UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
In re ) ULLICO INC. LITIGATION ) ) ) CONSOLIDATED DOCKET AND ) CASE NO. 03cv1556 (RJL) RELATED TO: ALL CASES ) ) )
~+ MEMORANDUM OPINION (March 31 ,2009) [#334,335, 336]
Counterclaim plaintiffs! (or the "ULLICO parties") alleged that
counterclaim defendants Joseph Carabillo, John K. Grelle, and James W. Luce
breached their fiduciary duties to ULLICO Inc. ("ULLICO") and its various
benefit plans, and that Carabillo engaged in legal malpractice. Counterclaim
defendants (or "Committee Member defendants") filed for summary judgment,
arguing that no genuine issue of material fact existed as to any of the six counts in
the ULLICO parties' Consolidated Counterclaim. Counterclaim plaintiffs filed
motions for partial summary judgment on two counts of the Consolidated
Counterclaim: (l) breach of fiduciary duty to the Qualified Plan, and (2)
I Counterclaim plaintiffs are ULLICO Inc.; ULLICO Inc. Pension Plan and Trust; Administrator of the ULLICO Inc. Pension Plan and Trust; Plan Administration Committee of the ULLICO Inc. Pension Plan and Trust; Union Labor Life Insurance Company; Union Labor Life Auxiliary Retirement Benefits Plan; Administrator of the Union Labor Life Auxiliary Retirement Benefits Plan; ULLICO Inc. Employees' Life and Health Welfare Plan; Administrator of the ULLICO Inc. Employees' Life and Health Welfare Plan; ULLICO Inc. Non-Qualified Deferred Compensation Plan; and Damon Gasque, Joseph Linehan, Peter Haley, Marcellus Duckett, James Paul, and Jeffrey Bryan in their capacity as plan administrators. professional negligence against counterclaim defendant Carabillo. 2 For the
following reasons, counterclaim defendants' motion is GRANTED in part and
DENIED in part, and counterclaim plaintiffs' motions are DENIED.
BACKGROUND
ULLICO is a holding company created to raise capital for its various
subsidiaries, which provide services to unions, union members, and their families.
Consolidated Counterclaim ("Countercl.") ~ 3. ULLICO sponsors several benefit
plans, including the ULLICO Inc. Pension Plan and Trust (the "Qualified Plan"),
ULLICO Inc. Employees' Life and Health Welfare Plan (the "Welfare Plan"), and
Union Labor Life Auxiliary Retirement Benefits Plan (the "Auxiliary Plan").
Countercl. ~~ 5-7. ULLICO also established the ULLICO Inc. Non-Qualified
Deferred Compensation Plan (the "Deferred Compensation Plan"). Countercl. ~ 8.
Counterclaim defendants Carabillo, Grelle, and Luce 3 served as members of the
Benefits Committee, which acted as plan administrator for the Qualified Plan,
Welfare Plan, Auxiliary Plan, and Deferred Compensation Plan. Countercl. ~~ 11-
13.
In addition to their service on the Benefits Committee, Carabillo, Grelle,
and Luce were officers ofULLICO. Carabillo served as the company's Chief
Legal Officer from March 2, 1987 until he was terminated on May 30, 2003.
2 While not filed as cross-motions for summary judgment, the briefs addressed related questions of law and fact, and the Court resolves all three motions with this opinion. 3 The former Chairman and CEO ofULLICO, Robert Georgine, also served as a member of the Benefits Committee and was a counterclaim defendant. Countercl. ~ 10. ULLICO moved to dismiss all its claims against Georgine, which the Court granted on May 23,2006. Order, May 23,2006 [Dkt. #185].
2 Countercl. ~ 11. ULLICO employed Grelle as its Senior Vice President and Chief
Financial Officer from January 2, 1996 until his resignation on February 25, 2003.
Countercl. ~ 12. Luce was ULLICO's Executive Vice President from 1990 until
his retirement on June 1,2003. Countercl. ~ 13; Countercl. Defs' Statement of
Mat. Facts ("Countercl. Def. Facts") ~ 3.
In early 2002, press reports began to appear concerning allegations of self-
dealing by ULLICO corporate insiders. Countercl. ~ 85. The Board of Directors
appointed former Illinois Governor James Thompson to investigate ULLICO's
stock repurchase programs, stock purchase offers to directors and officers, and
investment in the company Global Crossing, which produced a significant, but
temporary, rise in ULLICO stock prices. Countercl. ~~ 38,85. ULLICO spent $6
million on the internal investigation of the stock transactions, including funds
spent defending officers and directors in the investigation. Countercl. ~ 89. In the
months and years following the issuance of the Thompson Report on November
26, 2002, Countercl. ~ 85, ULLICO became the target of multiple state and federal
investigations, Countercl. ~ 90, and Carabillo, Grelle, and Luce left the company,
Countercl. ~ 92.
