United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT December 12, 2003
_____________________
No. 03-20190 Charles R. Fulbruge III
_____________________ Clerk
DANIEL E. BODINE; CYRIL N. BURKE;
WALTER B. CHMIELEWSKI; O. B. FOWLER,
JR.; SALLY A. GURLEY; WILLIAM R.
HEYDUCK; J. F. LOUTHER; DOUG MAHAN;
RICHARD J. MCAVOY; ROYCE G. OGDEN;
GAROLD J. PENNISTON; ROBERT L. REEVES;
LARRY DOWELL SCARBOROUGH,
Plaintiffs - Appellants,
versus
EMPLOYERS CASUALTY COMPANY; ET AL.,
Defendants,
EMPLOYERS CASUALTY COMPANY; EMPLOYERS
CASUALTY COMPANY, IN RECEIVERSHIP;
TEXAS EMPLOYERS' INSURANCE ASSOCIATION;
COOPERS & LYBRAND, LLP; WIRT DAVIS, II;
WILLIAM BURRES HEAD, III; TYRUS RAYMOND
JOHN; JAMES PRICE MITCHELL; CASWELL
LANIER DUNLAP; JOHN CLIFTON HOLMGREEN;
CHARLES BASCOM PETERSON, JR.; GERALD
WAYNE FRONTERHOUSE; WILLIAM HENRY
HUFF, III; WILLIAM CHARLES MCCORD;
BENJAMIN JOHNSON PITTMAN, JR.; KEVIN
WAYNE UZZLE; HARRY TRAVIS BOWEN, JR.;
MICHAEL JAMES KLINK; PATRICK LEWIS WHATLEY;
ALLEN CHARLES MCDONALD; WILLIAM HENRY
PROPES; JOSEPH HECTOR WILLEMS; MICHAEL
DOOLING; JACK M. WEBB; TEECCO EMPLOYEE
RETIREMENT PLAN; ROBERT LOISEAU; DAN HEIMAN;
JON NOGAREDE; WILLIAM HOWARD HAUN;
RANDELL TRAVIS MICKAN; PERFORMANCE INSURANCE
COMPANY; EMPLOYERS OF TEXAS LLOYD'S;
EMPLOYERS OF TEXAS LLOYD'S INC.; EMPLOYERS
INDEMNITY COMPANY; EMPLOYERS CASUALTY
CORPORATION; CASUALTY RISK MANAGEMENT
SERVICES INC.; EMPLOYERS NATIONAL LIFE
INSURANCE COMPANY; WILLIAM THOMAS JONES;
EMPLOYERS NATIONAL INSURANCE COMPANY,
Defendants - Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________________________________________________
Before JOLLY and WIENER, Circuit Judges, and ROSENTHAL, District
Judge.*
E. GRADY JOLLY, Circuit Judge:
Employees of an insurance company complain that the defendants
violated their rights under the Employee Retirement Income Security
Act (“ERISA”), 29 U.S.C. §§ 1001 et seq., by failing to discharge
them when the company faced imminent dissolution and by
maladministering their retirement benefit plan. They argue that,
through their ERISA violations, the defendants denied them the
opportunity to receive enhanced retirement benefits. We find no
violation of ERISA, and thus affirm the district court’s dismissal
of all claims.
I
Plaintiffs-Appellants were employees (collectively, the
“Employees”) of Employers Casualty Company (“ECC”) and participants
in ECC’s Employment Retirement Plan (the “Plan”), a pension plan
governed by ERISA. In October 1990, ECC was suffering financial
difficulties. It implemented a reduction in force and amended the
Plan to allow certain participants to receive enhanced retirement
benefits (“Enhanced Benefits”). A participant qualified for
*
District Judge of the Southern District of Texas, sitting by
designation.
2
Enhanced Benefits if he or she: 1) was selected for termination
between October 1 and December 31, 1990 (“First Window”) for the
stated reason of workforce reduction or job elimination; 2)
satisfied certain age and service requirements; and 3) filed a
written election to receive such benefits with the committee
administering the Plan.
Because of continuing financial difficulties, on March 9,
1992, a Texas state court placed ECC under the control of a
conservator, the Texas Commissioner of Insurance. The conservator
engaged Coopers & Lybrand (“Coopers”) to provide management
services to ECC.
