137 F.3d 12 (1st Cir. 1998), 97-1666, Beddall v. State Street Bank and Trust Co.

Docket Nº:97-1666.
Citation:137 F.3d 12
Party Name:James J. BEDDALL, et al., Plaintiffs, Appellants, v. STATE STREET BANK AND TRUST COMPANY, Defendant, Appellee.
Case Date:February 27, 1998
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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137 F.3d 12 (1st Cir. 1998)

James J. BEDDALL, et al., Plaintiffs, Appellants,

v.

STATE STREET BANK AND TRUST COMPANY, Defendant, Appellee.

No. 97-1666.

United States Court of Appeals, First Circuit

February 27, 1998

Heard Jan. 6, 1998.

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James S. Ray, Washington, DC, with whom William G. Bell, Edina, MN, Barry Klickstein, Boston, MA, and Abrams, Roberts, Klickstein & Levy, Boston, MA, were on brief, for appellants.

Henry C. Dinger, with whom Henry C. Dinger, P.C., Dori C. Gouin, and Goodwin, Procter & Hoar LLP, Boston, MA, were on brief, for appellee.

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and SHADUR, [*] Senior District Judge.

SELYA, Circuit Judge.

A cadre of former pilots for Eastern Airlines, Inc. (Eastern) brought an action under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. (1994), against the trustee of the failed air carrier's retirement plan. The district court dismissed the suit after reviewing the trust agreement and concluding that the trustee was not subject to ERISA liability as a fiduciary or co-fiduciary in respect to the harms alleged. The plaintiffs appeal. We affirm.

I. BACKGROUND

We draw the facts from the plaintiffs' complaint and the trust agreement. In 1958, Eastern and the union representing its pilots established a defined contribution retirement plan (the Plan) designed to provide retirees with a range of pension options. Almost a quarter-century later, the Plan's administrative committee (the TAC) retained State Street Bank and Trust Company (the Bank) to hold the Plan's assets in trust, manage them as directed, and periodically report their value (so that the TAC, inter alia, could effectuate the Plan by calculating annuity and lump-sum retirement benefits). The parties spelled out the Bank's duties and obligations qua trustee in a trust agreement (the Agreement).

As time went by, the Plan invested heavily in real estate. In reporting the value of these investments, the Bank relied on information obtained from Hawthorne Associates, Inc. (Hawthorne), the Plan's principal investment manager, in the form of periodic appraisals prepared by Blake, a consultant engaged by Hawthorne. Despite a subsequent decline in the real estate market, Blake assigned consistently high valuations to the Plan's properties and the Bank parroted those valuations in its reports to the TAC.

In the summer of 1991, the Bank expressed concern anent the figures supplied by Hawthorne. Eventually, it hired Spaulding & Slye (S & S), an independent appraisal firm, to review Blake's handiwork. Upon encountering difficulty in gaining access to the necessary information, the Bank wrote to Hawthorne stating that:

Our appraiser is prepared to begin his review on Monday, October 7. If he is not permitted to begin his review by Friday, October 11 on the basis of full access to the documents, we believe that we have no recourse but to seek the advice of the Department of Labor as to our concerns about Hawthorne's instructing us to continue to report the real estate at values supplied by Hawthorne as investment manager.

In short order, Hawthorne relented and an unencumbered review proceeded.

S & S thereafter issued a report that criticized Blake's valuations and recommended that new appraisals be secured from a new appraiser. The Bank submitted the S & S report to the TAC on November 8, 1991. One week later, the Bank wrote to the TAC's attorney expressing concern that, according to S & S, "many of the appraisals are incomplete and/or suffer from methodological flaws." The Bank declared that it was "unwilling to continue to carry these valuations on its books without qualification in light of the[se] concerns." Within a matter of weeks, Hawthorne informed the Bank that it had lowered the appraised values of certain properties. The Bank accepted the new figures without further investigation.

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The TAC eventually retained an independent appraiser to assess the Plan's real estate holdings. This exercise culminated in a substantial reduction of the reported values. At that point, it became evident that Blake's exaggerated valuations had skewed the Plan's finances: because inflated appraisal figures had been carried on the Plan's books for nearly a decade, retiring pilots who opted for lump-sum retirement benefits during that period received a windfall, whereas the remaining Plan participants were left holding an unduly depleted bag.

