Blaw Knox Retirement Income Plan v. White Consolidated Industries, Inc., 92-3612

• Decision Date: 30 June 1993
• Docket Number: No. 92-3612,92-3612
• Citation: 998 F.2d 1185
• Parties: 16 Employee Benefits Cas. 2610, Pens. Plan Guide P 23881E The BLAW KNOX RETIREMENT INCOME PLAN, Blaw Knox Pension Plan, Blaw Knox Iam Pension Plan, Blaw Knox Equipment Pension Plan, Blaw Knox Duraloy Pension Plan for Salaried Employees, Blaw Knox Duraloy Hourly Pension Plan and Fiduciaries Dean G. Wilson and Richard A. McIntyre, Appellants v. WHITE CONSOLIDATED INDUSTRIES, INC., and John Doe(s).
• Court: U.S. Court of Appeals — Third Circuit

Page 1185

998 F.2d 1185

16 Employee Benefits Cas. 2610, Pens. Plan Guide P 23881E

The BLAW KNOX RETIREMENT INCOME PLAN, Blaw Knox Pension

Plan, Blaw Knox Iam Pension Plan, Blaw Knox Equipment

Pension Plan, Blaw Knox Duraloy Pension Plan for Salaried

Employees, Blaw Knox Duraloy Hourly Pension Plan and Fiduciaries Dean G. Wilson and Richard A. McIntyre, Appellants v. WHITE CONSOLIDATED INDUSTRIES, INC., and John Doe(s).

No. 92-3612.

United States Court of Appeals, Third Circuit.

Argued on May 3, 1993.

Decided June 30, 1993.

J. Frank McKenna, III, (argued), Kenneth R. Bruce, Anne E. Mulgrave, Babst, Calland, Clements & Zomnir, P.C., Pittsburgh, PA, for appellants.

Robert S. Garrett, Egler, Garrett & Egler, Pittsburgh, PA, William McGuinness, (argued), Alexander R. Sussman, Audrey M. Samers, Fried, Frank, Harris, Shriver & Jacobson, New York City, for appellees.

Before: COWEN, ROTH and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROTH, Circuit Judge:

This is a companion case to No. 92-3676, Pension Benefit Guar. Corp. v. White Consolidated Indus. Inc., 998 F.2d 1192 (3d Cir.1993). The Blaw Knox Pension Plans and their fiduciaries (the "Plans") filed a complaint in the United States District Court for the Western District of Pennsylvania against White Consolidated Industries ("WCI") on the same day as the Pension Benefit Guaranty Corporation (the "PBGC") brought its above-captioned action against WCI. The Plans' amended complaint includes allegations against WCI that are also contained in the PBGC's complaint. Therefore we issue our opinion in this case simultaneously with our opinion in the related action. ¹

This case arises from WCI's transfer of a group of unprofitable businesses and their nine associated underfunded pension plans to the Blaw Knox Corporation ("BKC"). The Plans filed a five count amended complaint on November 19, 1991, six years after WCI's transfer of the plans to BKC. The amended complaint alleged that the transaction resulted in: a breach of fiduciary duty by WCI in violation of section 404 of ERISA, 29 U.S.C. § 1104, a prohibited transaction in violation of section 406, 29 U.S.C. § 1106, interference with the Plans' participants' pension rights in violation of section 510, 29 U.S.C. § 1140, an improper termination under section 4062, 29 U.S.C. § 1362, and a transaction to evade liability under section 4069, 29 U.S.C. § 1369.

WCI filed a motion to dismiss all five counts of the complaint and a motion for summary judgment on Counts I, II, and III. The district court entered a memorandum opinion dismissing all five counts of the Plans' complaint and denying as moot WCI's motion for summary judgment. We hold that the Plans have stated a legally sufficient claim for relief in Count V, under 29 U.S.C. § 1369. Therefore, we will affirm in part and reverse in part the district court's order and will remand for further proceedings consistent with this opinion.

I.

The Plans are six employee pension benefit plans within the meaning of § 3(2)(A) of ERISA, 29 U.S.C. § 1002(2)(A), and two of the Plans' fiduciaries within the meaning of § 3(21) of ERISA, 29 U.S.C. § 1002(21). ² Among other locations, the Plans are administered in Pittsburgh, Pennsylvania. The appellee, WCI, is a Delaware corporation conducting business throughout the United States.

The Plans filed their complaint on September 26, 1991 and their amended complaint on November 15, 1991. We accept as true the following allegations contained in their amended complaint in light of WCI's motion to dismiss. See Holder v. City of Allentown, 987 F.2d 188, 194 (3d Cir.1993).

Prior to September 27, 1985, WCI owned eight divisions ³ (the "BK Divisions") that manufactured steel rolls, metal castings and other industrial equipment for steel mills. Employees of the BK Divisions were participants in and earned pension benefits under the plans. On September 27, 1985, WCI sold the BK Divisions and the associated plans to the newly formed BKC. The Plans maintain that at the time of the negotiation of the sale, BKC was unable to make the contributions to the plans due under ERISA's minimum funding requirements. Furthermore, the Plans assert that it was unlikely then and at any time in the future that BKC would be able to make the required plan payments.

