Martinez v. Schlumberger, Ltd.

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
July 9, 2003
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 02-20173

WILLIAM MARTINEZ; FRANK DITTA; and LAFAYETTE KIRKSEY,

Plaintiffs-Appellants,

versus

SCHLUMBERGER, LTD.; and SCHLUMBERGER TECHNOLOGY CORP.,

Defendants-Appellees.

Appeal from the United States District Court
For the Southern District of Texas

Before HIGGINBOTHAM, EMILIO M. GARZA, and DENNIS, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This case presents the question whether the Employee

Retirement Income Security Act of 1974 (“ERISA”)1 imposes upon a

company that acts as administrator of its employee benefit program

a duty to truthfully disclose, upon inquiry from plan participants

or beneficiaries, whether it is considering amending the benefit

plan. Although the majority of other circuits have already

confronted this issue,2 it is one of first impression for our

1
29 U.S.C. § 1001 et seq.
2
See Wayne v. Pac. Bell, 238 F.3d 1048, 1050-51, 1055 (9th
circuit. In line with the majority rule of other circuits, the

district court concluded that such a duty does not arise until the

company is “seriously considering” a plan change, and granted

summary judgment for the defendant employer based on its conclusion

that the employer was not seriously considering the plan change at

the time the employee plaintiffs inquired about whether the company

intended to amend the benefit program. We affirm, although for

reasons different from those relied upon by the district court.

I.

William Martinez, Frank Ditta, and Lafayette Kirksey, long-

time employees of Schlumberger Ltd. and Schlumberger Technology

Corp., collectively “Schlumberger,” took early retirement effective

July 1, 1998. Prior to July 1, each had asked personnel

representatives at Schlumberger whether the company planned to

implement an enhanced retirement incentive program, and personnel

told them that they knew nothing about a new plan. However, only

a month after their retirement, on July 27, 1998, Schlumberger

announced a new voluntary early retirement plan, or “VERP,” that

provided an additional year of salary not included in the old VERP

Cir. 2001); Ballone v. Eastman Kodak Co., 109 F.3d 117, 122-26 (2d
Cir. 1997); Vartanian v. Monsanto Co. (Vartanian II), 131 F.3d
264, 268 (1st Cir. 1997); Hockett v. Sun Co., 109 F.3d 1515, 1522
(10th Cir. 1997); McAuley v. Int’l Bus. Machs. Corp., 165 F.3d
1038, 1043-45 (6th Cir. 1999); Fischer v. Phila. Elec. Co. (Fischer
II), 96 F.3d 1533, 1538-44 (3d Cir. 1996); Wilson v. S.W. Bell Tel.
Co., 55 F.3d 399, 405 (8th Cir. 1995); Barnes v. Lacy, 927 F.2d
539, 544 (11th Cir. 1991).

2
under which the plaintiffs retired. Because they had terminated

their employment with Schlumberger prior to July 27, 1998, they

were ineligible for the additional benefits of the new VERP.

The plaintiffs sued Schlumberger in Texas state court for

fraud, fraudulent inducement, negligence, and gross negligence,

alleging that Schlumberger had falsely told each of them that no

new VERP was under consideration before they separately elected to

take early retirement. Schlumberger removed the suit to federal

court and then moved for summary judgment, arguing that ERISA

preempted the plaintiffs’ claims. The plaintiffs conceded that

ERISA preempted their state law causes of action, but argued that

the court should construe their claims as alleging breach of

fiduciary duty under ERISA.

Considering the suit as one for breach of fiduciary duty, the

trial court reasoned that a company need not truthfully disclose

the fact that it is considering adopting a plan change unless it is

“seriously considering” such a change. This does not occur until

three criteria are present: There is (1) a specific proposal (2)

that is being discussed for purposes of implementation (3) by

senior management with the authority to implement the change. The

district court concluded that Schlumberger did not begin seriously

considering the plan change until a few weeks after the last of the

plaintiffs had inquired about a possible change, and granted

3
summary judgment in Schlumberger’s favor.3 The plaintiffs have

3
The evidence presented along with Schlumberger’s summary
judgment motion reveals that on May 13, 1998, apparently at
Schlumberger’s request, the Segal Company sent Margaret Bailey,
manager of benefit plan compliance at Schlumberger, a letter
informing her of “the features and challenges” of using an early
retirement incentive program. It described the most common types
of these programs, legal implications of utilizing such programs,
and factors that are generally considered in estimating the cost of
such programs. The letter also informed Bailey that Segal “ha[d]
begun preparing costs” for several different types of programs “for
each company in the oilfield group” of Schlumberger.
The following week, on May 21, 1998, Segal addressed another
letter to Bailey providing the estimated expense for four different
types of program designs. Five days later, on May 26, 1998, Segal
sent Bailey another letter supplementing the May 21 letter. It
calculated costs for two additional types of programs.
On that same day, Bailey sent an e-mail to Pierre Bismuth,
vice president of personnel, in which she attached the financial
calculations for these two additional options, along with an
estimation of the number of employees eligible for these programs.
Bismuth immediately wrote back, stating, “I will certainly go with
the least aggressive option as the number[s] are high and the cost
not [i]nsignificant ... [T]he aggressive options ... are too costly
and not interesting.... [A]gain the cost makes me have second
thoughts[.]” On June 6, 1998, Bailey sent Bismuth additional
calculations, this time for four different early retirement
scenarios.
On June 5, 1998, Art Alexander, senior advisor to Bismuth,
sent an e-mail to Ken Rohner, director of personnel, explaining, “I
know that we have used [S]egal to do the calculations involved in
[early retirement program] considerations but there is doubtless
another area of outside expertise that we should seek BEFORE a
decision is made to proceed. That is ERISA legal support since the
area of obtaining ADEA (age discrimination) releases in [early
retirement] Window circumstances is very tricky, relates to the
amount of consideration being provided people and is influenced by
court decisions and precedents.” He advised Rohner of the attorney
he should call regarding these matters and added, “I don’t know
that he has yet been in the loop but I would think he should be
pretty soon.”
On June 7, 1998, Bismuth wrote to Rohner, Alexander, and
Bailey, “please make sure that [A]rt comes fully prepared in
[P]aris to talk about it,” and asked about “cost estimation” and
additional “proposed incentives” for certain people he hoped to
target with the program. On July 14, 1998, Rohner, Bailey,
Schlumberger Oilfield Services president Rex Ross, inside counsel

4
timely appealed.

II.

We review a grant of summary judgment de novo, applying the

same standards as the district court.4 Summary judgment may be

granted only if there is no genuine issue as to any material fact

and the moving party is entitled to judgment as a matter of law.5

The moving party bears the burden of identifying an absence of

evidence to support the nonmoving party’s case.6 In determining

whether summary judgment is appropriate, we must view all of the

evidence introduced and all of the factual inferences from the

evidence in a light most favorable to the party opposing the

motion, and resolve all reasonable doubts about the facts in favor

John Symington, and other executives met at Sugar Land, Texas, and
agreed upon a proposed plan that they then forwarded to other
executives in the company, including Bismuth. On July 27, 1998,
Schlumberger made the VERP announcement to its employees.
When deposed, Bailey testified that “[n]either a final VERP
plan nor a final recommendation was completed for presentation to
upper management until July 14, 1998” at the Sugar Land meeting.
“At this meeting, a more specific plan was then formalized and
approved by those in attendance and forwarded to Pierre Bismuth for
final approval.” She confirmed that “[o]nly the combined approval
of” Bismuth and Ross “was sufficient to approve such a plan and
result in its recommendation to the board of directors.”
4
Terrebonne Parish Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870,
877 (5th Cir. 2002).
5
Id.; FED. R. CIV. P. 56(c).
6
Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).

5
of the nonmoving party.7

III.

A.