II. THE ENSUING LITIGATION

Eastern filed for bankruptcy in 1989. In due course, several quondam pilots brought an action in a Florida federal court against the Plan, its sponsors, the TAC, and sundry other parties (not including the Bank). The plaintiffs' complaint invoked ERISA and alleged myriad breaches of fiduciary duty in connection with the investment of the Plan's assets. See Beddall v. Eastern Air Lines, C.A. No. 91-1865-CIV (S.D.Fla.) (Beddall I ). The Florida court transferred the case to Massachusetts. See 28 U.S.C. § 1404(a).

The Beddall I plaintiffs moved to amend the complaint to add the Bank as a defendant. As a precaution, they also initiated a separate suit against the Bank in the Massachusetts federal court (Beddall II ). The complaint in the latter suit charged that the Bank violated ERISA's fiduciary provisions by its failure to ensure that the Plan's holdings were valued appropriately.

Judge Wolf eventually approved a class action settlement in Beddall I, see Beddall v. Eastern Airlines Variable Benefit Retirement Plan for Pilots, No. 93-12074 (D.Mass. Nov. 7, 1996) (order approving final settlement), 1 and the plaintiffs withdrew the pending motion to amend. The Bank then moved to dismiss Beddall II for failure to state a claim. See Fed.R.Civ.P. 12(b)(6). The district court granted the motion. See Beddall II v. State Street Bank & Trust, 1996 WL 74218 (D.Mass.1996). Judge Wolf concluded that, because the Agreement absolved the Bank of any fiduciary responsibility for the alleged overvaluation of the Plan's real properties once the TAC engaged Hawthorne as the investment manager in respect to those assets, the complaint failed to state an actionable ERISA claim for breach of fiduciary duty. See id. at * 1-* 2. Then, citing ERISA § 405(d), 29 U.S.C. § 1105(d), the judge determined that, even if the Bank knew or should have known of Hawthorne's indiscretions, co-fiduciary liability did not attach in the absence of an allegation that the Bank had participated actively in, or concealed, the breach. See id. at * 2. This appeal ensued.

III. STANDARD OF REVIEW

We afford de novo review to a district court's resolution of a motion to dismiss. See Garita Hotel Ltd. Partnership v. Ponce Fed. Bank, 958 F.2d 15, 17 (1st Cir.1992). Like the court below we must accept as true the factual allegations of the complaint, construe all reasonable inferences therefrom in favor of the plaintiffs, and determine whether the complaint, so read, limns facts sufficient to justify recovery on any cognizable theory of the case. See Dartmouth Review v. Dartmouth College, 889 F.2d 13, 16 (1st Cir.1989).

This is familiar lore. Here, however, there is an odd twist: the court below scrutinized not only the complaint but also the Agreement--and it is undisputed that the plaintiffs neither appended the latter document to the complaint nor incorporated it therein by an explicit reference. In this posture of the case, the lower court's consideration of the Agreement gives us pause.

We think that this situation calls for a practical, commonsense approach--one that does not elevate form over substance. The complaint discusses the Agreement at considerable length. And, although it states conclusorily that "State Street is a fiduciary of the Plan," it then proceeds to summarize the parts of the Agreement that, in the plaintiffs' view, justify this characterization. The Bank responded to these allegations by filing a Rule 12(b)(6) motion and appending to it a

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copy of the Agreement. The plaintiffs neither challenged the authenticity of the Agreement nor moved to strike it from the record.

Under these circumstances, the Agreement was properly before the court. When, as now, a complaint's factual allegations are expressly linked to--and admittedly dependent upon--a document (the authenticity of which is not challenged), that document effectively merges into the pleadings and the trial court can review it in deciding a motion to dismiss under Rule 12(b)(6). See Fudge v. Penthouse Int'l, Ltd., 840 F.2d 1012, 1015 (1st Cir.1988); see also Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994) ("[D]ocuments whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss."); 2 James Wm. Moore et al., Moore's Federal Practice § 12.34 (3d ed.1997) (explaining that courts may consider "[u]ndisputed documents alleged or referenced in the complaint" in deciding a motion to dismiss); see generally Fed.R.Civ.P. 10(c) (stating that "[a] copy of any written instrument which is an exhibit to a pleading is a part thereof"). Accordingly, we conclude that the district court had the authority to consider the Agreement if it chose to do so.

This conclusion makes eminent sense. A district court's central task in evaluating a motion to dismiss is to determine whether the complaint alleges facts sufficient to state a cause of action. In conducting that tamisage, the court need not accept a complaint's "bald assertions" or "unsupportable conclusions." Chongris v. Board of Appeals, 811 F.2d 36, 37 (1st Cir.1987). While a plaintiff...

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