Beck v. Pace Intern. Union, 03-15303.

• Decision Date: 24 October 2005
• Docket Number: No. 03-15331.,No. 03-15303.,03-15303.,03-15331.
• Parties: Jeffrey H. BECK, Liquidating Trustee of the Estates of Crown Vantage, Inc. and Crown Paper Company, Appellant, v. PACE INTERNATIONAL UNION, on behalf of member and former member participants in pension plans sponsored by the Debtors; Edward Miller; Jeffrey D. Macek, on behalf of themselves and others similarly situated, Defendants-Appellees. Pace International Union, AFL-CIO, Chemical & Energy Workers International Union, on behalf of members and former member participants in pension plans, Defendant-Appellant, v. Jeffrey H. Beck, Liquidating Trustee of the Estates of Crown Vantage, Inc. and Crown Paper Company, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 668

427 F.3d 668

Jeffrey H. BECK, Liquidating Trustee of the Estates of Crown Vantage, Inc. and Crown Paper Company, Appellant, v. PACE INTERNATIONAL UNION, on behalf of member and former member participants in pension plans sponsored by the Debtors; Edward Miller; Jeffrey D. Macek, on behalf of themselves and others similarly situated, Defendants-Appellees.

Pace International Union, AFL-CIO, Chemical & Energy Workers International Union, on behalf of members and former member participants in pension plans, Defendant-Appellant, v. Jeffrey H. Beck, Liquidating Trustee of the Estates of Crown Vantage, Inc. and Crown Paper Company, Appellee.

No. 03-15303.

No. 03-15331.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 4, 2004.

Filed October 24, 2005.

COPYRIGHT MATERIAL OMITTED

Stephen A. Kroft (argued), Rodger M. Landau, Los Angeles, CA, for the appellant/cross-appellee.

John Plotz (argued), Christian L. Raisner, Oakland, CA, for the appellees/cross-appellant.

Appeal from the United States District Court for the Northern District of California; Marilyn H. Patel, District Judge, Presiding. D.C. No. CV-02-01407-MHP.

Before: REINHARDT, PAEZ, and BERZON, Circuit Judges.

PAEZ, Circuit Judge:

In the course of Chapter 11 liquidation proceedings, debtors Crown Vantage, Inc. and Crown Paper Co. (Crown) decided to terminate Crown's pension plans through the purchase of an annuity, rather than by merging the plans into a multiemployer plan sponsored by PACE International Union (PACE). Plan participants and PACE filed an adversary action against Crown in bankruptcy court, alleging that Crown's directors breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA), as amended, 29 U.S.C. §§ 1001-1461, by failing to consider adequately the proposed merger. The bankruptcy court agreed and issued a preliminary injunction ordering that Crown maintain the residual assets — approximately $5 million — in the plan in an interest-bearing account pending a final decision on the allocation of the assets. Pursuant to the bankruptcy court's order, the parties submitted a joint plan for the distribution of the residual assets for the benefit of the plan participants and stipulated that the court's ruling on the preliminary injunction could be treated as a final ruling on the merits under Federal Rule of Civil Procedure 65(a)(2). The bankruptcy court approved the plan.

As in the bankruptcy and district courts, Crown¹ argues that it did not breach its fiduciary duties to plan participants and beneficiaries because merger into a multiemployer plan is an impermissible means of terminating a pension plan under ERISA, its implementing regulations, and the terms of the pension plan. PACE cross-appeals the district court's determination that it lacked standing to pursue an appeal.

We have jurisdiction pursuant to 28 U.S.C. § 158(d). We hold that under ERISA and its regulations, merger into a multiemployer plan is not a prohibited means of terminating a pension plan, and that the bankruptcy court did not err in concluding that Crown breached its fiduciary duties by failing to consider thoroughly PACE's proposal and discharge its duties "solely in the interest of the participants and beneficiaries." 29 U.S.C. § 1104(a)(1). With respect to PACE's cross-appeal, we vacate the district court's judgment on that issue with directions to remand to the bankruptcy court for further proceedings.²

I. Facts and Procedural History

Crown Vantage, Inc. was the parent company of Crown Paper Co., which operated seven paper mills in the Eastern United States and employed 2600 workers. The employees were covered by collective bargaining agreements with PACE. Members of Crown's board of directors were also the trustees for its eighteen pension plans.

In March of 2000, Crown filed for Chapter 11 bankruptcy and began liquidating its assets. See generally In re Crown Vantage, Inc., 421 F.3d 963, 967-68 (9th Cir.2005). The Pension Benefit Guarantee Corporation (PBGC) filed proofs of claims totaling millions of dollars for the liability it would have been forced to assume if it had taken over Crown's pension plans. The bankruptcy court viewed PBGC's proofs of claims as a "stumbling block" to Chapter 11 plan confirmation. In July of 2001, Crown's board began to obtain quotes for the purchase of an annuity as a means of effecting a "standard termination" of the plans under Section 4041(b) of ERISA, 29 U.S.C. § 1341(b).

