Stephen Allen Lynn, P.C. Employee Profit Sharing Plan and Trust v. Stephen Allen Lynn, P.C.

• Court: Court of Appeals for the Fifth Circuit
• Decided: July 12, 1994
• Docket: 93-01501
• Status: Published

Opinion

United States Court of Appeals,

Fifth Circuit.

No. 93-1501.

STEPHEN ALLEN LYNN, P.C. EMPLOYEE PROFIT SHARING PLAN AND TRUST, et al., Plaintiffs-Appellees,

v.

STEPHEN ALLEN LYNN, P.C., et al., Defendants,

Florence Veronica Lynn, Defendant-Appellant.

July 13, 1994.

Appeal from the United States District Court for the Northern District of Texas.

Before GOLDBERG, DAVIS, and DeMOSS, Circuit Judges.

GOLDBERG, Circuit Judge:

This appeal arises out of a declaratory judgment action filed

to determine the parties' rights in a pension plan governed by the

Employee Retirement Income Security Act of 1974 ("ERISA"), 29

U.S.C. §§ 1001-1461. Pursuant to Section 510 of ERISA, appellant,

Florence Veronica Lynn, seeks relief from alleged discrimination

that inhibited her in the exercise of her rights under that plan.

The district court dismissed appellant's claim on the ground that

she failed to state a claim upon which relief could be granted

since she was neither a participant in nor a beneficiary of the

plan at the time the allegedly discriminatory actions were taken.

For the reasons that follow, we reverse the judgment of the

district court and remand this case for further proceedings.

I. BACKGROUND

In the midst of a contentious divorce, Florence Veronica Lynn

1 petitioned the state district court in Dallas County to order her

husband, Stephen Allen Lynn, to pay interim attorney's fees. On

May 17, 1991, the Court Master overseeing the proceedings

recommended that Mr. Lynn pay $50,000 to Ms. Lynn's attorney, Ike

Vanden Eykel.1 Mr. Lynn appealed the Master's recommendation to

the state district court that held jurisdiction over the case. On

August 16, 1991 the court denied Mr. Lynn's appeal and ordered him

to pay $44,000 to cover Ms. Lynn's expenses.2 The court set August

26 as the deadline for Mr. Lynn to make the required payments.

To provide funds for the payment order, the court also ordered

Mr. Lynn to withdraw money held as community property in his

retirement account.3 The targeted retirement account, the Stephen

Allen Lynn, P.C., Employee Profit Sharing Plan and Trust (the

"Plan"), was established by Mr. Lynn in the early 1980s out of

funds derived from his wholly owned corporation. The Plan, for

which Mr. Lynn had installed himself as trustee, qualified as an

employee benefit plan as defined by ERISA. 29 U.S.C. § 1002(3).

After he received the Master's recommendations to pay out

funds from the Plan but before he received the state district court

order, Mr. Lynn, as the Plan administrator, executed various

amendments to the Plan. On May 20, 1991, he restated the Plan

1 The Master also recommended that Mr. Lynn pay Ms. Lynn $10,000 for support and $26,000 for the guardian ad-litem representing the Lynn's child, David. 2 The figure included $32,000 to Mr. Vanden Eykel and $12,000 to the guardian-ad-litem. 3 The retirement plan was the only apparent source of funds sufficient to cover the court ordered payments.

2 having omitted three sections, all of which pertained to

pre-retirement disbursement of funds. The sections removed from

the plan were: (1) a provision that permitted pre-retirement

distributions to participants, (2) a provision that allowed

advances against distributions by reason of hardship, and (3) a

provision that authorized loans to plan participants and

beneficiaries. On August 6, 1991, Mr. Lynn amended the plan a

second time. This second change prohibited anyone from terminating

the Plan or completely distributing the Plan funds or altering the

trustee of the Plan without the "voluntary written consent of the

Participant with the largest account." That participant was, of

course, Mr. Lynn. Finally, on August 15, 1991, Mr. Lynn made the

previous amendments retroactive to February 1, 1987 and designated

Comerica Bank-Texas ("Comerica") as the Trustee of the Plan in lieu

of Mr. Lynn. The sum of these changes was to disable Mr. Lynn, or

anyone else, from paying out any Plan funds as required by the

state court.