Counterclaim defendants filed several suits in this Court for, among other
things, recovery of their benefits under the various plans offered by ULLICO. The
Court consolidated the cases for discovery purposes. Consolidation and
Scheduling Order, June 1, 2005 [Dkt. # 115]. In its Consolidated Counterclaim,
the ULLICO parties argued that Carabillo, Grelle, and Luce breached their
3 fiduciary duties to the company and its benefit plans, and that Carabillo engaged in
legal malpractice. Countercl.,-r,-r 94-159. The plans at issue - and the largely
undisputed facis surrounding the counterclaim defendants' conduct as to each of
the plans - are as follows:
A. Qualified Plan
Adopted in 1994, the Qualified Plan is a defined benefits plan; participants
are entitled to a set amount of benefits each month, determined by a benefits
formula set forth in the plan documents. Countercl. Def. Facts,-r 13. The benefits
are paid out of a trust established by ULLICO. Countercl. Def. Facts ,-r 14.
1. Stock Repurchase Program
As plan administrator, the Benefits Committee was responsible for the
management and investment of the Qualified Plan's assets, which included
ULLICO stock. Countercl. Def. Facts,-r 93. On November 3,2000, ULLICO's
Board of Directors adopted a stock repurchase program under which the company
could repurchase up to $30 million ofULLICO stock at a "book value" price of
$146.04. Countercl. Def. Facts,-r 105. This price was a substantial increase over
recent years; in 1998, for example, the "book value" of the stock was $28.70.
Countercl. Def. Facts,-r 106. This increase in the value ofULLICO stock was
largely attributable to the company's investment in Global Crossing, Countercl.
Def. Facts,-r 107, which had skyrocketed in value throughout 1998 and 1999,
Countercl. ,-r 17.
4 Under the terms of the stock repurchase program, ULLICO had to receive
tenders of all shares owned by shareholders holding more than 2% of the
outstanding Class A and Class B shares ofULLICO stock. Counterci. Def. Facts ~
108. This rule could be waived by Chairman Robert Georgine if the waiver would
not result in a "significant redistribution of equity." Countercl. Def. F acts ~ 110.
The Qualified Plan was one of fifteen shareholders that held more than 2% of the
outstanding shares ofULLICO stock, Countercl. Def. Facts ~ 111, and all fifteen
shareholders tendered their stock as part of the repurchase plan, Countercl. Def.
Facts ~ 127.
The stock repurchase program was fully subscribed, and ULLICO
repurchased certain tendered shares on a prorated basis. Counterci. Def. Facts ~
129. The company repurchased all the tendered stock from those shareholders
who held less than 10,000 shares. Countercl. Def. Facts ~ 104. Those
shareholders with more than 10,000 shares were subject to proration. Id. The
Qualified Plan held more than 10,000 shares and was able to redeem only 5,794 of
the 263,233 shares it tendered. ULLICO's Response to Committee Member
Defendants' Statement of Material Facts ("Countercl. PI. Facts") ~ 129.
Counterclaim defendants also participated in the stock repurchase program, but
each of them had less than 10,000 in ULLICO stock. Carabillo, Grelle, and Luce
were therefore able to redeem their shares in full. CountercL PI. Facts ~~ 126, 129.
Before the 2000 stock repurchase, the Qualified Plan owned 263,233 of
ULLICO stock out of the 7,866,333 shares outstanding, or 3.3% of the stock.
5 Counterci. PI. Facts,-r 146. According to counterclaim plaintiffs' calculations, the
Qualified Plan should have received 3.3% of the $30 million expended under the
2000 stock repurchase program, or $1,001,349. Id. The Qualified Plan only
received $846,155.76. Id.
The Board of Directors again authorized a stock repurchase in 2001, this
time with a book value of $74.87 per share. Counterci. Def. Facts ,-r 131. The
Benefits Committee tendered the Qualified Plan's stock during this repurchase
program. Counterci. Def. Facts,-r 134. The Qualified Plan's stock was again
prorated, and it sold only 6,841 shares ofULLICO stock out of the 257,439 it
tendered. Counterci. Def. Facts,-r,-r 142-44.
2. Amendments to the Qualified Plan
Counterclaim defendants also twice amended the Qualified Plan in ways
that inured to their personal benefit. The first amendment, adopted at the Benefits
Committee's October 20, 1999 meeting, changed the definition of "Sponsoring
Employee ULLICO Group Compensation" in the Qualified Plan to include
"regularly established annual incentive compensation with no maximum, effective
January 1,2000." Counterci. Def. Facts,-r 73. This amendment effectively
increased retirement benefits available to employees who were significantly
compensated through incentive payments. Counterci. Def. Facts ,-r,-r 73-74.
Carabillo, Luce, and Grelle fell into this category; the amendment, therefore,
significantly increased their retirement benefits. Statement of Material Facts in
6 Support ofULLICO's Mot. for Partial Summ. J. on Plan Amendments
("CountercI. PI. Plan Amendment Facts") ~ 20.
