360 F.3d 1090 (9th Cir. 2004), 02-35853, Wright v. Oregon Metallurgical Corp.

Docket Nº:02-35853.
Citation:360 F.3d 1090
Party Name:Richard WRIGHT; Greg S. Buchanan; and Darell Hagan, Plaintiffs-Appellants, v. OREGON METALLURGICAL CORPORATION, dba Oremet Titanium; Carlos Aguirre; Dennis P. Kelly; Gary Weber; Jack Cox; Key Trust Company of the Northwest; and United Steel Workers of America Local 7150, Defendants-Appellees.
Case Date:March 11, 2004
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1090

360 F.3d 1090 (9th Cir. 2004)

Richard WRIGHT; Greg S. Buchanan; and Darell Hagan, Plaintiffs-Appellants,

v.

OREGON METALLURGICAL CORPORATION, dba Oremet Titanium; Carlos Aguirre; Dennis P. Kelly; Gary Weber; Jack Cox; Key Trust Company of the Northwest; and United Steel Workers of America Local 7150, Defendants-Appellees.

No. 02-35853.

United States Court of Appeals, Ninth Circuit

March 11, 2004

Argued and Submitted Jan. 7, 2004.

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[Copyrighted Material Omitted]

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Gary D. Greenwald (argued), Columbus, OH; Anne Marie La Bue, Columbus, OH; James C. Egan, Albany, OR, for plaintiffs-appellants.

Douglas L. Greenfield, Washington, DC; Leon Dayan, Washington, DC (argued), for defendant-appellee United Steelworkers of America Local 7150.

Brian T. Ortelere, Philadelphia, PA (argued); Amy Promislo, Philadelphia, PA, for defendants-appellees Oregon Metallurgical

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Corp., Carlos E. Aguirre, Dennis P. Kelly, Gary Weber, and Jack Cox.

Brian J. Lamb, Cleveland, OH; Gary L. Walters, Cleveland, OH, for defendant-appellee Key Trust Company of the Northwest.

Appeal from the United States District Court for the District of Oregon; Anna J. Brown, District Judge, Presiding. D.C. No. CV-01-00325-BR.

Before: GRABER, TALLMAN, and CLIFTON, Circuit Judges.

CLIFTON, Circuit Judge:

The Oregon Metallurgical Corporation ("Oremet") in the late 1980s established a stock bonus pension plan for its employees (the "Plan"). The Plan's terms mandated that a defined minimum percentage of each Plan participant's portfolio had to be invested in Oremet stock. Following Oremet's merger with another company, Oremet employees Richard Wright, Greg Buchanan, and Darell Hagan ("Plaintiffs") and other Plan participants requested that Oremet, the Oremet plan fiduciary, and former Oremet officers and pension plan administrators ("Oremet Defendants") investigate investment alternatives and amend the Plan to permit its participants to sell a higher percentage of employer securities than the percentage permitted by the Plan's express terms in order to capture the "premium" generated by the merger. The Oremet Defendants rejected the Plan participants' demands.

Plaintiffs subsequently brought suit under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1144 against the Oremet Defendants, Key Trust Company of the Northwest (the Plan's trustee) ("Key"), and United Steel Workers of America Local 7150 (the "Union") (collectively "Defendants"), for breach of ERISA's prudence, exclusive purpose, and prohibited-transaction provisions. The district court dismissed their claims with prejudice pursuant to Federal Rule of Civil Procedure 12(b)(6), and Plaintiffs appealed.

Plaintiffs fail to state any legally cognizable claims under ERISA. Based upon the facts alleged, the Oremet Defendants' decision to comply with the lawful terms of the Plan following the merger was entirely consistent with ERISA's fiduciary requirements. Because the Union and Key are neither fiduciaries nor de facto fiduciaries, they likewise cannot be found liable under ERISA. We therefore affirm the district court's dismissal of Plaintiffs' claims.

I. BACKGROUND

A. Statutory Framework

ERISA is designed to "protect ... the interests of participants in employee benefit plans and their beneficiaries ... by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans." 29 U.S.C. § 1001(b). To this end, Congress has mandated that private pension plan assets are to be held in trust for the exclusive benefit of plan participants and beneficiaries. Id. § 1103(a); § 1102(a)(1). Moreover, the authority to administer the plan must be vested in one or more named fiduciaries. Id. § 1102(a)(1). The fiduciary need not be an independent party; the employer or plan sponsor may appoint its own "officer, employee, agent, or other representative" to serve in a fiduciary capacity. Id. § 1108(c)(3).