By the end of August, 1991, Mr. Lynn had yet to comply with

the state court's order to pay his wife's interim attorney's fees.

Ms. Lynn's attorney and the guardian ad-litem filed a motion in the

state court seeking to hold Mr. Lynn in contempt for his failure to

comply with the court's orders. Mr. Lynn requested Comerica, now

the Plan trustee, to turn over sufficient Plan assets to pay the

court-ordered fees and expenses. Unsurprisingly, Comerica

determined that, because of the recent amendments to the plan, Mr.

Lynn would be unable to obtain a disbursement of Plan funds prior

3 to his retirement at age 65, twenty years hence. The bank

therefore refused to disburse the funds from the Plan.

On October 17 of the same year, Comerica and the Plan

commenced the instant action. The plaintiffs sought a declaratory

judgment pronouncing the Plan amendments valid and the refusal to

disburse funds proper.4 Ms. Lynn, in response, did not challenge

the right of Mr. Lynn to amend the Plan. She did, however, file a

counterclaim contesting the particular amendments made by Mr. Lynn,

complaining that his actions violated Section 510 of ERISA.

Section 510 prohibits a person from discriminating against a

"participant or beneficiary for exercising any right to which he is

entitled under the provisions of an employee benefit plan, [or]

this subchapter ... or for the purpose of interfering with the

attainment of any right to which such participant may become

entitled under the plan, [or] this subchapter." 29 U.S.C. § 1140.

In this counterclaim, she asked the court to declare the amendments

to the plan invalid and to order the trustee to comply with the

state court order requiring disbursement of the Plan funds.5

4 Ms. Lynn filed counterclaims alleging conspiracy and breach of fiduciary duty. The district court dismissed the conspiracy claim on preemption grounds and the breach of fiduciary duty claim for lack of standing. Ms. Lynn has not appealed these decisions. 5 The basis for her claim was 29 U.S.C. § 1132(a) which provides:

A civil action may be brought ...

(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to

4 The district court granted the Trustee's motion for summary

judgment, holding that the revisions of the Plan were valid and

that Comerica acted properly in denying Mr. Lynn's demand for

distribution. The court addressed Ms. Lynn's discrimination claim

by noting that Section 510 proscribes only discrimination that is

directed against participants and beneficiaries of an ERISA plan.

The court held that regardless of any discriminatory intent on the

part of Mr. Lynn in amending the Plan, Ms. Lynn was prevented from

bringing her discrimination claim because she was neither a

participant nor a beneficiary at the time the amendments were

effected.

The district court assumed that Ms. Lynn qualified as an

alternate payee under a qualified domestic relations order ("QDRO")

when on June 24, 1992, the state court issued the decree of

divorce. The court below then noted that ERISA provides that "[a]

person who is an alternate payee under a qualified domestic

relations order shall be considered for purposes of any provision

of the chapter a beneficiary under the plan." 29 U.S.C. §

1056(d)(3)(J). However, the district court determined that because

she did not qualify as an alternate payee in June and August of

1991 when the discriminatory actions were alleged to have occurred,

she could not assert a claim under Section 510. Without reaching

the merits of Ms. Lynn's claim, the court granted Comerica and the

Plan's summary judgment motion and dismissed her counterclaim. Ms.

redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.

5 Lynn now appeals.

II. ANALYSIS

This appeal raises questions about whether the

anti-discrimination provisions of ERISA can protect a claimant in

the position of Ms. Lynn. We conclude that Ms. Lynn is precisely

the sort of claimant who Congress intended to protect through the

enactment of the anti-discrimination provisions and that the lower

court erred in granting summary judgment against Ms. Lynn on her

discrimination claim. We therefore reverse the district court and

remand this case to determine whether the amendments to the Plan

should be invalidated and the administrator forced to disburse the

ordered funds.

