Milofsky v. American Airlines, Inc.

404 F.3d 338, 2005 WL 605754

• Court: Court of Appeals for the Fifth Circuit
• Decided: March 16, 2005
• Docket: No. 03-11087
• Status: Published

Opinions

JERRY E. SMITH, Circuit Judge:

Michael Milofsky and Robert Walsh brought a class action under the Employee Retirement Income Security Act of 1974 (“ERISA”) against American Airlines, Inc. (“American Airlines”) and Towers Perrin, alleging breach of fiduciary duty with regard to a transfer of their pension plans from their former employer when it was acquired by the parent company of American Airlines. The district court dismissed the action. Finding no error, we affirm.

I.

Milofsky and Walsh were pilots for Business Express, Inc. (“BEX”), when it was acquired by AMR Eagle Holding Corporation, the parent company of American Eagle, Inc. (“American Eagle”). While employed with BEX, the plaintiffs participated in its individual account pension plan, called the “BEX Saving and Profit Sharing Plan” (“BEX Plan”).

At the time of the acquisition, plaintiffs were informed that the balances in their accounts in the BEX Plan would be transferred to a comparable American Eagle § 401(k) plan, the “$uper $aver Plan.” The notice regarding this transfer was sent to them by Towers Perrin, a benefits consulting firm hired by American Airlines to render administrative services in connection with the $uper $aver Plan. The notices informed the plaintiffs of when the account transfers would take place and of certain “blackout” periods during which they would not be permitted to have access to their accounts. Allegedly, the transfer of the accounts did not go smoothly, with the account transfers occurring weeks, and in some cases, months after the time written in the notices.

The plaintiffs sued under ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), alleging that American Airlines and Towers Perrin had violated fiduciary duties in misrepresenting how and when their accounts would be transferred to the $uper $aver Plan. They alleged that because of the failure to effect the transfer of the class members’ account balances in a timely and prudent manner, the values of their accounts decreased because the assets remained invested in the floundering BEX Plan longer than expected. Plaintiffs requested actual damages to be paid to the $uper $aver Plan, to be allocated among their individual accounts proportionately to their losses resulting from the alleged breach.

The district court dismissed the action, finding that plaintiffs lack standing to sue under § 502(a)(2) and that they are barred from suing in federal court because they failed to exhaust administrative remedies. The court also found that plaintiffs could not sue Towers Perrin because they did not allege specific facts that would establish that it was an ERISA fiduciary. The dismissal is the subject of the instant appeal.

II.

We review action on a Federal Rule of Civil Procedure 12(b)(6) motion de novo. See, e.g., Blansett v. Cont’l Airlines, Inc., 379 F.3d 177, 179 (5th Cir.), cert. denied, - U.S. -, 125 S.Ct. 672, 160 L.Ed.2d 498 (2004). We accept all well-pleaded facts as true, viewing them in the light most favorable to the plaintiffs. See Jones v. Greninger, 188 F.3d 322, 324 (5th Cir.1999). “At the same time, the plaintiffs must plead specific facts, not mere conclusional allegations, to avoid dismissal for failure to state a claim.” Kane Enters. v. MacGregor (USA), Inc., 322 F.3d 371, 374 (5th Cir.2003). “We wall thus not accept as true conclusory allegations or unwarranted deductions of fact.” Id. (quoting Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir.2000)).

III.

The plaintiffs argue that the district court erred in finding that they inadequately allege that Towers Perrin is a fiduciary under ERISA. According to ERISA § 3(21), “a person is a fiduciary with respect to [an ERISA] plan to the extent ... he has any discretionary authority or discretionary responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A)(iii).¹ The term “fiduciary” must be liberally construed to implement the remedial purpose of ERISA.² Third-party administrators who perform merely administrative duties, however, are not fiduciaries under ERISA.³ In determining whether a party is a fiduciary for the purpose of maintaining an ERISA action against it, we must focus on whether it acted as a fiduciary with respect to the specific acts or omissions alleged to have breached its fiduciary duties.⁴

