United States Court of Appeals
For the First Circuit
No. 02-1247
DUDLEY SUPERMARKET, INC., d/b/a PARK ’N’ SHOP;
SOUTHBRIDGE PARK ’N’ SHOP, INC., d/b/a PARK ’N’ SHOP;
CHARLES A. PAPPAS, Trustee of the
Dudley Supermarket, Inc. Defined Benefit Plan;
CHARLES A. PAPPAS, JR., Trustee of the
Dudley Supermarket, Inc. Defined Benefit Plan,
Plaintiffs, Appellants,
v.
TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Boudin, Chief Judge,
Selya, Circuit Judge,
Greenberg,* Senior Circuit Judge.
James C. Donnelly, Jr. with whom Patricia L. Davidson and
Mirick, O’Connell, DeMallie & Lougee were on brief for appellants.
Reid A. Evers with whom Kevin M. Dalton and Glovsky & Glovsky
were on brief for appellee.
*Of the Third Circuit, sitting by designation.
August 30, 2002
GREENBERG, Senior Circuit Judge. This matter comes on before
this court on appeal from a January 28, 2002 order of the district
court and a final judgment entered on February 22, 2002, in favor
of defendant-appellee Transamerica Life Insurance and Annuity
Company ("Transamerica").
Plaintiffs-appellants, Dudley Supermarket, Inc. d/b/a Park 'N'
Shop, Southbridge Park 'N' Shop, Inc. d/b/a Park 'N' Shop, and
Charles A. Pappas and Charles A. Pappas, Jr., Trustees of the
Dudley Supermarket, Inc. Defined Benefit Plan, brought this action
in the Superior Court of Massachusetts, Worcester Division,
alleging, purportedly solely under state law, common law
negligence, breach of contract and statutory1 unfair trade
practices, inter alia, in connection with investment services
provided by Transamerica, a financial services company, with
respect to the Dudley Supermarket, Inc. Defined Benefit Plan.
Appellants explain that their complaint charged Transamerica with
wrongdoing arising "from the sale of Park 'N' Shop’s employee
retirement plan . . ., the sale of investments to the Plan, and the
preparation of misleading actuarial valuation reports which failed
to disclose the Plan’s unfunded liability." Brief at 4. See also
Brief at 6.
Transamerica removed the case to the district court on both
diversity of citizenship and federal question grounds pursuant to
28 U.S.C. § 1441(b). It asserted that the complaint necessarily
1
See Mass. Gen. Laws ch. 93A, §§ 2 & 11 (West 1997).
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was under federal law because it charged that it had breached its
fiduciary duties in violation of the Employee Retirement Income
Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., in particular
ERISA § 409, 29 U.S.C. § 1109, and thus alleged a cause of action
under ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2). Inasmuch as
appellants acknowledge that Transamerica properly removed the case
on diversity of citizenship grounds, they understandably did not
move in the district court to remand the case to the state court.
Subsequently, on Transamerica’s motion, and over appellants’
objection, the district court determined that ERISA completely
preempted appellants’ claims and it accordingly entered the January
28, 2002 order which recharacterized the state law claims as
arising under ERISA and struck appellants’ demand for a jury trial.
Thereafter, the parties entered into a stipulation for entry of
judgment in Transamerica’s favor, reserving appellants' right to
appeal from the district court's determination with regard to ERISA
preemption.2 The district court accepted the stipulation and
entered judgment in Transamerica’s favor with prejudice on February
22, 2002. Appellants then filed a timely notice of appeal. The
only issue appellants raise on appeal is whether ERISA completely
preempts their state law claims, thus justifying the district
2
Appellants explain that they entered into the stipulation
because they "determined that [they] would probably not prevail at
trial on any claim under ERISA, in part because [they] did not
allege that Transamerica had discretionary authority over Plan
assets." Brief at 5.
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court’s determination to treat their action as being under ERISA.3
We review this legal question on a de novo basis. See Aponte v.