As noted above, a "person who is an alternate payee under a

qualified domestic relations order shall be considered for purposes

of any provision of this chapter a beneficiary under the plan." 29

U.S.C. § 1056(d)(3)(J). When, on June 24, 1992, the Texas district

court issued the Lynn's divorce decree and along with it, a

qualified domestic relations order, the court provided Ms. Lynn

with beneficiary status under ERISA. At that point, she was

empowered under 29 U.S.C. § 1132(a) to enforce any rights granted

to her by ERISA, including the anti-discrimination counterclaim she

asserted in the instant case.6

Under the statute, a "civil action may be brought ... by a

participant, beneficiary, or fiduciary" to enforce rights granted

6 Ms. Lynn's counterclaim was filed in July of 1992, after she obtained the QDRO.

6 by ERISA, including rights asserted under Section 510. 29 U.S.C.

§ 1132(a). Ms. Lynn, because she was a beneficiary at the time she

asserted her ERISA counterclaim, had standing to assert that claim.

Cf. Yancy v. American Petrofina, Inc., 768 F.2d 707, 708 (5th

Cir.1985) (ERISA pension claimants who were participants at time of

injury but who later accepted lump sum payments covering the full

extent of their benefits lacked standing to assert a claim under

Section 1132 for benefits because "questions of standing must be

resolved on the facts existing when the challenge is raised.");

Joseph v. New Orleans Electrical Pension & Retirement Plan, 754

F.2d 628, 630 (5th Cir.) cert. denied, 474 U.S. 1006, 106 S.Ct.

526, 88 L.Ed.2d 458 (1985) (same). This case reaffirms the

importance of the precept that an "employer should not be able

through its own malfeasance to defeat the employee's standing."

Christopher v. Mobil Oil Corp., 950 F.2d 1209, 1221 (5th Cir.),

cert. denied, --- U.S. ----, 113 S.Ct. 68, 121 L.Ed.2d 35 (1992).

The question that remains is whether, given the delay between

the allegedly discriminatory actions and the attainment of

beneficiary status, Ms. Lynn could state a valid claim under

Section 510. The district court held that even if Ms. Lynn became

a beneficiary when she received the QDRO, she did not qualify for

the protections of Section 510 since she was not a beneficiary at

the time that Mr. Lynn executed the complained of amendments. The

district court, for this reason, dismissed her claim. Our review

of the circumstances of this case prompts us to reach the opposite

conclusion: Mr. Lynn's actions constitute precisely the type of

7 discrimination prohibited by ERISA and Ms. Lynn should be given the

opportunity to prove such a claim in the district court.

Section 1140 makes it "unlawful for any person to ...

discriminate against a participant or beneficiary for exercising

any right to which he is entitled under the provisions of an

employee benefit plan, [or] this subchapter." 29 U.S.C. § 1140.

A requirement of contemporaneity between the time the

discriminatory actions are executed and the attainment of

beneficiary status cannot and should not be read into this statute

to preclude the instant claim.

Ms. Lynn's counterclaim alleges that Mr. Lynn, as

administrator and trustee of the Plan, altered the Plan in the

midst of their hotly contested divorce to prevent compliance with

an order requiring disbursement of Plan funds. Indeed, Mr. Lynn

amended the Plan only after receiving the Court Master's

recommendation to disburse the funds. By all accounts, his actions

were an attempt to prospectively disable his ability to comply with

the divorce court's authority in a frank manipulation of the

protection afforded by ERISA. Such actions on the part of Mr. Lynn

come perilously close to a sham on the divorce court as well as the

federal system of enforcing the rights of pension plan participants

and beneficiaries. Comerica and the Plan now argue that Ms. Lynn

lacked a cause of action to complain of her husband's thinly veiled

attempt to cheat her and avoid complying with a state divorce court

order. We find, however, that Ms. Lynn has a valid complaint that

the statute was improperly applied in her case.

