334 F.3d 365 (3rd Cir. 2003), 02-2666, Burstein v. Retirement Account Plan For Employees of Allegheny Health Educ. and Research Foundation

Docket Nº:02-2666
Citation:334 F.3d 365
Party Name:Burstein v. Retirement Account Plan For Employees of Allegheny Health Educ. and Research Foundation
Case Date:July 02, 2003
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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334 F.3d 365 (3rd Cir. 2003)

William H. BURSTEIN, M.D.; Efrain J. Crespo, M.D.; Richard R. Austin; Eleanor Hing Fay; Jean B. Haas, individually and on behalf of others similarly situated, Appellants


RETIREMENT ACCOUNT PLAN FOR EMPLOYEES OF ALLEGHENY HEALTH EDUCATION AND RESEARCH FOUNDATION, c/o Administrator Dwight Kasperbauer, individually and as Plan Administrator, and named fiduciary; David C. McConnell; William F. Adam; J. David Barnes; Ralph W. Brenner; Dorothy McKenna Brown; Frank V. Cahouet; Douglas D. Danforth; Ronald R. Davenport; Harry R. Edelman, III; Robert L. Fletcher; IRA J. Gumberg; Robert M. Hernandez; Francis B. Nimick, Jr.; Robert B. Palmer; Robert M. Potamkin; David W. Sculley; W.P. Snyder, III; Mellon Bank NA; Pension Benefit Guaranty Corporation, as successor-in-interest.

No. 02-2666.

United States Court of Appeals, Third Circuit

July 2, 2003

Argued April 24, 2003.

As Amended Aug. 1, 2003.

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[Copyrighted Material Omitted]

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Jay W. Eisenhofer (argued), Denise T. DiPersio, Grant & Eisenhofer, P.A., Wilmington, Mark J. Krum, Philadelphia, for Appellants.

John F. Schultz (argued), Kristofor T. Henning, Drinker, Biddle & Reath, LLP, Philadelphia, for Appellees Retirement Account Plan and Kasperbauer.

David J. Laurent, Babst, Calland, Clements & Zomnir, P.C., Pittsburgh, for Appellee McConnell.

David L. McClenahan (argued), William T. Cullen, Wendy E.D. Smith, Kirkpatrick & Lockhart, Pittsburgh, for Appellees Adam, Brown, Danforth, Edelman, Fletcher, Gumberg, Hernandez, Nimick, Palmer, Potamkin, and Sculley.

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Thomas J. Farrell, Thieman & Farrell, Pittsburgh, for Appellee Barnes.

Michele Langer, Marvin, Larsson, Henkin & Scheuritzel, Philadelphia, for Appellee Brenner.

James J. Restivo, Jr., Perry A. Napolitano, Daniel E. Wille, Reed Smith, Pittsburgh, for Appellee Cahouet.

Anthony W. Clark, Eric M. Davis, Skadden, Arps, Slate, Meagher & Flom, Wilmington, Henry P. Wasserstein, Jonathan L. Frank, Skadden, Arps, Slate, Meagher & Flom, New York, for Appellee Snyder.

Jay H. Calvert, Jr., Joseph B.G. Fay, Steven D. Spencer, Morgan, Lewis & Bockius LLP, Philadelphia, for Appellee Mellon Bank, N.A.

James J. Keightley, General Counsel, Jeffrey B. Cohen, Deputy General Counsel, Deborah West, Senior Assistant General Counsel, Sara B. Eagle (argued), Joseph M. Krettek, Pension Benefit Guaranty Corporation, Office of the General Counsel, Washington, for Appellee Pension Benefit Guaranty Corporation.

Before SCIRICA, Chief Judge, AMBRO and GARTH, Circuit Judges.


GARTH, Circuit Judge.

The plaintiff-appellants in this ERISA case appeal from the district court's dismissal of their First Amended Complaint for failure to state a claim and also challenge the denial of their motion to file a Second Amended Complaint as futile.

The plaintiffs are five former employees of the now-bankrupt Allegheny Health Education and Research Foundation ("AHERF"). These plaintiffs sought to recover benefits that they believed they had accrued through AHERF's Retirement Account Plan. They also sought to represent a class of similarly situated persons, though that issue is not before us. The plaintiffs filed various claims under provisions of the Employee Retirement Income Security Act of 1974, 88 Stat. 891, as amended, 29 U.S.C. § 1001 et seq.

As we will explain, in the course of resolving this appeal, we join several other Circuits in ruling that when a summary plan description under ERISA conflicts with the complete, detailed ERISA plan document, a plan participant may nevertheless state a claim for plan benefits based upon terms contained in the summary plan description.