There was no economic turnaround. ECC again amended the Plan
on May 1, 1992, retroactively extending the time during which a
participant could become eligible for Enhanced Benefits to include
the period from January 1 through December 31, 1992 (“Second
Window”). Financial problems persisted, and, on November 11, 1992,
ECC amended the Plan to extend the eligibility period to December
31, 1993 (“Third Window”). On December 10, 1993, the ECC Board of
Directors adopted a final amendment to the Plan, freezing the Plan
as of December 31, 1993 (“Freeze Amendment”). (No one who was not
already a participant on that date could thereafter become a
participant, and no further increases in accrued benefits for
existing participants could occur.)
As of December 1993, about 238 employees were eligible for
Enhanced Benefits, ninety percent of whom were terminated by
3
December 31 (under the authority of ECC officers and Coopers &
Lybrand). Approximately 25 eligible employees were not terminated
by December 31, and thus were not allowed to receive the Enhanced
Benefits for which they would have qualified. All of the Employees
were in this latter group, and several of them had specifically
asked that their employment be terminated on or before December 31.
Almost every ECC officer who satisfied the age and service
requirements for Enhanced Benefits arranged to be terminated before
December 31, 1993 -- including some whose duties were not
eliminated. In some cases, terminated employees were then rehired
as independent contractors. The Employees were not given this
opportunity.
On November 23, 1993, in anticipation of a receivership order,
the Commissioner appointed Jack Webb as the Special Deputy
Receiver. The Commissioner instructed Webb to create “a detailed
activity plan that projects the expected fees, expenses, and
timelines required to close the ECC estate.” Webb was also
required to review personnel and retain only those essential to
liquidating the company.
On January 6, 1994, the Texas court withdrew the conservator
and appointed the Commissioner as temporary receiver, at which
point Coopers’s role as consultant ceased. On this date, ECC’s
corporate existence also ceased, the company became ECC in
Receivership (“ECCR”), and the Employees were immediately hired to
perform services for ECCR. By order dated February 11, 1994, the
4
Commissioner became permanent receiver. Over the course of 1994,
ECCR terminated all Employees’ employment.
While winding down ECCR’s operations, ECCR and its officers --
Jack Webb and three others -- (collectively, “Receivership
Defendants”) liquidated the Plan’s assets in May 1996. The
Receivership Defendants transferred some of the Plan assets to The
Prudential Insurance Company of America and Hartford Life Insurance
(together, “Insurer Defendants”), in exchange for annuities to fund
the pension benefits of Plan participants. These annuities did not
include Enhanced Benefits for the Employees, but did include
Enhanced Benefits for employees who had qualified and made the
necessary elections under the terms of the Plan. Excess assets
were transferred to ECCR, or otherwise used for purposes other than
the exclusive benefit of Plan participants, beneficiaries, and
administrative expenses.
On December 31, 1996, the Employees filed a complaint in the
Southern District of Texas, alleging various ERISA violations by
ECC, ECC officers, and Coopers (collectively, “Employer
Defendants”), as well as the Receivership Defendants, the Plan, and
the Insurer Defendants.1 Before responding to the complaint, the
Receivership Defendants filed for injunctions in the Texas state
1
Although the terms “Officer Defendants” and “Director
Defendants” were used interchangeably and collectively in motions
and responses below, neither the pleadings nor the briefs indicate
any claim against the ECC Board of Directors. As such, we affirm
the district court’s decision to dismiss the ECC directors as
parties to this action.
5
courts in which the receivership proceedings were being conducted.
On September 5, 1997, the federal district court administratively
closed this case and granted the parties leave to reinstate at such
time as they deemed appropriate. The state district courts issued
the requested injunctions and orders prohibiting the Employees from
pursuing this cause of action. The Texas Court of Appeals reversed
the lower courts and the Texas Supreme Court denied a petition for
review. On June 21, 2000, the state district courts vacated all
injunctions applicable to the Employees.
This case was reinstated on February 14, 2001, and was
referred to the magistrate judge for full pretrial management.
Defendants filed various motions to dismiss and, after a period of
discovery, the magistrate judge issued a recommendation that the
motions to dismiss be granted. After the Employees filed
objections, the magistrate judge revised her recommendation and
issued a supplemental memorandum. The district court adopted the
revised recommendation, and entered an order dismissing all claims
against all defendants.
The Employees filed a timely notice of appeal.
II
We review a dismissal for failure to state a claim under Fed.
R. Civ. P. 12(b)(6) de novo. Oliver v. Scott, 276 F.3d 736, 740
(5th Cir. 2002). We now take up, in order, the Employees’ claims
that: 1) the Employer Defendants violated ERISA § 510, 29 U.S.C.