8 Ms. Lynn has introduced ample evidence that the amendments

executed by her ex-husband were intended expressly to deprive her

of rights to the pension plan. We need not address whether these

misdeeds created a viable cause of action at the time he executed

the amendments. What is clear, however, is that Ms. Lynn alleged

sufficient facts to state a claim that both the intent and effect

of Mr. Lynn's actions, albeit with some delay, was to discriminate

against his ex-spouse in the realization of rights she would come

to possess in his pension plan. The injury was realized and became

actionable at the moment she attained beneficiary status through

the QDRO. That is, the instant Ms. Lynn became a beneficiary with

rights granted by the QDRO, the amendments took their

discriminatory effect, preventing her from realizing a distribution

from the plan. At this point, we have no trouble concluding that

her cause of action was viable.

This case is analogous to the situation of a mad terrorist who

plants a time bomb in a school which explodes after ten years,

killing a classroom full of second-graders. Although none of the

lives existed at the time the bomber placed the explosives, once

the bomb detonates, the crime is no less murder.

We conclude that the district court erred in dismissing Ms.

Lynn's claim. Where the discriminatory actions are not

contemporaneous with the victim's status as a participant or

beneficiary, a cause of action under ERISA will lie if the actions

generate their intended effect at the time the victim attains

proper status under ERISA. Ms. Lynn has therefore stated a valid

9 Section 510 discrimination claim, and we will allow her to pursue

it in the trial court below.

Comerica and the Plan attempt to head off the possibility of

a remand of Ms. Lynn's discrimination claim by asserting that our

decision in McGann v. H & H Music Co., 946 F.2d 401, 407 (5th

Cir.1991), cert. denied, --- U.S. ----, 113 S.Ct. 482, 121 L.Ed.2d

387 (1992), also forecloses the possibility of Ms. Lynn bringing a

claim. That case, they assert, allows an employer and sponsor of

a plan free reign in altering the terms of coverage available to

employees. Appellees have erred, however, in interpreting our

decision in McGann. This case offers no substantial obstacle to

remanding for a determination of discrimination.

In McGann, an employer amended a plan to severely curtail

benefits payable to individuals who suffered from Acquired Immune

Deficiency Syndrome ("AIDS") shortly after learning that one of its

employees had contracted the disease. The court affirmed a summary

dismissal of the participant's claim of discrimination under

Section 510 of ERISA on the grounds that the former employee had

failed to show the employer's specific intent to discriminate.

McGann, 946 F.2d at 404. The court held that the general desire to

avoid the cost of covering people with AIDS was not sufficiently

specific to constitute actionable discrimination under Section 510

since the cost rationale applied equally to all people with AIDS.

Id.

In this case, Comerica and the Plan argue that the plan

amendments, as in McGann effected all participants and

10 beneficiaries equally and therefore are not actionable under

section 510. We disagree. In fact, Comerica and the Plan's

interpretation of the case law would nullify the protections

embodied by the anti-discrimination provisions of ERISA. In the

instant case, Ms. Lynn has offered sufficient evidence to state a

claim of discrimination because she has introduced evidence from

which it can be inferred that Mr. Lynn specifically intended to

discriminate against her in realizing benefits under the plan. See

Unida v. Levi Strauss & Co., 986 F.2d 970, 979-80 (5th Cir.1993)

(requiring evidence of specific intent to violate ERISA under

Section 510). The absence of such a showing in McGann was exactly

the reason the court dismissed that case. We are therefore

compelled to remand this case for further proceedings as to this

question.

III. CONCLUSION

We REVERSE the decision dismissing Ms. Lynn's section 510

claim and REMAND for further proceedings to determine whether her

husband's specific intent in effectuating the plan amendments was

discriminatory.