During the summer of 2001, PACE proposed a merger of the seventeen pension plans that covered Crown's hourly employees into the PACE Industrial Union Management Pension Fund (PIUMPF), a Taft-Hartley Act multiemployer pension fund founded in 1963 for PACE union members. PACE preferred this option because PIUMPF in prior years had paid a thirteenth monthly check during the year, and thus merger offered the possibility that retirees might receive more than the minimum benefits. Additionally, PACE preferred the proposed merger because PIUMPF provided an established dispute resolution program for plan participants.

Crown's counsel met with a PACE representative in August of 2001 to discuss the merger, and expressed the view that Crown wanted to be assured of the financial stability of PIUMPF and the legality of the merger. The parties agreed that their attorneys and actuaries would further investigate the PIUMPF merger. On September 26, 2001, PIUMPF's actuary reported that the merger was feasible, and Crown's counsel requested more information from PIUMPF's counsel. That same day, Crown's board of directors met and reviewed bids for annuities, and learned that a "reversion" to the company of remaining assets in the plan would be possible if it terminated twelve of the pension plans through the purchase of an annuity.³ The board also learned about the proposed PIUMPF merger, and agreed to compare it to the annuity options once it received final bids.

On October 1, 2001, PIUMPF's counsel sent Crown's counsel a draft merger agreement. On October 4, Crown's counsel stated at a hearing in the bankruptcy court that it was looking into the possibility of a merger with PIUMPF. At this hearing, counsel represented that "before an action is taken as to these pension plans," the court would be notified. On October 8, PIUMPF's counsel sent Crown more information about the financial stability and legality of the merger.

Crown's board met on October 9, 2001, to review the final annuity bids with the understanding that they would expire within twenty-four hours. The bankruptcy court determined that the board did not seek a waiver of this deadline. At the time of the meeting, the board faced a forty-five day timetable for dissolving Crown, and Crown had $10,000 or less in the bank. The board did not consider the PIUMPF merger at this meeting, and it did not ask its actuary to analyze the proposed merger. Minutes of the October 9 meeting reflect that PBGC had agreed to release Crown under an annuitization of the pension plans, but not in a merger. The bankruptcy court found that the board did not pursue a release from PBGC for a merger with PIUMPF. The board decided to purchase an annuity as a means of terminating the twelve merged pension plans (the Merged Plan) through Hartford Life Insurance Company, on the basis of Hartford's financial stability and a projected maximum reversion of nearly $5 million to Crown. Crown deposited over $84 million with Hartford the next day.

Appellees Edward Miller and Jeffrey Macek, on behalf of themselves and other similarly situated plan participants, and PACE, on behalf of its members and former member plan participants, filed suit in bankruptcy court. The plaintiffs alleged that Crown breached its fiduciary duties under ERISA by failing to "perform a diligent investigation into the PIUMPF [merger] proposal," and by failing to discharge its duties "solely in the interest of the participants and beneficiaries." After rendering oral findings of facts and conclusions of law, the bankruptcy court granted a preliminary injunction, ordering all cash assets remaining in the pension plan to be placed in an interest-bearing account, and that no reversion of assets to Crown could occur, pending the court's final decision on the allocation of the assets. The bankruptcy court also ordered the parties to report on the feasibility of distributing the reversion "for the benefit of the pension plan participants." Although the plaintiffs asked the bankruptcy court to void the annuity transaction with Hartford, the court declined to do so and allowed Crown to complete the termination process.

The parties stipulated to having the bankruptcy court's findings of fact and conclusions of law deemed a final ruling on the merits, and submitted a joint report setting forth a procedure for distribution of the residual assets for the benefit of the plan participants. The bankruptcy court entered an order approving the distribution of the assets to the plan participants. As noted, the court left the preliminary injunction in effect pending implementation of the distribution. Although no final judgment was entered, in light of the parties' stipulation we treat the district's order granting the preliminary injunction as the final judgment.

On appeal to the district court, Crown argued that neither appellees Miller and Macek nor PACE had standing and that it was neither subject to fiduciary obligations in terminating the plan, nor did it breach such duties. The district court held that appellees Miller and Macek had standing as plan participants to enforce Crown's fiduciary obligations, but dismissed PACE for lack of standing, because it was not an enumerated party under ERISA.⁴ The district court affirmed the bankruptcy court's determination that Crown breached its fiduciary duties as well as the preliminary injunction granted by the bankruptcy court.

II. Breach of Fiduciary Duties...