Calderon, 284 F.3d 184, 191 (1st Cir. 2002).4
There can be no doubt that if appellants’ purported state law
claims in fact charged Transamerica with breach of fiduciary duty
while acting as an ERISA fiduciary, ERISA would preempt completely
their claims which thus would have to be asserted, if at all, under
ERISA. See Danca v. Private Health Care Sys., Inc., 185 F.3d 1, 4-
6 (1st Cir. 1999). Appellants, however, argue that they do not
allege that Transamerica acted with respect to their plan as a plan
fiduciary as defined by ERISA but rather as "a provider of garden-
variety professional services regulated by state laws that do not
affect ERISA’s regulatory scheme." Brief at 14-15. This
contention requires us to consider section 3(21)(A) of ERISA, 29
U.S.C. § 1002(21)(A), which provides that a person is a "fiduciary"
with respect to an employee benefit plan, if, inter alia, he
"renders investment advice for a fee or other compensation, direct
or indirect, with respect to any moneys or other property" with
respect to the plan. "Investment advice," according to Department
of Labor regulations, covers advice as to the value of securities
or other property, or as to the advisability of investing in,
purchasing, or selling securities or other property, where the
advice is individualized and is rendered on a regular basis
3
Appellants do not challenge the district court’s ruling that
there is no right to trial by jury for actions alleging breach of
fiduciary duty under ERISA.
4
We have jurisdiction under 28 U.S.C. § 1291.
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pursuant to a mutual agreement for a fee. See 29 C.F.R. § 2510.3-
21(c).
By the plain terms of the complaint, and as reflected in the
record on appeal, Transamerica was compensated as the primary,
individualized, and routine provider of investment advice for the
Dudley Supermarket, Inc. Defined Benefit Plan. Therefore,
Transamerica was an ERISA fiduciary rather than a mere
professional service provider with an ancillary relationship to the
plan. See App. at 10, complaint ¶ 6 ("The Trustee is experienced
in the grocery business, but had little or no experience in
managing investments, as a fiduciary or otherwise. He relied on
Transamerica, and Transamerica solicited such reliance."); App. at
11, complaint ¶ 10 ("Transamerica entered into a series of
agreements with Park 'N' Shop and/or the Trustee by which
Transamerica became the Plan administrator and custodian of the
Plan assets. In addition, Transamerica undertook to provide
investment services relating to the investment of Plan assets.");
App. at 54-55, appellants’ pretrial memorandum (plan trustee had
"little or no experience with investments. Although nominally
responsible for the selection of investments, he relied on
Transamerica to recommend investments and a level of contributions
which would fully fund the Plan within twenty (20) years . . . .
He also relied on Transamerica to advise him if and when it became
advisable to change the investment strategy, or increase
contributions."). The fact that in the absence of ERISA the
complaint may have asserted viable state law claims cannot affect
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our result.
Moreover, appellants’ argument at its core implicates
Transamerica’s allegedly deficient investment advice with respect
to the management of plan assets. In their state law counts,
appellants claim, inter alia, that Transamerica failed to provide
adequate information concerning its investment practices, to
provide accurate actuarial statements, and to disclose that the
plan was underperforming. Likewise, in their Pre-Trial Memorandum,
appellants list as contested issues of fact whether Transamerica
"failed to disclose various financial risks" concerning the plan,
"failed to provide accurate information" regarding the investment
of plan assets, and "failed to provide Park 'N' Shop with
reasonably prudent and diverse investments for Plan assets." App.
at 58-59.
Indeed, appellants’ brief hardly could be clearer in alleging
that Transamerica violated its fiduciary duties under ERISA. Thus,
after complaining that Transamerica advised placing the plan assets
in interest-based investments, appellants set forth that at
"approximately the same period in the nineties, the stock market
experienced very substantial increases in value" and that
Transamerica "failed to notify Park 'N' Shop that Plan assets could
be invested in stocks, which have historically outperformed fixed
income investments by a substantial margin." Brief at 11-12. We
cannot understand how appellants can argue seriously that such
allegations do not assert that Transamerica breached its fiduciary
duties when we take into account ERISA’s provision that "a person
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is a fiduciary with respect to a plan to the extent [that] he
renders investment advice for a fee or other compensation, direct
or indirect, with respect to any moneys or other property of such
plan." ERISA § 3(21), 29 U.S.C. § 1002(21).
Fundamentally, it is clear that the gravamen of the complaint
is that Transamerica breached its fiduciary duty under ERISA to
provide competent investment advice and services rather than, as
appellants argue, that Transamerica merely violated "run-of-the-
mill"5 state laws that are largely tangential to and not preempted
by ERISA. See ERISA § 404(a), 29 U.S.C. § 1104(a) (ERISA fiduciary
must discharge his duties with reasonable care, skill, and
diligence, and with the goal of minimizing the risk of large loss
through asset diversification); see also ERISA § 409(a), 29 U.S.C.