The complaint fails to identify any specific discretion or decisionmaking authority that Towers Perrin had with respect to the alleged breaches of fiduciary duty. Taking all alleged facts as true, the extent of Towers Perrin’s involvement is that it provided plaintiffs with the notices that contained the alleged misrepresentations.⁵ There is no allegation that Towers Perrin exercised discretion or control regarding the content of the notices, the transfer of funds from the BEX Plan to the $uper $aver Plan, the length of the blackout periods, or the investment of the accounts. The transmission of notices and forms advising plan participants of their rights and options under a plan is nothing more than an administrative or ministerial service, which is insufficient to elevate Towers Perrin to the status of fiduciary under ERISA for purposes of this lawsuit.⁶

The only other references the complaint makes to Towers Perrin’s status are conclusional allegations that it acted as a fiduciary.⁷ Such allegations are insuffi-dent to allow this daim to survive a rule 12(b)(6) motion to dismiss.⁸

IV.

Plaintiffs contend the district court erred in dismissing their complaint for want of standing under ERISA § 502(a)(2), which confers standing on plan participants to bring private causes of action to seek “appropriate relief’ under ERISA § 409. That section subjects plan fiduciaries to liability for breaches of duty,⁹ providing that a fiduciary that breaches any of its duties under the Act “shall be personally liable to make good to such plan any losses to the plan resulting from each such breach.” 29 U.S.C. § 1109(a).

In Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985), the Court interpreted the language of § 409 to permit actions only in which the sought-after recovery benefits the plan as a whole, as distinguished from an individual beneficiary.¹⁰ In Matassarin v. Lynch, 174 F.3d 549 (5th Cir.1999), we reiterated the standing requirement established by Russell, that suits under ERISA § 502(a)(2) inure to the benefit of the plan as a whole.¹¹

Despite plaintiffs’ contrary claims, this suit concerns individualized relief for the particularized harm suffered by a subset of plan participants and does not seek to vindicate the rights or interests of the plan as a whole. The district court properly observed that, apart from conclusional claims that the suit is on behalf of the plan, all the specific allegations deal only with the individual accounts held by the plaintiff-class members.¹²

As in Matassarin, where we dismissed a § 502(a)(2) claim for lack of standing, the plaintiffs have alleged breaches of fiduciary duty that uniquely concern only their individual accounts.¹³ The complaint contains no allegation that defendants violated fiduciary duties vis-á-vis the entire plan or that the $uper $aver Plan itself sustained losses for which it, and not merely individual participants and beneficiaries, could obtain relief.

We reject the argument that the claim inures to the benefit of the plan as a whole just because the complaint requests that damages be paid to the plan instead of directly to the respective plaintiffs. The plaintiffs attempt to distinguish Russell and Matassarin, highlighting the fact that in those cases, the complaint requested that damages be paid directly to the individuals who are aggrieved — making it akin to a claim for benefits — whereas the plaintiffs in this case seek proceeds to be paid to the plan. Although the complaint demands payment to the $uper $aver Plan as an entity, it specifically requests that the damages be “allocated among plaintiffs’ individual accounts proportionate to plaintiffs’ losses.14

In an individual account plan, such as the $uper $aver Plan, a participant has rights to the plan 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 that participant’s account.” 29 U.S.C. § 1002(34). Consequently, because plaintiffs demand that any relief be channeled only to the individual accounts of the plaintiff class members, non-class members would receive no benefit as a result of a successful suit, because they would not receive additional funds in their accounts, apart from the attenuated possibility that class members might forfeit their balances at some future, unspecified time.

Legal title may be formally in the hands of the trustees,¹⁵ but individual account holders retain a beneficial interest only in their respective account balances. Although proceeds would be paid into the plan as an entity, the fact that they are channeled exclusively into the accounts of the plaintiff class benefits only a subsection of the plan, which cannot be said to benefit the plan as a whole as required under § 502(a)(2). Because this claim does not otherwise seek to vindicate rights of the entire plan — given that the alleged fiduciary breaches occurred only as to the members of the plaintiff class and were not directed to the whole plan membership — this claim does not benefit the entire plan.