§ 1140, by failing to terminate the Employees; 2) the Employer
6
Defendants breached their fiduciary duty to the Employees under
ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1), by failing to terminate
them; 3) the Receivership Defendants breached their fiduciary duty
to the Employees by failing to administer the Plan in accordance
with ERISA’s anti-cutback provision, § 204(g)(1), 29 U.S.C. §
1054(g)(1); 4) the Receivership Defendants breached their fiduciary
duty to the Employees by transferring Plan assets in violation of
ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D); and 5) the Plan
and the Insurer Defendants are properly named as defendants to this
action as necessary parties (although neither is charged with
violating any rights of the Employees).
A
We first consider whether the Employees state a valid claim
against the Employer Defendants under ERISA § 510, for failure to
terminate them so as to make the Employees eligible for Enhanced
Benefits.2 The district court, in adopting the magistrate judge’s
recommendation, found that the Employees had not shown any
authority for a § 510 claim based on the retention of the
2
Section 510 reads in relevant part as follows:
It shall be unlawful for any person to discharge, fine,
suspend, expel, discipline, or discriminate against a
participant or beneficiary for exercising any right to
which he is entitled under the provisions of an employee
benefit plan . . . or for the purpose of interfering with
the attainment of any right to which such participant may
become entitled under the plan.
29 U.S.C. § 1140.
7
claimants. Similarly, it held that the Employees made no
allegations against the Employer Defendants that implicate the sort
of “unscrupulous” behavior that § 510 was intended to prohibit.
The Employees challenge the district court’s holding, arguing
that, given the lack of material business reasons to treat the
Employees differently from their fellow employees (who were
terminated by December 31, 1993 per the job elimination program),
the failure of the Employer Defendants to terminate them
constituted impermissible discrimination under § 510. They also
seem to argue, if only implicitly, that in prohibiting various
actions meant to interfere with pension benefit rights, § 510
prohibits the passive act of retention for the same purpose. The
Employees admit that there is no precedent for sustaining such
claims -- and that the statutory text speaks in terms of discharge
and other disciplinary actions -- but they seem to suggest that
this action nevertheless falls neatly within the general scope of
ERISA.
To sustain a valid § 510 claim, an employee must show: (1)
prohibited (adverse) employer action (2) taken for the purpose of
interfering with the attainment of (3) any right to which the
employee is entitled. See Van Zant v. Todd Shipyards Corp., 847
F.Supp. 69, 72 (S.D.Tex. 1994).3 The Employer Defendants, like the
3
Section 510 also applies to adverse actions taken for the
purpose of interfering with rights “to which such participant may
become entitled under the plan.” The Employees’ only possible hope
8
magistrate judge, point to the absence of each of these elements,
citing Perdue v. Burger King Corp., 7 F.3d 1251 (5th Cir. 1993),
and Garavuso v. Show Corp. of America Ind., Inc., 709 F.Supp. 1423
(S.D.Ohio 1989), aff’d 892 F.2d 79 (6th Cir. 1989).4
This Court held in Perdue that “[t]he prohibitions under the
statute do not extend per se to an employer who retains an employee
so as to avoid payment of severance benefits under an ERISA plan.”
7 F.3d at 1255. That is, there must be some unscrupulous conduct
or intentional act (such as harassment or nefarious inducement to
stay) on the part of the employer. See, e.g., id.; West v. Butler,
621 F.2d 240, 245 (6th Cir. 1980). Moreover, ERISA does not
require an employer to calculate various employees’ gains and
losses upon termination, and/or to terminate all employees at a
given benefit level. See Van Zant, 847 F.Supp. at 72 (§ 510 is
designed to prevent “unscrupulous employers from discharging or
harassing their employees”). Here, there has simply been a failure
to show the unscrupulous conduct required for a § 510 action
against an employer.
Finally, it appears that the Employees neither had nor would
have become entitled to any right such that § 510 could come into
play in the first place. This requirement for “entitlement” to a
lies in this language, as they clearly had no existing enforceable
rights to Enhanced Benefits.
4
The novelty of this sort of claim is borne out by the paucity
of apposite case law.
9
§ 510 action is only satisfied if the employer has promised the
employee a benefit that is eventually denied. McGann v. H & H
Music Co., 946 F.2d 401, 405 (5th Cir. 1991). The Employees’
attempt to distinguish McGann (as applying only to changes in
welfare benefits) fails because it was the vesting of the right,
rather than the nature of the benefit, that was at issue in McGann.