It is well-known that Congress enacted ERISA to protect

employees’ rights to benefits while also encouraging employers to

develop employee benefits programs.8 To that end, ERISA provides

a “broad federal regulatory scheme governing the operation of

privately sponsored employee benefit plans.”9 Its fiduciary duty

and reporting and disclosure requirements are crucial components of

this scheme.10 In regard to reporting and disclosure, ERISA

provides specific rules governing the information that must be

provided to participants and beneficiaries as well as to certain

government agencies.11

The summary plan description is one of the central ERISA

disclosure requirements.12 A plan administrator must provide a

7
Terrebonne Parish Sch. Bd., 310 F.3d at 877.
8
Melissa Elaine Stover, Note, Maintaining ERISA’s Balance:
The Fundamental Business Decision v. the Affirmative Fiduciary Duty
to Disclose Proposed Changes, 58 WASH. & LEE L. REV. 689, 690 (2001)
(citing 263 CONG. REC. S15,762 (1974)).
9
Edward E. Bintz, Fiduciary Responsibility Under ERISA: Is
There Ever a Fiduciary Duty to Disclose?, 54 U. PITT. L. REV. 979,
979 (1993).
10
Id. at 980; see 29 U.S.C. §§ 1104-05, 1021-31.
11
Bintz, supra note 9, at 980.
12
Id. at 981.

6
summary plan description to an individual within ninety days of his

or her becoming a participant.13 The description must be written

in a manner “calculated to be understood by the average plan

participant” and must be “sufficiently comprehensive to apprise the

plan’s participants and beneficiaries of their rights and

obligations under the plan.”14 ERISA also mandates that

administrators provide a summary description of any material plan

modification within 210 days after the end of the plan year in

which the change was adopted.15

Apart from the ERISA disclosure rules plan administrators are

also subject to fiduciary duties.16 Section 404(a)(1) of ERISA

incorporates strict standards of trustee conduct, derived from the

common law of trusts, including a standard of loyalty and a

standard of care:

Under the former, a plan fiduciary “shall discharge his
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 ... and ... defraying reasonable
expenses of administering the plan.” Under the latter,
a fiduciary “shall discharge his duties with respect to
a plan ... with the care, skill, prudence, and diligence
under 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

13
Id.; 29 U.S.C. § 1024(b)(1); 29 C.F.R. § 2520.104-4(b)(1).
14
29 C.F.R. § 2520.102-2.
15
29 U.S.C. § 1024(b)(1)(B).
16
29 U.S.C. § 1104(a)(1).

7
 like character and with like aims.”17

Other 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.”18 As a result, “[t]he

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.19

Although 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,’”20 this does not answer the question whether an

employer-administrator has a duty to disclose potential, as opposed

to current, benefit plan provisions. The question is complicated

by the fact that ERISA allows an employer to act as a plan

administrator, leaving open the potential that the employer could

17
Cent. States, S.E. & S.W. Areas Pension Fund v. Cent.
Transp., Inc., 472 U.S. 559, 570-71 (1985) (quoting § 1104(a)(1)).
18
Bintz, supra note 9, at 985.
19
Id. at 988.
20
Id. at 985 (quoting RESTATEMENT (SECOND) OF TRUSTS § 173 cmt. d
(1959)).

8
be subject to conflicting loyalties in such a situation: “A loyalty

to do what is in the best interest of the company, and a fiduciary

duty of loyalty to do what is in the best interest of the

[participants and beneficiaries].”21 As the Supreme Court has

noted, although a traditional trustee “is not permitted to place

himself in a position where it would be for his own benefit to

violate his duty to the beneficiaries[, u]nder ERISA ... a

fiduciary may have financial interests adverse to beneficiaries.”22

Thus, employers “can be ERISA fiduciaries and still take actions to

the disadvantage of employee beneficiaries, when they act as

employers (e.g., firing a beneficiary for reasons unrelated to the

ERISA plan), or even as plan sponsors (e.g., modifying the terms of

a plan as allowed by ERISA to provide less generous benefits).”23

To assist in resolving this potential conflict, the Supreme

Court created the “two hats” doctrine, which acknowledges that the

employer is subject to fiduciary duties under ERISA only “to the

extent” that it performs three specific functions identified by

Congress:24 (i) exercising “any discretionary authority or

discretionary control respecting management of [a benefits] plan or

21
Stover, supra note 8, at 690.
22
Pegram v. Herdrich, 530 U.S. 211, 225 (2000) (internal
quotation marks and citation omitted).
23
Id.
24
Stover, supra note 8, at 698 n. 44, 714-19.

9
exercis[ing] any authority or control respecting management or

disposition of its assets”; (ii) rendering “investment advice for

a fee or other compensation, direct or indirect, with respect to

any moneys or other property of such plan,” or having “any

authority or responsibility to do so”; or (iii) having “any

discretionary authority or discretionary responsibility in the

administration of” the plan.25 Therefore, in suits charging breach

of fiduciary duty under ERISA, “the threshold question is not

whether the actions of some person employed to provide services

under a plan adversely affected a plan beneficiary’s interest, but

whether that person was acting as a fiduciary (that is, was

performing a fiduciary function) when taking the action subject to

complaint.”26

B.

“A plan participant may bring suit for breach of fiduciary

duty to obtain ‘appropriate equitable relief’ to redress violations

of ERISA.”27 Although we have not yet addressed whether ERISA

imposes a fiduciary duty upon an employer to truthfully disclose,

upon inquiry, its consideration of a benefit plan change,28 most of

25
29 U.S.C. § 1002(21)(A).
26
Pegram, 530 U.S. at 226.
27
McCall v. Burlington N./Santa Fe Co., 237 F.3d 506, 510 (5th
Cir. 2000).
28
McCall presented us with the question, but we declined to
address it in that case because the plan change at issue was not
conceived until several years after the plaintiffs decided to

10
our sister circuits have, these decisions together creating what

one commentator has characterized as a “continuum of disarray.”29

Before visiting these decisions, however, we note that the Supreme

Court, while not having spoken on this precise question, has

defined in general terms an employer’s responsibility to

communicate truthfully with its employees regarding the future of

benefit plans.

In Varity Corp. v. Howe, plaintiffs, past employees of

Varity’s subsidiary, Massey-Ferguson Inc., complained that Varity

had affirmatively misrepresented to them that their benefits would

remain secure if they transferred to a new subsidiary, Massey

Combines.30 Before their transfer, the plaintiffs participated in

Massey-Ferguson’s self-funded employee welfare benefit plan, an

ERISA-protected plan.31 Varity, Massey-Ferguson’s parent company,

retire. Id. at 511 n.2 (“The Fifth Circuit has not yet set out the
boundaries of a fiduciary’s legal obligation to truthfully inform
employees about possible future employee benefit plans. Seven of
our sister circuits have held that there is no breach of fiduciary
duty in failing to inform beneficiaries about a future plan until
and unless that plan is under ‘serious consideration.’ The Second
Circuit, on the other hand, declined to treat serious consideration
as a ‘talismanic’ indicator, but listed it as one factor in the
materiality inquiry.... Finding the question not properly
presented, we decline the parties’ invitation to adopt or reject
the ‘serious consideration’ test for the Fifth Circuit.” (internal
citations omitted)).
29
Daniel M. Nimtz, ERISA Plan Changes, 75 DENV. U. L. REV. 891,
894 (1998).
30
516 U.S. 489 (1996).
31
Id. at 492.

11
became concerned that Massey-Ferguson was losing too much money and

developed a business plan to deal with the problem.32 The plan

called for “a transfer of Massey-Ferguson’s money-losing divisions,

along with various other debts, to a newly created, separately

incorporated subsidiary called Massey Combines.”33 The plan

contemplated that Massey Combines would fail, but viewed this

probable occurrence in a favorable light, because the failure

“would not only eliminate several of Varity’s poorly performing

divisions, but .. would also eradicate various debts that Varity

would transfer to Massey Combines, and which, in the absence of the

reorganization, Varity’s more profitable subsidiaries or divisions

might have to pay.”34

One of the obligations Varity desired to eliminate was the

Massey-Ferguson benefit plan’s promises to pay the medical and

other nonpension benefits to employees of Massey-Ferguson’s

money-losing divisions.35 To accomplish this goal Varity held a

special meeting with employees of the failing divisions in an

attempt to convince them to switch over to Massey Combines.36 At

the meeting Varity promised that “the employees’ benefits would

32
Id. at 492-93.
33
Id. at 493.
34
Id.
35
Id.
36
Id. at 494.

12
remain secure” if they transferred to Combines, even though “Varity

knew ... the reality was very different.”37 Approximately 1500

Massey-Ferguson employees accepted Varity’s assurances and

transferred to Combines; by the end of Combines’ second year the

company was in receivership, and the employees lost their

nonpension benefits.38

In determining whether Varity had breached any fiduciary duty

owed the plaintiffs, the Supreme Court first recognized that ERISA

protects employee benefit plans by setting forth certain fiduciary

duties applicable to their management.39 Although these duties find

their basis in the common law of trusts,40 the Court cautioned that

ERISA’s standards and procedural protections “partly reflect a

congressional determination that the common law of trusts did not

offer completely satisfactory protection.”41 In some instances

“trust law will offer only a starting point, after which courts

must go on to ask whether, or to what extent, the language of the

statute, its structure, or its purposes require departing from

common-law trust requirements.”42 In so doing, courts should take

37
Id.
38
Id.
39
Id. at 496.
40
Id.
41
Id. at 497.
42
Id.

13
account of competing congressional purposes, “such as Congress’[s]