Similarly, the fact that the total assets of the plan — defined as the sum of the values of the individual accounts — would increase as a result of a successful suit does not mean that recovery inures to the benefit of the entire plan. Although potential recovery might benefit that substantial number of individual accounts, adopting that logic would dramatically expand standing under § 502(a)(2) to circumstances in which only a single plaintiff alleges that his account was damaged as a result of a breach of fiduciary duty that was uniquely targeted at him and no other plan participants.

We cannot adopt an interpretation that would allow a plaintiff, merely by praying that relief pass through the plan into individual accounts, to eviscerate the standing requirement imposed by § 502(a)(2) by engaging in a legal fiction that the suit benefits the plan as whole. The increase would be of no benefit to participants outside the plaintiff class, either by augmenting the value of their accounts or by vindicating their rights as to fiduciary breaches directed toward them.¹⁶

In this regard, we take special note of the fact that in Russell, 473 U.S. at 141, 105 S.Ct. 3085, the Court was careful to distinguish what it called “the entire plan,” on the one hand, from what it termed “the rights of an individual beneficiary,” on the other hand, and to require that an individual claim benefit the former. Each of the plaintiffs has “rights” as a beneficiary. The point of Russell is that a plaintiff who seeks to vindicate those rights, whether by receiving a direct payment or by having his individual account credited with an additional sum certain, may not use the vehicle of § 502(a)(2) unless his claim, if successful, will benefit not just himself, but the whole plan.

It is no accident, therefore, that the Supreme Court has required that a suit benefit not just the plan, but the plan “as a whole.” Russell, 473 U.S. at 140, 105 S.Ct. 3085. That is to say, the statute confers only “remedies that would protect the entire plan, rather than with the rights of an individual beneficiary.” Id. at 141, 105 S.Ct. 3085. Accordingly, “[a] fair contextual reading of the statute makes it abundantly clear that its draftsmen were primarily concerned with the possible misuse of plan assets, and with remedies that would protect the entire plan, rather than with the rights of an individual beneficiary.” Id. Any fair construction of Russell must dwell on the Court’s intentional and repeated reference not only to the plan, but to the entire plan, the plan as a whole.

This distinction between relief for the plan and relief for individuals is paramount.¹⁷ Where, as here, a small segment of the employees bring a claim that, by its very nature, can only benefit them, it cannot be said to help the plan in the sense that the Supreme Court requires.

It is easy to conclude that the instant claim does not meet that test. We need not speculate on every possible situation in which a suit that demands relief beneficial to a large proportion of the beneficiaries can reasonably be said to “protect the entire plan.” Instead, it is enough to say, for present purposes, that the specific relief here requested, affecting only 218 individual accounts out of a much larger plan, is much too narrow to qualify.¹⁸

The Supreme Court’s insistence that the suit seek to “benefit [] the plan as a whole,” Russell, 473 U.S. at 140, 105 S.Ct. 3085, highlights the flaw in plaintiffs’ heavy reliance on Kuper v. Iovenko, 66 F.3d 1447 (6th Cir.1995), in which the court allowed a subclass of beneficiaries to sue for breach of fiduciary duty under § 502(a)(2) over the defendants’ argument that for standing to exist, the breach must harm all participants. There, suit was brought by a subset of all plan participants, a subset consisting of members who had been transferred from one company to another.

In Kuper, 66 F.3d at 1452, the defendants “elaim[ed] that an action under [] § 1109 must be brought on behalf of a plan as a whole and that a claim brought by a subclass of plan participants fails to satisfy this requirement.” The court began its analysis by correctly stating that “ERISA does not permit recovery by an individual who claims a breach of fiduciary duty. Instead, ... any recovery ... must go to the plan.” Id. at 1452-53 (citations omitted). The distinction drawn in Kuper is “between a plaintiffs attempt to recover on his own behalf and a plaintiffs attempt to have the fiduciary reimburse the plan.” Id. at 1453.

