Texas Life, Acc. Health & Hosp. Service Ins. Guar. Ass'n v. Gaylord Entertainment Co.

• Decision Date: 24 January 1997
• Docket Number: No. 95-50860,95-50860
• Citation: 105 F.3d 210
• Parties: , 20 Employee Benefits Cas. 2434, Pens. Plan Guide (CCH) P 23935J TEXAS LIFE, ACCIDENT, HEALTH & HOSPITAL SERVICE INSURANCE GUARANTY ASSOCIATION, Plaintiff-Appellant, v. GAYLORD ENTERTAINMENT COMPANY, formerly known as Oklahoma Publishing Company, et al., Defendants, Gaylord Entertainment Company, formerly known as Oklahoma Publishing Company, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 210

105 F.3d 210

65 USLW 2510, 20 Employee Benefits Cas. 2434,

Pens. Plan Guide (CCH) P 23935J

TEXAS LIFE, ACCIDENT, HEALTH & HOSPITAL SERVICE INSURANCE GUARANTY ASSOCIATION, Plaintiff-Appellant, v. GAYLORD ENTERTAINMENT COMPANY, formerly known as Oklahoma Publishing Company, et al., Defendants Gaylord Entertainment Company, formerly known as Oklahoma Publishing Company, et al., Defendants-Appellees.

No. 95-50860.

United States Court of Appeals Fifth Circuit.

Jan. 24, 1997.

R. James George, Jr., George, Donaldson & Ford, Austin, TX, Patricia Gail Montgomery, Sneed, Vine & Perry, Austin, TX, for Plaintiff-Appellant.

Edward P. Perrin, Jr., Crouch & Hallett, Dallas, TX, Cole B. Ramey, Dallas, TX, for Gaylord Entertainment Co., C.R. Richardson, Baylor College of Medicine, Tuboscope, Inc., Maser, Club Corp. Intern., Dickenson, Johnson, Gray, Curtis Mathison Scientific, Inc., Oklahoma Pub. Co. and ICL, Inc.

Paul D. Schoonover, Vial, Hamilton, Koch & Knox, Dallas, TX, for Gaylord Entertainment Co., Sperry Marine, Inc., and Oklahoma Pub. Co.

B.D. Daniel, Pravel, Hewitt, Kimball & Krieger, Houston, TX, for Nationsbank of Texas, NA, Nationsbank/Houston and Nationsbank of Texas, N.A. Dallas.

Jeffrey D. Roberts, Roberts, Markel & Folger, Houston, TX, for Defendant-Appellee British Gas Exploration & Production, Inc., Individually and as Plan Sponsor for British Gas Exploration & Production, Inc. Savings & Investment Plan.

Tom Reeder, Paul, Hastings, Janofsky and Walker, Washington, DC, for Defendants-Appellees British Gas Exploration & Production, Inc. and American Nukem Corp.

Harold D. Rogers, Wichita Falls, TX, for Defendants-Appellees McAlvain and Cool Temp Awning & Siding Co., Individually and as Plan Sponsor for Cool Temp Awning & Siding Co. Profit Sharing Plan.

Barbara D. Linney, Simon, Turnbull & Martin, Chartered, Washington, DC, for Sperry Marine, Inc.

Claudia Wilson Frost, Baker & Botts, Houston, TX, for Defendants-Appellees CSC Credit Services, Inc. and Russell.

David L. Orr, Kuperman, Orr, Mouer and Albers, Austin, TX, for Defendants-Appellees National City Bank and Marathon Oil Co.

Brenda E. Brockner, Hughes & Luce, Austin, TX, for Defendant-Appellee National Bank of Detroit, Individually and as trustee for all participants and beneficiaries of Exide Salaried Retirement Plan.

Larry Gabriel, Pachulski, Stang, Ziehl & Young, Los Angeles, CA, for Defendant-Appellee Vanguard Fiduciary Trust Company, Individually and as trustee for all participants and beneficiaries of Electronic Data Systems Deferred Compensation Plan.

Laurence Z. Shiekman, Joann Hyle, Pepper, Hamilton & Scheetz, Philadelphia, PA, for Defendants-Appellees Mellon Bank, N.A., Unisys Corp., Board of Directors of Unisys Corp., Riesenfeld, Loughlin and Unruh.

Margaret C. Lumsden, Michael L. Unti, Hunton & Williams, Raleigh, NC, Patricia Gail Montgomery, Sneed, Vine & Perry, Austin, TX, for Amicus Curiae The North Carolina Life and Accident and Health Insurance Guaranty Association.

Stephen H. Goldberg, James F. Jorden, Jerome V. Bolkcom, Jorden, Burt, Berenson & Johnson, Washington, DC, Anthony B. Buonaguro, John F. Del Campo, Herndon, VA, for Amicus Curiae National Organization of Life & Health Insurance Guar. Associations.

Marcia E. Bove, United States Department of Labor, Office of the Solicitor, Washington, DC, for Amicus Curiae Secretary of Labor.