desire to offer employees enhanced protection for their benefits,

on the one hand, and, on the other, its desire not to create a

system that is so complex that administrative costs, or litigation

expenses, unduly discourage employers from offering welfare benefit

plans in the first place.”43

In terms of an employer’s fiduciary status, the Court found

that ERISA raises an employer to the status of fiduciary “‘to the

extent’” that it “‘exercises any discretionary authority or

discretionary control respecting management’” of the plan, or has

“‘any discretionary authority or discretionary responsibility in

the administration’” of the plan.44 Varity argued that “when it

communicated with its Massey-Ferguson workers about transferring to

Massey Combines, it was not administering or managing the plan;

rather, it was acting only in its capacity as an employer and not

as a plan administrator.”45 The Court disagreed, finding that the

purpose of the meeting convened by Varity was to convey that

transferring to Combines “would not significantly undermine the

security of their benefits” and therefore Varity was acting “in its

43
Id.
44
Id. at 498 (quoting 29 U.S.C. § 1002(21)(A)) (internal
quotation marks omitted).
45
Id.

14
capacity as plan administrator.”46

In making this determination the Court explained that “we must

interpret the statutory terms which limit the scope of fiduciary

activity to discretionary acts of plan ‘management’ and

‘administration.’”47 It then reasoned that

[t]he ordinary trust law understanding of fiduciary
“administration” of a trust is that to act as an
administrator is to perform the duties imposed, or
exercise the powers conferred, by the trust documents.
The law of trusts also understands a trust document to
implicitly confer such powers as are necessary or
appropriate for the carrying out of the purposes of the
trust.48

It concluded, “[c]onveying information about the likely future of

plan benefits, thereby permitting beneficiaries to make an informed

choice about continued participation, would seem to be an exercise

of a power ‘appropriate’ to carrying out an important plan

purpose.”49

The Court emphasized that in convening the meeting and

providing the employees with reassurances about the security of

their future benefits, “Varity was exercising ‘discretionary

authority’ respecting the plan’s ‘management’ or ‘administration’

when it made these misrepresentations.”50 Varity argued that

46
Id. at 501.
47
Id. at 502.
48
Id. (internal quotation marks omitted).
49
Id.
50
Id. at 498.

15
“neither the specific disclosure provisions of ERISA, nor the

specific terms of the plan instruments required it to make these

statements,” so it could not have taken on a fiduciary status in

making them.51 However, the Court explained that the fiduciary duty

primarily functioned “to constrain the exercise of discretionary

powers which are controlled by no other specific duty imposed by

the trust instrument or the legal regime. If the fiduciary duty

applied to nothing more than activities already controlled by other

specific legal duties, it would serve no purpose.”52

After concluding that Varity acted as a fiduciary during the

meeting with prospective Combines employees, the Court determined

that the company breached its fiduciary duty by affirmatively

misleading the employees about the future of their benefits if they

were to transfer.53 It explained that ERISA requires a fiduciary

to “discharge his duties with respect to a plan solely in the

interest of the participants and beneficiaries.”54 It then

reasoned, “[t]o participate knowingly and significantly in

deceiving a plan’s beneficiaries in order to save the employer

money at the beneficiaries’ expense is not to act solely in the

interest of the participants and beneficiaries .... [L]ying is

51
Id. at 504.
52
Id.
53
Id. at 506.
54
Id. (internal quotation marks omitted).

16
inconsistent with the duty of loyalty owed by all fiduciaries

....”55 The Varity Court concluded, “we can find no adequate basis

... for any special interpretation [of ERISA’s fiduciary duty] that

might insulate Varity, acting as a fiduciary, from the legal

consequences of the kind of conduct (intentional misrepresentation)

that often creates liability even among strangers.”56

Although the Varity Court explicitly declined to take up

“whether ERISA fiduciaries have any fiduciary duty to disclose

truthful information ... in response to employee inquiries,”57 its

reasoning does provide insight. Important for our purposes is the

acknowledgment that ERISA’s disclosure requirements do not

themselves mandate that an employer disclose information regarding

the future of a benefit plan. Indeed, the Court characterized this

act as “discretionary.” Justice Thomas, writing for the

dissenters, similarly reminded that ERISA “impose[s] a

comprehensive set of reporting and disclosure requirements, which

is part of an elaborate scheme ... for enabling beneficiaries to

learn their rights and obligations at any time.”58 However, “no

provision of ERISA requires an employer to keep plan participants

55
Id. (internal quotation marks omitted).
56
Id.
57
Id.
58
Id. at 531 (Thomas, J., dissenting) (internal quotation
marks omitted).

17
abreast of ... the sponsor’s future intentions with regard to

terminating or reducing the level of benefits.”59

Of equal importance is the majority’s view that even if

disclosure of a plan’s future is discretionary, once an employer

chooses to exercise its discretionary authority by informing the

employees of the future status of a benefit plan, it acts as a

fiduciary and thus has a duty not to misrepresent the truth, which

would be inconsistent with the duty to act “solely in the interests

of the participants and beneficiaries.”

C.

The earliest court of appeals case addressing the fiduciary

obligations of an employer considering implementing an enhanced

benefits plan is Berlin v. Michigan Bell Telephone Co., a 1988 case

from the Sixth Circuit.60 Michigan Bell offered a retirement

incentive program, and then a more generous second plan. During

the first offering, the company attempted to dispel rumors that it

planned to offer a second, enhanced program if not enough employees

accepted the first time around. To that end it indicated that the

first offering was a “one-time application, that [enhanced]

benefits would not again be made available, and that managers

considering retirement should not delay plans in anticipation of

59
Id. at 531-32.
60
858 F.2d 1154, 1164 (6th Cir. 1988).

18
another [early retirement] offering.”61 Plaintiffs, who accepted

the first offering, contended that the company intentionally

misrepresented the possibility of a second, more beneficial

program.62

In determining whether the company violated any fiduciary duty

in making the misleading statements, the court first acknowledged

that several courts have “held that misleading communications to

plan participants regarding plan administration,” for instance,

“eligibility under a plan” or “the extent of benefits under a

plan,” may “support a claim for breach of fiduciary duty.”63 It

distilled these holdings into the principle that “a fiduciary may

not materially mislead those to whom the duties of loyalty and

prudence [under ERISA] are owed.”64

Based on this conclusion the Berlin court reasoned that “when

serious consideration was given by” the company to implementing the

second offering, the plan administrator “had a fiduciary duty not

to make misrepresentations, either negligently or intentionally, to

potential plan participants concerning the second offering.”65

Consequently, “any misrepresentations made to the potential plan

61
Id. at 1158.
62
Id.
63
Id. at 1163.
64
Id.
65
Id. at 1163-64.

19
participants after serious consideration was given to a second

offering could constitute a breach of a fiduciary duty.”66 It

dismissed the company’s defense, that it could not have made

misrepresentations prior to its final decision to offer the

enhanced benefits because “any pre-decision communications [could]

be nothing more than predictions,” by concluding that “this

distinction goes to materiality rather than to the definition of

‘misrepresentation.’”67 It reasoned that if, for example, the

company, “after serious consideration” of a second benefits

offering began, represented that the enhanced plan was not being

considered, such a statement “would be characterized as a material

misrepresentation, although no final decision had been made.”68

In finding that the company could be liable for breach of

fiduciary duty because of its alleged misrepresentations, the

Berlin court limited its ruling to those instances in which

employers are accused of affirmatively misrepresenting the

possibility of future benefits:

[P]laintiffs are not arguing, nor do we hold, that
defendants had any duties ... to say anything at all or
to communicate with potential plan participants about the
future availability of [enhanced retirement benefits
programs].... But if the plan administrator and/or plan
fiduciary does communicate with potential plan
participants after serious consideration has been given