The court went awry, however, in then rejecting “[defendants’ argument that a breach must harm the entire plan to give rise to liability under § 1109.” Id. (emphasis added). The court’s reasoning is directly contrary to the insistence in Russell on “benefit to the plan as a whole,” Russell, 473 U.S. at 140, 105 S.Ct. 3085, and contravenes the Court’s emphasis on “remedies that would protect the entire plan,” id. at 141, 105 S.Ct. 3085.

We can only guess that the Kuper court was unaware of Russell or overlooked this crucial language in fashioning its opinion. In any event, Kuper, being from another circuit, is not binding, and we cannot find persuasive a case that runs afoul of the Supreme Court’s requirements.

Moreover, Kuper appears to drive an artificial wedge between the concept of “the entire plan,” which it openly rejects despite the Supreme Court’s blessing, and the notion of “the plan as a whole,” which it appears to embrace. After rejecting, as we have stated, the defendants’ argument that a breach must harm “the entire plan,” the court inexplicably closes with the comment that a ruling for plaintiffs “would benefit the Plan as a whole [and] would cure any harm that the Plan suffered.” Kuper, 66 F.3d at 1453. By this latter statement, taken alone, the opinion appears to be internally inconsistent, because the court seems to be adopting the correct test, i.e., that a successful claim must help the “plan as a whole” after discarding the seemingly identical “entire plan” test.

In the alternative, the Kuper court’s closing observation renders irrelevant its rejection of the “entire plan” requirement, because the court is saying that under the facts of the case, the claim meets the “plan as a whole” test in any event. By this specific mode of analysis, the court’s rejection of the “entire plan” test is arguably rendered dictum. To the extent it is a holding, however, it flies in the face of the Supreme Court’s directive, and we decline to follow it for the reasons explained.¹⁹

Similarly, the plaintiffs’ citation of Smith v. Sydnor, 184 F.3d 356 (4th Cir.1999), is inapposite, because there the plaintiffs sought disgorgement of profits, rescission of a stock sale, and reinstatement of a “put” option — -relief that would benefit all participants of the plan and thus inure to the benefit of the plan as a whole.²⁰ Finally, Steinman v. Hicks, 352 F.3d 1101 (7th Cir.2003), did not involve a subset of participants, but rather a claim that there was a breach of fiduciary duty for failure to diversify plan assets, a claim that inured to the benefit of the entire plan because the breach targeted all plan participants. The claim in this case is distinguishable because it pertains only to alleged misrepresentations and untimely transfers made with respect to a specific subclass of participants, the former BEX pilots who were transferred to American Eagle.²¹

Contrary to plaintiffs’ assertions, denying standing here will not close off all claims by beneficiaries of individual account plans against fiduciaries for violations of their duties. At the very least, standing exists under ERISA § 502(a)(3), under which participants may directly seek equitable relief for any practice that violates any term of ERISA or the plan. Section 502(a)(3) makes no reference to § 409, which the Court interpreted in Russell, 473 U.S. at 140-41, 105 S.Ct. 3085, to engraft a standing requirement that the suit would benefit the plan as a whole under § 502(a)(2).

Section 502(a)(3) is available for individualized relief such as that sought in this case.²² Though that subsection explie-itly limits recovery to equitable relief and might deny the plaintiffs the particular remedy they desire,²³ that is all that is available under the remedial scheme designed by Congress.²⁴ Despite the policy arguments the plaintiffs advance, “[o]ur task is to apply the text, not to improve upon it.”²⁵

In summary, plaintiffs lack standing because this case in essence is about an alleged particularized harm targeting a specific subset of plan beneficiaries, with claims for damages to benefits members of the subclass only, and not the plan generally. This is the kind of case that, under Russell and its progeny, falls outside § 502(a)(2), despite the formalistic distinction that recovery from the suit would be paid into individual accounts and not directly to plaintiffs. Even though the complaint may allege that damage occurred to the plan as a whole, we agree with the district court when it saw the essence of the complaint as a claim decrying particularized harm to individual plaintiffs who seek only to benefit themselves and not the entire plan as required by § 502(a)(2).²⁶

AFFIRMED.