On July 24, 2001, the Benefits Committee again amended the Qualified
Plan. CountercI. Def. Facts ~ 77. With this amendment to the accrual formula, the
committee increased the percentage of an employee's average salary used to
determine his normal retirement benefit. Id. Again, this change, which increased
the percentage from 2% to 2.5%, directly benefited Carabillo, Luce, and Grelle.
Countercl. PI. Plan Amendment Facts ~ 20. Between the two amendments, the
counterclaim defendants allegedly increased their benefit levels by nearly 100%.
Id.
Despite the passage of these amendments, counterclaim defendants may not
have possessed the authority to amend the Qualified Plan at all. Section 11.1 of
the plan provides that any amendment to the plan "shall be made pursuant to a
resolution adopted by the Board of Directors[.]" CountercI. Def. Facts ~ 25. On
May 5, 1997, the Executive Committee, which possessed many of the powers of
the Board of Directors, adopted a resolution creating the Benefits Committee.
Countercl. Def. Facts ~~ 38-40. This resolution stated that the Benefits Committee
would "meet regularly to administer, plan and effect changes in the benefit plans."
Countercl. Def. Facts ~ 38 (emphasis added).
The counterclaim defendants believed the resolution creating the Benefits
Committee gave the committee the power to amend the plan. Countercl. Def.
Facts ~~ 43,48-50. This belief was held by Carabillo, Chief Legal Officer of the
7 company and a member of the committee, who advised his fellow members that
they possessed amendment authority. Countercl. PI. Statement of Mat. Facts in
Support of Its Mot. for Partial Summ. J. Against Joseph Carabillo for Legal
Malpractice ~ 14. Counterclaim plaintiffs argue that the terms of the Qualified
Plan unambiguously did not give counterclaim defendants such authority, and that
counterclaim defendants' belief that it did is irrelevant. Countercl. PI. Facts ~~ 43,
48-50.
B. Auxiliary and Welfare Plans
In addition to the Qualified Plan, ULLICO sponsors two other benefit plans
for many of its employees. The Welfare Plan maintains insurance policies that
provide medical and life insurance coverage to participants. Countercl. Def. Facts
~ 11. The Auxiliary Plan is a top hat plan; its purpose is to provide benefits that
would be due under the Qualified Plan, but for Internal Revenue Code limits on
the benefits that can be paid to an individual. Countercl. Def. Facts ~ 20. Both the
Welfare and Auxiliary plans are unfunded plans supported exclusively by the
general assets ofULLICO. Countercl. PI. Facts ~ 20.
C. Deferred Compensation Plan
The Compensation Committee of the Board of Directors established the
Deferred Compensation Plan, a top hat plan that covers only a select group of
management or highly compensated employees, in August 1998. Countercl. Def.
Facts ~~ 148-49. Counterclaim defendants participated in the plan. Countercl.
Def. Facts ~ 150. Under the terms of the plan, participants could defer up to 25%
8 of their base salary and 100% of their bonuses and incentive awards. Counterci.
Def. Facts ~ 151. Participants could place their deferred compensation in "deemed
investments," including ULLICO stock. Counterci. Def. Facts ~ 152. The
counterclaim defendants chose to move their entire account balances into "deemed
investments" in ULLICO stock. Counterci. PI. Facts ~ 153. Carabillo, with the
approval of Grelle, retrieved the entirety of his plan account under a financial
hardship clause, which allows a participant to prematurely withdraw funds from
the plan. Counterci. PI. Facts ~ 155. Carabillo's reason for withdrawal- to help
his mother with her medical expenses - is not one of the enumerated financial
hardships that allows a participant to take advantage of this provision. Id.
Counterclaim plaintiffs seek to disgorge or deny benefits otherwise owed to
counterclaim defendants under each of these four plans. For the following
reasons, counterclaim plaintiffs cannot, as a matter of law, succeed on all of their
counterclaims, and counterclaim defendants' motion for summary judgment is
therefore GRANTED in part.
LEGAL STANDARD
Summary judgment is appropriate "if the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine issue
as to any material fact and that the movant is entitled to judgment as a matter of
law." Fed. R. Civ. P. 56(c). The party seeking summary judgment bears the
initial burden of demonstrating the absence of a genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The party opposing a motion
9 for summary judgment, however, "may not rely merely on allegations or denials in
its own pleading; rather, its response must ... set out specific facts showing a
genuine issue for trial." Fed. R. Civ. P. 56(e)(2). In deciding whether there is a
genuine issue of material fact, the Court must draw all justifiable inferences in
favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
255 (1986).