66
Id. at 1164.
67
Id. at 1164 n.7.
68
Id.

20
 concerning a future implementation or offering under the
plan, then any material misrepresentations may constitute
a breach of their fiduciary duties.69

Berlin thus carved out a limited duty on the part of employers

to avoid misrepresentations about the availability of future

incentive programs if they choose to broach the subject of

prospective plans. It did not hold that the employer had an

affirmative duty to communicate any information about future plans

to its employees, either before or after it gave serious

consideration to those potential programs. Although reasoning that

an employer could be liable for misrepresentations after the point

at which it began seriously considering a plan change, the court

provided no definition for the term nor an explanation for its

drawing the line at the point of “serious consideration” rather

than at another point during the process of adopting a plan

change.70

The Sixth Circuit expanded upon Berlin three years later in

Drennan v. General Motors Corp., in which it held that the duty to

avoid material representations about a future plan requires that an

employer also “fairly disclose[] the progress of its serious

69
Id. at 1164.
70
Several other circuit courts followed Berlin in finding that
an employer may not affirmatively misrepresent potential benefits.
See, e.g., Maez v. Mountain States Telephone & Telegraph, Inc., 54
F.3d 1488, 1501 (10th Cir. 1995); Mullins v. Pfizer, Inc., 23 F.3d
663, 668-69 (2d Cir. 1994); Vartanian v. Monsanto Co. (Vartanian
I), 14 F.3d 697, 702 (1st Cir. 1994); Barnes v. Lacy, 927 F.2d 539,
544 (11th Cir. 1991).

21
considerations to make a plan available to affected employees.”71

It transformed Berlin’s prohibition against misrepresentation into

an affirmative duty of truthful disclosure:

A fiduciary “has a duty not only to inform a beneficiary
of new and relevant information as it arises, but also to
advise him of circumstances that threaten interests
relevant to the relationship.” A fiduciary must give
complete and accurate information in response to
participants’ questions, a duty that does not require the
fiduciary to disclose its internal deliberations nor
interfere with the substantive aspects of the
72
[collective] bargaining process.

As one commentator has noted, Drennan’s statements are “somewhat

contradictory,” and reconciled they appear to require a fiduciary

71
977 F.2d 246, 251 (6th Cir. 1992).
72
Id. at 251 (quoting Eddy v. Colonial Life Ins. Co., 919 F.2d
747, 750 (D.C. Cir. 1990)). Although the statement Drennan lifts
from Eddy appears to support Drennan’s proposition that an employer
must disclose potential plan changes that might affect the future
of a participant’s benefits, Eddy actually concerned an entirely
different set of circumstances. In that case the plaintiff, a
participant in his employer’s group health insurance policy who
suffered from AIDS, received notice that after a certain date his
group coverage would terminate. 919 F.2d at 748. The district
court concluded that when Eddy called the insurance company to
attempt to prolong his health coverage, he asked whether it could
be “continued” rather than whether it could be “converted.” The
insurance representative told him it could not be continued. Id.
at 748-49. The district court found that the insurance company
breached no duty to Eddy because it had truthfully informed him
that his coverage could not be continued. Id. at 749. The
circuit court reversed, finding that the insurance provider’s duty
encompassed more than simply informing Eddy that his coverage could
not be continued, but also explaining to him that his group policy
could be converted into an individual one. Id. at 750-52. Thus,
the case concerned an insurer’s responsibility to communicate fully
a beneficiary’s rights under his current insurance coverage. It
did not speak to whether an employer-administrator has a duty to
fully disclose the status of its consideration of future plan
amendments.

22
to disclose the fact that changes to a plan are under consideration

“but not the details of the decision-making process.”73

Although Drennan added to the holding of Berlin by insisting

upon an affirmative duty on the part of an employer, Wilson v.

Southwestern Bell Telephone Co., an Eighth Circuit case released

after Drennan, adhered to Berlin’s more restrictive definition of

an employer’s duty to its employees with respect to a potential

plan change.74 The Wilson panel explained that while “[p]lan

fiduciaries are not obligated under ERISA to provide information to

potential plan beneficiaries about possible future offerings,” if

a fiduciary does choose to “provide such information about the

future ... it has a duty not to make misrepresentations about any

future offering.”75 For instance, “[a] statement to employees that

future incentive programs are not planned can be a

misrepresentation if serious consideration has been given to

implementing a future program.”76

Although the Eighth Circuit preferred to adhere to Berlin, the

Third Circuit took its cues from Drennan, holding that an employer

has both a negative duty to refrain from disseminating incorrect

information with regard to potential plans under serious

73
Bintz, supra note 9, at 995.
74
55 F.3d 399, 405 (8th Cir. 1995).
75
Id. (citing Berlin, 858 F.2d at 1164) (emphasis added).
76
Id.

23
consideration, and an affirmative responsibility to disclose, upon

an employee’s request, the terms of such a plan if it is under

serious consideration.77 That court further created a three-part

test for discerning whether a potential plan is under serious

consideration.78 These developments occurred in two decisions in

the same case, Fischer v. Philadelphia Electric Co.79 The

plaintiffs, past employees of Philadelphia Electric, had retired

soon before the utility had implemented an early retirement

incentive program.80 Prior to their retirement, the plaintiffs had

inquired of the company whether it would be pursuing such a program

but benefits counselors had told them that no new plan was being

considered.81 They filed suit alleging that the utility had

breached its fiduciary obligation to reveal to them when asked that

it had been considering an early retirement incentive program.82

The district court granted summary judgment in the utility’s

favor and the plaintiffs appealed.83 The Third Circuit issued its

77
Fischer v. Phila. Elec. Co. (Fischer II), 96 F.3d 1533 (3d
Cir. 1996); Fischer v. Phila. Elec. Co. (Fischer I), 994 F.2d 130
(3d Cir. 1993).
78
Fischer II, 96 F.3d at 1539.
79
Fischer II, 96 F.3d 1533; Fischer I, 994 F.2d 130.
80
Fischer I, 994 F.2d at 132.
81
Id.
82
Id.
83
Id.

24
first decision, known as Fischer I, relying on Drennan for

guidance.84 It concluded that although an ERISA fiduciary “is under

no obligation to offer precise predictions about future changes to

its plan,” it “may not make affirmative material

misrepresentations” and must “answer participants’ questions

forthrightly.”85 Perpetuating the internal contradiction first

established in Drennan, it added that this duty of disclosure does

not, however, “require the fiduciary to disclose its internal

deliberations nor interfere with the substantive aspects of the

[collective] bargaining process.”86

It also expanded upon Drennan by defining the term “material

misrepresentation,” reasoning that “a misrepresentation is material

if there is a substantial likelihood that it would mislead a

reasonable employee in making an adequately informed decision about

if and when to retire.”87 It continued:

Included within the overall materiality inquiry will be
an inquiry into the seriousness with which a particular
change to an employee pension plan is being considered at
the time the misrepresentation is made. All else equal,
the more seriously a plan change is being considered, the
more likely a misrepresentation, e.g., that no change is
under consideration, will pass the threshold of

84
Id. at 135.
85
Id.
86
Id. (internal quotation marks omitted).
87
Id.

25
 materiality.88

The court remanded the case on the basis that fact questions

remained on the issue of how seriously the defendant was

considering the early retirement program when the plaintiffs made

the various inquiries that elicited the alleged

misrepresentations.89

In Fischer II the Third Circuit had a second chance to speak

on the serious consideration issue.90 After the circuit court’s

remand in Fischer I, the district court had determined that the

defendants were liable to those plaintiffs who had inquired about

the possibility of a new plan between the time the utility’s

manager of compensation and benefits started exploring the idea of

an early retirement plan – the point at which “serious

consideration” began – and the date on which the plan was

announced.91 The defendants appealed and the Third Circuit

reversed, explaining that the district court had “misunderstood the

concept of ‘serious consideration.’”92

It explained, “[i]n the current case, as in any case where the

misrepresentation in question is the statement that no change in

88
Id.
89
Id.
90
96 F.3d 1533 (3d Cir. 1996).
91
Id. at 1536-38.
92
Id. at 1536.

26
benefits is under consideration, the only factor at issue is the

degree of seriousness with which the change was in fact being

considered. This factor controls the materiality test.”93

Supplying a belated justification for Fischer I’s use of Drennan’s

“serious consideration” standard, the Fischer II panel opined:

