Armstrong v. Jefferson

Opinion

USCA1 Opinion

United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________

        No. 94-1060

                       ROLAND L. ARMSTRONG AND REILOUS LATNEY,

                               Plaintiffs, Appellants,

                                          v.

                            JEFFERSON SMURFIT CORPORATION
                        AND SMURFIT PENSION SERVICES COMPANY,

                                Defendants, Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                 [Hon. Frank H. Freedman, Senior U.S. District Judge]
                                          __________________________

                                 ____________________

                                        Before

                                Cyr, Boudin and Stahl, 
                                   Circuit Judges.
                                   ______________

                                 ____________________

            David  A. Robinson with  whom Jay  N. Michelman  and Michelman Law
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        Offices were on brief for appellants.
        _______
            Michael  L.  Mulhern, with  whom  Deborah  Gage Haude,  Winston  &
            ____________________              ___________________   __________
        Strawn, John  O. Mirick, and  Mirick, O'Connell,  DeMaillie &  Lougee,
        ______  _______________       _______________________________________
        were on brief for appellees.

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                                    July 22, 1994
                                 ____________________

Stahl, Circuit Judge.  In  this appeal, plaintiffs-
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            appellants  Roland L. Armstrong  and Reilous Latney challenge

            the  district  court's  dismissal  of  their  action  brought

            pursuant to  the Employee  Retirement Income Security  Act of

            1974 ("ERISA"), 29 U.S.C.   1001 et seq.  We affirm.
                                             __ ____

                                          I.
                                          I.
                                          __

                          STANDARD OF REVIEW AND BACKGROUND
                          STANDARD OF REVIEW AND BACKGROUND
                          _________________________________

                      Because  we are reviewing  the grant  of a  Fed. R.

            Civ.  P.  12(b)(6)  motion to  dismiss,  we  will  accept the

            allegations of the complaint  as true for purposes of  our de
                                                                       __

            novo review.  See Vartanian v. Monsanto Co., 14 F.3d 697, 700
            ____          ___ _________    ____________

            (1st Cir. 1994).  If, under any theory, these allegations are

            sufficient to state a  claim for which the relief  sought can

            be granted, we will reverse the district court's dismissal of

            plaintiffs' complaint.  See id.
                                    ___ ___

                      Plaintiffs are disabled  retirees who  participated

            in an  employee welfare benefit plan  sponsored by defendant-

            appellee  Jefferson Smurfit  Corporation and  administered by

            defendant-appellee  Smurfit  Pension  and Insurance  Services

            Company.   In  early  1992, defendants  made what  plaintiffs

            claim was a  "highly unusual" offer of  either (1) continuing

            to  participate  in   the  existing  retiree  group   medical

            insurance program at  new 1992 monthly premium  costs, or (2)

            discontinuing participation  in the program  in exchange  for

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lump  sum payments.1   In  the course  of making  this offer,

            defendants neither  informed  plaintiffs that  the  lump  sum

            payments were  subject to taxation nor  advised plaintiffs to

            seek  tax  counsel in  making  their  elections.   Plaintiffs

            elected to receive the lump sum payments.  Subsequently, they

            incurred substantial tax liabilities.2  

                      Plaintiffs  allege  that defendants  stood  to gain

            from plaintiffs' election of the lump sum  payments, and that

            defendants'  failure   to   inform  them   of  possible   tax

            implications was prompted  by a desire  to encourage such  an

            election.   Plaintiffs  further contend  that they  would not

            have elected to receive  the lump sum payments had  they been

            aware of the tax consequences.   The theory of their  case is

            that defendants' failure either to  inform them that the lump

            sum payments would be  subject to taxation or to  advise them

            to  seek  tax counsel  constituted  a  breach of  defendants'

            ERISA-prescribed fiduciary duties, see section  404(1)(A) and
                                               ___

            (B), codified  at 29  U.S.C.    1104(a)(1)(A)  and (B),3  and

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            1.  Plaintiff Armstrong  was offered a lump  sum of $120,000.
            Plaintiff Latney was offered a lump sum of $55,000.

            2.  Plaintiff Armstrong incurred over  $37,000 in federal and
            state  tax liabilities.    Plaintiff Latney  incurred  almost
            $17,000 in federal and state tax liabilities.

            3.  Section 404(a)(1) directs  fiduciaries of ERISA plans  to
            discharge  their duties with respect to a plan "solely in the
            interest of the participants and beneficiaries of the plans."
            Subsection A  of this provision instructs  fiduciaries to act
            "for the exclusive purpose of . . . (i) providing benefits to
            participants  and their  beneficiaries;  and  (ii)  defraying

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entitles them to  recover the  federal and  state taxes  they

            paid on the lump sum payments.  At oral argument, plaintiffs'

            counsel made clear  that reimbursement for the  taxes paid by

            plaintiffs -- the remedy requested in plaintiffs' complaint -

            - is the only remedy sought in this case. 

                      The district court rejected plaintiffs' argument on

            two separate grounds.  The court first ruled that plaintiffs'

            allegations are insufficient to state  a claim for breach  of

            fiduciary  duty   under  ERISA.     It  then  held,   in  the

            alternative, that ERISA does not permit the remedy plaintiffs

            are seeking.   Accordingly, it granted  defendants' motion to

            dismiss the complaint.  This appeal followed.