ANALYSIS
The majority of the Consolidated Counterclaim addresses breaches of
fiduciary duty under the Employee Retirement Income Security Act of 1974
("ERISA"). 29 U.S.C. §§ 1001 et seq. ERISA requires a fiduciary to "discharge
his duties with respect to a plan solely in the interest of the participants and
beneficiaries." 29 U.S.C. § l104(a)(1). To establish a breach of fiduciary duty to
an ERISA benefit plan, a plaintiff must show, at a minimum, that (1) ERISA's
fiduciary obligations apply to the plan, see 29 U.S.C. § 1101(a), and (2) the
defendant acted as a fiduciary of the plan, see 29 U.S.C. § 1002(21). The
allegations of breaches of fiduciary duty to the Auxiliary Plan, Welfare Plan, and
Deferred Compensation Plan do not, for one reason or another, meet these basic
requirements, and the Court therefore grants the motion for summary judgment, at
least in part, on each of those claims. Disputed issues of fact as to other claims,
such as the allegation of breach of fiduciary duty to the Qualified Plan, prevent the
Court from entering judgment on those counts at this early stage.
10 I. Breach of Fiduciary Duty to the Qualified Plan
Counterclaim plaintiffs and counterclaim defendants both moved for
summary judgment on the question of breach of fiduciary duty to the Qualified
Plan (Count I). Counterclaim plaintiffs moved for partial summary judgment in
their favor only on the claim of breach of fiduciary duty as it relates to the
allegedly unauthorized amendments. Counterclaim defendants argue that neither
the amendments nor the stock repurchase program qualify as a breach of fiduciary
duty to the Qualified Plan, and Count I should be dismissed in its entirety.
Because both the amendment and the stock repurchase allegations rest on disputed
issues of material fact, the motions for summary judgment are DENIED.
A. Plan Amendments
In every case charging a breach of ERISA fiduciary duty, the threshold
question is "whether that person was acting as a fiduciary (that is, was performing
a fiduciary function) when taking the action subject to complaint." Pegram v.
Herdrich, 530 U.S. 211, 226 (2000). A person acts as a fiduciary to the extent he
"exercises any discretionary authority or discretionary control respecting
management of such plan or exercises any authority or control respecting
management or disposition of its assets, ... or he has any discretionary authority
or discretionary responsibility in the administration of such plan." 29 U.S.C. §§
1002(21)(A)(i), (iii).
Not all actions taken by an ERISA fiduciary implicate these responsibilities
because "the trustee under ERISA may wear different hats." Pegram, 530 U.S. at
11 225. For example, an employer or plan sponsor does not act as an ERISA
fiduciary when taking steps to modify or amend an employee benefit plan. See
Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 444 (1999) ("an employer's
decision to amend a pension plan ... does not implicate the employer's fiduciary
duties"); Lockheed Corp. v. Spink, 517 U.S. 882, 891 (1996) ("the act of amending
a pension plan does not trigger ERISA's fiduciary provisions"); Curtiss-Wright
Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995) ("[e]mployers or other plan
sponsors are generally free under ERISA, for any reason at any time, to adopt,
modify, or terminate welfare plans"); Hartline v. Sheet Metal Workers' Nat'l
Pension Fund, 286 F.3d 598,599 (D.C. Cir. 2002) ("employers and plan sponsors
do not act in a fiduciary capacity when they modify, adopt or amend plans").
Rather than acting as fiduciaries, employers or plan sponsors amending a plan are
"analogous to the settlors of a trust[.]" Lockheed Corp., 517 U.S. at 890.
The counterclaim defendants - plan administrators rather than employers or
plan sponsors - argue that they, too, acted as settlors when they amended the
Qualified Plan, and therefore they did not breach their fiduciary duty to the plan.
The question here is whether plan administrators possibly without authority to
amend the plan, such as the Committee Member defendants, can also act as
settlors. The few cases cited by counterclaim defendants in support of their theory
that any act of amendment by plan administrators - authorized or not - falls
outside the scope of ERISA's fiduciary provisions all involved administrators who
had been given authority to amend the plan. See Campbell v. BankBoston, NA.,
12 327 F.3d 1,3 (Ist Cir. 2003) ("the administrator had the power to amend, modify,
or discontinue the plan for any reason at any time"); Siskind v. Sperry Ret.
Program, 47 F.3d 498,501 (2d Cir. 1995) ("[t]he plan documents also identified
the Committee [the plan administrator] as the entity with power to amend the
plan"). There is little authority for the proposition that a plan administrator
without power to amend the plan acts as a settlor if he modifies the plan.
