Bidwell v. Univ. Med. Ctr., Inc.

• Decision Date: 29 June 2012
• Docket Number: No. 11–5493.,11–5493.
• Parties: James Christopher BIDWELL; Susan Wilson, Plaintiffs–Appellants, v. UNIVERSITY MEDICAL CENTER, INC.; Lincoln Retirement Services Company, LLC, Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

685 F.3d 613

54 Employee Benefits Cas. 1086

James Christopher BIDWELL; Susan Wilson, Plaintiffs–Appellants,

v.UNIVERSITY MEDICAL CENTER, INC.; Lincoln Retirement Services Company, LLC, Defendants–Appellees.

No. 11–5493.

United States Court of Appeals,Sixth Circuit.

Argued: June 8, 2012.

Decided and Filed: June 29, 2012.

ARGUED:John Frith Stewart, Stewart, Roelandt, Craigmyle & Lynch, PLLC, Crestwood, Kentucky, for Appellants. Mark Edward Elsener, Porter, Wright, Morris & Arthur, LLP, Cincinnati, Ohio, Jason P. Renzelmann, Frost Brown Todd LLC, Louisville, Kentucky, for Appellees. ON BRIEF:John Frith Stewart, Stewart, Roelandt, Craigmyle & Lynch, PLLC, Crestwood, Kentucky, for Appellants. Mark Edward Elsener, Porter, Wright, Morris & Arthur, LLP, Cincinnati, Ohio, Jason P. Renzelmann, Gene F. Price, Griffin Terry Sumner, Frost Brown Todd LLC, Louisville, Kentucky, for Appellees.

Before MOORE, ROGERS, and GRIFFIN, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

James Christopher Bidwell (“Bidwell”) and Susan Wilson (“Wilson”) appeal from a final order granting judgment on the administrative record to University Medical Center, Inc. (“UMC”) and Lincoln Retirement Services Company LLC (“Lincoln”). Bidwell and Wilson assert claims against UMC and Lincoln for breach of fiduciary duty under the Employee Retirement Income Security Act (“ERISA”) in connection with the transfer of Bidwell's and Wilson's investments from a stable value fund to a Qualified Default Investment Alternative (“QDIA”) as newly defined by the Department of Labor (“DOL”). For the reasons that follow, we AFFIRM the judgment of the district court.

I. BACKGROUND AND PROCEDURAL HISTORY

A. Background

Bidwell and Wilson were employees at UMC and participated in UMC's retirement contribution plans. UMC administered the plan itself, although it sometimes solicited Lincoln's assistance for administrative tasks. UMC provided plan participants with a variety of investment vehicles to choose from, and both Bidwell and Wilson elected to locate one hundred percent of their investment in the Lincoln Stable Value Fund. At the time of their election, the Lincoln Stable Value Fund was also used by UMC as the default investment vehicle for § 403(b) plan participants who failed to elect a preferred investment vehicle after enrollment.

In 2007, the DOL promulgated new regulations pursuant to the Pension Protection Act (“PPA”) ¹ that aimed to insulate employers from liability for default investments made on behalf of retirement-plan participants who failed to elect their preferred investment vehicle. In essence, the DOL regulation created “safe harbor relief from fiduciary liability” for plan administrators that directed automatic-enrollment investments into QDIAs, which were defined by the DOL as investments “capable of meeting a worker's long-term retirement savings needs.” R. 32–1 (DOL Fact Sheet at 1–2). By creating incentives for employers to direct default investments into QDIAs, the DOL sought to incentivize employers to move investments away from “low-risk, low-return ‘default’ investments,” such as stable-value funds, that may not always keep pace with inflation. Id. at 1. Thus, through the Safe Harbor, the DOL placed employers in the position of being able to make riskier short-term investments that would be more lucrative in the long term without the fear of liability for market fluctuations. To accommodate existing default-investment structures, the regulation also “grandfather[ed]” in stable-value funds that employers utilized as their default-investment mechanism prior to the PPA's enactment. Id. at 2 (internal quotation marks omitted).

In 2008, UMC sought to harmonize its investment practices with the new DOL regulation by making its default-investment vehicle the Lincoln LifeSpan Fund and transferring existing investments in the prior default fund, the Lincoln Stable Value Fund, into the Lincoln LifeSpan Fund. Because UMC did not have records of which participants elected to invest in the Lincoln Stable Value Fund and which participants were investors by default, UMC sent notice of the change to all participants with one-hundred percent of their investment in the Lincoln Stable Value Fund. The notice advised the participants that all existing investments in the Lincoln Stable Value Fund would be transferred to the Lincoln LifeSpan Fund unless the participants gave instruction otherwise by July 16, 2008.