                                         II.
                                         II.
                                         ___

                                      DISCUSSION
                                      DISCUSSION
                                      __________

                      The  question of  whether plaintiffs'  complaint is

            sufficient to state a claim for breach of fiduciary duty is a

            close one,  given (1) plaintiffs'  allegation that defendants

            intentionally  withheld  the information,  and  (2) that  the
            _____________

            common law  trust principles incorporated into section 404(a)

            require a fiduciary to  disclose material facts affecting the

            interests  of   participants  and  beneficiaries   which  the

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            reasonable expenses of administering the plan."  Subsection B
            of  this provision  mandates that  fiduciaries act  "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 like character and with like aims."

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fiduciary  knows  the participants  and beneficiaries  do not

            know,   and  which  such  parties  need  to  know  for  their

            protection in dealing with third  persons.  See, e.g., Bixler
                                                        ___  ____  ______

            v. Central Pa. Teamsters Health & Welfare Fund, 12 F.3d 1292,
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            1300 (3d Cir. 1993) (citing  Restatement (Second) of Trusts  

            173, comment d (1959)).   It is, however, a question  that we

            need  not   answer,  for   the  relief  plaintiffs   seek  is

            unavailable under ERISA.

                      Plaintiffs  primarily  frame  their  claim  as  one

            brought pursuant  to ERISA section 502(a)(3),  codified at 29

            U.S.C.     1132(a)(3).4    Under section  502(a)(3),  a  plan

            participant  or beneficiary  can  "obtain .  . .  appropriate

            equitable relief" to redress violations of ERISA or the terms

            of a  plan.  We note  that it is  not at all clear  that this

            provision empowers plan participants or  beneficiaries to sue

            fiduciaries directly  for breach  of a fiduciary  duty rather

            than  on behalf of the  plan.  See  Massachusetts Mutual Life
                                           ___  _________________________

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            4.  In  the   final  paragraph  of  their   appellate  brief,
            plaintiffs raise for the first time a halfhearted alternative
            argument  that  the reimbursement  they  are  seeking can  be
            viewed  as "benefits due to [them] under the terms of [their]
            plan,"  and that  they therefore  have  stated a  claim under
            ERISA  section   502(a)(1)(B),  codified   at  29   U.S.C.   
            1132(a)(1)(B)  (allowing  participants  and beneficiaries  to
            recover,  inter alia, benefits  due them  under the  terms of
                      _____ ____
            their ERISA  plans).  While this argument strikes us as a bit
            farfetched,  given that  lump sum  payments seem not  to have
            been contemplated by  the plan  and were offered  in lieu  of
                                                              __ ____  __
            continued plan participation, we regard it as waived and will
            not address it on the merits.   See FDIC v. World Univ. Inc.,
                                            ___ ____    ________________
            978 F.2d 10,  13 (1st  Cir. 1992) (arguments  raised for  the
            first time on appeal ordinarily are deemed waived).       

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Ins. Co. v.  Russell, 473 U.S.  134, 151-52 (1985)  (Brennan,
            ________     _______

            J., concurring in the judgment) (noting ambiguity in majority

            opinion  as   to  whether  ERISA   imposes  upon  fiduciaries

            actionable duties beyond those running to the plan itself).  

                      Even  if we  assume arguendo  that such  a suit  is
                                          ________

            authorized, however,  plaintiffs' claim founders  because the

            Supreme  Court, after  a comprehensive  review of  the entire

            statute, clearly has held that the compensatory legal damages

            they  are seeking  here do  not fall within  the "appropriate

            equitable  relief" authorized  by ERISA's  section 502(a)(3).

            See Mertens  v.  Hewitt Assocs.,  113  S. Ct.  2063,  2068-72
            ___ _______      ______________

            (1993).  In the  face of this recent, on-point  Supreme Court

            decision, plaintiffs  presented the  district court  with two

            rather weak  arguments.  First,  plaintiffs made much  of the

            fact that they were seeking only "make-whole" damages.   What

            they overlooked,  however,  is that  Mertens precludes  make-
                                                 _______

            whole  damages which are  not equitable  in nature.   Second,

            plaintiffs, reading significance  into the fact  that, unlike

            the instant  action, Mertens  involved a claim  under section
                                 _______

            502(a)(3) against a nonfiduciary, contended that, for several
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            reasons, section  502(a)(3) would  allow for the  recovery of

            money damages  against fiduciaries.   All of  these arguments

            are answered, however,  by the  fact that the  status of  the

            defendant (i.e.,  fiduciary or nonfiduciary)  does not affect

            the question of whether compensatory legal damages constitute

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"appropriate equitable  relief" under  the statute.   This is
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            the question answered, in the negative, by the Mertens Court.
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            And,  this  negative  answer  compels  the  conclusion   that

            plaintiffs  are  precluded from  recovering  damages for  the

            federal and state  tax liabilities they incurred  on the lump

            sum payments.5

                                         III.
                                         III.
                                         ____

                                      CONCLUSION
                                      CONCLUSION
                                      __________

                      For  the  reasons  stated  above,  we   affirm  the

            district court's dismissal of plaintiffs' complaint.  

                      Affirmed.  Costs to appellees.
                      Affirmed.  Costs to appellees.
                      ________   _____ __ _________

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            5.  On appeal, plaintiffs argue for the first time that their
            damages   claim   constitutes   an   equitable    claim   for
            "restitution."   This  argument  is highly  dubious; the  tax
            payments at issue would  seem to be completely distinct  from
            any ill-gotten  profits which might properly  be made subject
            to  a  viable  restitution  claim.    At  any  rate,  because
            plaintiffs  did not  present  this argument  to the  district
            court in  the first instance,  we regard it  as waived.   See
                                                                      ___
            World Univ., 978 F.2d at 13.
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