
Nos. 05-6390, 05-6456 (6th Cir. Nov. 22, 2006). In that case, the
Sixth Circuit concluded that the employee-beneficiaries of a defunct
ERISA plan had a superior claim to demutualization proceeds over the
successor corporation to the employer. The holding turned on who
became the contract holder of the annuities that were purchased as the
plan terminated. The court, forced to choose between the employer
and the employees, concluded that the employees were now the
contract holders. Id. Here, the Plan has survived to receive
Prudential’s demutualization proceeds and there is no question that the
NEA Trust remains the contract holder.
9
equitable notion that premium-paying participants deserve the
proceeds of demutualization more than the sponsoring employer,
it does not stand for the proposition that the premium-paying
employees are entitled to the surplus more than a plan on behalf
of all employees. Although it is possible that the insurance
policy language taken alone might imply some individual rights,
Stewart does not advance that theory and it is certainly not
plainly meritorious.
Alternatively, Stewart claims that the definition of
“benefit” in the Plan Document includes demutualization
proceeds. The Plan Document defines a benefit as “any amount
paid or payable to a participant or beneficiary in the event of
death, accident, sickness, disability, or other occurrence
affecting the participant or his family in accordance with the
terms of any insurance policy.” Stewart asks us to construe the
term “occurrence” in light of the purpose of the contract, see
Newmont Mines Ltd. v. Hanover Ins. Co., 784 F.2d 127, 136-37
(2d Cir. 1986), so that distributions in which Member-Insureds
participate in Plan surplus are included as benefits. The district
court found “occurrence” to reach only events that “physically
affect an insured.” Stewart, 404 F. Supp. 2d at 131-32. Stewart
insists that because all such physical occurrences are already
listed, the district court’s interpretation renders the catch-all
term meaningless.
More persuasively, we think, the NEA relies upon the
interpretive canon of ejusdem generis, which “limits general
terms which follow specific ones to matters similar to those
specified.” Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465, 1471
(D.C. Cir. 1997) (internal quotation marks omitted); see also
Norton v. S. Utah Wilderness Alliance, 542 U.S. 55, 63 (2004).
The similar doctrine of noscitur a sociis teaches that a word is
known by the company it keeps. See Wash. State Dep’t of Soc.
& Health Servs. v. Guardianship Estate of Keffeler, 537 U.S.
10
371, 372 (2003); Babbitt v. Sweet Home Chapter of
Communities for a Greater Or., 515 U.S. 687, 694 (1995).
Here, the demutualization of the company providing the
insurance contract is so obviously different in kind from the
other personal events listed in the definition—death, accident,
sickness, and disability—that it cannot be considered an
“occurrence” leading to a “benefit” under the terms of the Plan.
Although the district court’s limitation may well be too narrow
(as some people sensibly insure against the nonphysical
occurrence of unexpected unemployment), it was correct to
recognize that demutualization is simply different. The
demutualization proceeds that Prudential transferred represent
the capitalization of the stream of lost future dividends that were
themselves clearly allocable to the NEA Trust under § 12.1 of
the Plan Document. Notwithstanding Stewart’s appeal to his
inherent rights to mutual insurance company surplus, he cannot
escape the plain language in the Plan Document and Group
Contract that shows that he has not stated a claim for denial of
benefits under 29 U.S.C. § 1132(a)(1)(B) by alleging that he was
deprived of the demutualization proceeds.
Finally, Stewart contends that he lost the “benefit” of
converting his coverage under the Group Contract to an
individual insurance policy. The Group Insurance Certificate
states that a Member-Insured “may convert all or part of [his]
insurance . . . to an individual life insurance contract” if “[a]ll
term life insurance of the Group Contract . . . ends by
amendment or otherwise.” The Enrollment Certificate further
provides that a Member-Insured’s coverage “automatically
terminate[s]” when “the provisions of the Group Policy for the
insurance terminate.” Stewart maintains that the Group Contract
terminated when Prudential demutualized. Whether the Group
Contract terminated as a result of demutualization is a legal
conclusion that the court need not accept. See Taylor v. FDIC,
132 F.3d 753, 762 (D.C. Cir. 1997).
11
According to the NEA, although demutualization
extinguishes the membership rights of a policyholder (here, the
NEA Trust) of the mutual company, it does not affect, much less
terminate, the underlying insurance policy. Prudential’s
reorganization plan, as approved by New Jersey, stated that
“[d]emutualization will not have any adverse result on
policyholders’ premiums or benefits, cash values, policy
dividend eligibility or any of Prudential’s other guarantees and
obligations to policyholders under their policies.” Plan of
Reorganization of the Prudential Ins. Co., supra. Hence, there
is no basis for Stewart’s claim that his contract “terminated” as
a result of the demutualization and that he is therefore entitled
to convert to an individual insurance contract.
Indeed, even under Stewart’s description of how
demutualization affected the Group Contract, the change is not
appropriately described as a “termination.” The Group Contract
was altered through “statutory amendment,” a procedure in the
Group Contract permitting “a change in the Group Contract . .
. automatically made to satisfy the requirements of any state or
federal law or regulation that applies to the Group Contract.”
On these terms, a statutory amendment represents only “a
change in the Group Contract,” not a “termination,” which
according to the Enrollment Certificate occurs only when “the
provisions of the Group Policy for the insurance terminate.”
B.
Count II of the complaint alleges that the NEA owed a
fiduciary duty to the Member-Insureds and that it breached its
duty. Under ERISA, fiduciaries must
discharge [their] duties with respect to a plan solely in
the interest of the participants and beneficiaries
and . . . for the exclusive purpose of . . . providing
benefits to participants and their beneficiaries; . . .