The concept of “serious consideration” recognizes and
moderates the tension between an employee’s right to
information and an employer’s need to operate on a day-
to-day basis. Every business must develop strategies,
gather information, evaluate options, and make decisions.
Full disclosure of each step in this process is a
practical impossibility. Moreover ... large corporations
regularly review their benefits packages as part of an
on-going process of cost-monitoring and personnel
management. The various levels of management are
constantly considering changes in corporate benefits
plans. A corporation could not function if ERISA
required complete disclosure of every facet of these on-
going activities. Consequently, our holding in Fischer
I requires disclosure only when a change in benefits
comes under serious consideration.
Equally importantly, serious consideration protects
employees. Every employee has a need for material
information on which that employee can rely in making
employment decisions. Too low a standard could result in
an avalanche of notices and disclosures. For employees
at a company ... which regularly reviews its benefits
plans, truly material information could easily be missed
if the flow of information was too great. The warning
that a change in benefits was under serious consideration
would become meaningless if cried too often.94

Attempting to transform the nebulous concept of “serious

consideration” into a standard courts could actually apply, the

Fischer II court created a three-factor test: “Serious

93
Id. at 1538.
94
Id. at 1539.

27
consideration of a change in plan benefits exists when (1) a

specific proposal (2) is being discussed for purposes of

implementation (3) by senior management with authority to implement

the change.”95 These criteria “interact and coalesce to form a

composite picture of serious consideration.”96

The court explained that the first factor “distinguishes

serious consideration from the antecedent steps of gathering

information, developing strategies, and analyzing options.”97 This

factor does not require, however, that the proposal describe the

plan in its final form.98 Rather, “a specific proposal can contain

several alternatives, and the plan as finally implemented may

differ somewhat from the proposal,” as long as the proposal is

“sufficiently concrete to support consideration by senior

management for the purpose of implementation.”99

The second element, discussion for implementation,

“distinguishes serious consideration from the preliminary steps of

gathering data and formulating strategy,” and “protects the ability

of senior management to take a role in the early phases of the

95
Id.
96
Id.
97
Id. at 1539-40.
98
Id. at 1540.
99
Id.

28
process without automatically triggering a duty of disclosure.”100

The final criterion, consideration by senior management with

authority to implement the change, “ensures that the analysis of

serious consideration focuses on the proper actors within the

corporate hierarchy.”101 In other words, until senior management

with “authority to implement the proposed change” enters into the

picture, “the company has not yet seriously considered a change.”102

The Fischer II court reasoned that this formulation

ensures that disclosures to employees about potential
changes in benefits will be meaningful. Employees will
learn of potential changes when the company’s
deliberations have reached a level where an employee
should reasonably factor the potential change into an
employment decision. This guarantees that employees will
have the information they need, while avoiding a surfeit
of meaningless disclosures. Finally, as a matter of
policy, we note that imposing liability too quickly for
failure to disclose a potential early retirement plan
could harm employees by deterring [employers] from
resorting to such plans.103

Only two months after the Third Circuit released Fischer II,

the Sixth Circuit established its own standard for determining

serious consideration. In Muse v. International Business Machines

Corp.,104 that court reasoned that “[t]he exception of serious

100
Id.
101
Id.
102
Id.
103
Id. at 1541.
104
103 F.3d 490 (6th Cir. 1996).

29
consideration does not apply until a company focuses on a

particular plan for a particular purpose.”105 Despite Muse’s

omission of any mention of Fischer II or the Third Circuit’s three-

pronged test, in a later case, McAuley v. International Business

Machines Corp., the Sixth Circuit decided to merge its “particular

plan for a particular purpose” standard with Fischer II’s three-

part serious consideration test.106

The Tenth and First Circuits later incorporated Fischer II

into their jurisprudence on an employer’s fiduciary duties. In

Hockett v. Sun Co., the Tenth Circuit held that “material

misrepresentations about a future plan offering do not constitute

a breach of fiduciary duty unless the misrepresentations are made

after the employer has ‘seriously considered’ the future

offering.... ‘Serious consideration’ marks the point ... at which

imposing fiduciary-related duties will best serve the competing

congressional purposes.”107 In its view, the Fischer II test

105
Id.
106
McAuley v. Int’l Bus. Mach. Corp., 165 F.3d 1038, 1043-45
(6th Cir. 1999) (“[Under Muse] [s]erious consideration does not
occur until a company focuses on a particular plan for a particular
purpose. The only further guidance Muse provides is to say that it
is not serious consideration if an employer has only studied
changes in plans to gain a general appreciation of its options....
[I]t is [also] useful to consider Fischer II, which delineated a
relatively specific set of factors for determining serious
consideration.” (internal quotation marks and citations omitted)).
107
Hockett v. Sun Co., 109 F.3d 1515, 1522 (10th Cir. 1997).

30
“appropriately narrow[ed] the range of instances in which an

employer must disclose, in response to employees’ inquiries, its

tentative intentions regarding an ERISA plan.”108 It repeated the

concern that plagued the Fischer II panel: “If any discussion by

management regarding possible change to an ERISA plan triggered

disclosure duties, the employer could be burdened with providing a

constant, ever-changing stream of information to inquisitive plan

participants,”109 and would be forced to “impair the achievement of

legitimate business goals by allowing competitors to know that the

employer is considering a labor reduction, a site-change, a merger,

or some other strategic move.”110 It also noted that, were

fiduciaries required “to disclose such a business strategy, it

would necessarily fail. Employees simply would not leave if they

were informed that improved benefits were planned if workforce

reductions were insufficient.”111

Similarly, in Vartanian v. Monsanto Co. (Vartanian II), the

First Circuit used the Fischer II test to define the extent of an

employer’s fiduciary duty to disclose prospective plan changes.112

108
Id. at 1523.
109
Id.
110
Id. (internal quotation marks omitted).
111
Id. (internal quotation marks and citation omitted).
112
131 F.3d 264, 268 (1st Cir. 1997). Vartanian II also
explained the evolution of case law on the issue of fiduciary
duties prior to announcement of a new plan:

31
It modified the standard by requiring that the specific proposal

being discussed for purposes of implementation by senior management

be applicable to “a person in the position of the plaintiff.”113

Despite its use of the serious consideration test Vartanian II

expressed certain reservations about the standard, acknowledging

that if confronted with a “positive misrepresentation” on the part

of an employer, the misrepresentation might be material “regardless

of whether future changes are under consideration at the time the

misstatement is made.”114

The Second Circuit was the first to break from the serious

consideration pack with Ballone v. Eastman Kodak Co., holding that

an employer could be liable for affirmatively misrepresenting the

availability of a prospective retirement enhancement program

regardless of whether the new plan was then under serious

consideration.115 In Ballone, the employer-administrator had

Early decisions grappling with the employer’s duties in
this context focused mainly on the extent of the cause of
action engendered by an employer’s material
misrepresentations regarding prospective changes in plan
benefits. As a consensus on that issue developed,
attention began to shift to the question of when the
consideration of a change in benefits reached a point of
seriousness sufficient to trigger a fiduciary duty of
disclosure.

Id. at 268-69 (citations omitted).
113
Id. at 272.
114
Id. at 269.
115
109 F.3d 117 (2d Cir. 1997).