UMC solicited the assistance of Lincoln in distributing the notices. UMC sent Lincoln a list of 2,532 recipients, which included Bidwell and Wilson with their correct addresses, and instructed Lincoln to mail each recipient a copy of the notice letter. Lincoln's records indicate that it mailed all 2,532 letters by first-class postage, although there is no record of whether the letters were actually received by the intended recipients. Bidwell and Wilson maintain that they never received the notice. As a result they did not respond by the deadline specified in the letter, and UMC transferred their investment from the Lincoln Stable Value Fund to the Lincoln LifeSpan Fund without their knowledge. Bidwell and Wilson first learned of the transfer upon receipt of their quarterly account statements, immediately contacted UMC on October 15, 2008 to inquire about the change, and then switched their investments back to the Lincoln Stable Value Fund. Due to market fluctuations in the interim, however, both Bidwell and Wilson suffered financial losses prior to the return of their funds to the Lincoln Stable Value Fund.

B. Procedural History

In February 2009, both Bidwell and Wilson filed claims with UMC seeking reimbursement for their losses, in the amounts of $85,000 and $16,900 respectively, resulting from the transfer of their investments from the Lincoln Stable Value Fund to the Lincoln LifeSpan Fund, but their claims were denied. Both appealed unsuccessfully to the Administrative Committee.

Having exhausted the administrative procedures, Bidwell and Wilson filed suit in federal district court against UMC and Lincoln for breach of fiduciary duty under ERISA. After filing answers, both Lincoln and UMC moved for judgment as a matter of law on the administrative record. The district court granted both motions, concluding that Lincoln could not be liable to Bidwell and Wilson because it was not a fiduciary under the plan and that UMC was immune from liability because it was entitled to the Safe Harbor protections of the DOL regulation. Bidwell and Wilson timely appeal.

II. ANALYSIS

On appeal, Bidwell and Wilson focus their arguments exclusively on the district court's grant of judgment in favor of UMC, arguing that the district court erred in concluding that UMC was shielded by the DOL Safe Harbor regulation. Lincoln nevertheless has filed a brief on appeal in its defense. Accordingly, we address the claims against each party in turn.

A. Standard of Review

“This Court reviews a district court's judgment in an ERISA case de novo, applying the same standard of review to the administrator's action as required by the district court.” Moore v. Lafayette Life Ins. Co., 458 F.3d 416, 427 (6th Cir.2006). “Claims for breaches of fiduciary duty ... are not claims for denial of benefits and are therefore addressed in the first instance in the district court, requiring no deference to any administrator's action or decision.” Id.

B. Lincoln

“The threshold question in all cases charging breach of ERISA fiduciary duty is whether the defendant was ‘acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint.’ ” Cataldo v. U.S. Steel Corp., 676 F.3d 542, 552 (6th Cir.2012) (quoting Pegram v. Herdrich, 530 U.S. 211, 226, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000)). “For purposes of ERISA, a fiduciary not only includes persons specifically named as fiduciaries by the benefit plan, but also anyone else who exercises discretionary control or authority over a plan's management, administration, or assets.” Id. (internal quotation marks and alterations omitted). The district court dismissed the claims against Lincoln on this threshold fiduciary issue. Lincoln correctly argues that Bidwell and Wilson have waived appeal of this decision because they have failed to raise arguments in opposition on appeal. See Harris v. Bornhorst, 513 F.3d 503, 518 (6th Cir.2008) (arguments before the district court not raised on appeal are deemed waived). Accordingly, we AFFIRM the district court's dismissal of Bidwell's and Wilson's claims against Lincoln.

C. UMC

The parties do not dispute that UMC is the plan administrator and, consequently, a fiduciary. However, the district court concluded that Bidwell and Wilson could not proceed with their claims against UMC because UMC is entitled to the Safe Harbor relief provided in the DOL's regulation. On appeal, Bidwell and Wilson contend that the district court's conclusion was erroneous because the Safe Harbor provision can never insulate a fiduciary against claims by plan participants, like Bidwell and Wilson, who previously elected their investment vehicle rather than having it chosen for them by default. Bidwell and Wilson also argue that UMC's act of transferring the investment from the Lincoln Stable Value Fund to the QDIA is outside the scope of the DOL regulation and violates the terms of the UMC plan, entitling them to relief. For the reasons that follow, the district court properly held that the DOL Safe Harbor prevents Bidwell and Wilson from obtaining the relief requested.

Section (b) of the DOL regulation sets out a Safe Harbor for plan administrators as follows:

(1) Except as provided in paragraphs (b)(2), (3), and (4) of this section, a fiduciary of an individual account plan that permits participants or beneficiaries to direct the investment of assets in their accounts and that meets the conditions of paragraph (c) of this section shall not be liable for any loss, or by...