12
with the care, skill, prudence, and diligence under the
circumstances then prevailing [of] a prudent man . . .
in accordance with the documents and instruments
governing the plan.
29 U.S.C. § 1104(a)(1). The parties agree that the NEA was a
fiduciary, so only the scope of the NEA’s duty remains to be
resolved. Stewart alleges that the NEA breached its duty by
failing to provide the conversion privilege, by failing to
segregate the demutualization proceeds for the benefit of
Member-Insureds, and by amending the Plan retroactively to
provide for the disposition of demutualization proceeds. Stewart
has no claim to the conversion privilege for the reasons already
discussed.
To support his claim that the NEA should have segregated
the demutualization proceeds for the exclusive benefit of
Member-Insureds, Stewart relies upon the common law of trusts,
which he claims should control in the absence of an affirmative
provision dealing with demutualization proceeds. Under the
common law, he suggests, a trustee is entitled to control of an
excessive res only if the settlor expressed an intent that the
trustee control the excess value. Otherwise, the money must be
returned to the settlor. This claim cannot succeed because the
NEA has properly treated the demutualization proceeds as a
Trust asset under the Plan Document.
The contents of the NEA Trust are defined by Section 1.9
of the Plan Document, which incorporates
all the funds, assets, and properties, of whatever kind
and from wherever derived, held by the Trustees in
accordance with the Trust Agreement and this Plan,
including but not limited to, contributions, insurance
and reinsurance policies, insurance policy dividends
13
and retrospective premium credits, . . . and all earnings
and additions to the trust fund.
The demutualization benefit fits within this definition. First,
because the money was transferred to the NEA pursuant to its
role as policyholder of the Group Contract, these were funds
derived from an insurance policy. Second, because the list is
non-exhaustive, a demutualization payment should be treated in
the same manner as insurance policy dividends, which are
explicitly incorporated into the NEA Trust.
The Plan Document further provides that any surplus funds
within the single, undifferentiated Trust Fund may be expended
without regard to whether the surplus is applied to a
benefit program which is the same as or different from
the benefit program which gave rise to the surplus or
whether the participants who receive any refund are
the same as or other than the participants who made
the contributions which gave rise to the surplus.
Thus, the Plan Document specifically contemplates the actions
of the trustees here, and Stewart can state no claim for relief
based on default provisions of trust law.
Stewart also claims support from an advisory opinion
issued by the Department of Labor’s Employee Benefits
Security Administration (“DOL”). In his view, Advisory
Opinion No. 2005-08A, Pens. Plan Guide (CCH) ¶ 19,990T
(2005), indicates that those who pay the premiums deserve a pro
rata share of the demutualization proceeds. See also DOL Op.
No. 2001-02A, Pens. Plan Guide (CCH) ¶ 19,988N (2001).
However, as the district court acknowledged, Stewart, 404 F.
Supp. 2d at 131, DOL has distinguished only between plan
assets and employer assets, not between plan assets and
14
segregated plan assets.
The district court also relied upon Hughes Aircraft Co. v.
Jacobson, 525 U.S. 432, 442 (1999), for the proposition that
“surplus returns generated by employee contributions could be
applied to other employees in the plan who did not make such
contributions.” Stewart, 404 F. Supp. 2d at 133. That case
considered a contributory pension plan where employees were
entitled to a defined benefit. See Hughes Aircraft, 525 U.S. at
435 & n.1. When the plan assets quickly appreciated and
created a large surplus, the employer amended the plan to allow
some new employees to receive benefits out of the surplus
without contributing themselves. See id. at 436. In rejecting the
challenge to the employer’s actions, the Court emphasized the
difference between the defined-benefit plan it considered and a
defined-contribution plan, where each beneficiary has an
individual account and is entitled to the proceeds that develop
therefrom. See id. at 439-41. Here, the Group Contract deals
with insurance and not pensions, and hence the defined-
contribution/defined-benefit distinction is not directly
applicable. However, it is relevant to the extent that Member-
Insureds pay primarily for a defined set of life insurance benefits
and that the NEA Trust, rather than the Member-Insureds
individually, is entitled to surplus. Nonetheless, we need not
rely on Hughes Aircraft to resolve this claim in the NEA’s favor.
Finally, Stewart contends that he has stated a claim for
breach of fiduciary duty as to the NEA’s retroactive amendment
of the Plan Document. “Employers or other plan sponsors are
generally free under ERISA, for any reason at any time, to
adopt, modify, or terminate welfare plans.” Curtiss-Wright
Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995). Therefore,
there would not normally be any appropriate objection to the
NEA Trust’s decision to amend the definitions of “Trust Fund”
and “Surplus funds” to include demutualization proceeds
15
specifically. But “an amendment to any ERISA plan may not
operate retroactively if that amendment deprives a beneficiary
of a vested benefit.” Member Servs. Life Ins. Co. v. Am. Nat’l
Bank & Trust Co. of Sapulpa, 130 F.3d 950, 954 (10th Cir.
1997). However, Stewart claims that his right to a pro rata share
of the proceeds vested when Prudential demutualized. He can
point to no provision in the Plan Document or Group Contract
under which Member-Insureds ever had a claim to
demutualization proceeds. Therefore, Count II fails to allege
facts that describe a retroactive amendment in breach of a
fiduciary duty.
Accordingly, we affirm the order of the district court
dismissing the complaint pursuant to Rule 12(b)(6) for failure to
state a claim.