32
allegedly made affirmative assurances to its employees that it

would not adopt an enhanced pension plan in the months following

the plaintiffs’ retirement.116 The district court granted summary

judgment in Kodak’s favor, finding it irrelevant that Kodak had

allegedly promised the plaintiffs that it had ruled out future plan

changes because Kodak was not seriously considering such a plan

change at the time it made the assurance.117 The Second Circuit

reversed, rejecting the Fischer II court’s conclusion that

misrepresentations about future benefits do not become material

until the employer seriously considers benefits program changes.118

Instead, the Ballone court reasoned that “[w]hether a plan is under

serious consideration is but one factor in the materiality

inquiry,” and no bright-line rule existed “that serious

consideration of a future plan is a prerequisite to liability for

misstatements regarding the availability of future pension

benefits.”119 Rather, the court accepted “the simple view that when

a plan administrator speaks, it must speak truthfully, regardless

of how seriously any changes are being considered.”120

Applying its truthfulness standard to the facts at hand,

116
Id. at 120.
117
Id.
118
Id. at 122.
119
Id. at 123.
120
Id. (internal quotation marks omitted).

33
Ballone concluded that “Kodak may not actively misinform its plan

beneficiaries about the availability of future retirement benefits

to induce them to retire earlier than they otherwise would,

regardless of whether or not it is seriously considering future

plan changes. Kodak has a duty to deal fairly and honestly with

its beneficiaries.”121 It looked to securities law for guidance in

defining the materiality standard applicable to these

misrepresentations, finding that “an assurance about the future

that by necessary implication misrepresents present facts is

clearly actionable,”122 and such statements “are material if they

would induce reasonable reliance.”123

It expanded on this:

Determining the materiality of false assurances like
those here alleged is fact-specific and will turn on a
number of factors, including[] how significantly the
statement misrepresents the present status of internal
deliberations regarding future plan changes; the special
relationship of trust and confidence between the plan
fiduciary and beneficiary; whether the employee was aware
of other information or statements from the company
tending to minimize the importance of the
misrepresentation or should have been so aware, taking
into consideration the broad trust responsibilities owed
by the plan administrator to the employee and the
employee’s reliance on the plan administrator for
truthful information; and the specificity of the
assurance. Whereas mere mispredictions are not
actionable, false statements about future benefits may be
material if couched as a guarantee, especially where, as

121
Id. at 124.
122
Id.
123
Id.

34
 alleged here, the guarantee is supported by specific
statements of fact.124

Although acknowledging that the extent to which a company is

considering a new plan at the time it makes the alleged

misrepresentation is relevant to its materiality, Ballone was

unwilling to give the “special consideration” test talismanic

significance, fearful of providing an employer-administrator “carte

blanche to make statements that the employer knows to be false, or

that have no reasonable basis in fact, simply because the

statements concern the future.”125

Taking the lead from Ballone, the Ninth Circuit, although

adopting the Fischer II serious consideration test in the context

of defining an employer’s duty to affirmatively disclose in

response to an employee’s inquiry whether it is seriously

considering a plan change, found that Ballone more accurately

defines an employer’s responsibility to not misrepresent future

plan changes.126 In Bins v. Exxon, the Ninth Circuit read Varity to

suggest that an employer has a fiduciary duty to communicate

information about the future of plan benefits, and concluded that

Fischer II best accomplishes this goal while balancing the

employer’s interest in not being overly burdened by the

124
Id. at 125 (citations omitted).
125
Id. at 122, 126.
126
Bins v. Exxon Co. U.S.A., 220 F.3d 1042 (9th Cir. 2000) (en
banc).

35
responsibility to communicate constantly the progress of its

consideration of potential plans.127 It emphasized, as did the

Fischer II court, that the test “should not be applied so rigidly

as to distract attention from the core inquiry, which must always

be whether the employer-fiduciary has violated its fiduciary duty

of loyalty to plan participants by failing to disclose material

information.”128

Then, in Wayne v. Pacific Bell, the Ninth Circuit clarified

that the holding in Bins adopting the serious consideration test

applied only to claims that employers breached their fiduciary

duties not to disclose their consideration of a plan change.129 In

deciding a claim that an employer affirmatively misrepresented

future plan benefits, the court found the Ballone rule more

appropriate.130 Thus, the Ninth Circuit has implemented a two-

tiered approach to a company’s fiduciary duty of disclosure.

D.

This review of the evolution of the scope of an employer’s

duties regarding future plan changes, including the creation and

proliferation of the “serious consideration” doctrine, suggests

that we need address several interrelated issues: First, should we

127
Id. at 1047-49.
128
Id. at 1049.
129
238 F.3d 1048, 1050-51, 1055 (9th Cir. 2001).
130
Id. at 1055.

36
find that an employer who chooses to speak about prospective plan

changes has a fiduciary duty not to misrepresent those changes,

and, if so, at what point does that duty arise – at the time the

employer “seriously considers” the change, or some other time

during the process. Second, should we also place upon the employer

an affirmative obligation to disclose a future plan change, and, if

so, at what point.

With respect to an employer’s misrepresentations, we conclude,

as have all of the circuits that have considered this issue, that

an employer, if it chooses to communicate about the future of a

participant’s plan benefits, has a fiduciary duty to refrain from

misrepresentations. The Supreme Court’s words in Varity instruct

that when an employer chooses, in its discretion, to communicate

about future plan benefits, it does so as an ERISA fiduciary.131 In

speaking it is exercising discretionary authority in administration

of the plan, a specifically enumerated fiduciary function under

ERISA.132 Thus, it has a duty to refrain from “knowingly and

significantly” deceiving a plan’s beneficiaries “in order to save

the employer money at the beneficiaries’ expense,” which would be

inconsistent with its fiduciary responsibility to act “solely in

the interest of the participants and beneficiaries.”133 This is

131
Varity Corp. v. Howe, 516 U.S. 489, 506 (1996).
132
See id. at 504-05.
133
Id. at 506 (internal quotation marks omitted).

37
consistent with our defining of the scope of an employer’s

fiduciary duties: In McCall we reasoned that “[p]roviding

information to beneficiaries about likely future plan benefits

falls within ERISA’s statutory definition of a fiduciary act. When

an ERISA plan administrator speaks in its fiduciary capacity

concerning a material aspect of the plan, it must speak

truthfully.”134

Although we join our sister circuits in recognizing this duty,

we cannot agree that misrepresentations are actionable only after

the company has seriously considered the plan change. Varity does

not suggest that the obligation not to misrepresent materializes

near the end of a progression, but rather implies that whenever an

employer exercises a fiduciary function, it must speak truthfully.

Nor do we find a safe harbor for predictions of the future. When

an employer speaks to the future of a plan, employees are justified

in concluding that it is backed by the authority of a plan

administrator, and should therefore be entitled to trust in those

representations.

Accordingly, we reject the view that the duty to speak

truthfully only arises once the employer begins seriously

considering a plan. We see no reasoned justification for drawing

the line at that point in time. We also decline to find, as did

134
McCall v. Burlington N./Santa Fe Co., 237 F.3d 506, 510
(5th Cir. 2000).

38
the Fischer II court, that a misrepresentation is only material,

and therefore actionable, once the company has seriously considered

the plan change. This view does not comport with the Supreme

Court’s dictates, in the related context of securities law,135 that

materiality is a fact-specific inquiry not capable of easy line-

drawing.

In Basic Inc. v. Levinson, the Court rejected a bright-line

approach to materiality similar to the “serious consideration”

test.136 Beginning in September 1976, Basic had engaged in meetings

with another company, Combustion, regarding the possibility of a

merger.137 During 1977 and 1978, Basic issued three public

statements denying that it was engaged in merger negotiations.138

In late 1978, Basic announced its approval of Combustion’s tender

offer for all of its outstanding shares.139

Plaintiffs, former Basic shareholders who sold their stock

after Basic’s first public denial but before the merger, argued

that the defendants had issued three false or misleading public

135
The Ballone court looked to securities law for assistance
in defining the materiality inquiry in ERISA breach of fiduciary
duty cases. Ballone v. Eastman Kodak Co., 109 F.3d 117, 124 (2d
Cir. 1997).
136
485 U.S. 224 (1988).
137
Id. at 227.
138
Id.
139
Id. at 228.

