Vaughn v. Bay Environmental Management, Inc.

• Decision Date: 19 September 2008
• Docket Number: No. 05-17100.,05-17100.
• Citation: 567 F.3d 1021
• Parties: Jerry VAUGHN; Theresa Travers, Plaintiffs-Appellants, v. BAY ENVIRONMENTAL MANAGEMENT, INC.; Pina J. Barbieri; Caesar Nuti; Dennis Varni; FSC Securities Corporation; Jerrold N. Weinberg, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

567 F.3d 1021

Jerry VAUGHN; Theresa Travers, Plaintiffs-Appellants, v. BAY ENVIRONMENTAL MANAGEMENT, INC.; Pina J. Barbieri; Caesar Nuti; Dennis Varni; FSC Securities Corporation; Jerrold N. Weinberg, Defendants-Appellees.

No. 05-17100.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 12, 2008.

Filed September 19, 2008.

Amended June 4, 2009.

Teresa S. Renaker, Lewis Feinberg Lee Renaker & Jackson, P.C., Oakland, CA, for the plaintiffs-appellants.

Nicole A. Diller (argued), D. Ward Kallstrom, Andrew C. Sullivan, Morgan Lewis & Bockius, LLP, San Francisco, CA, for defendants-appellees Bay Environmental Inc., Caesar Nuti, and Dennis Varni.

Bernard Gehlhar (argued), James D. Boughey, Reina G. Minoya, Wilson Elser Moskowitz Edelman & Dicker, LLP, San Francisco, CA, for defendants-appellees FSC Securities Corp. and Jerrold N. Weinberg.

Elizabeth Hopkins, U.S. Dep't of Labor, Washington, DC, as amicus curiae supporting plaintiffs-appellants.

Appeal from the United States District Court for the Northern District of California, Martin J. Jenkins, District Judge, Presiding. D.C. No. CV-03-05725-MJJ.

Before: B. FLETCHER and PAMELA ANN RYMER, Circuit Judges, and KEVIN THOMAS DUFFY,^* Senior District Judge.

ORDER AND AMENDED OPINION ORDER

The opinion filed on September 19, 2008 and appearing at 544 F.3d 1008 (9th Cir. 2008), is amended as follows. At 544 F.3d at 1010, delete the paragraph in Section II and substitute the following paragraph in its stead:

Although the district court dismissed the case for lack of subject matter jurisdiction, a dismissal for lack of statutory standing is properly viewed as a dismissal for failure to state a claim rather than a dismissal for lack of subject matter jurisdiction. See Lanfear v. Home Depot, Inc., 536 F.3d 1217, 1221-22 (11th Cir.2008) (clarifying that statutory standing under ERISA is a question of merits rather than subject matter jurisdiction); Harzewski v. Guidant Corp., 489 F.3d 799, 803-04 (7th Cir.2007) (same). Because we review dismissals under both Rule 12(b)(1) and Rule 12(b)(6) de novo, see Rhoades v. Avon Prods., Inc., 504 F.3d 1151, 1156 (9th Cir.2007), the district court's error does not affect the result in this case. We accept all facts alleged in the First Amended Complaint as true. See id.; see also LaRue v. DeWolff, Boberg & Assocs., Inc., 553 U.S. ___, 128 S.Ct. 1020, 1024, 169 L.Ed.2d 847 (2008) ("As the case comes to us we must assume that respondents breached fiduciary obligations defined in [ERISA] § 409(a), and that those breaches had an adverse impact on the value of the plan assets in petitioner's individual account.").

The mandate shall issue forthwith.

OPINION

BETTY B. FLETCHER, Circuit Judge:

This case requires us to consider whether a former employee who has received a full distribution of his or her account balance under a defined contribution pension plan has standing as a plan participant to file suit under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., to recover losses occasioned by a breach of fiduciary duty that allegedly reduced the amount of his or her benefits. We join the First, Third, Fourth, Sixth, Seventh, and Eleventh Circuits, and hold that these former employees have standing to bring their claims.¹ Accordingly, we vacate the district court order dismissing the action for lack of subject matter jurisdiction, and remand for further proceedings.

I

Jerry Vaughn and Theresa Travers ("Vaughn") are former employees of Bay Environmental Management Inc. ("Bay Environmental") who participated in two types of ERISA-governed retirement plans offered by the company ("Plans"). The first, referred to as the "Pension Plan," was funded solely by the discretionary contributions of Bay Environmental. The second, known as the "Retirement Plan," consisted of both a profit-sharing component and a 401(k) component. Both Plans were individual account plans, also known as defined contribution plans.² All Plan investments were chosen by the Plan trustees and investment advisors except for the 401(k) component of the Retirement Plan, which was directed by the Plan participants.