The analysis undergirding the legal distinction between settlor acts and
fiduciary acts supports the conclusion that plan administrators cannot take refuge
in the Curtiss-Wright/Lockheed line of cases unless they have amendment
authority. See Lockheed Corp., 517 U.S. at 890; Curtiss-Wright Corp., 514 U.S. at
78. ERISA does not impose a fiduciary responsibility on employers or plan
sponsors when they amend a plan because "the trustee under ERISA may wear
different hats." Pegram, 530 U.S. at 225. An employer can wear at least two hats:
fiduciary when managing a plan and settlor when amending a plan. See id. But
amending or terminating a plan is typically beyond the power of a plan
administrator. Varity Corp. v. Howe, 516 U.S. 489,505 (1996). To call a plan
administrator who usurps this authority a settlor, and thus beyond the reach of
ERISA's fiduciary obligations, would allow any administrator to amend a plan in
unauthorized, harmful ways without consequence. Such a holding would make a
mockery of ERISA's command that a fiduciary "discharge his duties with respect
to a plan solely in the interest of the participants and beneficiaries." 29 U.S.C. §
11D4(a)(I).
13 Thus, to determine whether the Committee Member defendants breached
their fiduciary duty, the Court first must determine whether a valid delegation of
amendment authority occurred. This is a factual issue in dispute. The ULLICO
parties argue that, under the terms of the Qualified Plan, only the company's
Board of Directors, by resolution, can amend the plan. CountercI. PI. Plan
Amendments Reply at 4. The Committee Member defendants point to the
resolution instituting the Benefits Committee, and the circumstances surrounding
the creation of the committee, as support for their position that the Board
delegated its amendment authority. CountercI. Def. Plan Amendments Opp. at 10-
14. Because this issue of fact must be resolved before the Court can determine
whether the Committee Member defendants breached their fiduciary duties to the
plan, both counterclaim plaintiffs' motion for partial summary judgment and the
Committee Member defendants' motion for summary judgment on this aspect of
Count I must be DENIED.4
4 Counterclaim plaintiffs further argue that Maryland corporate law, Md. Code Ann., Corps. & Ass'ns § 2- 411(a), prohibits the delegation of "any of the powers of the board of directors" to any committee that includes non-directors, such as the Benefits Committee. Under this interpretation of the statute, any delegation of board power - such as amendment authority - to the Benefits Committee is legally invalid. Countercl. PI. Plan Amendments Reply at 18-22. Counterclaim plaintiffs cite no Maryland court that agrees with their reading of the statute, and the only court to have apparently considered this aspect of the statute squarely rejected the interpretation counterclaim plaintiffs ask of this Court. See Krishan v. McDonnell Douglas Corp., 873 F. Supp. 345, 353 (C.D. Cal. 1994). Moreover, the plain language of the statute is ambiguous as to whether a director must be a member of any committee exercising board power, or whether such a committee must be comprised exclusively of directors. To hold that a committee exercising board authority must be comprised exclusively of directors would conflict with another provision of Maryland corporate law, Md. Code Ann., Corps. & Ass'ns § 2-414(a), which permits an officer to act on authority granted by board resolution. This Court therefore will not grant partial summary judgment to counterclaim plaintiffs under this line of reasoning.
14 B. Statute of Limitations
Counterclaim defendants also argue that the claim relating to the October
20, 1999 amendment to the Qualified Plan is time-barred. The applicable statute
of limitations for a breach of fiduciary duty claim under ERISA is six years from
the date of the last action constituting a part of the breach, or three years from the
date a plaintiff first had actual knowledge of the breach. 29 U.S.C. §§ 1113(1)-
(2).5 Counterclaim defendants contend that the three-year statute of limitations
should apply because knowledge of the 1999 amendment was widespread
throughout the company, and that Louis Hejl, Jr., ULLICO's director of corporate
benefits, was present at the Benefits Committee meeting when the amendment was
adopted. Countercl. Def. Mot. at 25-27. These facts do indicate that ULLICO had
knowledge that the Benefits Committee had amended the Qualified Plan. But
what the facts fail to establish is whether knowledge of the amendment also
communicated the existence of a breach of fiduciary duty. See Fink v. Nat 'I Sav.
and Trust Co., 772 F.2d 951,957 (D.C. Cir. 1985); Gluck v. Unisys Corp., 960
F.2d 1168, 1177 (3d Cir. 1992).
Actual knowledge of a breach or violation requires that a plaintiff have
actual knowledge of all material facts necessary to understand that some claim
exists. See Gluck, 960 F.2d at 1177. Hejl did not have that knowledge; he was
unaware that the Benefits Committee may have lacked amendment authority until
5In cases of fraud or concealment, an action may be commenced up to six years after the date of discovery of the breach. 29 U.S.C. § 1113.
15 2003. Counterci. PI. Facts ~ 75. Counterclaim defendants provide no basis for
this Court to conclude that the other ULLICO employees aware of the amendment
knew of its alleged illegality. Therefore, because counterclaim plaintiffs brought
their actions well before the six-year statute of limitations on these claims, the
breach of fiduciary duty cause of action based on the 1999 amendment is not time-
barred.
