534 F.3d 65 (1st Cir. 2008), 07-1140, Evans v. Akers

Docket Nº:07-1140.
Citation:534 F.3d 65
Party Name:Keri EVANS, on behalf of herself and a class of all others similarly situated; Timothy Whipps, on behalf of himself and a class of all others similarly situated, Plaintiffs, Appellants, Lawrence Bunch, individually and on behalf of all others similarly situated and on behalf of the W.R. Grace & Co. Employee Savings and Investment Plan and the Grace
Case Date:July 18, 2008
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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534 F.3d 65 (1st Cir. 2008)

Keri EVANS, on behalf of herself and a class of all others similarly situated; Timothy Whipps, on behalf of himself and a class of all others similarly situated, Plaintiffs, Appellants,

Lawrence Bunch, individually and on behalf of all others similarly situated and on behalf of the W.R. Grace & Co. Employee Savings and Investment Plan and the Grace Stock Fund; Jerry L. Howard, Sr.; David Mueller, individually and on behalf of all others similarly situated, and on behalf of the W.R. Grace & Co. Employee Savings and Investment Plan and the Grace Stock Fund, Plaintiffs,

v.

John F. AKERS; Ronald C. Cambre; Marye Anne Fox; John J. Murphy; Paul J. Norris; Thomas A. Vanderslice; H. Furlong Baldwin; Investments And Benefits Committee; Administrative Committee; Brenda Gottlieb; W. Brian McGowan; Michael Piergrossi; Robert M. Tarola; Eileen Walsh; David Nakashige; Elyse Napoli; Martin Hunter; Ren Lapadario, Defendants, Appellees,

Fidelity Management Trust Company; State Street Bank and Trust Company; Unknown Fiduciary Defendants 1-100; State Street Global Advisors; W.R. Grace & Co.; W.R. Grace Investment and Benefits Committee; Fred E. Festa, Defendants.

No. 07-1140.

United States Court of Appeals, First Circuit

July 18, 2008

Heard Feb. 7, 2008.

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Edward W. Coilko, with whom Joseph H. Meltzer, Katherine B. Bornstein, Schiffrin Barroway Topaz & Kessler, LLP, David Pastor, and Gilman and Pastor, LLP were on brief, for appellants.

Carol Connor Cohen, with whom Nancy S. Heermans, Caroline Turner English, Valerie N. Webb, and Arent Fox LLP were on brief, for appellees.

Jonathan Hammer, with whom Elizabeth Hopkins, Counsel for Appellate and Special Litigation, Jonathan L. Snare, Acting Solicitor of Labor, Timothy D. Hauser, Associate Solicitor, and Nathaniel I. Spiller, Counsel for Appellate and Special Litigation, were on brief, for Secretary of Labor Elaine L. Chao, amicus curiae.

Before TORRUELLA, Circuit Judge, WALLACE,[*] Senior Circuit Judge, and LIPEZ, Circuit Judge.

LIPEZ, Circuit Judge.

This case requires us to decide whether former employees who have received lump-sum distributions of the entire balance in their employer's defined contribution plan may sue on behalf of the plan to recover for alleged fiduciary breaches that diminished the value of their accounts. The question turns on whether they are “participants" within the relevant statutory definition in the Employee Retirement Income Security Act of 1974 (“ERISA" ), 29 U.S.C. §§ 1002(7), 1132. After careful consideration, we hold that former employees who allege that fiduciary breaches reduced their lump-sum distribution from a defined contribution plan have standing to sue as “participants" under the ERISA statute.

I

Plaintiffs Keri Evans and Timothy Whipps are former employees of W.R. Grace & Co. (“Grace" ), a large manufacturing company. While employed at Grace, the plaintiffs participated in the W.R. Grace & Co. Savings and Investment Plan (the “Plan" ), a “defined contribution" plan under ERISA § 3(34), 29 U.S.C. § 1002(34). Evans and Whipps, who terminated their employment with Grace on August 30, 2002 and April 27, 2001, respectively, received lump-sum distributions of the balance of their Plan accounts shortly after leaving the company. They do not intend to return to employment at Grace.

