Crawford v. Lamantia

• Court: Court of Appeals for the First Circuit
• Decided: September 14, 1994
• Docket: 93-2241
• Status: Published

Opinion

USCA1 Opinion

November 28, 1994
                            United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________

        No. 93-2241

                                  PETER A. CRAWFORD,

                                Plaintiff, Appellant,

                                          v.

                             CHARLES R. LAMANTIA, ET AL.,

                                Defendants, Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT
                          FOR THE DISTRICT OF MASSACHUSETTS

                       [Hon. Mark L. Wolf, U.S. District Judge]
                                           ___________________

                                 ____________________

ERRATA SHEET
                                     ERRATA SHEET

Add the following sentence to the end of footnote 6 on page 11:

                 Additionally, unlike the situation in Reich v.
                                                       _____
                 Valley Nat. Bank of Arizona, 837 F. Supp. 1259
                 ___________________________
                 (S.D.N.Y. 1993), where the funding of the ESOP
                 drove the company into bankruptcy, no adverse
                 economic effect stemming from the overvaluation
                 was alleged here, and thus that issue is not
                 before us.

                                 ____________________



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

        No. 93-2241

                                  PETER A. CRAWFORD,

                                Plaintiff, Appellant,

                                          v.

                             CHARLES R. LAMANTIA, ET AL.,

                                Defendants, Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT
                          FOR THE DISTRICT OF MASSACHUSETTS

                       [Hon. Mark L. Wolf, U.S. District Judge]
                                           ___________________

                                 ____________________

                                        Before

                                 Breyer,* Chief Judge,
                                          ___________
                            Bownes, Senior Circuit Judge,
                                    ____________________
                              and Stahl, Circuit Judge.
                                         _____________

                                 ____________________

            Alfred  D.  Ellis with  whom  Michelle  L.  Farmer  and Cherwin  &
            _________________             ____________________      __________
        Glickman were on brief for appellant.
        ________
            Peter  J. Macdonald with  whom Jeffrey  B. Rudman,  Hale and Dorr,
            ___________________            __________________   _____________
        James  J.  Dillon,  and Goodwin  Procter  &  Hoar  were on  brief  for
        _________________       _________________________
        appellee.
                                 ____________________

                                  September 14, 1994
                                 ____________________

        ____________________
        *Chief Judge Stephen  Breyer heard  oral argument in  this matter  but
        did  not participate in  the drafting or  the issuance  of the panel's
        opinion.  The remaining  two  panelists therefore  issue this  opinion
        purusant to 28 U.S.C.   46(d).



STAHL,  Circuit  Judge.   Plaintiff-appellant Peter
                      STAHL,  Circuit  Judge.
                              ______________

            Crawford filed a complaint charging defendants-appellees Paul

            Littlefield,   Irving  Plotkin   and   Harland  Riker,   Jr.,

            individually and in their capacity as trustees of the  Arthur

            D. Little, Inc. Employee Stock Ownership Plan and Trust ("the

            Plan" or "the ESOP"), with a breach of their fiduciary duties

            as defined under the Employees Retirement and Income Security

            Act ("ERISA").   Plaintiff  now appeals the  district court's

            grant of  summary judgment  in favor  of  defendants.   After

            careful consideration of plaintiff's arguments, we affirm.

                                          I.
                                          I.
                                          __

                          Factual and Procedural Background
                          Factual and Procedural Background
                          _________________________________

                      Arthur D. Little, Inc. ("ADL") is a Cambridge-based

            international consulting  firm.   Plaintiff began  working at

            ADL as a  management consultant on  June 7, 1981.   In  March

            1988, ADL's  Board  of  Director's voted  to  form  an  ESOP1

            pursuant  to 26 U.S.C.    4975(e)(7) of  the Internal Revenue

            Code,  and to  propose a "going-private"  transaction whereby

            ADL would 1) acquire all outstanding  publicly held shares of

            ADL stock; 2)  cancel all  existing shares of  ADL stock;  3)

            reissue "New Shares"; and 4) sell a portion of the New Shares

                                
            ____________________

            1.  The ESOP  is an individual account plan,  i.e. "a pension
            plan  which  provides  for  an individual  account  for  each
            participant  and for  benefits based  solely upon  the amount
            contributed to  the  participant's account,  and any  income,
            expenses, gains  and losses, and any  forfeitures of accounts
            of  other  participants  which   may  be  allocated  to  such
            participant's account."  29 U.S.C.   1102 (34). 