C. Stock Repurchases
Disputed issues of fact also preclude summary judgment on the breach of
fiduciary duty claim rooted in the stock repurchases. Counterclaim defendants rest
their argument on three foundations: (1) the decision to tender the Qualified Plan's
stock was "in the best interests of the Plan," Counterci. Def. Mot. at 29-37; (2) a
decision not to tender the Qualified Plan's stock would not have prevented the
stock repurchase plan from going forward, Counterci. Def. Mot. at 39-41; and (3)
ULLICO repurchased the Qualified Plan's stock for well above its actual value,
which constituted adequate consideration, Counterci. Def. Mot. at 37-38. All of
these facts are disputed by the counterclaim plaintiffs. The ULLICO parties argue
that (1) counterclaim defendants redeemed the Qualified Plan's shares, not
because they were acting "in the best interests of the Plan," but in order to ensure
they could redeem their own shares, Counterci. PI. Opp. at 17-20; (2) it is "more
likely than not" that had the Qualified Plan not tendered its shares, the repurchase
program would not have gone forward, Counterci. PI. Opp. at 21-22; and (3) the
Qualified Plan's shares were subject to proration and, therefore, the plan did not
16 receive adequate consideration, CountercI. PI. Opp. at 22. These are factual
disputes that cannot be resolved on summary judgment. Therefore, counterclaim
defendants' motion for summary judgment on Count I as to the stock repurchase
claim is DENIED.
II. Breach of Fiduciary Duty to the Welfare and Auxiliary Plans
Counterclaim plaintiffs argue that counterclaim defendants' alleged self-
dealing, which resulted in internal and government investigations costing millions
of dollars, harmed the Welfare and Auxiliary plans because ULLICO funded those
plans out of its general treasury. However, despite whatever harm counterclaim
defendants may have done to ULLICO, they cannot, as a matter of law, be liable
under ERISA's fiduciary provisions for decisions they made as corporate officers.
As with the allegations of breach of fiduciary duty to the Qualified Plan, the
threshold question with these claims is "whether that person was acting as a
fiduciary (that is, was performing a fiduciary function) when taking the action
subject to complaint." Pegram, 530 U.S. at 225. An employee assumes fiduciary
status "when and to the extent that they function in their capacity as plan
administrators, not when they conduct business that is not regulated by ERISA."
Sys. Council EM-3 v. AT&T Corp., 972 F. Supp. 21, 30 (D.D.C. 1997) (internal
quotations omitted); see also Barry v. Trustees o/the Int'l Ass 'n Full-Time
Salaried Officers and Employees o/Outside Local Unions, 404 F. Supp. 2d 145,
151 (D.D.C. 2005) ("the ERISA statute recognizes that individuals may be both
ERISA plan fiduciaries and officers or other employees in a corporation"). The
17 allegations with respect to the Welfare and Auxiliary plans clearly implicate the
counterclaim defendants' roles as corporate officers rather than plan fiduciaries.
Counterclaim plaintiffs do not allege that the counterclaim defendants'
actions harmed the Welfare and Auxiliary plans directly. Instead, they argue that
counterclaim defendants harmed ULLICO, and, because the Welfare and
Auxiliary plans were funded from the ULLICO general treasury, those plans were
also harmed. CountercI. PI. Opp. at 23-25. Yet the investigations targeting the
company, the alleged source ofULLICO's inability to fund the plans, focused on
"business that is not regulated by ERISA," Sys. Council EM-3, 972 F. Supp. at 30,
such as the implementation of a stock repurchase program. An indirect link
between these business decisions and the ability of the company to fund the plans
does not constitute an exercise of management or authority over the plans. See
Barry, 404 F. Supp. 2d at 153 (finding defendant's "fiduciary obligations did not
apply to his involvement in ULLICO's purchase and repurchase programs because
he did not exercise management or authority over either the Plan or Plan assets
when he took that action"). The Committee Member defendants were therefore
not acting in their ERISA fiduciary capacity and cannot be held liable for a breach
of fiduciary duty to these plans.
Counterclaim plaintiffs' reliance on the Second Circuit's analysis of a
similar case is unavailing. In United States v. Carson, 52 F.3d 1173, 1189-90 (2d
Cir. 1995), the court found that a fiduciary could be held liable under ERISA
based on damage to the plan sponsor. But the Second Circuit did not analyze
18 whether the defendant was acting in a fiduciary or corporate capacity at the time
he harmed the plan sponsor. Id. And, to the extent that Carson stands for the
proposition that an ERISA fiduciary can be held liable for his corporate acts when
those acts harm the benefits plan, the Supreme Court overruled that holding in its
later decision in Pegram. 530 U.S. at 225-56. Since Pegram, courts have
consistently rejected attempts to hold corporate officers liable under ERISA for
corporate activities that have an indirect effect on a company plan. See, e.g.,
Holdeman v. Devine, 474 F.3d 770, 780 (lOth Cir. 2007).
Thus, for all of the above reasons, summary jUdgment is GRANTED for
counterclaim defendants as to Counts II and III of the Consolidated Counterclaim.
