Schultz v. PLM Intern., Inc., 96-16255

• Citation: 127 F.3d 1139
• Decision Date: 23 October 1997
• Docket Number: No. 96-16255,96-16255
• Parties: 21 Employee Benefits Cas. 1886, 97 Cal. Daily Op. Serv. 8171, 97 Daily Journal D.A.R. 13,213, Pens. Plan Guide (CCH) P 23938I James F. SCHULTZ, Plaintiff-Appellant, v. PLM INTERNATIONAL, INC.; PLM International, Inc. Employee Stock Ownership Plan; State Street Bank and Trust Company; Alec Merriam; Robert Tidball; Stephen Peary; Alan Hirsch; John Brogan, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1139

127 F.3d 1139

21 Employee Benefits Cas. 1886, 97 Cal. Daily

Op. Serv. 8171,

97 Daily Journal D.A.R. 13,213,

Pens. Plan Guide (CCH) P 23938I

James F. SCHULTZ, Plaintiff-Appellant, v. PLM INTERNATIONAL, INC.; PLM International, Inc. Employee Stock Ownership Plan; State Street Bank and Trust Company Alec Merriam; Robert Tidball; Stephen Peary; Alan Hirsch John Brogan, Defendants-Appellees.

No. 96-16255.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Sept. 17, 1997.

Decided Oct. 23, 1997.

R. Bradford Huss, Trucker Huss, San Francisco, California, for the plaintiff-appellant.

Randall J. Sunshine, Liner, Yankelevitz & Sunshine, Los Angeles, California, for the defendants-appellees.

Mark S. Flynn, Senior Appellate Attorney, and Judith D. Heimlich, United States Department of Labor, Washington, DC, for the amicus.

Appeal from the United States District Court for the Northern District of California; Laughlin E. Waters, District Judge, Presiding. D.C. No. CV-95-02957-LEW.

Before: ALDISERT, ^* CHOY, and THOMPSON, Circuit Judges.

Opinion by Judge CHOY; Dissent by Judge ALDISERT.

CHOY, Circuit Judge:

Plaintiff-appellant James F. Schultz ("Schultz") appeals the district court's Fed.R.Civ.P. 12(b)(1) dismissal of his Employee Retirement Income Security Act ("ERISA") claim against his former employer, PLM International, Inc. ("PLM"). ¹ In this appeal, Schultz makes two main arguments. First, he claims that the district court erred in concluding that he lacked standing to pursue his ERISA action because he did not maintain his status as a participant in PLM's Employee Stock Ownership Plan ("ESOP") throughout the duration of the litigation. Second, Schultz asserts that the district court erred in deciding that he lacked standing because he did not present a colorable claim for benefits. We have jurisdiction under 28 U.S.C. § 1291, and we reverse the decision of the district court. We hold that because Schultz was a participant at the time that he filed his lawsuit, he had standing to maintain his ERISA action.

Factual and Procedural Background

Schultz is a former employee of PLM. In 1989, PLM instituted an ESOP under ERISA. Participants in the ESOP accrued retirement benefits, which included shares of preferred stock in PLM. The preferred stock was purchased from PLM by the ESOP. To pay for the stock, the ESOP borrowed funds from PLM. PLM had obtained a bank loan to fund its loan to the ESOP. The ESOP paid $13.00 per share for the preferred stock in 1989. A Certificate of Designation ("Certificate") governed the preferred stock. The Certificate specified that the shares of preferred stock would automatically be converted in a one-to-one ratio to shares of common stock if the stock were transferred to a participant in the ESOP or to anyone other than a trustee of a PLM employee benefit plan.

The Board of PLM was authorized under the ESOP documents to terminate the ESOP at any time. The Board in fact decided to terminate the ESOP effective January, 1995. Each participant's interest in the amounts allocated to his or her individual account became vested as of the date of termination. When the ESOP ended, the shares of preferred stock that had been credited to each participant's account were automatically converted into shares of common stock in a one-to-one ratio and were distributed to the ESOP participants. At the time the ESOP was terminated, the market value of the preferred stock was $13.72 per share, while the market value of the common stock was $2.75 per share. On January 12, 1996, the ESOP distributed the remaining plan assets to the ESOP participants.

Schultz now claims that PLM breached its fiduciary duty by 1) causing the ESOP to purchase the preferred stock subject to the conversion feature and at a price greater than its fair market value; 2) terminating the ESOP without obtaining a fairness opinion, and in a manner that diminished the value of the preferred stock; and 3) causing the ESOP to sell or exchange the preferred stock for less than its fair market value upon termination of the ESOP. Schultz also asserts that PLM engaged in the following ERISA-prohibited transactions with a party in interest: 1) causing the preferred stock to be purchased by the ESOP from PLM at a price greater than the stock's fair market value at the time of purchase; 2) directing State Street, the ESOP's trustee, to reimburse PLM for expenses incurred in PLM's capacity as settlor; and 3) causing the sale or exchange of the preferred stock at a price less than its fair market value. ²

PLM moved to dismiss for lack of federal subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1). The district court granted the motion, ruling that Schultz lacked standing to sue under ERISA because his suit was for damages as opposed to benefits, and because Schultz was not a participant under ERISA due to the fact that he had received a final disbursement of the benefits that he was due under the ESOP.