1 . See also Reich v. Lancaster, 55 F.3d 1034, 1049 (5th Cir.1995) ("To be fiduciaries, such persons must exercise discretionary authority and control that amounts to actual decision making power.”)

2 . See Bannistor v. Ullman, 287 F.3d 394, 401 (5th Cir.2002).

3 . See Reich, 55 F.3d at 1047.

4 . Pegram v. Herdrich, 530 U.S. 211, 226, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000) ("In every case charging breach of ERISA fiduciary duty ... 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.”); see also Bannistor, 287 F.3d at 401 ("The phrase 'to the extent’ [in 29 U.S.C. § 1002(21)(A)] indicates that a person is a fiduciary only with respect to those aspects of the plan over which he exercises authority or control.”)

5 . See Compl. ¶¶ 21-24.

6 . The Department of Labor's interpretation of ERISA § 3(21) supports the notion that these kinds of activities are ministerial for the purpose of determining fiduciary status. See Dept, of Labor, Interpretive Bulletin 75-8, 29 C.F.R. § 2509.75-8, D-2 (2002) (listing "[preparation of communications material” and "[ojrientation of new participants and advising participants of their rights and options under the plan” as examples of ministerial services that do not make a party a fidu-ciaiy, because such a person "does not have discretionary authority or discretionary control respecting management of the plan”).

7 . Compl. ¶ 16 ("At all relevant times, Towers Perrin has been a fiduciary of the Super Saver Plan within the meaning of Section 3(21) of ERISA, 29 U.S.C. § 1002(21), because it exercised discretion over the administration of the Super Saver Plan”); id. ¶ 31 ("At all relevant times, defendant!] • • • Towers Perrin acted as [a] fiduciar[y] under Section 3(21)(A) of ERISA”); id. ¶ 35 ("At all relevant times, American ... and Towers Perrin were co-fiduciaries.”)

8 . See Kane Enters., 322 F.3d at 374. Other courts have held that failing to plead specific facts establishing that a defendant was a fiduciary with respect to the plan and the acts or omissions in question requires dismissal. See, e.g., Custer v. Sweeney, 89 F.3d 1156, 1161-63 (4th Cir.1996); Metro. Life Ins. Co. v. Palmer, 238 F.Supp.2d 826, 831 (E.D.Tex.2002).

9 . Section 404 of ERISA, 29 U.S.C. § 1104, details the duties of an ERISA fiduciary.

10 . Russell, 473 U.S. at 140, 105 S.Ct. 3085 ("[RJecovery for a violation of § 409 inures to the benefit of the plan as a whole.”); id. at 142, 105 S.Ct. 3085 ("A fair contextual reading of the statute makes it abundantly clear that its draftsmen were primarily concerned ... with remedies that would protect the entire plan, rather than with the rights of an individual beneficiaiy.”); see also Varity Corp. v. Howe, 516 U.S. 489, 515, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996) (noting that plaintiff could not proceed under § 502(a)(2) because "that provision, tied to § 409, does not provide a remedy for individual beneficiaries”).

11 . See Matassarin, 174 F.3d at 566 (stating that the " ‘loss to the plan' language ... limits claims to those that inure to the benefit of the plan as a whole and not to the benefit only of individual plan beneficiaries”) (citing, inter alia, Russell, 473 U.S. at 140-42, 105 S.Ct. 3085).