III. Breach of Fiduciary Duty to the Auxiliary and Deferred Compensation Plans
The claim of breach of fiduciary duty to the Auxiliary Plan fails for a
second reason: the Auxiliary Plan is a top hat plan that is exempt from ERISA's
fiduciary requirements. The Deferred Compensation Plan also falls into this
category. Countercl. Def. Facts ~ 149. Because neither of these plans is governed
by ERISA's fiduciary provisions, the Committee Member defendants could not
have breached their fiduciary duties to the plans.
Top hat plans are unfunded plans "maintained by an employer primarily for
the purpose of providing deferred compensation for a select group of management
or highly compensated employees." 29 U.S.C. § 1051(2). These plans are wholly
exempt from ERISA's fiduciary requirements. See Carabillo v. ULLICO, Inc.,
19 357 F. Supp. 2d 249, 258 (D.D.C. 2004) (ERISA "expressly exempts [top hat]
plans from its fiduciary duty, vesting, and funding provisions."). There is "no
cause of action for breach of fiduciary duty involving a top hat plan[,]" Goldstein
v. Johnson & Johnson, 251 F.3d 433, 443 (3d Cir. 2001), and counterclaim
defendants owed no fiduciary duty to either the Auxiliary Plan or the Deferred
Compensation Plan. Counterclaim defendants' motion for summary judgment as
to the breach of fiduciary duty to these plans is therefore GRANTED. 6
Yet counterclaim plaintiffs do not restrict their breach of fiduciary duty
claims solely to the Deferred Compensation Plan. They additionally argue that the
counterclaim defendants breached their fiduciary duty to ULLICO, and that breach
should serve as a basis to deny them benefits under the Deferred Compensation
Plan. CountercI. PI. Opp. at 26 ("[T]he duties breached by Counterclaim
Defendants under Count VI stem not only from their positions as fiduciaries to the
Deferred Compensation Plan, but also from their duties owed to ULLICO Inc.
under state corporate law[.]") (emphasis added). Committee Member defendants
6 Counterclaim plaintiffs also argue that Counts II, III, and VI properly arise under ERISA § 502(a)(3), Countercl. PI. Opp. at 25 n.2, 28-29, which allows courts to fashion equitable relief to redress violations of either ERISA or the terms of the plans. 29 U.S.C. § 1132(a)(3). To the extent that counterclaim plaintiffs claim equitable relief under ERISA § 502(a)(3) for the alleged breaches of fiduciary duty, their argument must fail. With 29 U.S.C. § 1104(a)(1), Congress provided adequate relieffor the breaches of fiduciary duty counterclaim plaintiffs complain of; simply because counterclaim plaintiffs have failed to prevail under that section does not entitle them to avail themselves of ERISA's catch-all provision. See Varity Corp., 516 U.S. at 515 (in construing ERISA § 502(a)(3), courts should respect "policy choices reflected in the inclusion of certain remedies and the exclusion of others") (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987)). To the extent counterclaim plaintiffs argue that counterclaim defendants violated plan terms, this claim, too, must fail. The ULLICO parties specifically alleged in the counterclaim that Grelle, Luce, and Carabillo breached their fiduciary duties, but they did not allege any violation of plan terms until they filed their opposition to counterclaim defendants' motion for summary judgment. Counterclaim defendants did not have fair notice of the claim, and to raise it at this late stage is insufficient to withstand summary judgment. See Ali v. Dist. a/Columbia, 278 F.3d 1,8 (D.C. Cir. 2002); Sinclair v. Kleindienst, 711 F.2d 291, 293 (D.C. Cir. 1983) (holding that complaint must give "defendant fair notice of plaintiff's claim and the grounds on which it rests").
20 counter that this fiduciary duty - which is rooted in state law - is preempted by
ERISA. Countercl. Def. Mot. at 46-47.
This Court has squarely rejected counterclaim defendants' argument in the
past, Carabillo, 357 F. Supp. 2d at 259 n.7, and they have provided no valid
reason for the Court to change its position. While ERISA preempts state law
claims that "relate to any [ERISA] employee benefit plan," 29 U.S.C. § 1144(a),
'''run-of-the-mill' state law claims such as unpaid rent, failure to pay creditors, or
even torts committed by an ERISA plan" are not subject to ERISA preemption.
Carabillo, 357 F. Supp. 2d at 259 n.7 (quoting Mackey v. Lanier Collection
Agency & Serv., Inc., 486 U.S. 825,833 (1988». This Court held that the
allegations of breach of fiduciary duty to ULLICO were not preempted because
they "derive from the counterclaim defendants' obligations and responsibilities as
officers of the corporation under state corporate law, rather than their relationship
to the [Auxiliary and Deferred Compensation] plans as beneficiaries." Id.; see
also Mem. Op. and Order, March 29,2005 [Dkt. #101], at 6 n.1I. The claims here
are no different, and they are not preempted by ERISA.