We agree with the decision of the district court that the Employees
have not alleged that the Employer Defendants ever took any action
that resulted in a promise of enhanced benefits; and so we conclude
that they have not stated a claim for a violation of § 510 for this
reason and the other reasons to which we have alluded above.
B
We now turn to the question of whether the Employer
Defendants’ failure to terminate the Employees’ employment (thereby
allowing them to qualify for Enhanced Benefits under the Plan) was
a breach of fiduciary duty under ERISA § 404(a)(1).5
The Employees admit that the Employer Defendants did not have
managerial authority over the Plan assets, but assert that their
claims relate to a general fiduciary duty of the employer, not the
specific duties of a plan administrator. They make no allegations,
however, of deceptive practices, misrepresentations, or other
5
Section 404(a)(1) requires a “fiduciary” to “discharge his
duties with respect to a plan solely in the interests of the
participants and beneficiaries.” 29 U.S.C. § 1104(a)(1).
10
behavior typically associated with fiduciary breaches by employers
under ERISA, as required by Varity v. Howe, 516 U.S. 489 (1996).
The Employees nevertheless argue that the district court
unduly narrowed the holding in Varity to require an element of
deception. In Varity, employees sued an employer who had induced
them to give up their current jobs and to transfer to a failing
subsidiary with repeated promises that benefits would be
unaffected. The Court found that the employer went beyond its
employer function and acted as an ERISA fiduciary when it misled
employees about the security of their benefits, and that these
employer actions violated those ERISA fiduciary obligations. The
Varity court held -- and this is the point the Employees make --
that an employer can be a fiduciary under ERISA even if it does not
manage plan assets, so long as it acts with discretionary authority
respecting the plan’s administration. Varity, 516 U.S. at 498
(interpreting ERISA § 3(21)(A)). Thus, the Employees argue, the
Employer Defendants’ authority over ordinary business decisions
provided sufficient connection to the Plan’s administration to
create fiduciary duties under ERISA. The duties were breached
when, for purely Plan benefit considerations rather than business
considerations, the Employees were not terminated.
The Employer Defendants contend, and we agree, that a decision
to terminate an employee, who is also a Plan beneficiary, is
inherently not fiduciary in nature. See Hickman v. Tosco Corp.,
11
840 F.2d 564, 567 (8th Cir. 1988) (defendant’s decision to
terminate employee rather than carry him on payroll did not
directly affect the administration of the pension plan or its
assets).6 Further, the Employees misread Varity: the Varity
defendants intentionally connected employment-related statements
(and actions) to benefit-related statements. Here, the Employees
can only argue, at best, that a lack of a legitimate business need
to retain them as employees gives rise to a fiduciary
responsibility. Even if the Employees’ allegations were true, the
Employer Defendants are correct to emphasize this crucial
distinction between the cases. See Varity, 516 U.S. at 505 (“We do
not hold . . . that [defendant] acted as a fiduciary simply because
. . . ‘an ordinary business decision turn[ed] out to have an
adverse impact on the plan.’” (citation omitted)).
In sum, no fiduciary duty was created or violated as between
the Employer Defendants and the Employees. The Employees’
reasoning logically leads to the untenable conclusion that the
existence of a severance plan makes any termination decision a
fiduciary activity. Indeed, it is hard to imagine that ERISA
6
“[I]t is the nature of the acts taken by an employer -- not
the intent behind them -- that determines in what capacity the
employer acted.” Long v. Excel Telecomm. Corp., 1999 WL 1029088 at
*2 (N.D.Tex. Nov. 9, 1999) (even if rationale for firing was
pretext for preventing plaintiff from exercising his stock options,
termination decision occurred in employer capacity, not fiduciary
capacity).
12
fiduciary duties would ever require an employer to fire its
employees.
Consequently, the Employer Defendants have no liability in
this case.
C
Next we take up the Employees’ claim against the Receivership
Defendants. They argue that ERISA’s anti-cutback rule applies, and
that the Receivership Defendants breached a fiduciary duty in
failing to administer the Plan in accordance with that rule. The
“anti-cutback provision” provides that “[t]he accrued benefit of a
participant under a plan may not be decreased by an amendment of
the plan.” ERISA § 204(g)(1), 29 U.S.C. § 1054(g)(1) (emphasis
added).
In the district court, the Employees apparently acknowledged
that “window benefits,” such as the Enhanced Benefits here,
generally are not considered a permanent part of a plan, and thus
are not protected by the anti-cutback rule. The district court (in
a matter not addressed by the precedent of this circuit) considered
the Employees’ argument that the three amendments to the Plan
relating to the “window benefits” -- because they occurred in
consecutive time periods -- created a reasonable expectation here
that the Enhanced Benefits were an ongoing plan feature, allowing
such benefits to accrue to Plan members, including the Employees.