In 2000 or early 2001, Republic Services, Inc. purchased Richmond Sanitary Services, Inc. ("RSS"), of which Bay Environmental was an affiliate. At around this same time, the Trustees of the Plans voted to terminate the Plans. On or about April 13, 2001, Bay Environmental notified its employees that the Plans would be terminated effective April 30, 2001. In August 2001, the Trustees transferred all non-participant-directed plan assets to money market funds. Subsequently, in the year 2002, Plan participants received a lumpsum distribution of the value of their individual accounts.

On December 18, 2003, Vaughn filed suit on behalf of himself and all similarly-situated individuals.³ He named Bay Environmental and the Plans' Trustees as defendants, alleging that Defendants breached their fiduciary duties by investing the Plans' assets imprudently. Specifically, Vaughn alleged that Defendants knew or should have known that the purchase of Bay Environmental by RSS would likely result in the termination of the Plans and that Defendants should have transferred the non-participant-directed plan assets to money market funds sooner in light of the Plans' shortened investment horizon. Vaughn sought relief in the form of a declaration that Defendants had breached their fiduciary duties, a preliminary injunction prohibiting distribution of the individual Defendants' Plan accounts, and the establishment of a successor trust for benefits owed to the Plans, benefits to be paid by the Defendants.

On March 14, 2005, after the parties failed to mediate the dispute, Vaughn filed his First Amended Complaint, adding the Plans' investment advisors, FSC Corporation and Jerrold N. Weinberg ("FSC Defendants"), as defendants.⁴ Vaughn also added a second claim for relief alleging that Bay Environmental further breached its fiduciary duties by failing to conduct an adequate investigation before selecting the investment advisors or to monitor the performance of the Plans' investments and investment advisors.

On July 22, 2005, the FSC Defendants filed a motion to dismiss for lack of subject matter jurisdiction arguing that Vaughn lacked statutory standing under ERISA. Specifically, they claimed that Vaughn failed to allege sufficient facts to bring him within ERISA's definition of "participant." See 29 U.S.C. § 1002(7) (defining "participant" as "any employee or former employee of an employer ... who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer ... or whose beneficiaries may become eligible to receive any such benefit").

The district court granted the FSC Defendants' motion to dismiss on September 26, 2005. The court concluded that Vaughn was not a participant because he had received a lumpsum distribution of his individual account balance and was therefore not entitled to additional benefits under the plan. Vaughn timely appealed.⁵

II

Although the district court dismissed the case for lack of subject matter jurisdiction, a dismissal for lack of statutory standing is properly viewed as a dismissal for failure to state a claim rather than a dismissal for lack of subject matter jurisdiction. See Lanfear v. Home Depot, Inc., 536 F.3d 1217, 1221-22 (11th Cir. 2008) (clarifying that statutory standing under ERISA is a question of merits rather than subject matter jurisdiction); Harzewski v. Guidant Corp., 489 F.3d 799, 803-04 (7th Cir.2007) (same). Because we review dismissals under both Rule 12(b)(1) and Rule 12(b)(6) de novo, see Rhoades v. Avon Prods., Inc., 504 F.3d 1151, 1156 (9th Cir.2007), the district court's error does not affect the result in this case. We accept all facts alleged in the First Amended Complaint as true. See id.; see also LaRue v. DeWolff, Boberg & Assocs., Inc., ___ U.S. ___, 128 S.Ct. 1020, 1024, 169 L.Ed.2d 847 (2008) ("As the case comes to us we must assume that respondents breached fiduciary obligations defined in [ERISA] § 409(a), and that those breaches had an adverse impact on the value of the plan assets in petitioner's individual account.").

III

ERISA § 404(a) imposes a "[p]rudent man standard of care" on plan fiduciaries. 29 U.S.C. § 1104(a). This standard requires that the fiduciary discharge her duties "with the care, skill, prudence, and diligence under the circumstances then prevailing [of] a prudent man acting in like capacity. ..." 29 U.S.C. § 1104(a)(1)(B). It also requires the fiduciary to "diversify[] the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so." 29 U.S.C. § 1104(a)(1)(C). A plan fiduciary who breaches her fiduciary duties "shall be personally liable to make good to such plan any losses to the plan resulting from each such breach." ERISA § 409(a), 29 U.S.C. § 1109(a).

ERISA § 502 provides for a civil action by a plan participant "for appropriate relief" for a breach of fiduciary duty. 29 U.S.C. § 1132(a)(2). Under the statute, "`participant' means any employee or former employee of an employer ... who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer...." 29 U.S.C. § 1002(7). The Supreme Court has interpreted this section as conferring standing on former employees who "have a reasonable expectation of returning to covered employment or ... a colorable claim to vested benefits." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) (original alterations and quotation omitted). In contrast, former employees do not have standing if a successful suit would result in a damage award that was not for benefits due under the plan. Kuntz v. Reese, 785 F.2d 1410, 1411 (9th Cir.1986) (per curiam) ("Kuntz II"...