Counterclaim defendants further assert that this state law claim is outside
the scope of the Court's supplemental jurisdiction. Once again, I disagree.
Pursuant to 28 U.S.C. § 1367(a), courts may exercise supplemental jurisdiction
"over all other claims that are so related to claims in the action within such
original jurisdiction that they form part of the same case or controversy under
Article III of the United States Constitution." The "case or controversy" analysis
21 is significantly broader, and can conceivably capture more claims, than the
preemption question. Indeed, I previously decided that a claim that the former
corporate officers were not entitled to benefits under the Deferred Compensation
Plan because the plan "was administered in violation of the fiduciary duties owed
to ULLICO" fell within this Court's supplemental jurisdiction and was not
preempted by ERISA. Carabillo, 357 F. Supp. 2d at 256,259. In short, I found
that there was a "factual nexus" between counterclaim defendants' ERISA claims
and the counterclaim plaintiffs' argument that benefits cannot be paid out under
the Deferred Compensation Plan. Carabillo, 357 F. Supp. 2d at 259. The same
holds true here, and therefore Count VI falls within the Court's supplemental
jurisdiction.
Thus, while the breach of fiduciary duty claims as to the Deferred
Compensation and Auxiliary plans are dismissed, the claim that counterclaim
defendants breached their fiduciary duty to ULLICO, and therefore their benefits
from the Deferred Compensation Plan may be disgorged or denied, survives the
counterclaim defendants' summary judgment motion. 7
IV. Professional Negligence
In Count IV of its Consolidated Counterclaim, the sole claim unrelated to a
breach of fiduciary duty, counterclaim plaintiffs allege that Carabillo committed
7 Counterclaim defendants further argue that the Auxiliary and Deferred Compensation plans prohibit forfeiture or setoff, and therefore Counts III, V, and VI - all requesting forfeiture or setoff as relief for the alleged breaches of fiduciary duty - should be dismissed. Countercl. Def. Mot. at 49-53. To succeed, counterclaim defendants must show that the contractual language was "specific and precise" in explaining the intent of the parties to preclude setoff. In re Carlyle, 242 B.R. 881, 892 (Bankr. E.D. Va. 1999). The terms ofthe Auxiliary and Deferred Compensation plans are, at best, ambiguous as to whether they prohibit forfeiture or setoff, and the Court therefore will not grant summary judgment on the basis of this argument.
22 professional negligence by providing erroneous legal advice to the Benefits
Committee regarding its ability to amend the Qualified Plan. The ULLICO parties
moved for partial summary judgment on this issue, as did the Committee Member
defendants. Committee Member defendants argue, among other things, that this
count should be dismissed as outside the Court's supplemental jurisdiction. The
Court previously dismissed a nearly identical claim because it did not relate to
Carabillo's affirmative claims for plan benefits, Carabillo, 357 F. Supp. 2d at 255-
56, and counterclaim plaintiffs have pointed to no change in the claim that would
bring it within the Court's supplemental jurisdiction.
Under this Court's prior ruling, the only counterclaims that fall within the
scope of the litigation "are those that relate to whether Carabillo and other former
ULLICO officers are entitled to the retirement benefits they claim they are eligible
to receive." Carabillo, 357 F. Supp. 2d at 255. Count IV falls well short of that
criteria. The claim seeks no offset from Carabillo' s retirement benefits; the only
relief sought is a money judgment from Carabillo's general assets. Counterclaim ~
131 & Prayer for Relief. The Court dismissed this allegation in its previous
iteration, Count II ofULLICO's Amended Answer and Counterclaim, because it
was "essentially a state law claim with little, or no, factual nexus to Carabillo' s
ERISA claim." Mem. Op. and Order, March 29,2005 [Dkt. #101], at 5. The
same holds true for Count IV of the Consolidated Counterclaim. Summary
judgment on this claim is therefore GRANTED.
23 CONCLUSION
A genuine issue of material fact exists as to Count I - breach of fiduciary
duty to the Qualified Plan - and both parties' motions for summary judgment on
that claim are therefore DENIED. Counterclaim defendants are entitled to
judgment as a matter of law on three claims: (1) breach of fiduciary duty to the
Welfare Plan (Count II), (2) breach of fiduciary duty to the Auxiliary Plan (Count
III), and (3) professional negligence against Carabillo (Count IV). The motion for
summary judgment as to these claims is therefore GRANTED. Counterclaim
defendants are also entitled to judgment as a matter of law on the allegation that
they breached their fiduciary duty to the Deferred Compensation Plan, but not on
the allegation that they breached their fiduciary duty to ULLICO, and therefore
summary judgment on Count VI is GRANTED in part and DENIED in part. The
final count - requesting setoff of Auxiliary Plan benefits as relief for the alleged
breach of fiduciary duty to ULLICO (Count V) - cannot be decided on summary
judgment, and the motion as to that count is DENIED.
United States District Judge