§ 1109(a) (Any fiduciary who "breaches any of the responsibilities,
obligations, or duties imposed upon fiduciaries by this subchapter
shall be personally liable to make good to such plan any losses to
the plan resulting from each such breach, and to restore to such
plan any profits of such fiduciary which have been made through use
of assets of the plan by the fiduciary . . . ."). Consequently,
appellants' state law claims in reality assert that Transamerica as
an ERISA fiduciary gave an ERISA plan inadequate investment advice
and thus the claims fall squarely within the exclusive scope of the
federal civil enforcement provisions of ERISA § 502(a)(2), 29
5
Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S.
825, 833, 108 S.Ct. 2182, 2187 (1988).
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U.S.C. § 1132(a)(2).6 ERISA therefore completely preempts the
claims. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63,
66-67, 107 S.Ct. 1542, 1546-48 (1987); Danca, 185 F.3d at 7
(complete preemption where the state law claims properly are
characterized as "alternative enforcement mechanism[s]" of ERISA §
502(a)(2), 29 U.S.C. § 1132(a)(2)) (citations omitted).7
We have examined the many cases that appellants cite to
support their assertion that "claims based essentially on
professional malpractice are not preempted by ERISA even though the
claims involve in some way a plan governed by ERISA." Brief at 30.
These cases, as significant here, simply indicate that the
malpractice claims against the defendants there, who were not
fiduciaries with respect to an ERISA plan, were not preempted.
See, e.g., Berlin City Ford, Inc. v. Roberts Planning Group, 864 F.
Supp. 292, 295 (D.N.H. 1994) ("For the purpose of arguing the
removal issue, both parties assume that Roberts is not a plan
fiduciary. Thus, the issue to be resolved is whether a plan
administrator’s state law professional negligence claims against a
6
This section empowers a plan participant, beneficiary, or
fiduciary to bring a civil action for appropriate relief under
ERISA § 409, 29 U.S.C. § 1109, the section governing liability for
breach of ERISA fiduciary duties. Of course, the appellants
themselves are undoubtedly ERISA fiduciaries and they do not
contend otherwise.
7
We do not hold that appellants’ claims properly were
dismissed as being insufficient under ERISA as we do not reach that
issue. The district court entered judgment for Transamerica with
prejudice only because appellants consented to its entry subject to
their right to appeal from the complete preemption ruling. The
district court was prepared to proceed with the trial on
appellants’ claims as restated under ERISA.
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non-fiduciary ‘relate to’ an ERISA regulated plan within the
meaning of [ERISA § 514(a),] 29 U.S.C. § 1144(a)."); Mertens v.
Kaiser Steel Ret. Plan, 829 F. Supp. 1158 (N.D. Cal. 1992)
(actuarial malpractice);8 see also Shofer v. Stuart Hack Co., 595
A.2d 1078, 1081-82 (Md. 1991) ("There are appellate cases holding
that certain professionals who gave advice to, or performed
ministerial services for, ERISA plans were not fiduciaries.")
(collecting cases).
On the other hand, "there is no per se rule that prevents
professionals who render advice to an ERISA plan from becoming
fiduciaries." Pappas v. Buck Consultants, Inc., 923 F.2d 531, 538
(7th Cir. 1991). That situation describes this case as appellants’
contentions with respect to Transamerica’s functions establish that
wherever the line that separates an ordinary professional from a
fiduciary for ERISA purposes may be, Transamerica is on the
fiduciary side of the line. Thus, we are dealing with complete
preemption.
Finally, reaching our result we emphasize that we do not
disregard appellants’ characterization of their complaint as
setting forth "allegations . . . related solely to Transamerica’s
role in selling the Plan, selling investments and providing
professional actuarial services in an independent, non-fiduciary
capacity." Brief at 20. Rather, we do not accept their conclusory
statement that Transamerica acted in a "non-fiduciary capacity,"
8
Mertens subsequently was before the Supreme Court on an issue
not material here. See Mertens v. Hewitt Assocs., 508 U.S. 248,
113 S.Ct. 2063 (1993).
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for appellants’ specific factual allegations simply do not support
this conclusion. A court must make its determination of whether an
entity acted in a fiduciary capacity with respect to the alleged
wrongdoing not on the basis of a plaintiff’s characterization of
the activity but rather on the basis of the functions the entity
performed and its relationship to the plaintiff.
Affirmed.
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