The Plans allege that one of WCI's principal purposes in selling the BK Divisions was to avoid WCI's liability for the plans' unfunded benefits. Through the sale, WCI shifted that liability to BKC. The Plans charge that, as part of the negotiations of the sale, WCI understated the amount of the plans' unfunded liabilities and that BKC relied on the alleged understatement when it decided to purchase the assets of the BK Divisions. The Plans assert that BKC paid no money for the assets of the BK Divisions, but assumed WCI's unfunded plan obligations as consideration for the transfer.

The Plans contend that the pension rights of the plans' participants and beneficiaries were adversely affected as a result of WCI's sale. Additionally, the Plans aver that the Agreement of Purchase and Sale (the "agreement") executed in conjunction with the sale gave WCI control over the plans in certain respects: (a) purportedly requiring that BKC indemnify WCI for any liability arising out of the termination of any of the plans; (b) specifying what contributions BKC would have to make to the plans after the date of the sale; and (c) specifying how BKC was required to use any surplus assets resulting from the termination of any of the plans.

Moreover, the Plans allege that WCI maintained control over the plans through contingency arrangements in the agreements, to wit: either the failure of BKC to meet any of the requirements of the agreements, the termination by BKC of any of the plans that were underfunded, or the assertion of any claim or demand against WCI by BKC relating to the plans constituted events of default permitting WCI to repossess all of BKC's inventory, accounts receivable and motor vehicles. Additionally, under the agreement BKC established a $15 million letter of credit for WCI's benefit in the event a claim is asserted against WCI relating to the plans.

The Plans charge that, because WCI knew or should have known that BKC would be unable to make the required contributions to fund the plans, WCI agreed to pay $4 million a year to BKC for five years in order to prevent the plans' termination within five years of the sale date. Also as part of the agreement, WCI received from BKC a complete release from any liability connected with the sale or any other of BKC's activities concerning the plans.

The Plans' amended complaint charges WCI with committing the following specific violations of ERISA: breach of fiduciary duty or knowing participation as a non-fiduciary in a fiduciary's breach (Counts I and II), use of the plans' assets in an interested party or self-dealing transaction (Count III), discharging employees for the purpose of interfering with their attainment of rights under the plans (Count IV), and entering into a transaction for the principal purpose of evading pension liability (Count V).

WCI filed a motion to dismiss all five counts of the Plans' amended complaint for failing to state a claim upon which relief could be granted pursuant to Fed.R.Civ.P. 12(b)(6). ⁴ The district court granted WCI's motion to dismiss. ⁵ BKC's timely appeal followed.

II.

The district court had jurisdiction of this action pursuant to 28 U.S.C. §§ 1331 and 1337 and §§ 502(e)(1) and 4070(c) of ERISA, 29 U.S.C. §§ 1132(e)(1) and 1370(c). We have jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary review of the district court's dismissal of a complaint under Fed.R.Civ.P. 12(b)(6). We must accept as true all well-pleaded allegations in the complaint and construe all reasonable inferences that can be drawn from the alleged facts in the light most favorable to the Plans. We may affirm the dismissal only if it appears certain that no relief could be granted under any set of facts that could have been proved. Ditri v. Coldwell Banker Residential Affiliates, Inc., 954 F.2d 869, 871 (3d Cir.1992); see also 5A C. Wright & A. Miller, Federal Practice and Procedure § 1356, at 294 (2d ed. 1990).

III.

A. THE FIDUCIARY CLAIMS

1. Counts I and II

The Plans allege in Count I of their amended complaint that WCI breached its fiduciary duty in violation of ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1) ⁶ when it sold the BK Divisions and transferred the associated pension plans to BKC. Count II derives from Count I and is a claim against non-fiduciaries for knowing participation in a fiduciary's breach of § 404 duties. WCI argues in response that it complied with the specific ERISA provisions governing funding and transfer of pension plan sponsorship and that its decision to sell the BK Divisions and to transfer the pension plans was a business decision not subject to ERISA's fiduciary provisions.

The district court correctly noted that ERISA permits an employer to function as both a plan administrator and a plan sponsor. 29 U.S.C. § 1108(c)(3). In Payonk v. HMW Indus., Inc., 883 F.2d 221 (3d Cir.1989), we outlined as follows the guidelines for determining whether a corporate management decision falls within the fiduciary function of ERISA:

[W]here an administrator of a plan decides matters required in plan administration or involving obligations imposed upon the administrator by the plan, the fiduciary duties imposed by ERISA attach. Where, however, employers conduct business and make business decisions not regulated by ERISA, no fiduciary duties apply. And, when employers wear "two hats" as employers and administrators "... they assume fiduciary status 'only when and to the extent' that they function in their capacity as plan administrators, not when they conduct business that is not regulated by ERISA."

Payonk, 883 F.2d at 225 (citations omitted).

In order to decide whether the district court properly dismissed...