12 . Compl. ¶ 12 ("[A]ll the individual accounts of plaintiffs and other members of the Class sustained damages”) (emphasis added); id. ¶ 38 ("As a result of these acts and omissions, the value of the plaintiffs' individual accounts under the $uper $aver Plan, immediately following the transfer, was less than what it would have been had the money been transferred when promised.”) (emphasis added).

13 . Matassarin, 174 F.3d at 566 ("Most of the ERISA breaches that Matassarin alleges concern only her individual account or, at most, those of the sixty-seven Plan participants who were offered lump-sum distributions.”)

14 . Compl. ¶ 14 (emphasis added).

15 . ERISA § 403(a), 29 U.S.C. § 1103(a) ("[A]ll assets of an employee benefit plan shall be held in trust by one or more trustees.”)

16 . We stop short, however, of saying that there is no standing unless all plan participants would benefit from the litigation. The central question, in the context of an individual account plan, is whether the suit inures to the benefit of the plan, which occurs whenever all plan participants would directly benefit (by all having increased balances in their individual accounts) or when the suit seeks to vindicate the rights of the plan as an entity when alleged fiduciary breaches targeted the plan as a whole — whether the suit is filed by all plan participants or only a subset thereof.

17 . “[Section] 409 is more fairly read in context as providing remedies that would protect the entire plan rather than individuals Russell, 473 U.S. at 150, 105 S.Ct. 3085 (Brennan, J., concurring) (internal quotation marks omitted).

18 . The number of potential recipients here compares favorably to the sixty-seven participants in Matassarin. There, in a situation like the current one, this court noted that because of the specific nature of the claim, tailored to only a small portion of the account holders, the plaintiff "has failed to allege any way in which the defendants' actions caused a loss to the Plan as a whole as envisioned in § 502(a)(2).” Matassarin, 174 F.3d at 566.

19 . Because of the arguable conflict with the Sixth Circuit, this opinion has been pre-circu-lated to the active judges of this court in accordance with our usual policy. See Estate of Farrar v. Cain, 941 F.2d 1311, 1316 n. 22 (5th Cir.1991).

20 . Smith, 184 F.3d at 363 ("[I]t does not solely benefit the individual participants.”).

21 . See Compl. ¶¶ 20-28, 34.

22 . Varity, 516 U.S. at 510, 116 S.Ct. 1065 (“The words of subsection (3) — 'appropriate equitable relief to 'redress' any 'act or practice which violates any provision of this title’ — are broad enough to cover individual relief for breach of a fiduciary obligation.”); Matassarin, 174 F.3d at 556 ("A plan beneficiary may bring a § 502(a)(3) action against an ERISA fiduciary based on loss lo the individual beneficiary as well as based on loss to the plan as a whole”); Steinman, 352 F.3d at 1102 ("[Sjection 502(a)(3) is the vehicle for suits by individuals who are seeking relief just on their own behalf rather than on behalf of the plan.”).

23 . The Supreme Court has indicated that compensatory and punitive damages may not be available under ERISA § 502(a)(3). See Varity, 516 U.S. at 510, 116 S.Ct. 1065 (citing Mertens v. Hewitt Assocs., 508 U.S. 248, 255, 256-58, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993)).

24 . Aetna Health, Inc. v. Davila, 542 U.S. 200, 124 S.Ct. 2488, 2499, 159 L.Ed.2d 312 (2004) ("The limited remedies available under ERISA are an inherent part of the careful balancing between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans.”) (internal citations omitted); Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002) ("We have observed repeatedly that ERISA is a comprehensive and reticulated statute, the product of a decade of congressional study of the Nation’s private employee benefits system. We have therefore been especially reluctant to tamper with the enforcement scheme embodied in the statute by extending remedies not specifically authorized by its text.”) (internal citations omitted).

25 . Pavelic & LeFlore v. Marvel Entm’t Group, 493 U.S. 120, 126, 110 S.Ct. 456, 107 L.Ed.2d 438 (1989).

26 . Because we affirm the dismissal for want of standing, we need not consider whether the plaintiffs are required to exhaust administrative remedies before bringing suit.