399 F.3d 692 (6th Cir. 2005), 03-3812, Penny/Ohlmann/Nieman, Inc. v. Miami Valley Pension Corp.

Docket Nº:03-3812.
Citation:399 F.3d 692
Party Name:PENNY/OHLMANN/NIEMAN, INC. et al., Plaintiffs-Appellants, v. MIAMI VALLEY PENSION CORP. et al., Defendants-Appellees.
Case Date:March 04, 2005
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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399 F.3d 692 (6th Cir. 2005)

PENNY/OHLMANN/NIEMAN, INC. et al., Plaintiffs-Appellants,


MIAMI VALLEY PENSION CORP. et al., Defendants-Appellees.

No. 03-3812.

United States Court of Appeals, Sixth Circuit.

March 4, 2005.

Submitted: Sept. 21, 2004

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[Copyrighted Material Omitted]

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Roger Makley, Coolidge, Wall, Womsley & Lombard, Dayton, Ohio, Nicole M. Ruhenkamp, Strauss & Troy, Cincinnati, Ohio, for Appellants.

John Matthew Cloud, Rogers & Greenberg, Dayton,

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Ohio, Chad A. Readler, Jones Day, Columbus, Ohio, for Appellees.

Before: KEITH, MOORE, and GILMAN, Circuit Judges.


MOORE, Circuit Judge.

Plaintiffs-Appellants Penny/Ohlmann/Nieman, Inc., Penny/Ohlmann/Nieman, Inc. Employee Stock Ownership Plan, and Penny/Ohlmann/Nieman, Inc. Employee Savings Plan (collectively "PONI") appeal the dismissal of their state-law claims against Defendants-Appellees, Miami Valley Pension Corp. ("MVP") and National City Corp. d/b/a/ National City Bank ("NCB") (collectively "Appellees"). PONI argues that the district court erred in adopting the magistrate judge's determination that PONI's state-law claims against the Appellees are preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"). The Appellees argue in the alternative that either the claims are preempted or the district court was correct to grant their motion for judgment on the pleadings because PONI has not alleged any cognizable damages. Upon review, we conclude that though PONI's claims against NCB are preempted by ERISA, the claims against MVP are not. Furthermore, PONI has alleged sufficient cognizable harm to preclude a judgment on the pleadings with respect to its claim against MVP. Therefore, the district court's grant of judgment on the pleadings is AFFIRMED with regard to NCB and REVERSED with regard to MVP. We REMAND the case to the district court for further proceedings consistent with this opinion.


Penny/Ohlmann/Nieman, Inc. (the "Employer") has utilized three different retirement plans for its employees over the years: a defined benefit pension plan ("Defined Benefit Plan"), an employee stock ownership plan ("ESOP"), and a savings plan ("Savings Plan"). The Employer established the Defined Benefit Plan on June 20, 1970. MVP served as the record keeper and the broker of the life insurance policies held as assets for the Defined Benefit Plan. On June 1, 1975, the Employer established the ESOP, for which MVP has provided record-keeping services since its inception. Lastly, effective July 1, 1985, the Employer established the Savings Plan. NCB, and its predecessor, The First National Bank, have provided record-keeping, trust, and commercial-banking services to the Savings Plan since it was established.

The Defined Benefit Plan was terminated on June 30, 1990, at which time all employees except one elected to cash out the insurance portion of their accrued benefits. The one employee, who was a "key" employee, as defined in the Internal Revenue Code ("I.R.C.") § 416(i)(1), elected to roll the value of the insurance policy (the "Key Employee Insurance Policy") into the Savings Plan. In 1998, during a comprehensive review of the operations of both the Savings Plan and the ESOP, the Employer discovered that the cash value of the Key Employee Insurance Policy rolled over from the Defined Benefit Plan to the Savings Plan had been incorrectly valued by NCB at one dollar ($1.00). When the Key Employee Insurance Policy was properly valued, the Employer discovered that both the ESOP and Savings Plan were in violation of the I.R.C.'s top-heavy limitations for the period of 1991 through 1998.

A plan is considered top-heavy when too great a percentage of the assets are dedicated to key employees, defined as officers earning above a specified compensation

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level or employees with high salaries and sufficient ownership interests. I.R.C. § 416(i)(1)(A). The I.R.C. seeks to protect non-key employees by ensuring that a minimum amount of the assets from an employer's pension plan are dedicated to them. Specifically, the I.R.C. defines a top-heavy plan as one in which "the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan." I.R.C. § 416(g)(1)(A)(ii). If a plan is determined to be top-heavy, it must meet vesting and minimum benefit/contribution requirements. I.R.C. § 416(a). For a defined contribution top-heavy plan, the minimum employer contribution amount is 3% of the compensation for each of the non-key employee participants. I.R.C. § 416(c)(2)(A). The I.R.C. also provides for the aggregation of the top-heavy requirements when an employer has multiple plans in effect. I.R.C. § 416(g)(2).