                                         -2-
                                          2



to the ESOP with  financing from ADL (which in  turn received

            bank financing).  Plaintiff objected to the transaction for a

            variety of reasons, and delivered  to the Department of Labor

            a thirty-two  page memorandum  detailing his belief  that, as

            part of the going-private transaction, the ESOP Trustees were

            intending  to buy  ADL  common stock  in  excess of  adequate

            consideration within the  meaning of 29  U.S.C.   1002  (18).

            Plaintiff urged the Department of Labor to seek an injunction

            enjoining ADL  from consummating its plan.  The Department of

            Labor declined plaintiff's invitation,  and on June 14, 1988,

            the  ADL  disinterested  shareholders  approved  the proposed

            transaction.  

                      Thereafter,  the ESOP  Trustees negotiated  a $32.8

            million loan from ADL.   The agreement provided that  the to-

            be-purchased ADL stock would act as collateral for  the loan,

            which was to  be paid back to  ADL over a  seven-year period.

            The borrowed funds would then be used to purchase 546,520 New

            Shares of ADL common stock at $60 per share.  At closing, the

            stock would immediately be  deposited into a suspense account

            within the ESOP to be released over the  next seven years, on

            a pro  rata basis,  to the  individual accounts  of qualified

            employee participants  of the ESOP pursuant  to the following

            arrangement.     Each  quarter,  ADL  agreed   to  make  cash

            contributions  to the ESOP in an  amount sufficient to defray

            the principal and interest payments due ADL on the ESOP loan.

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                                          3



The  ESOP,  in  turn,   agreed  to  return  the  contribution

            immediately  to ADL in repayment  of its note.   Meanwhile, a

            proportionate number of  the New Shares held  in the suspense

            account as collateral would be freed and allocated by formula

            to the  individual accounts  of participating ADL  employees.

            In effect, ADL was  agreeing to repay the loan it  was making

            to the ESOP to fund the purchase of the New  Shares, with the

            employees ultimately reaping the benefits.    

                      On  November 30, 1988,  plaintiff was informed that

            due  to budget  cuts, he  was to  be terminated.2   Plaintiff

            negotiated an  extension of  salary and benefits  until March

            24, 1989,  with an "unpaid  leave of absence" to  follow.  On

            May  12, 1989,  plaintiff filed  his original  complaint, pro
                                                                      ___

            se.3   Plaintiff then  resigned from  ADL, effective  May 18,
            __
                                
            ____________________

            2.  Plaintiff has  not claimed in his  amended complaint that
            1989.    Approximately  one  year  later,  on  May  7,  1990,
            he  was  terminated improperly  in  order to  deprive  him of
            standing to initiate or maintain this action under  29 U.S.C.
            plaintiff  elected to receive  his total  vested distribution
              1140.
            from the  ESOP in the form  of 47 shares of  ADL common stock
            3.  Plaintiff originally named as defendants all  trustees of
            the  Memorial  Drive Trust,  the  Memorial  Drive Trust,  the
            and   a  check   in  the   amount  of  $51.49.4     Plaintiff
            trustees of the  ESOP, the  ESOP and Arthur  D. Little,  Inc.
            These   original  defendants   answered  the   complaint  and
            thereafter jointly filed  a motion for summary  judgment.  On
            June 9, 1993, before  the court ruled on  defendants' motion,
            all parties agreed to a joint stipulation dismissing all non-
            ADL ESOP trustee defendants from this action. 

            4.  ESOP  participants  may  elect  to  receive  their vested
            benefits in one of two ways.  They may either take the shares
            then  existing in  their individual account  or ask  that the
            ESOP cash  out their account.   In order  to cash out  a plan
            participant, the ESOP Trustees must  sell the stock then held
            in the participant's  individual account to  ADL, at a  price
            based on the most recent appraised value of new shares.   The
            Trustees,  in turn,  pay the  participant the  resulting cash
            proceeds.

                                         -4-
                                          4



subsequently  retained an  attorney  and, on  June 10,  1993,

            filed a motion to amend his original complaint, together with

            an amended complaint seeking "recovery  on behalf of the ESOP

            for breach of fiduciary duty for the Trustees' failure to act

            for   the   exclusive   benefit  of   the   participants  and

            beneficiaries of the ESOP plan."  Plaintiff also sought class

            certification  at  this time.    The  district court  granted

            plaintiff's motion to amend on June 24, 1993.  The defendants

            then renewed  their  motion for  summary judgment,  including

            further argument  directed at  the amended complaint.   After

            accepting additional memoranda  and hearing oral  argument on

            defendants'  motion,  the   district  court  granted  summary

            judgment in  favor of defendants, citing  plaintiff's lack of

            standing.

                                         II.
                                         II.
                                         ___

                                  STANDARD OF REVIEW
                                  STANDARD OF REVIEW
                                  __________________

                      As always,  we review  a district court's  grant of

            summary judgment de novo and, like the district court, review
                             __ ____

            the  facts in a light most favorable to the non-moving party.

            See e.g., Woods v. Friction, No. 93-2296, slip  op. at 6 (1st
            ___ ____  _____    ________

            Cir. July 29, 1994).  Our review is limited to  the record as

            it stood before the district court at the time of its ruling.

            Voutour v. Vitale, 761  F.2d 812, 817 (1st Cir.  1985), cert.
            _______    ______                                       _____

            denied,  474   U.S.  1100   (1986).    Summary   judgment  is
            ______

            appropriate  when "the  pleadings,  depositions,  answers  to

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                                          5



interrogatories, and admissions  on file,  together with  the

            affidavits, if any, show that there is no genuine issue as to

            any material fact and that the  moving party is entitled to a

            judgment  as a matter  of law."   Fed. R.  Civ. P.  56(c).  A

            material fact is one  which has the "potential to  affect the

            outcome  of the  suit  under the  applicable law."   Nereida-
                                                                 ________

            Gonzalez  v. Tirado-Delgado,  990  F.2d 701,  703 (1st.  Cir.
            ________     ______________

            1993).   Thus, the nonmovant  bears the burden  of placing at

            least one  material fact into  dispute once the  moving party

            offers evidence of the  absence of a genuine issue.   Darr v.
                                                                  ____

            Muratore, 8 F.3d 854, 859 (1st  Cir. 1993);  see also Celotex
            ________                                     ___ ____ _______

            Corp.  v. Catrett, 477 U.S. 317,  322 (1986) (Fed. R. Civ. P.
            _____     _______

            56(c) "mandates the  entry of  summary judgment, .  . .  upon

            motion,  against  a  party  who   fails  to  make  a  showing

            sufficient to establish the existence of an element essential

            to that party's case, and on  which that party will bear  the

            burden  of  proof  at  trial.").    In other  words,  neither

            "conclusory    allegations,   improbable    inferences,   and

            unsupported  speculation,"  Medina-Munoz  v.   R.J.  Reynolds
                                        ____________       ______________

            Tobacco  Co., 896  F.2d 5,  8 (1st  Cir. 1990),  nor "[b]rash
            ____________

            conjecture coupled with earnest  hope that something concrete

            will materialize, is []sufficient to block summary judgment,"

            Dow v.  United Bhd. of  Carpenters, 1 F.3d  56, 58  (1st Cir.
            ___     __________________________

            1993). 

                                         III.
                                         III.
                                         ____

-6-
                                          6



DISCUSSION
                                      DISCUSSION
                                      __________

                      On   appeal,   plaintiff   makes  essentially   two

            arguments.  First, plaintiff  charges that the district court

            erred in ruling that plaintiff lacked standing to pursue  his

            ERISA action because he was not a current employee throughout

            the litigation.   Second,  plaintiff contends that  the court

            erred in concluding  that he lacked  standing because he  had

            failed to present a colorable claim for benefits.  We discuss

            each of these arguments below.

                      Plaintiff brought this action pursuant to 29 U.S.C.

              1132(a)(2), which authorizes a "participant," "beneficiary"

            or  "fiduciary" to  bring a  civil action  for breach  of any

            fiduciary duty proscribed  by 29 U.S.C.    1109(a).   Because

            plaintiff  is  neither a  beneficiary  nor  a fiduciary,  our

            central task is to determine whether plaintiff qualifies as a

            plan "participant" within the meaning of ERISA.  

                      ERISA defines the term "participant" to include

                      any  employee or  former  employee of  an
                      employer, or any member or  former member
                      of  an employee  organization, who  is or
                                                     __________
                      may become eligible  to receive a benefit
                      _________________________________________
                      of any type from an employee benefit plan
                      which covers employees  of such  employer
                      or members of such organization, or whose
                      beneficiaries may be eligible  to receive
                      any such benefit.

            29  U.S.C.   1002 (7) (emphasis supplied).  In Firestone Tire
                                                           ______________

            & Rubber  Co. v. Bruch, 489 U.S. 101, 117 (1989), the Supreme
            _____________    _____

            Court   interpreted  this  provision  as  providing  for  two

-7-
                                          7



distinct categories of ERISA participants:  1) "employees in,

            or  reasonably   expected   to  be   in,  currently   covered

            employment;" or  2) former  employees who have  "a reasonable

            expectation  of  returning to  covered  employment" and/or  a

            "colorable claim" to  vested benefits.  Id.  at 117 (internal
                                                    ___

            quotations omitted).  

                      Plaintiff  maintains that  he  has  standing  under

            either  prong.    First, he  argues  that  he  was a  current

            employee when  he initiated this  action and should  remain a

            current employee  throughout the litigation  for purposes  of

            standing despite  his actual  termination of employment.   In

            the alternative, he asserts that he is a former employee with

            a  colorable claim to vested benefits.  We disagree with each

            of plaintiff's contentions.

                      With regard to plaintiff's argument  that he should

            be considered  an employee under Firestone's  first prong, we
                                             _________

            note  that the basis for  "`[s]tanding, since it  goes to the

            very power of  the court to act, must exist  at all stages of
                                                            ___ ______

            the proceeding, and not  merely when the action  is initiated

            or during  an  initial appeal.'"    Sommers Drug  Stores  Co.
                                                _________________________

            Employee Profit Sharing  v. Corrigan, 883 F.2d  345, 348 (5th
            _______________________     ________

            Cir. 1989)  (emphasis supplied)  (quoting Safir v.  Dole, 718
                                                      _____     ____

            F.2d 475,  481 (D.C.Cir. 1983),  cert. denied, 467  U.S. 1206
                                             _____ ______

            (1984)).  Therefore, although plaintiff may have had standing

            as a current  employee when  he brought this  action, by  the

-8-
                                          8



time he filed his amended complaint, he lost this standing on

            account  of having  terminated  his employment  with ADL  and

            having collected  all vested benefits  then due him  from the

            ESOP.5   Accordingly, plaintiff  cannot be considered  a plan

            participant under Firestone's first prong.
                              _________

                      Plaintiff's  argument that  he  has standing  under

            Firestone's second prong fares no better.  Plaintiff does not
            _________

            contend that he has a reasonable expectation  of returning to

            covered  employment;  instead,  he   argues  that  he  has  a

            colorable  claim to  benefits as  a former  employee because,

            "but for" defendants  breach of duty, he would  have received

            additional, vested benefits at the  time he received his lump

            sum payment from the ESOP.  Plaintiff reaches this conclusion

            in stages.  First, he notes  that, under 29 U.S.C.   1109(a),

            fiduciaries who breach their  fiduciary duties must make good

                                
            ____________________

            5.  In  his  brief,  plaintiff cites  Nishimoto  v. Federman-
                                                  _________     _________
            Bachrach & Assoc., 903  F.2d 709 (9th Cir. 1990),  as support
            _________________
            for his position that  ERISA standing is frozen in time as of
            the date of  the initial  filing of the  complaint.   Despite
            plaintiff's highly  suspect manipulation  of the  language of
            Nishimoto,  the  case  contradicts,  rather   than  supports,
            _________
            plaintiff's argument.  The  issue in Nishimoto was  whether a
                                                 _________
            court  could adjudicate  pendent state  claims  following the
            disposition of the federal claim.   At the time she filed her
            complaint, Nishimoto  was a former employee  who was eligible
            to receive vested benefits.  She "settled" her ERISA claim by
            accepting a lump sum payment during the course of litigation.
            The court noted that Nishimoto's "receipt of all the benefits
            she was  due under the  plan indicates .  . . that  the ERISA
            claim might have become subject  to dismissal at that point."
            Id. at 715.  Thus,  Nishimoto's status at the time of  filing
            ___
            was critical only as to whether the court was deprived of the
            power  to adjudicate the remaining pendent state claims.  See
                                                                      ___
            id.  
            ___

