Coan v. Kaufman

• Decision Date: 21 July 2006
• Docket Number: Docket No. 04-5173-CV.
• Citation: 457 F.3d 250
• Parties: Karen B. COAN, Plaintiff-Appellant, v. Alan H. KAUFMAN and Edgar W. Lee, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

457 F.3d 250

Karen B. COAN, Plaintiff-Appellant, v. Alan H. KAUFMAN and Edgar W. Lee, Defendants-Appellees.

Docket No. 04-5173-CV.

United States Court of Appeals, Second Circuit.

Argued: August 24, 2005.

Decided: July 21, 2006.

Thomas G. Moukawsher, Moukawsher & Walsh LLC (Ian O. Smith, of counsel), Hartford, CT, for Plaintiff-Appellant.

Glenn W. Dowd, Day, Berry, & Howard, LLP, New Haven, CT, for Defendants-Appellees.

Susan J. Luken, Trial Attorney, United States Department of Labor (Howard M. Radzely, Solicitor of Labor, Timothy D. Hauser, Associate Solicitor, Plan Benefits Security Division, Elizabeth Hopkins, Counsel for Appellate and Special Litigation, Plan Benefits Security Division, of counsel), Washington, DC, for Amicus Curiae Elaine L. Chao, Secretary of Labor, in support of plaintiff-appellant.

Mary Ellen Signorille, AARP Foundation (Melvin Radowitz, AARP, of counsel) Washington, DC, for Amicus Curiae AARP in support of plaintiff-appellant.

Before MESKILL, SACK, and B.D. PARKER, Circuit Judges.

SACK, Circuit Judge.

This appeal presents several difficult questions regarding the ability of a former employee who participated in a retirement plan established pursuant to section 401(k) of the Internal Revenue Code, to bring suit against the plan's trustees for breach of fiduciary duty under the Employee Retirement Insurance Security Act (ERISA), 29 U.S.C. § 1001 et seq.¹ Plaintiff Karen Coan was the controller of a company called KLC Inc. Coan asserts that KLC president Alan Kaufman and vice-president Edgar Lee, as trustees of two employee retirement funds included in the company's 401(k) plan, mismanaged the funds and improperly failed to diversify its investments, and that the mismanagement resulted in a combined loss to the plan of more than $500,000. Coan, who was a participant in the now-terminated 401(k) plan, brought suit under ERISA for damages or equitable relief. The district court (Mark R. