Bafford v. Northrop Grumman Corp.

• Decision Date: 15 April 2021
• Docket Number: No. 20-55222,20-55222
• Parties: Stephen H. BAFFORD; Laura Bafford; Evelyn L. Wilson, on their own behalves and on behalf of a class of similarly situated participants and beneficiaries, Plaintiffs-Appellants, v. NORTHROP GRUMMAN CORPORATION; Administrative Committee of the Northrop Grumman Pension Plan; Alight Solutions LLC, fka Hewitt Associates LLC, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

994 F.3d 1020

Stephen H. BAFFORD; Laura Bafford; Evelyn L. Wilson, on their own behalves and on behalf of a class of similarly situated participants and beneficiaries, Plaintiffs-Appellants,

v.NORTHROP GRUMMAN CORPORATION; Administrative Committee of the Northrop Grumman Pension Plan; Alight Solutions LLC, fka Hewitt Associates LLC, Defendants-Appellees.

No. 20-55222

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 11, 2021 Pasadena, California

Filed April 15, 2021

Elizabeth Hopkins (argued) and Susan Meter, Kantor & Kantor LLP, Northridge, California; Teresa S. Renaker, Margo Hasselman Greenough, and Kirsten G. Scott, Renaker Hasselman Scott LLP, San Francisco, California; for Plaintiffs-Appellants.

Eileen R. Ridley (argued) and Jason Y. Wu, Foley & Lardner LLP, San Francisco, California; Kimberly A. Klinsport and Alyssa L. Tiche, Foley & Lardner LLP, Los Angeles, California; for Defendant-Appellee Alight Solutions LLC.

Nancy G. Ross (argued), Richard E. Nowak, and Brett E. Legner, Mayer Brown LLP, Chicago, Illinois; Alexander Vitruk, Mayer Brown LLP, Los Angeles, California; for Defendants-Appellees Northrop Grumman Corporation and Administrative Committee of the Northrop Grumman Pension Plan.

Norman Stein, Pension Rights Center, Washington, D.C.; Jeffrey Lewis, Keller Rohrback LLP, Oakland, California; for Amici Curiae Pension Rights Center and National Employment Lawyers Association.

Stephen P. Lucke, Andrew Holly, Timothy Droske, and Nicholas J. Bullard, Dorsey & Whitney LLP, Minneapolis, Minnesota; Janet M. Jacobson, American Benefits Council, Washington, D.C.; for Amicus Curiae American Benefits Council.

Before: DANNY J. BOGGS,^* MILAN D. SMITH, JR., and MARY H. MURGUIA, Circuit Judges.

M. SMITH, Circuit Judge:

Northrop Grumman sponsored an employee pension plan (Plan) that is subject to the requirements of the Employee Retirement Income Security Act (ERISA). Northrop delegated administration of the Plan to an Administrative Committee (Committee), which in turn contracted with Hewitt (now Alight Solutions), a company that provided outside administrative services for the Plan. One of Hewitt's responsibilities was to generate statements for Plan participants showing what their monthly pension benefit would be when they retired, using participant-entered assumptions. Plaintiffs Stephen Bafford and Evelyn Wilson both requested these statements using an online platform provided by Hewitt in the years leading up to their retirement. Hewitt mailed the statements to Plaintiffs on Northrop letterhead.

The statements mailed to Plaintiffs in response to their online platform requests grossly overestimated the benefits to which each plaintiff would be entitled. After Plaintiffs retired and began collecting benefits in the amount the statements predicted they would, Northrop sent them notices that the statements generated by the online platform had been incorrect. Instead of the approximately $2,000 and $1,600 per month benefit Hewitt previously estimated, Bafford and Wilson were only entitled to receive $807 and $823 per month, respectively.

Bafford and Wilson sued. They alleged that Hewitt, the Committee, and Northrop had breached their fiduciary duties and that the Committee failed to provide ERISA-required benefit information. In an alternative to their ERISA claims, Plaintiffs asserted state-law professional negligence and negligent misrepresentation claims against Hewitt. The district court granted Defendants’ motion to dismiss, and Plaintiffs appealed. We affirm in part, vacate in part, and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

The following facts are alleged in the complaint and taken as true for the purposes of a motion to dismiss. Curtis v. Irwin Indus., Inc. , 913 F.3d 1146, 1151 (9th Cir. 2019).

