Campbell v. Whobrey
| Decision Date | 22 March 2020 |
| Docket Number | No. 16 C 4631,16 C 4631 |
| Parties | DORIS CAMPBELL, et al., Plaintiffs, v. CHARLES A. WHOBREY, et al., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Current and former employees of The Kroger Company, the nationwide grocery-store chain, sued the Central States, Southeast and Southwest Areas Pension Fund (in which they are enrolled) for how it handled Kroger's withdrawal from the fund, complaining that Central States breached its fiduciary duty to the employees. R. 149, PSOF ¶ 1.1 The claims for breach of fiduciary duty (Counts 1 and 2 of the operative complaint)2 are brought under the Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq.3 R. 98, Am. Suppl. Compl.4After engaging in discovery, both sides have moved for summary judgment. R. 134; R. 143. The Plaintiffs also filed a motion under Federal Rule of Civil Procedure 56(d), asking this Court to deny or defer ruling on the Defendants' summary judgment motion and to allow additional discovery. R. 144. For the reasons discussed below, the Defendants' motion for summary judgment is granted, and the Plaintiffs' motions are both denied.
The facts narrated here are undisputed unless otherwise noted. In deciding cross-motions for summary judgment, the Court views the facts in the light most favorable to the respective non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). So, when the Court evaluates the Defendants' summary judgment motion, the Plaintiffs get the benefit of reasonable inferences; conversely, when evaluating the Plaintiffs' filing, the Court gives the Defendants the benefit of the doubt.
The Central States, Southeast and Southwest Areas Pension Fund ("the Plan" or "the Fund") is a multiemployer defined-benefit pension plan set up under ERISA. PSOF ¶ 2. Employers from a variety of industries contribute to the Fund on behalf of their employees. On its current course, the Fund will become insolvent in around five years. Id. ¶ 6. Until December 2017, Kroger contributed to the Fund on behalf of certain current and retired employees (call them the "Kroger Participants")—including the Plaintiffs—of Kroger and its subsidiary Roundy's. See id. ¶ 2.
In June 2014, Kroger and the International Brotherhood of Teamsters (IBT), which represents the Kroger Participants in collective bargaining, approached the Defendants with a proposal to withdraw from the Fund. See R. 153, Pls.' Resp. DSOF ¶ 6; R. 137-2 (Sealed), Defs.' Exh. 1 at 4, 7.5 6 The Proposal offered to set up a separate, fully funded pension plan for Kroger Participants—that is, active, retired, and terminated-vested employees, and certain employees of third-party logistics providers (TPLs) to which Kroger had outsourced some operations. R. 136-1, DSOF ¶ 7. In exchange for freeing the Fund from its pension obligations to these participants (around 8,044 out of 407,713 total Plan participants), Kroger wanted the Fund to discharge it from its statutory duty to make cash withdrawal-liability payments under ERISA. Id.; R. 137-2 (Sealed), Defs.' Exh. 1 at 4, 7.
The Fund's Trustees held a Pension Board Meeting to discuss the Proposal in mid-July 2014, during which they were provided with a report on the financial impact of the Proposal prepared by Segal Consulting. R. 150 (Sealed), PSOF ¶¶ 15-16; R. 152 (Sealed), Pls.' Exh. 1 at 2, 7-8. The 2014 Segal Report concluded that the Proposal would delay the Fund's insolvency by one month, and the Fund would benefit from an approximately $97 million increase in present value of net cash flows through May2026. R. 150 (Sealed), PSOF ¶ 17; R. 137-2 (Sealed), Defs.' Exh. 1 at 4. But the Report also stated that Kroger's withdrawal under the Proposal would cause the Fund to lose employment base, becoming more leveraged and adding risk, which might be exacerbated if other employers followed suit and withdrew. R. 150 (Sealed), PSOF ¶ 18; R. 137-2 (Sealed), Defs.' Exh. 1 at 2-5. The Plaintiffs point out that the Report also projected a 20-month delay of insolvency and $1.5 billion increase in present value of net cash flows if other food-industry employers transferred liability out of the Fund. R. 150 (Sealed), PSOF ¶ 18; R. 137-2 (Sealed), Defs.' Exh. 1 at 2-5. But the Defendants respond that this projection (1) did not take the increase in leverage and risk into consideration; and (2) did not evaluate the impact of additional withdrawals by non-food industry employers. R. 163 (Sealed), Defs.' Resp. PSOF ¶ 18; R. 137-2 (Sealed), Defs.' Exh. 1 at 2-5.