The district court (per the magistrate judge’s recommendation)
13
ultimately declined to determine whether the benefits had accrued
-- or whether the anti-cutback rule applied -- because the
Employees had not alleged the essential elements required to plead
a claim under the anti-cutback rule in that they had not qualified
for Enhanced Benefits under the Plan. Specifically, the Employees
did not file the required written election to forego severance pay
in exchange for the Enhanced Benefits as the Plan required.7 Thus,
no benefits could have accrued to such non-complying beneficiaries.
The Employees, however, cite their First Amended Complaint as
sufficiently alleging that the Enhanced Benefits had accrued
because they arose from consecutive amendments, relying on Treasury
Regulation § 1.411(d)-4(c)(1) for support of their theory. 8 When
the Receivership Defendants promulgated the Freeze Amendment and
its qualification deadline, therefore, they violated the anti-
cutback rule and their fiduciary duties to follow the Plan’s terms.
Further, a reliance on the Plan’s written election provision is,
according to the Employees, an extreme and meaningless formalism
7
See the three requirements for Enhanced Benefits
qualification, supra.
8
This Regulation interprets an Internal Revenue Code
provision, 26 U.S.C. § 411(d)(6), that mirrors ERISA’s anti-cutback
rule. It provides, in relevant part:
Generally, [benefits] are section 411(d)(6) protected
benefits only if they are provided under the terms of a
plan. However, if an employer establishes a pattern of
repeated plan amendments providing for similar benefits
in similar situations for substantially consecutive,
limited periods of time, such benefits will be treated as
provided under the terms of the plan.
14
that is out of place in the jurisprudence of the twenty-first
century. Even aside from that formality, the Employees argue, the
Employees cannot have failed to satisfy the relevant conditions
because they were not given the opportunity to do so.
We find the Employees’ novel arguments unconvincing, even in
the twenty-first century, and agree with the rationale of the
district court. This Court has stated that the anti-cutback rule
was intended to “prohibit[] the elimination or reduction of
retirement benefits that have already vested or accrued,” so the
instant analysis must first determine whether the Enhanced Benefits
“vested or accrued” before December 10, 1993, the date of the
Freeze Amendment. Harms v. Cavenham Forest Indus., Inc., 984 F.2d
686, 691 (5th Cir. 1993); see also Spacek v. Maritime Assoc., 134
F.3d 284, 291 (5th Cir. 1998). In Harms, the employees had already
qualified for a special retirement benefit that was subsequently
eliminated. The Employees, by contrast, did not (and could not)
plead that they had satisfied all pre-amendment Plan conditions
because neither had they been terminated before December 31, 1993
(let alone December 10), nor had they filed the proper written
request for Enhanced Benefits as required by the Plan. This
“vesting” or “accrual” concept is not “meaningless formalism” but
an essential statutory requirement.
15
We thus affirm the district court’s ruling that the
Receivership Defendants have no liability under the anti-cutback
rule.
D
The Employees also claim that Receivership Defendants breached
their fiduciary duty by transferring excess Plan assets to ECCR in
violation of ERISA § 406(a)(1)(D) instead of using those funds to
provide Enhanced Benefits for the Employees.9 This claim, however,
depends entirely on the Employees’ contention that they qualified
for Enhanced Benefits under the “wrongful retention” and “anti-
cutback” fiduciary breach theories. We have held previously that
the Employees were not entitled to receive Enhanced Benefits under
either theory, so there can be no breach of § 406(a)(1)(D).
Consequently, the Receivership Defendants have no liability in
this case.
E
Finally, the Employees admit that they do not assert any
claims against either the Plan or Insurer Defendants, but that
these parties were named as defendants because their involvement
would be necessary to afford Employees the relief requested. As we
are affirming the dismissal of all of the Employees’ claims, we
9
Section 406(a)(1)(D) prohibits a fiduciary from transferring
plan assets to a “party in interest.” ECCR is a “party in
interest” because it is “an employer . . . whose employees are
covered by [a benefit plan subject to ERISA].” ERISA § 3(14)(C),
29 U.S.C. § 1002(14)(C).
16
also affirm the dismissal of the Plan and Insurer Defendants as
parties to this action.
III
For the foregoing reasons, the district court was correct in
dismissing the Employees’ claims. Accordingly, the district
court’s decision is
AFFIRMED.
17