Northrop sponsors the Northrop Grumman Retirement Plan and the Grumman Pension Plan. Plaintiffs Stephen Bafford and Evelyn Wilson, each of whom separated from Northrop prior to July 2003 and later returned to work, were entitled to retirement benefits based on their highest three years of salary from their first period of employment. In the years prior to retirement, but after their returns from their earlier separations from Northrop, Plaintiffs requested pension benefit estimates from time to time using the online platform provided by Hewitt and inserting varying hypothetical dates of retirement to see how their benefits would change. The statements generated in response to Plaintiffs’ use of the online platform were titled "Retirement Plan Pension Estimate Calculation Statement," and said, "Here's the pension estimate you requested. These amounts are estimated benefits using your personal information on file, the assumptions you entered ..., and the current terms of the Retirement Plan. Actual benefits payable to you may vary from the amounts on this estimate."

Indeed, the actual benefits payable did vary, because the estimates generated through the online platform calculated the anticipated benefit using Plaintiffs’ salaries during their second period of employment, not the first period, as required by the Plan. The benefit statements Bafford received prior to his retirement indicated that he would receive a retirement benefit of approximately $2,000 per month. The benefit statements Wilson received prior to her retirement indicated that she would receive a retirement benefit of approximately $1,600 per month.

Both plaintiffs retired—Wilson in February 2014 and Bafford in October 2016—and each began receiving monthly retirement benefits in line with the statement estimates. However, in 2016, during a transition to a replacement recordkeeper, the errors in the calculation were discovered. In December 2016, Bafford was informed that his monthly retirement benefits would only be $807.89 per month; in February 2017, Wilson was informed that her monthly retirement benefits would be $823.93 per month, and that she was required to repay over $35,000 of the benefit she had already received.

Plaintiffs brought separate suits that were later consolidated. Plaintiffs alleged that (1) Northrop, the Committee, and Hewitt breached their fiduciary duties pursuant to ERISA § 404(a), 29 U.S.C. § 1104(a) ; (2) the Committee violated ERISA § 105, 29 U.S.C. § 1025, by providing inaccurate pension benefit statements; (3) Hewitt was liable for professional negligence; (4) Hewitt was liable for negligent misrepresentation; and (5) Northrop, the Committee, and Hewitt violated ERISA § 406(a), 29 U.S.C. § 1106(a), by Northrop and the Committee paying Hewitt for recordkeeping services that were worthless.¹ The district court dismissed Plaintiffs’ complaint for failure to state a claim. Plaintiffs appealed. We have jurisdiction pursuant to 28 U.S.C. § 1291.

STANDARD OF REVIEW

"We review de novo a district court's dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure." Curtis , 913 F.3d at 1151. On review, "[w]e accept all factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party." Id. (internal quotation marks omitted).

ANALYSIS

A.

An entity is a fiduciary under ERISA to the extent it has or exercises any discretionary authority, control, or responsibility in the management or administration of an ERISA plan. 29 U.S.C. § 1002(21)(A)(i), (iii). An ERISA fiduciary must discharge its duties "solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administering the plan." 29 U.S.C. § 1104(a)(1)(A) (cleaned up). In doing so, a fiduciary must use "the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent [person] acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." 29 U.S.C. § 1104(a)(1)(B). To state a claim for breach of fiduciary duty under ERISA, a plaintiff must allege that (1) the defendant was a fiduciary; and (2) the defendant breached a fiduciary duty; and (3) the plaintiff suffered damages. See 29 U.S.C. § 1109(a) ; see also Mathews v. Chevron Corp. , 362 F.3d 1172, 1178 (9th Cir. 2004).

1.

Northrop and the Committee do not dispute that they are named fiduciaries under the Plan. The question is whether Plaintiffs adequately alleged that the Committee breached a fiduciary duty to provide accurate benefit information, and—tied to that—whether Northrop breached a fiduciary duty to monitor the Committee's performance.

The complaint alleges that Northrop and the Committee "breached their fiduciary duties to Plaintiffs and the Class members by ... failing to ensure that they or their delegees provided Plaintiffs with complete and accurate information regarding the amount of the Northrop Plan benefit" based on Hewitt's erroneous calculations. The parties dispute whether Hewitt was performing a fiduciary function.

"There are two types of fiduciaries under ERISA. First, a party that is designated ‘in the plan instrument’ as a fiduciary is a ‘named fiduciary.’ " Depot, Inc. v. Caring for Montanans, Inc. , 915 F.3d 643, 653 (9th Cir. 2019) (quoting 29 U.S.C. § 1102(a)(2) ). Second, a person who exercises discretionary control over management or administration of a plan is a "functional fiduciary." Id. at 653–54 (citing 29 U.S.C. § 1002(21)(A) ).

When a plaintiff seeks to hold a functional fiduciary liable for breach of fiduciary duty, the plaintiff must allege that the defendant was performing a fiduciary function during the purported violation. In Pegram v. Herdrich , 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000), the Supreme Court wrote that ERISA

does not describe fiduciaries simply as administrators of the plan, or managers or advisers. Instead it defines an administrator, for example, as a fiduciary only to the extent that he acts in such a capacity in relation

...