Standard of Review

The district court's conclusion that it lacks subject matter jurisdiction is reviewed de novo. Wilson v. A.H. Belo Corp., 87 F.3d 393, 396 (9th Cir.1996). This court reviews the district court's findings of fact relevant to its determination of subject matter jurisdiction for clear error. Id.

Analysis

A "participant" in a plan covered by ERISA may bring a civil action in order to recover plan benefits, enforce rights under the plan, or clarify rights to future benefits under the plan. 29 U.S.C. § 1132(a)(1)(B). A participant may also bring suit "for appropriate relief under section 1109 of this title [entitled "Liability for breach of fiduciary duty"]." ³ 29 U.S.C. § 1132(a)(2). Additionally, a participant may bring an ERISA action "to obtain other appropriate equitable relief." 29 U.S.C. § 1132(a)(3).

For ERISA purposes, a participant is "any employee or former employee of an employer ... who is or may become eligible to receive a benefit of any type ⁴ from an employee benefit plan which covers employees of such employer." 29 U.S.C. § 1002(7). Schultz is no longer employed by PLM and the ESOP is now defunct; thus, Schultz is not currently eligible for benefits. However, Schultz claims that participant status should be determined as of the time that the lawsuit was filed, and that it is not necessary to maintain participant status throughout the litigation. Schultz filed suit in August, 1995. In January of 1996, Schultz received a payment from the ESOP that he contends was an additional distribution of benefits. Thus, Schultz argues that because at the time of the filing of the suit he was a former employee who was eligible for benefits, he was a plan participant at that time and hence may maintain an action under ERISA.

In response, PLM contends that participant status must be maintained throughout an action for a claimant to have standing. According to PLM's argument, upon receipt of the final payment of vested benefits in January Schultz ceased to be a participant in the ESOP and hence lost his participant status and likewise his standing to sue.

In Crotty v. Cook, 121 F.3d 541 (9th Cir.1997), we addressed the question of whether a plaintiff needs to maintain participant status throughout ERISA litigation in order to have standing. We held that a plaintiff who "was entitled to benefits under the Plan[ ] at the time he filed his complaint" has standing under ERISA, "regardless of whether he later accepted his vested benefits during the course of his lawsuit." Id. at 547. In so doing, we observed that a contrary rule would be inconsistent with ERISA's policy of providing claimants with ready access to the federal courts, and would also defeat other ERISA goals. Id. at 546. We noted that, if a plaintiff were required to be a participant at all times throughout the action, the plaintiff would be forced to "choose between a defendant's offer of paying a plaintiff's vested benefits during an ERISA lawsuit (and seeing his unrelated claims for relief under the ERISA statute extinguished), or maintaining the lawsuit at the expense of foregoing vested benefits during the litigation." Id.

PLM claims that the January payment was a "proportionate share of the previously unallocated assets remaining in the ESOP after satisfaction of all plan liabilities" and was paid "in addition to Plaintiff's vested benefit." Thus, according to PLM, Schultz's entire vested benefit had been distributed before Schultz filed his lawsuit.

The payment made to Schultz in January of 1996 was a distribution of benefits to which Schultz was entitled at the time he filed his lawsuit. Under Crotty, then, the fact that Schultz received those benefits during the pendency of the litigation would not serve as a bar to his suit. Rather, because Schultz was eligible to receive a benefit at the time he filed suit in August of 1995, he was a participant and had standing to maintain his suit. ⁵

We need not address Schultz's assertion that he had a colorable claim that he would succeed in a suit for benefits. ⁶ Under ERISA, a participant is an employee or former employee 1) who is eligible to receive a benefit of any type from the plan, or 2) who may become eligible to receive a benefit of any type from the plan. 29 U.S.C. § 1002(7) (emphasis added). If an individual is not eligible for benefits, i.e., if the individual received a full distribution of benefits before filing suit, the individual may still be able to bring an action if the individual may be eligible to receive benefits in the future. To see if a claimant may become eligible to receive benefits, we would look to whether the claimant has a colorable claim of success in a suit for benefits. Firestone, 489 U.S. at 117-18, 109 S.Ct. at 957-58. We need not engage in the Firestone analysis because, while Schultz's action appears to primarily be for damages rather than for benefits, Schultz was a participant at the time that the suit was filed. Therefore, under...