Therefore, and for further reasons specified in this opinion, we will reverse the dismissal of the plaintiffs' claim for plan benefits against the Plan itself and against the Pension Benefit Guaranty Corporation ("PBGC") as Plan administrator, as distinct from guarantor. We will also reverse the dismissal of the plaintiffs' claim for breach of fiduciary duty against Dwight Kasperbauer, the Plan's former administrator. However, we will affirm the dismissal of the remaining counts and of all other defendants, and will also direct the district court to permit the plaintiffs to make a final effort at amending the complaint. Finally, in light of our disposition, which reverses the district court's dismissal of certain counts, we will also reverse the district court's ruling that the plaintiffs' motion for class certification was moot, inasmuch as the counts we are reversing must once again receive the district court's attention.


Since this appeal is from a Rule 12(b)(6) motion to dismiss as well as from the denial of leave to file an amended complaint, we have derived our explication of the facts from the allegations contained in the plaintiffs' First Amended Complaint,

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supplemented by some additional facts alleged in the proposed Second Amended Complaint.

A. The Parties

The plaintiffs-appellants in this case are William H. Burstein, M.D., Efrain J. Crespo, M.D., Richard R. Austin, Eleanor Hing Fay, and Jean B. Haas. According to the proposed Second Amended Complaint ("SAC" or "complaint"), Burstein was employed as a doctor at AHERF for four years, and became an employee of the Tenet Healthcare Corporation when Tenet purchased some of AHERF's assets. Crespo had been employed as a doctor by AHERF for "less than five years," SAC ¶ 13, and also became a Tenet employee. Austin had been employed by AHERF as director of major gifts and planned giving at St. Christopher's Hospital for three and a half years. Hing Fay had been employed by AHERF for two and three-quarters years in the Corporate and Foundation Relations department at St. Christopher's Hospital for Children. Haas had been employed by AHERF for one year in the development office of (we assume) St. Christopher's Hospital. 1 AHERF laid off Austin, Hing Fay, and Haas on September 30, 1998, and Tenet did not hire them. 2

There are several defendants-appellees in this case. They are: (1) the Plan itself; (2) the PBGC; 3 (3) Dwight Kasperbauer, the former Plan administrator, and a former executive vice president and chief of human resources at AHERF; (4) the Plan's former asset manager, David McConnell, who had been AHERF's chief financial officer; (5) the members of the Plan sponsor's Board of Trustees ("AHERF Trustees"); 4 and (6) the Plan's custodial trustee, Mellon Bank.

B. The Events Leading to the Lawsuit

In 1988, AHERF, which operated hospitals and other health-care facilities in western Pennsylvania, began acquiring hospitals and associated physician practices and medical schools in the Philadelphia area.

AHERF had begun to experience significant financial losses by the late 1990s. In July 1998, AHERF filed for bankruptcy. The complaint alleges that AHERF, a non-profit corporation, was profligate in its expenditures and generous (to a fault) in furnishing its executives with compensation,

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stock options, travel opportunities, and the like. SAC ¶ ¶ 43-44, 49, 51, 53, 55.

In the months prior to filing for bankruptcy, AHERF made an $89 million payment on a line of credit to Mellon Bank (the Plan's custodial trustee), id. ¶ 47, and the complaint alleges that Mellon Bank, and certain trustees with relationships to the bank, exerted improper influence to secure this payment. Id. ¶ 48.

The bankruptcy court auctioned off AHERF's assets, including eight Philadelphia-area hospitals. The eight hospitals were purchased by Tenet, a for-profit health care company. The Retirement Account Plan was not acquired by Tenet. SAC ¶ ¶ 56-57.

AHERF's Retirement Account Plan was a defined benefit pension plan under ERISA. 5 The AHERF Plan was a "cash balance plan," 6 a form of a defined benefit plan under ERISA in which "the employer's contribution is made into hypothetical individual employee accounts." SAC ¶ 66. The complaint alleged that because the Plan "speaks in terms of a participant's 'account,' many participants are fooled into thinking that the cash balance plan works like a defined contribution plan." Id. Under a cash balance plan, however, if the plan terminates, "it is possible that the plan will be underfunded as to some or all of the participants." Id.

Indeed, ERISA does not require that the cash-balance plan sponsor fund the plan fully for all participants; rather, it only requires that these plans be funded for those participants whose benefits had vested prior to the plan's (partial) termination. 7 Burstein has not claimed that

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AHERF failed to fund the Plan in accordance with these minimum standards.

Burstein alleges that he was surprised to learn that AHERF had not funded the Plan for the benefits he believed had accrued. According to the complaint, the Plan administrator, defendant Kasperbauer, mailed form letters dated November 25, 1998, to various former employees. The complaint alleges that the letter sent to Burstein was addressed to "Former AHERF Employees who Transferred to Tenet or the New University." This letter explained that a partial plan termination had occurred, but that any person who had not completed five years of service with AHERF would not be entitled to any benefits:

As you may be aware, the Retirement Account Plan also contains a provision, required by the Internal Revenue Code, concerning vesting in the event of a partial plan termination. Specifically, this provision states that, if there is a partial plan termination, the nonvested benefits of affected participants will become vested "to the extent funded." We believe that a partial plan termination did occur because of the sale of the hospitals to Tenet and the...

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