In any event, as reported in the minutes from the July 2014 meeting, the Trustees engaged in a "full discussion" of the 2014 Proposal. R. 137-3 (Sealed), Defs.' Exh. 2 at 9. Specifically, the meeting minutes7 say that the Segal Report was "distributed and discussed"; the Trustees listened to a presentation from Defendant Thomas Nyhan, the Executive Director of the Fund, concerning the Proposal; and the Trustees heard the input of Trustee Charles Whobrey (a defendant in this case), whoadvocated against the facilitation of employer withdrawals. R. 137-3 (Sealed), Defs.' Exh. 2 at 6-8. Although the Plaintiffs claim that the Trustees "took no substantive action relating to the Proposal after this 2014 discussion[,]" R. 150 (Sealed), PSOF ¶ 20, a timeline of events from 2016 shows that the Trustees voted to reject the 2014 Proposal at the July 2014 meeting, R. 162, Defs.' Resp. PSOF ¶ 20; R. 152 (Sealed), Pls.' Exh. 1 at 318. The Trustees also voted to reject Kroger's request for a copy of the Fund's actuarial analysis. R. 163 (Sealed), PSOF ¶ 20; R. 152 (Sealed), Pls.' Exh. 1 at 9.
In early April 2015, Kroger and IBT submitted another proposal to the Board of Trustees (via a letter to Nyhan). See R. 162, Defs.' Resp. PSOF ¶ 21. Unlike the June 2014 Proposal, this one contemplated a transfer of liabilities only for Kroger's own current and retired employees, and not for Kroger's terminated-vested employees or employees of third-party providers. Id.; compare R. 137-3 (Sealed), Defs.' Exh. 2 at 4-5, with R. 136-6, Defs.' Exh. 4 at 3. In addition, if the pension liabilities of Kroger's current and retired employees did not amount to 22 years' worth of withdrawal liability payments, Kroger offered to "make a lump sum cash payment equal to the difference." R. 136-6, Defs.' Exh. 4 at 3. Kroger represented that this would put the Fund in a better position than if Kroger simply made withdrawal liability payments for the 20-year statutory period. Id.
Four days later, a Trustee Subcommittee meeting was held to discuss this 2015 Proposal. R. 150 (Sealed), PSOF ¶ 22. Despite it being a "subcommittee," the meetingconstituted a quorum of trustees (that is, two trustees representing employers and two representing employees), a prerequisite for any business action under the Trust Agreement. See R. 152 (Sealed), Pls.' Exh. 1 at 113, 286; R. 97-2, Am. Suppl. Compl., Exh. 1 (Trust Agreement) at 24. The Trustees unanimously rejected the 2015 Proposal, for the reasons stated in a detailed, draft response letter that Nyhan circulated at the meeting. R. 152 (Sealed), Pls.' Exh. 1 at 123. These reasons included: (1) the Fund's net asset balance would be negatively affected by the Proposal; (2) the Proposal undermines the MPAA requirement that each employer bear a proportional share of the underfunding of the Fund, because a large portion of the underfunding is attributable to "orphan" participants (participants whose employers withdrew and failed to pay their withdrawal liability); (3) the Proposal would reduce the Fund's revenues and exacerbate the decline of active participants in comparison to retirees, which could cause "more deep and painful benefit suspensions"; (4) the Fund has a "firm policy against facilitating employer withdrawals in any way"; and (5) the Proposal could result in other employers withdrawing from the Fund. See R. 136-7, Defs.' Exh. 5 at 2-4. It is worth noting that, in the four days between the receipt of the letter and the final vote, there is no evidence that the Trustees commissioned or received any actuarial or outside analysis specific to the 2015 Proposal. See R. 150 (Sealed), PSOF ¶ 23. Instead, the Trustees apparently "drew upon the actuarial and Staff analysis of the 2014 Proposal" when making their decision, R. 163 (Sealed), Defs.' Resp. PSOF ¶ 23; R. 152 (Sealed), Pls.' Exh. 1 at 318. Nyhan sent a final versionof the draft rejection letter to Kroger and IBT on April 15, 2015. R. 136-8, Defs.' Exh. 6.
Around three weeks later, in May 2015, Kroger and IBT replied to the Trustees' letter, disputing the Trustees' various reasons for rejecting the Proposal. R. 149, PSOF ¶ 25. For example, Kroger and IBT argued that: a transfer of liabilities would not diminish plan assets, but would simply remove liabilities; they would be willing to modify the Proposal to ensure that a transfer would ultimately benefit the Plan; and the issue of orphan participants is not relevant to withdrawal liability under ERISA. R. 152 (Sealed), Pls.' Exh. 1 at 55-57; see R. 149, PSOF ¶ 25.
A Trustee Subcommittee met two weeks later, on May 20, in order to further discuss the 2015 Proposal. R. 149, PSOF ¶ 26. The meeting minutes say that the Fund's staff, "pursuant to the Trustees' direction[,]" had already rejected the 2015 Proposal. R. 152 (Sealed), Pls.' Exh. 1 at 62. Nevertheless, a May 2015 analysis of the Proposal, prepared by Segal Consulting, was distributed and discussed. See R. 150 (Sealed), PSOF ¶ 28; R. 152 (Sealed), Pls.' Exh. 1 at 63, 84-91. The new Segal analysis essentially showed that a liability transfer excluding outsourced employees, such as the 2015 Proposal, would result in a lower increase in net cash outflow than if Kroger simply withdrew and made liability payments that also excluded outsourced employees. See R....
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