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

Before REYNALDO G. GARZA, JOLLY and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

A state insurance guaranty association brought suit against ERISA ¹ plan administrators for breach of fiduciary duty, alleging that the plan administrators imprudently bought investments from a failing insurance company. We hold that a guaranty association which receives a valid assignment of an ERISA fiduciary breach claim from a plan administrator can have derivative standing to bring the action. However, we also hold that ERISA preempts a state statute purporting to assign such claims by operation of law and, instead, apply federal common law to determine the validity of the assignment. Because the fiduciary breach claims were not expressly and knowingly assigned, the assignment is invalid under federal common law and the guaranty association does not have derivative standing. Accordingly, the judgment of the district court is affirmed.

I. BACKGROUND

The defendants are the current and former trustees and sponsors (the "Plan Administrators") of various pension plans ("Plans"). In the 1980s, the Plans invested in guaranteed investment contracts ("GICs") issued by the Executive Life Insurance Company ("ELIC"), a California insurance company. In 1991, ELIC became insolvent and was placed into receivership; as a consequence the GICs lost their value, resulting in heavy losses to the Plans' assets. In 1993, the California Insurance Commissioner proposed a rehabilitation plan that allowed holders of GICs from ELIC to obtain new contracts issued by Aurora National Life Assurance Company ("Aurora"), another insurer. Some of the Plans participated and received Aurora GICs, resulting in a waiver of any claims against the relevant state guaranty association; other Plans did not participate, allowing them to receive the liquidated cash value of the ELIC GICs as well as the opportunity to challenge the guaranty association's coverage determination.

The funds for this bailout were provided in part by the Texas Life, Accident, Health & Hospital Service Insurance Guaranty Association (the "Guaranty Association"). The Guaranty Association is a statutory, nonprofit organization created by the Texas Legislature in the Texas Life, Accident, Health & Hospital Service Insurance Guaranty Act (the "Guaranty Act" or the "Act"), TEX. INS.CODE ANN. Art. 21.28-D § 8, and is supervised by the Texas Commissioner of Insurance. Its members are insurance companies doing business in Texas, which are required by law to join the Guaranty Association as a condition of doing business in the state. Like similar programs in all other states, ² this system protects those who buy insurance policies from insurance companies that become insolvent. The protection can come in cash payments or substitute policies or contracts. Pursuant to its statutory mandate, the Guaranty Association in effect bailed out those Plans under its jurisdiction (i.e., those having the requisite connection to Texas) by supplementing the diminished assets of ELIC to the point where Aurora would issue the substitute GICs. ³

The Guaranty Association sued in federal court, claiming that the Plan Administrators breached their fiduciary duties under ERISA when they invested in the ELIC GICs. The Guaranty Association asserts that there was a host of warning signs that ELIC was on the brink of insolvency due to its heavy investing in high-risk junk bonds. The Guaranty Association further contends that it has the right to pursue these claims on behalf of the beneficiaries of the Plans due to the Guaranty Act's assignment of the beneficiaries' rights to sue the Plan Administrators for this breach. Through this assignment, the Guaranty Association claims that it has derivative standing to sue under ERISA. 29 U.S.C. § 1132(a)(2). The ultimate claim of the Guaranty Association is violation of 29 U.S.C. § 1109(a), which establishes fiduciary duties under ERISA.

The parties consented to the jurisdiction of a magistrate judge for the case. The magistrate judge granted the defendants' pretrial motions for summary judgment, finding that the Guaranty Association did not have standing to bring an ERISA breach of fiduciary duty action. In support of his conclusion, the magistrate judge first found that the Guaranty Association did not fall into the enumerated list of potential plaintiffs under 29 U.S.C. § 1132(a)(2). He next found that because of ERISA preemption, no valid assignment of rights had occurred and, therefore, the Guaranty Association could not have derivative standing. The Guaranty Association appeals.

II. STANDING

A. Derivative Standing

ERISA allows suits against plan administrators for breaches of fiduciary duty. 29 U.S.C. § 1109. The list of parties allowed to bring these actions is limited, however. Only the Secretary of Labor, participants, beneficiaries or fiduciaries of plans may bring suit under § 1109. ⁴

The Guaranty Association contends that even though it is not an enumerated party, it has derivative standing to sue. The Guaranty Association maintains that, because it was assigned the Plans' fiduciary duty breach causes of action, it steps into the shoes of an enumerated party and thus has standing. In Hermann Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286, 1289 (5th Cir.1988), we recognized derivative standing in the context of employee welfare benefit plans ("welfare plans"). ⁵ The plans in this case are not welfare plans, but rather are employee pension benefit plans ("pension plans"). ⁶ We have never decided whether derivative standing is allowed for breach of fiduciary duty claims arising from pension plans.

The Plan Administrators argue that while derivative standing is appropriate for welfare plans, ERISA's anti-assignment provision for pension plans makes derivative standing improper for pension plans. ⁷ In deciding that derivative standing was allowed for welfare plans, the Hermann Court noted that "the existence of an elaborate and complex statutory anti-assignment clause for ERISA pension benefits makes significant the complete absence of an anti-assignment clause applicable to ERISA health benefits, especially in light of the Supreme Court's recognition of ERISA as 'comprehensive and reticulated.' " Hermann, 845 F.2d at 1289 (internal citation omitted), quoting Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 361, 100 S.Ct. 1723, 1726, 64 L.Ed.2d 354 (1980). The Court in Hermann observed that "the purpose of ERISA's proscription on...