A defined contribution plan provides an individual account for each participant into which the participant and the employer make contributions. Upon retirement, the

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participant's pension benefit under this type of plan is the balance of the individual account; the amount of the benefit is directly dependent on the performance of the investments made with the contributions. See 29 U.S.C. § 1002(34). In this case, the Plan offered, as one choice on the menu of investment options available to Plan participants, the Grace Common Stock Fund (the “Fund" ), a fund invested primarily in Grace stock. Additionally, Grace automatically invested all employer contributions in the Fund, and employees were not permitted to move those contributions out of Grace stock and into other investments until they reached age fifty.

On January 1, 2001, with Grace stock becoming an increasingly risky investment due to mounting financial pressures from asbestos-related product-liability litigation, the Plan stopped investing employer contributions in the Fund and began allocating them instead in accordance with participants' investment elections. At this time, the Plan also permitted, but did not advise or require, participants to move past matching contributions out of the Fund and into other Plan investments. Despite these changes in the employer contribution policy, the Fund remained open to participants as one of the investment options for their own contributions under the Plan. Grace and its subsidiaries filed for bankruptcy protection on April 2, 2001.

On April 17, 2003, the Fund ceased accepting any new contributions, but past contributions were not transferred to other funds unless a participant expressly changed her investment options. Then, on February 27, 2004, Plan fiduciaries announced their conclusion that investment in Grace stock was “clearly imprudent." The Fund's investment manager, State Street Bank & Trust Company, subsequently embarked on a program to sell the Grace stock and dissolve the Fund. The Fund ceased to exist on April 19, 2004.

The plaintiffs filed a putative class action suit (the “Evans action" ) against various Plan fiduciaries, alleging that they “breached their fiduciary duties bye (1) continuing to offer Grace common stock as a Plan investment option for participant contributions; (2) utilizing Grace securities for employer contributions to the Plan; and (3) maintaining the Plan's pre-existing heavy investment in Grace securities when the stock was no longer a prudent investment." Evans v. Akers, 466 F.Supp.2d 371, 374 (D.Mass.2006). The plaintiffs also alleged that other fiduciaries had breached their duty to monitor their co-fiduciaries and advise Plan participants. Id. They brought these claims on behalf of the Plan to recover alleged losses to the Plan pursuant to ERISA § 502(a)(2), which permits the Secretary of Labor, participants, beneficiaries, or fiduciaries to file suit to hold fiduciaries personally liable for fiduciary breaches. 29 U.S.C. §§ 1109, 1132(a)(2). The plaintiffs' proposed class included all participants and beneficiaries of the Plan between July 1, 1999 and April 19, 2004.

Another suit challenging the actions of Plan fiduciaries, which originally had been filed in Kentucky, was later consolidated with the Evans action. That suit, led by plaintiff Lawrence Bunch (the “Bunch action" ), alleged fiduciary breaches against a different set of fiduciaries and asserted a diametrically opposed theory of liability. It claimed that the Plan fiduciaries had imprudently divested the Plan of its holdings in Grace common stock despite the company's solid potential to emerge from bankruptcy with substantial value for shareholders. Following the transfer of the Bunch action to Massachusetts, the dockets for the two cases were combined and the two sets of plaintiffs worked together on various pretrial discovery and

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scheduling matters in the district court. However, the actions otherwise proceeded separately, maintaining separate complaints and seeking certification of distinct classes.

On December 6, 2006, the district court denied the motion by Evans and Whipps seeking class certification for their claims and dismissed the Evans action, concluding that the plaintiffs lacked standing and that, as a result, the court lacked subject matter jurisdiction over the suit. In the district court's view, Evans and Whipps were asserting claims for compensatory damages, rather than for additional Plan benefits, and thus had failed to meet the statutory definition of “participants" entitled to bring suit. With the aid of recent decisions by three of our sister circuits 1-issued after the district court had dismissed the Evans action-and helpful briefing by the Secretary of Labor as amicus curiae,2 we conclude that Evans and Whipps are “participants" with standing to sue and reverse the dismissal.

II

As a threshold matter, the appellees argue that the Evans action was consolidated with the Bunch action “for all purposes," and that, as a result, the district court's dismissal order is not a final judgment over which we have jurisdiction pursuant to 28 U.S.C. § 1291. See Global Naps, Inc. v. Verizon New England, Inc., 396 F.3d 16, 22 (1st Cir.2005) (“[D]isposition of one case in a consolidated action is a final and...

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