Section 1104(a)(1) of ERISA imposes three general duties on pension plan fiduciaries. ERISA fiduciaries must 1) discharge their duties with "prudence"; 2) diversify investments to "minimize the risk of large losses"; and 3) act "solely in the interest of the participants" and for the

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"exclusive purpose" of providing benefits to those participants. Id. § 1104(a)(1). ERISA also expressly prohibits certain transactions where the potential for abuse is particularly acute. Section 1106 of ERISA forbids a fiduciary from engaging in a transaction that the fiduciary "knows or should know" is a transaction with a party in interest. Id. § 1106(a). Furthermore, employer securities ordinarily may not comprise more than ten percent of the aggregate fair market value of plan assets. Id. § 1107(a)(3)(A). Finally, ERISA requires that fiduciaries discharge their duties in accordance with the terms of the plan, except when such terms conflict with Titles I or IV of ERISA. Id.

Eligible individual account plans (EIAPs)--i.e., profit sharing, stock bonus, thrift or savings plans, employee stock ownership plans (ESOPs) or pre-ERISA money purchase pension plans1--are exempt from several key ERISA provisions. EIAPs are exempt from ERISA's diversification requirement and its prudence requirement to the extent that it requires diversification. Id. § 1104(a)(2). Similarly, EIAPs are exempt from the percentage limitation on investments in employer securities. Id. § 1107(b)(1). Finally, only EIAPs may borrow funds from the plan sponsor. Id. § 1108(b)(3). But for these exceptions, EIAPs, due to their very nature, would run afoul of ERISA. See Fink v. Nat'l Sav. & Trust Co., 772 F.2d 951, 955 (D.C.Cir. 1985) (noting that "[a]cquisition of employer securities by an EIAP does not, in and of itself, violate any of the absolute prohibitions of ERISA").

B. Factual Summary

As this case is appealed from the district court's granting of a Rule 12(b)(6) motion, the following alleged facts are taken primarily from Plaintiffs' First Amended Complaint and its attachments.

Oremet established the Plan in November of 1987. The Plan Agreement and the Trust Agreement set forth the terms of the Plan as amended and restated in 1989. The Plan Agreement provided that the Plan was a "stock bonus plan" and an "employee stock ownership plan" "invested primarily in shares of Oremet stock." The Plan Agreement also established a trust. The trust assets initially consisted of 6,267,281 shares of Oremet common stock valued at approximately $17 million. The Plan financed its purchase of these shares with a loan from Oremet. The loan was repaid in full in 1994, and all shares of Oremet stock held by the Plan were allocated to the Plan participants' accounts.

A two-person Administrative Committee (the "Plan Administrators"), consisting of one hourly union employee of Oremet and one salaried management employee of Oremet, was designated to manage the Plan. Oremet's Board of Directors was responsible for appointing a Plan Trustee and both Plan Administrators. Defendants Gary Weber and Jack Cox were the Plan Administrators at all relevant times. Defendant Carlos Aguirre was a director, officer, and shareholder of Oremet. Defendant Dennis P. Kelly was Oremet's Chief Financial Officer from 1993 to 1998. Defendant Union represented approximately one-half of Oremet's employees and Plan participants for the purpose of collective bargaining with Oremet.

The Plan originally allowed participants to sell up to 40% of the Oremet shares in their individual stock accounts each year so long as the participant remained employed by Oremet (the "Participant Diversification Provision"). Employees who ceased to be employed by Oremet were not

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subject to the Participant Diversification Provision and could withdraw 100% of the shares of Oremet stock allocated to their respective stock accounts. In 1993 and 1994, as a six-year collective-bargaining agreement was set to expire, Oremet and the Union conducted negotiations on the terms and conditions of a new six-year agreement to be effective from August 1, 1994, to July 31, 2000. The 1994-2000 agreement was executed in the spring of 1994.

Oremet stock at all relevant times was traded over the counter on the NASDAQ exchange. The stock's price fluctuated widely between 1987 and 1997 from a low of $3.624 per share to a high of $33.875. During 1995 and 1996, the trading price of Oremet stock steadily rose. Plan participants consequently expressed a desire for greater diversification rights under the Participant Diversification Provision, which would have allowed them to sell their Oremet stock and invest the proceeds in other assets (while maintaining their individual accounts within the Plan). Oremet management became concerned that increasing numbers of Oremet employees would be motivated to terminate their employment in order to withdraw and to sell their Oremet stock. Acting in response to these concerns and under pressure from Plan participants, Oremet amended the Plan in May 1996 ("May 1996 Amendments") to permit Plan participants to sell increasing amounts of their Oremet stock: first up to 55%; then up to 70%; and finally, after July 30, 1996, up to 85%.

In addition, the May 1996 Amendments provided that the Plan would cease to be an ESOP but would remain a stock bonus plan at such time as the majority of Plan assets were no longer invested primarily in Oremet Common Stock (the "Transformation Date"). Moreover, the May 1996 Amendments stated that the Plan's requirement that Plan assets be invested primarily in Oremet stock would be replaced with a requirement that Plan assets "be invested as provided in the Trust Agreement." The Trust Agreement, in turn, provided that "up to 100% of the assets of the Trust Fund may be invested in Company Stock," and any stock of an affiliate of Oremet counted as "Company Stock."

The Union opposed any further...

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