                                         -9-
                                          9



to the plan any losses resulting from their breach.   In this

            case, therefore, defendants would  have to reimburse the plan

            the difference between the  amount of money paid for  the New

            Shares of  ADL stock and the true  market value.  In deciding

            how that money should be allocated once returned to the fund,

            plaintiff asks the court,  under the equitable powers granted

            by 29  U.S.C.    1109(a), to allocate  the funds  to him  and

            those members of  the ESOP  who were "cashed  out" after  the

            date of the transaction.   Relying upon Sommers, 883  F.2d at
                                                    _______

            350, plaintiff  contends that his share  should be calculated

            by dividing the  number of  shares he received  when he  left

            (47) by  the total  number of  shares (546,520)  and multiply

            that fraction (.00008) by the overpayment.   

                      In  Sommers, however,  plan participants  brought a
                          _______

            class  action   suit  to   recover  money  lost   during  the

            liquidation of  a retirement trust.   Plaintiffs claimed that

            their lump sum payments were less than the amount due because

            the  trustees had  sold the  trust stock  for less  than fair

            market value.  Each claimant had a set number of shares which

            were  undervalued when it  came time to cash  them in.  Thus,

            they were  not paid the  full extent of  their benefits.   We

            have no such claim before us.  

                      Unlike  the  claimants  in  Sommers,  plaintiff has
                                                  _______

            failed to  show that defendants' alleged  breach of fiduciary

            duty  had a  direct and  inevitable effect  on  his benefits.
                                                            ___

-10-
                                          10



Defendants borrowed funds from ADL to acquire a set number of

            ADL New Shares, i.e., 546,520.  Had defendants not overvalued

            the shares, they would  not have borrowed as much  money from

            ADL.   Instead,  a recalculation  of the  price of  the stock

            would have resulted  only in a smaller  loan, lower principal

            and  interest payments to be  paid quarterly by  ADL, and the

            same number of New Shares placed in the suspense account.  It

            would  not have resulted in a similar  loan being made to the
                   ___

            ESOP with any excess  cash to be distributed to  the accounts

            of the participants.   The borrowed funds were  not available

            for distribution;  they were  to be used  exclusively to  buy
                                                      ___________

            stock, or in the alternative, to pay back the loan.6

____________________

            6.  We acknowledge that because the ESOP note would have been
            for less money,  the formula by  which the encumbered  shares
            were  to be  released  to qualified  participants might  have
                                                              _____
            altered the  rate of release of  stock one way or  the other.
                                             _____
            The  district court was in no position to know this, however,
            since plaintiff failed to argue this point and further failed
            to  provide it with  the ESOP agreement.   Accordingly, there
            was no  basis for the court to infer standing from a putative
            accelerated  release  of   stock.  Additionally,  unlike  the
            situation in Reich  v. Valley  Nat. Bank of  Arizona, 837  F.
                         _____     _____________________________
            Supp.  1259(S.D.N.Y. 1993),  where  the funding  of the  ESOP
            drove the company into bankruptcy, no adverse economic effect
            stemming from  the overvaluation  was alleged here,  and thus
            that issue is not before us.

                                         -11-
                                          11



III.
                                         III.
                                         ____

                                      Conclusion
                                      Conclusion
                                      __________

                      As we have explained, plaintiff failed to establish

            standing  to sue under ERISA.7  The district court's grant of

            summary judgment in favor of defendant is therefore

                           Affirmed.  Costs to appellees.
                           Affirmed.  Costs to appellees.
                           _________  ___________________

____________________

            7.  Plaintiff makes a final argument that our recent decision
            in  Vartanian v. Monsanto Co.,  14 F.3d 697  (1st Cir. 1994),
                _________    ____________
            requires a  more expansive view of ERISA  standing.  Whatever
            merits  plaintiff's  argument   might  have,  we  note   that
            Vartanian did  not involve  a situation,  as here,  where the
            _________
            plaintiffs  could  not  "establish  that  they   were  former
            employees  with a  colorable claim  to vested  benefits" when
            faced  with a motion for summary judgment.  See id. at 702-03
                                                        ___ ___
            n.4.  Accordingly, Vartanian is inapposite.
                               _________

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                                          12