King v. Nat'l Human Resource Comm., 99-1313

• Decision Date: 30 June 2000
• Docket Number: No. 99-1313,99-1313
• Parties: (7th Cir. 2000) MICHAEL R. KING, MARK D. URBANSKI, DONALD E. RENFRO, et al., Plaintiffs-Appellants, v. NATIONAL HUMAN RESOURCE COMMITTEE, INC., Defendant-Appellee
• Court: U.S. Court of Appeals — Seventh Circuit

Page 719

218 F.3d 719 (7th Cir. 2000)

MICHAEL R. KING, MARK D. URBANSKI, DONALD E. RENFRO, et al., Plaintiffs-Appellants, v. NATIONAL HUMAN RESOURCE COMMITTEE, INC., Defendant-Appellee.

No. 99-1313

In the United States Court of Appeals For the Seventh Circuit

Argued May 11, 2000

Decided June 30, 2000

Appeal from the United States District Court for the Northern District of Indiana, South Bend Division. No. 3:96CV0907 AS--Allen Sharp, Judge. [Copyrighted Material Omitted] Before COFFEY, EVANS, and WILLIAMS, Circuit Judges.

EVANS, Circuit Judge.

In this action, filed pursuant to the Employee Retirement Income Security Act, 29 U.S.C. sec. 1001 et seq., a large number of workers at a stamping plant in South Bend, Indiana, alleged violations in the way their 401(k) plan was handled when the assets of their employer were sold.

The employees who brought the action were members of a collective bargaining unit represented by the United Automobile, Aerospace and Agricultural Implement Workers of America-- the UAW. Their former employer, EWI, Inc., had a 401(k) plan for the collective bargaining unit at South Bend that was administered by Prudential Mutual Fund Services. On April 30, 1996, EWI filed for chapter 11 bankruptcy in the Northern District of Ohio. On August 2, 1996, EWI and Tecumseh Metal Products, Inc. executed an asset purchase agreement for the sale of EWI's assets in South Bend. The sale was approved by the bankruptcy court on September 10, 1996. The agreement provided for Tecumseh to assume the union contract, to maintain a defined contribution 401(k) plan, to receive the account balances for the union members participating in the EWI plan, and to transfer the balances to a plan established by Tecumseh for the funds or to an already existing plan.

Tecumseh did not have the capacity to handle the payroll and benefit issues associated with the large, unionized work force it acquired from EWI. For that reason, on September 3, 1996, it executed a client services agreement with the Human Resource Committee, an affiliate of the defendant National Human Resource Committee (NHRC). The former EWI employees, as employees of NHRC, kept their jobs in the stamping facility at the same rates of pay as before. NHRC also had a pension plan called the H.R. Leasestaff 401(k) Plan, provided by Allmerica Financial Institutional Services, in which it originally intended to enroll the South Bend employees. However, the union and Tecumseh determined that Leasestaff was not, in fact, a suitable plan for the South Bend employees. After negotiations among the union, Tecumseh, NHRC, and Allmerica, a new plan called the Human Resource Committee, Inc. Collective Bargaining Unit 401(k) Plan was formed. The plan was not ready until April 1997, but coverage was made retroactive to November 15, 1996.

The actual transfer of the funds from the old EWI plan had occurred before NHRC and Allmerica were ready to receive them. On November 15, 1996, Allmerica received the account balances from the EWI plan in the amount of $2,661,772, but documentation of the individual accounts was not provided at this time. For that reason, the total amount of money transferred was credited with a short-term interest rate of 5.02 percent through December 31 and then placed in a money market fund from December 31, 1996, through mid-April 1997.

Tecumseh and NHRC terminated their contractual relationship sometime in late September 1997, and workers at the South Bend plant became direct employees of Tecumseh. On October 1, 1997, Tecumseh took over the ERISA plan, and it was "restated" into an Allmerica prototype pension plan.

In part, it is the delay in getting the Human Resources Committee plan set up which the plan participants claim violated their rights under ERISA. One of the things of which they complain is that their assets were not invested pursuant to their individual choices. Also, they allege that nonunion employees at the South Bend plant were given several options regarding their EWI balances, including rolling them into their own Individual Retirement Accounts, but the plaintiff-union employees were not. The employees also say they did not receive information about their funds and did not know until February 1997 whether their employer was Tecumseh or NHRC. The employees also see a number of things wrong with the way the new fund was set up. First, they claim that NHRC and its president, Edward Gudeman, did not solicit bids other than the one from Allmerica and did not familiarize themselves with the EWI Plan to ensure they were getting a comparable plan. Also, they say that Jeffrey Perlstein stood to benefit from the establishment of the new plan. He was the sales agent NHRC used to acquire the new plan with Allmerica and he was also a founder of NHRC and an insurance broker with offices inside NHRC.

These ERISA allegations are sorted--not entirely successfully--into three counts. Count I alleges a violation of 29 U.S.C. sec. 1103(c)(1), which says that the assets of a plan "shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants . . . and defraying reasonable expenses of administering the plan." Count II is for a violation of 29 U.S.C. sec. 1103(d), which deals with duties upon the termination of a plan and provides that upon termination the assets shall be distributed in accordance with the terms of the plan. Count III alleges a violation of 9 U.S.C. sec. 1104: that the defendants¹ violated their fiduciary duty in the selection of a new plan and in the investment decisions which were made. Specifically, the claim is that the defendants failed to timely effectuate the employees' investment decisions and wrongly invested the assets in a money market fund while the difficulty with the transfer of the records was going on.

Both sides moved for summary judgment in the district court. The motion of NHRC and Tecumseh was granted and judgment was entered dismissing the case against all defendants, including Frank Beardman, an administrator of the EWI plan, who plays no part in this appeal. After the judgment was entered, Tecumseh itself filed a petition for reorganization under chapter 11 of the Bankruptcy Code. The action is therefore stayed as to Tecumseh, 11 U.S.C. sec. 362(a), leaving NHRC as the only appellee before us. We review the decision on summary judgment de novo, keeping in mind that summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317 (1986).

On appeal, the employees raise three issues: whether officials at NHRC were fiduciaries under ERISA; whether they breached their duty; and whether certain evidence regarding damages should have been considered by the district court.

Before we tackle those issues, we will note that some of the employees' claims are undermined simply on the basis of uncontested facts in the record. For instance, there is nothing except bare allegations to indicate that Mr. Perlstein received any benefit, even a commission, from the establishment of the Human Resources plan. Nor is there anything else in the record to show any violation of the anti-inurement provisions of ERISA. Thus, Count I fails.

Also, the employees claim that they should have received their funds so that they could invest them as they pleased when the plan was terminated. But the facts show that what happened was not a plan termination; it was a spin-off to a new plan. The employees remained employed at the same jobs as before, and at the same location. The only difference was that they were employed by a different entity. Spin-offs and transfers of assets from one...