151 F.3d 908 (9th Cir. 1998), 96-36051, Farr v. United States West Communications, Inc.
|Citation:||151 F.3d 908|
|Party Name:||Op. Serv. 4573, 98 Daily Journal D.A.R. 6273, Donald J. FARR; Gregory H. Ishmiel; Rod W. Tracy; Willis L. Rader; Joseph T. Dean; Robert Heuser; Jeanette P. Neufeld, Plaintiffs/Appellants, v. U.S. WEST COMMUNICATIONS, INC.; U.S. West, Inc.; U.S. West Management Pension Plan; U.S. West Employee's Benefit Committee, Defendants/Appellees.|
|Case Date:||June 15, 1998|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
Argued and Submitted Nov. 5, 1997.
[Copyrighted Material Omitted]
Leslie L. Wellman, Portland, OR, for plaintiffs/appellants.
D. Ward Kallstrom, Lillick, McHose & Charles, San Francisco, CA, for defendants/appellees.
Appeal from the United States District Court for the District of Oregon; Malcolm F. Marsh, District Judge, Presiding. D.C. Nos. CV-91-1186 MA (Lead Case), CV-92-330 MA and CV-92-485 MA (Consolidated Cases).
Before: NOONAN and HAWKINS, Circuit Judges, and MERHIGE, [*] District Judge.
Opinion by Judge MERHIGE; Concurrence by Judge NOONAN; Concurrence by Judge HAWKINS.
MERHIGE, District Judge:
This case arises under ERISA, the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. Seven former employees of U.S. West, Inc. appeal the district court's summary judgment dismissal of their action alleging that U.S. West breached its fiduciary duties under ERISA by misrepresenting facts relating to the tax consequences of an early retirement program, providing misleading or incomplete information about potential adverse tax consequences, and failing to allow the employees to rescind their early retirement. On remand from Plaintiffs' prior appeal, the District Court granted summary judgment for Defendants, holding the following: Plaintiffs' state law claims are preempted by ERISA; individual relief is available under ERISA; Defendants did not breach their fiduciary duties to Plaintiffs; assuming arguendo, that Defendants did breach their fiduciary duties, Plaintiffs were not damaged thereby; and the monetary damages sought by Plaintiffs are not recoverable as "other appropriate equitable relief" under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). We hold the following: in light of Varity Corp. v. Howe, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), Plaintiffs' state law claims are preempted by ERISA; and although Defendants breached their fiduciary duties to Plaintiffs, the damages Plaintiffs seek are nonetheless not recoverable as "other appropriate equitable relief" under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). Thus, we affirm in part, reverse in part, and affirm the judgment.
Plaintiffs were long-term employees of Defendants U.S. West, Inc. and U.S. West Communications. In January 1990, Plaintiffs chose to retire under an amendment to the U.S. West Management Pension Plan known as the "5 + 5 program," which created early retirement incentives for many long-term employees. Under the 5 + 5 program, Plaintiffs chose to receive their accrued pension benefits in a lump sum. Plaintiffs allege that U.S. West did not tell them that those lump sum distributions in excess of the amount qualified to be rolled over into Individual Retirement Accounts ("IRAs") would be taxed immediately.
On Dec. 15, 1989, J. Thomas Bouchard, Senior Vice President and Chief Human Resources Officer at U.S. West, sent a letter to employees eligible to retire under the 5 + 5 program. Attached to the letter was a 15-page booklet providing an overview of the program. The booklet included a section entitled "Tax Considerations Affecting Choice of Distribution" which purported to "highlight[ ] the basic federal tax rules" relevant to the choice between taking the pension benefits in a lump sum or in a series of monthly installments. The booklet warned plan participants that the tax consequences of the available options were "very complex" and that employees "should consult with your tax advisor." For those who were not age 50 before 1986, the booklet provided the following information on lump sum distributions: "Distribution fully included in taxable income received except to the extent rolled over to another IRSqualified plan or IRA within 60 days." For those who were age 50 before 1986, the booklet provided the following information on lump sum distributions: "All or part of [lump sum] distribution may be rolled over to another qualified plan or an IRA within 60 days without any current tax liability." The booklet did not say that only qualified portions of the lump sum distributions could be rolled over, and that everything else would be taxed.
The Dec. 18, 1989 issue of US West Today, a publication circulated to U.S. West employees, contained an interview with Charles Kamen, the Executive Director of Human Resources for U.S. West, with the heading "Lump-Sum option clarified." In response to questions regarding the tax consequences of the lump sum option, Kamen stated, "Obviously, the lump-sum payment will provide you with a large amount of money that you can control and invest however you like. For some, the lump sum may also offer significant tax advantages."
On Jan. 17, 1990, several Pension Plan representatives and U.S. West managers participated in a live telecast presentation concerning the 5 + 5 program broadcast to
eligible employees. The telecast featured a panel of U.S. West officers and upper management employees. Before the telecast aired, two of the panelists discussed the possibility of disclosing the potential tax problems with lump-sums that could not be rolled over into IRAs, but decided to withhold this information. During the broadcast, Kamen mentioned that a "qualified portion of the lump-sum distribution" could be rolled over into an IRA, but did not explain what he meant by "qualified portion."
Each of the Plaintiffs retired under the 5 + 5 program, elected to receive their accrued benefits in lump sums, attempted to roll over all of their lump sums into IRAs, but discovered that only qualified portions of those sums could be rolled over, and the rest was promptly taxed. On Feb. 6, 1990, after U.S. West management realized that a significant number of people were in this predicament, it held a meeting to discuss possible responses. The plan actuary suggested reducing the discount rate from 8% to 5.25% on the excess portion of the lump sum to mitigate unfavorable tax consequences. The U.S. West Employees' Benefits Committee adopted this proposal.
Plaintiffs subsequently submitted claims to the Plan for additional benefits to offset their unexpected tax liability. The Benefits Committee denied their claims.
Plaintiffs allege that U.S. West breached its fiduciary duty to them under ERISA § 404 by providing them with incomplete, false, and misleading information regarding the tax consequences of their lump sum distributions. 1 Plaintiffs additionally sued U.S. West under Oregon state law for, inter alia, fraud and negligent misrepresentation.
On the first hearing of the case, the district court awarded U.S. West summary judgment on both the ERISA and the state law claims. First, the district court held that even if U.S. West had breached a fiduciary duty to Plaintiffs, Plaintiffs would not be entitled to the relief they sought because ERISA does not provide for individual recovery for breaches of fiduciary duties. Farr v. U.S. West, Inc., 815 F.Supp. 1364, 1374-75 (D.Or.1992). The district court also held that, even if U.S. West had a fiduciary duty to Plaintiffs, it had not breached that duty in this case. The court further held that the lost tax benefits sought by Plaintiffs are extra-contractual damages which are not "other appropriate equitable relief" authorized under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). Id. at 1373-76. Finally, the district...
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