As part of their record-keeping responsibilities, MVP and NCB were required to perform top-heavy testing to ensure that the ESOP and Savings Plan complied with the I.R.C. Both MVP and NCB were aware of the existence of the other plan and their respective record-keeping responsibilities. Both the ESOP and the Savings Plan documents contain provisions describing the top-heavy rules of I.R.C. § 416 as well as language requiring coordination of the top-heavy minimum-contribution requirements in the event that the Employer sponsors more than one plan. In addition, during the period from July 1, 1990 to June 30, 1998, Dave Smeltzer, a representative of NCB responsible for the Savings Plan, orally advised the Employer that the Savings Plan did not have a top-heavy problem.

Since it was unaware of the top-heavy status of the two plans, the Employer failed to make any contributions to alter the top-heavy status as required by the I.R.C. during the years 1991-1998. On May 21, 1999, the Employer advised the Internal Revenue Service ("IRS") that the ESOP and the Savings Plan were in violation of the top-heavy contribution requirements. The IRS did not disqualify either plan, but instead revised the Employer's contributions and fined the Employer $5,000. The Employer was required to make a minimum contribution of $137,087.17. The Employer also incurred an additional $35,000 in service fees, interest, and legal fees pursuing the settlement with the IRS and reimbursement from NCB and MVP. Thus, the total amount PONI was required to pay as a result of the top-heavy error was $177,087.17.

PONI brought suit in 2002, alleging that NCB breached its fiduciary responsibility as a trustee under ERISA § 404, 29 U.S.C. § 1104. PONI also alleged that NCB and MVP materially breached their respective service contracts by (1) utilizing the obviously improper $1.00 valuation of the Key Employee Insurance Policy; (2) not recognizing the improper valuation during the annual top-heavy testing for each respective plan; and (3) failing to coordinate the top-heavy testing of the Savings Plan and the ESOP. Lastly, PONI alleged that NCB and MVP negligently misrepresented their knowledge of the applicable law and their ability to operate the respective plans in conformity with the law, the terms of the plan documents, and industry standards. PONI sought damages of $161,513.00.

On April 23, 2003, the district court granted the Appellees' motion for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. In its ruling, the district court adopted the magistrate judge's report and recommendations in its entirety. In the

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report, the magistrate judge found that PONI was not entitled to any relief under ERISA and that its state-law claims were preempted. PONI appeals only with regard to the state-law claims.


A. Standard of Review

We review a motion for judgment on the pleadings pursuant to Rule 12(c) under "the same de novo standard applicable to a motion to dismiss under Rule 12(b)(6)." Ziegler v. IBP Hog Market, Inc., 249 F.3d 509, 511-12 (6th Cir.2001). "In reviewing the motion, we must construe the complaint in the light most favorable to the plaintiff, accept all of the complaint's factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of his claim that would entitle him to relief." Id. at 512. We have noted, however, that "we need not accept as true legal conclusions or unwarranted factual inferences." Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir.1999).

B. Breach-of-Contract Claims

The first issue PONI raises on appeal is that the district court erred in finding that its breach-of-contract claims against NCB and MVP were preempted by ERISA. Upon review, we conclude that PONI's state-law breach-of-contract claim against NCB, the trustee of the Savings Plan, is preempted under ERISA § 514(a), but its claim against MVP, a non-fiduciary service provider, is not.

ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." ERISA § 514(a), 29 U.S.C. § 1144(a). The United States Supreme Court has dealt with the "opaque language in ERISA's§ 514(a)" approximately twenty times over the last twenty-four years. See De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 808-09 & n. 1, 117 S.Ct. 1747, 138 L.Ed.2d 21 (1997) (noting the numerous attempts by the Court to define the boundaries of ERISA preemption). In its earlier cases, the Supreme Court noted that "[t]he pre-emption clause is conspicuous for its breadth," FMC Corp. v. Holliday, 498 U.S. 52, 58, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990), and "deliberately expansive, and designed to establish pension plan regulation as exclusively a federal concern," Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) (internal quotation omitted). More recently, however, the Supreme Court has narrowed the preemptive scope of ERISA, moving away from the broadest meaning of the provision. The Court has stated that the phrase "insofar as they ......

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