39
statements in violation of § 10(b) of the Securities Act and Rule

10b-5.140 They averred that they were injured by selling Basic

shares at artificially depressed prices in a market affected by

their reliance upon the defendants’ misleading statements.141

The district court granted summary judgment for the

defendants, holding that any misrepresentations were immaterial as

a matter of law since any negotiations taking place when the

statements were issued were not destined with reasonable certainty

to become a merger agreement.142 The Sixth Circuit reversed,

reasoning that while the defendants were under no general duty to

disclose their discussions with Combustion, any statement the

company voluntarily released could not be so incomplete as to

mislead.143 It rejected the argument that preliminary merger

discussions were immaterial as a matter of law, and held that once

a statement is made denying the existence of any discussions, even

discussions that might not have been material in the absence of the

denial are material because they make the statement made untrue.144

The Supreme Court began its discussion of materiality by

reiterating its prior statement that, under the securities laws,

140
Id.
141
Id.
142
Id. at 228-29.
143
Id. at 229.
144
Id.

40
“[a]n omitted fact is material if there is a substantial likelihood

that a reasonable shareholder would consider it important in” his

decision.145 It recognized that “certain information concerning

corporate developments could well be of dubious significance,” and

that too low of a standard might “bring an overabundance of

information within its reach, and lead management” to “bury the

shareholders in an avalanche of trivial information – a result that

is hardly conducive to informed decisionmaking.”146 It also admitted

that where the event is contingent or speculative in nature, it is

difficult to ascertain whether the reasonable investor would have

considered the information significant at the time.147

Nevertheless, the Court shunned the idea that materiality was

amenable to an easy formula, and in doing so explicitly rejected

the standard for materiality created by the Third Circuit, which is

similar in many respects to Fischer II’s definition of the “serious

consideration” rule.148 The Basic Court explained that under that

circuit’s law at the time, preliminary merger discussions were per

se immaterial “until ‘agreement-in-principle’ as to the price and

structure of the transaction [were] reached.”149 Consequently,

145
Id. at 231 (internal quotation marks omitted).
146
Id. (internal quotation marks omitted).
147
Id. at 232.
148
See id. at 232-33.
149
Id. at 233 (internal quotation marks omitted).

41
“information concerning any negotiations not yet at the agreement-

in-principle stage could be withheld or even misrepresented without

a violation of Rule 10b-5.”150

The Court acknowledged that several reasonable rationales had

been offered in support of this test: It answered the concern that

an investor not be overwhelmed by excessively detailed and trivial

information, assisted in preserving the confidentiality of the

discussions, and “provide[d] a usable, bright-line rule for

determining when disclosure must be made.”151 Courts adopting the

“serious consideration” test have used the same rationales,

explaining that it prevents the employer from being burdened “with

providing a constant, ever-changing stream of information to

inquisitive plan participants”;152 relieves “employers [from]

reveal[ing] too soon their internal deliberations to inquiring

beneficiaries,” which “could seriously impair the achievement of

legitimate business goals”;153 and provides a bright-line rule

allowing for easier resolution of cases upon summary judgment,

unlike the Second Circuit’s “fact-specific analysis,” which might

“result generally in trial litigation.”154

150
Id.
151
Id.
152
Hockett v. Sun Co., 109 F.3d 1515, 1523 (10th Cir. 1997).
153
Id. (internal quotation marks omitted).
154
Martinez v. Schlumberger Ltd., 191 F. Supp. 2d 837, 851
(S.D. Tex. 2001).

42
 After listing these rationales, however, the Basic Court

concluded that none of them “purports to explain why drawing the

line at agreement-in-principle reflects the significance of the

information upon the investor’s decision.”155 Taking each rationale

in turn, it observed that “[a]rguments based on the premise that

some disclosure would be ‘premature’ in a sense are more properly

considered under the rubric of an issuer’s duty to disclose,” not

materiality.156 Moreover, “[t]he ‘secrecy’ rationale is simply

inapposite to the definition of materiality.”157 It added:

A bright-line rule indeed is easier to follow than a
standard that requires the exercise of judgment in the
light of all the circumstances. But ease of application
alone is not an excuse for ignoring the purposes of the
Securities Acts and Congress’s policy decisions. Any
approach that designates a single fact or occurrence as
always determinative of an inherently fact-specific
finding such as materiality must necessarily be
overinclusive or underinclusive.158

The Court reasoned that, in contrast to the Third Circuit’s

test, any determination of materiality requires “delicate

assessments of inferences” a reasonable shareholder would draw

“from a given set of facts and the significance of those inferences

to him.”159 It explained that the Advisory Committee on Corporate

155
Basic, 485 U.S. at 234.
156
Id. at 235.
157
Id.
158
Id. at 236.
159
Id. (internal quotation marks omitted).

43
Disclosure “cautioned the SEC against administratively confining

materiality to a rigid formula” and added, “[c]ourts would do well

to heed this advice.”160

In conclusion, the Court stated that it could not find any

valid justification “for artificially excluding from the definition

of materiality information concerning merger discussions, which

would otherwise be considered significant to the trading decision

of a reasonable investor, merely because agreement-in-principle ...

has not yet been reached.”161 It also rejected the Sixth Circuit’s

approach, which provided that when a company denies engaging in

merger discussions, information concerning those discussions

becomes material by virtue of the statement denying their

existence.162 It found that this approach failed to recognize that

for liability to attach the statements must be misleading “as to a

material fact. It is not enough that a statement is false or

incomplete, if the misrepresented fact is otherwise

insignificant.”163

In contrast, it endorsed the Second Circuit’s approach to

materiality, which recognized that it was a fact-based inquiry and

depended “upon a balancing of both the indicated probability that

160
Id.
161
Id.
162
Id. at 237.
163
Id. at 238.

44
the event will occur and the anticipated magnitude of the event in

light of the totality of the company activity.”164 At its core,

“materiality depends on the significance the reasonable investor

would place on the withheld or misrepresented information.”165

Basic suggests that we are not to rely on a bright-line test

to determine whether a company’s alleged misrepresentations are

material. We therefore reject the Fischer II serious consideration

approach to materiality, and adopt a fact-specific approach akin to

that promulgated by the Second Circuit in Ballone and followed by

the Ninth Circuit in Wayne. The overarching question in such an

analysis is whether there is a substantial likelihood that a

reasonable person in the plaintiffs’ position would have considered

the information an employer-administrator allegedly misrepresented

important in making a decision to retire.166 As the Second Circuit

found, this entails consideration of a variety of factors, such

“how significantly the statement misrepresents the present status

of internal deliberations regarding future plan changes,” whether

the employee knew or should have been aware of “other information

or statements from the company tending to minimize the importance

of the misrepresentation,” and “the specificity of the

164
Id. (internal quotation marks omitted).
165
Id. at 240.
166
See ABC Arbitrage Plaintiffs Group v. Tchuruk, 291 F.3d
336, 359 (5th Cir. 2002).

45
assurance.”167

Notwithstanding our rejection of serious consideration as a

bright-line rule, we recognize, as did the Third Circuit in Fischer

I, that the more seriously a plan is being considered, the more

likely a representation about the plan is material. Our

reservations with the serious consideration test do not lie in its

solid underpinnings, which acknowledge the reality that businesses

need be allowed some latitude in responding to employee inquiries

about future plan changes since at some level the potential for

such changes is virtually always being discussed. We hold only

that the lack of serious consideration does not equate to a free

zone for lying.

E.

Taking up the second issue, whether an employer has a

fiduciary duty to affirmatively disclose whether it is considering

amending its benefit plan, we conclude that no such duty exists.

Those circuits which have recognized the existence of such a duty

have not presented persuasive reasons, and instead we find that the

practicalities of the business world weigh against it. As one

commentator has observed, imposing a fiduciary duty to disclose

contemplated plan changes is “highly problematic” because, “unless

any such duty is strictly limited, the normal decisionmaking

167
Ballone v. Eastman Kodak Co., 109 F.3d 117, 125 (2d Cir.
1997).

46
processes of businesses will be disrupted and their ability to

achieve legitimate business goals will be hampered.”168 For

example, a company “that for competitive reasons finds it necessary

to reduce its workforce should not be prevented from pursuing a

business plan under which an initial early retirement or severance

pay plan will be improved if a sufficient number of employees do

not elect to retire or terminate employment.”169 However, if courts

were to impose an affirmative duty on employers to disclose such a

plan of action, “it would be impossible to implement. Few

employees would elect retirement or terminate employment after

being informed that improved benefits would become available if an

insufficient number of employees elect to participate.”170

Similarly, the Second Circuit, in concluding that an employer

has no fiduciary duty to voluntarily disclose its consideration of

a plan change, has reasoned that

[u]ntil a plan is adopted, there is no plan, simply the
possibility of one. Insisting on voluntary disclosure
during the formulation of a plan and prior to its
adoption would ... increase the likelihood of confusion
on the part of beneficiaries and, at the same time,
unduly burden management, which would be faced with
continuing uncertainty as to what to disclose and when to
disclose it. Moreover, any requirement of pre-adoption
disclosure could impair the achievement of legitimate
business goals....
Congress’s main purpose in imposing a disclosure
requirement on ERISA fiduciaries was to ensure that

168
Bintz, supra 9, at 997.
169
Id.
170
Id.

47
 employees [would have] sufficient information and data to
enable them to know whether the plan was financially
sound and being administered as intended. Permitting
plan fiduciaries to keep secret their pre-adoption
deliberations and discussions in no way frustrates this
purpose. Rather, such a bright-line rule protects the
interests of beneficiaries, who will receive information
at the earliest point at which their rights can possibly
be affected, as well as the interests of fiduciaries, who
will be required to provide information only at the point
at which it becomes complete and accurate.171

Moreover, this view finds support in the Varity Court’s

characterization of an employer’s statements about prospective

benefits as an “exercise of discretionary authority.” It is also

bolstered by the fact that ERISA itself, which includes broad

disclosure duties on the part of an employer-administrator, omits

mention of any duty on the part of an employer-administrator to

disclose that it is considering amending the plan.

Finally, our conclusion squares with the Court’s pronouncement

that a company does not act in a fiduciary capacity by simply

amending a plan.172 In Lockheed Corp. v. Spink, the Court

171
Pocchia v. NYNEX Corp., 81 F.3d 275, 278-79 (2d Cir. 1996)
(internal quotation marks and citations omitted). Although the
Pocchia court limited its holding to an employer’s duty to disclose
its consideration of a plan change in the absence of an employee
inquiry, we believe its reasoning is equally applicable to the
circumstance in which an employee asks about the status of a
company’s consideration of a plan change.
172
See Lockheed Corp. v. Spink, 517 U.S. 882, 890 (1996);
Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995); see
also McCall v. Burlington N./Santa Fe Co., 237 F.3d 506, 511 (5th
Cir. 2000) (citing Lockheed for the proposition that “[a]n employer
who adopts, amends, or terminates an employee benefit plan is not
acting as a fiduciary”).

48
explained:

Plan sponsors who alter the terms of a plan do not fall
into the category of fiduciaries.... [E]mployers or other
plan sponsors are generally free under ERISA, for any
reason at any time, to adopt, modify, or terminate
welfare plans. When employers undertake those actions,
they do not act as fiduciaries, but are analogous to the
settlors of a trust.
This rule is rooted in the text of ERISA’s
definition of fiduciary.... [O]nly when fulfilling
certain defined functions, including the exercise of
discretionary authority or control over plan management
or administration, does a person become an [ERISA]
fiduciary .... [B]ecause [the] defined functions [in the
definition of fiduciary] do not include plan design, an
employer may decide to amend an employee benefit plan
without being subject to fiduciary review.173

However, “[a] court that imposes an affirmative duty to disclose

proposed changes on employers must maintain,” counter to this

precedent, “that the act of amending a benefits plan is a fiduciary

function.”174

We instead take the view that the proper course for an

employer to follow is not to affect the employee’s decision whether

173
Spink, 517 U.S. at 890 (citations and internal quotation
marks omitted).
174
Stover, supra note 8, at 731; see also id. (“Before a court
can impose fiduciary duties on an employer, it must ensure that the
employer is acting in a fiduciary capacity. ERISA’s functional
definition of ‘fiduciary’ prevents a court from extending its
fiduciary duty to disclose to an employer in the act of amending
its benefit plan. Communicating to an employee about her benefits
plan is an act of plan administration; therefore, fiduciary duties
attach when an administrator speaks. Considering whether to amend
an employee benefits plan is not an act of plan administration, but
an act of plan design. Because ERISA’s functional definition of a
fiduciary does not include designing a plan, fiduciary duties do
not attach to an employer when it acts in this capacity.” (internal
citations omitted)).

49
to retire in any way – not by lying to them to induce them to

retire before implementation of an enhanced early retirement

program, nor by being forced to tip off the employees to its

business strategies to aid them in taking best advantage of the

company’s future plans. This middle road will allow the company to

make its business decisions without hindrance while prohibiting it

from tricking its employees into retirement by making guarantees it

knows to be false.

We believe the two views we have promulgated – that an

employer has no affirmative duty to disclose the status of its

internal deliberations on future plan changes even if it is

seriously considering such changes, but if it chooses in its

discretion to speak it must do so truthfully – coalesce to form a

scheme that accomplishes Congress’s dual purposes in enacting ERISA

of protecting employees’ rights to their benefits and encouraging

employers to create benefit plans. As one commentator has

explained:

[A] limited duty can reasonably be imposed on fiduciaries
to refrain from making, either in response to participant
inquiries or at fiduciaries’ own initiative, material
misrepresentations .... Under such a standard, a
fiduciary would not be prohibited from declining to
comment on the prospect of future changes, or from making
generalized statements to the effect that the plan
sponsor always retains the right to amend a plan. [In
this way,] businesses will not be unduly discouraged from
adopting or amending early retirement, severance or other
types of plans, and participants’ interests can be
adequately protected from material misrepresentations
that are intended to induce conduct that is contrary to

50
 their interests.175

III.

The district court, not having the benefit of our guidance on

this issue, applied Fischer II’s formulation of the serious

consideration test. It determined that the summary judgment

evidence, even when viewed in a light most favorable to the

plaintiffs, revealed that executives at Schlumberger did not

seriously consider the new plan at the time personnel

representatives informed the plaintiffs that they had not heard of

a new plan or that no new plan was in the works. On this basis the

district court granted summary judgment in favor of Schlumberger as

to plaintiffs’ allegations that Schlumberger breached its duty to

affirmatively disclose the changes and its duty not to misrepresent

the possibility of future changes.

In contrast to the district court’s analysis, our approach

requires that we divide the plaintiffs’ allegations into two parts.

First, the plaintiffs allege that Schlumberger violated its duty to

disclose to the plaintiffs that it was considering an early

retirement offering. Because we find that no such duty exists, we

conclude that summary judgment was appropriate as to these

allegations.

The plaintiffs also contend that Schlumberger affirmatively

misrepresented that no new plan would be forthcoming, or that it

175
Bintz, supra note 9, at 998.

51
did not know that a plan was being formulated when in fact it was.

According to plaintiff Martinez’s deposition testimony, sometime

prior to the week of his retirement Martinez visited the human

resources office at Schlumberger and inquired “about the

possibility of there being a [new voluntary early retirement]

package.” The personnel employee replied that “he hadn’t heard of

anything coming down.” Similarly, plaintiff Ditta testified that

in April or May 1998, he asked his boss about the possibility of

such a package, and his boss stated that he had not heard of

anything, but Ditta should ask personnel. Soon after, at a company

party, Ditta asked his section head if he had “heard of any

retirement package being offered.” The section head replied that

“he hadn’t heard, let’s go talk to” a representative from

personnel. The personnel employee also stated that “he had not

heard anything at this time,” and added that “Schlumberger was

doing too good right now and they would not be offering any

packages because they’d lose too many good people.” In May or June

Ditta went to personnel and asked another employee about whether

“she heard any kind of rumor of a package being offered,” and she

replied that “[s]he had not heard of anything.” Along the same

lines, more than a month before Plaintiff Kirksey retired, he

inquired of the personnel office, “You are not giving out a package

once I leave, are you?” and was told, “No, I ain’t heard anything

about a package.”

We conclude that no genuine issue of material fact exists as

52
to whether these statements were material or misleading. In

simplest terms, the plaintiffs asked if Schlumberger planned to

roll out an enhanced benefits plan in the near future, and were

told that such a decision had not been made. Such statements could

not have been material nor misleading until Schlumberger had

actually decided to implement such a plan.

Nor are we troubled by the statement to Ditta that

“Schlumberger was doing too good right now and they would not be

offering any packages because they’d lose too many good people.”

Although false statements, including statements about future plan

changes such as those found in Ballone, may constitute material

misrepresentations even if no plan change is being seriously

considered at the time,176 we are satisfied that any reasonable

listener would understand the statement to Ditta to have been no

more than the unsupported speculation of a fellow employee.

For these reasons, we AFFIRM the judgment of the district

court. Schlumberger had no affirmative duty to communicate the

status of its internal deliberations regarding a possible plan

change, and in responding to the plaintiff’s inquiries it did not

materially misrepresent the possibility of a change.

176
In this regard, we note with approval the Ninth Circuit’s
statement in Wayne that “[a] person actively misinforms by saying
that something is true when it is not true,” and also “by saying
that something is true when the person does not know whether it is
true or not.” Wayne v. Pac. Bell, 238 F.3d 1048, 1055 (9th Cir.
2001).

53
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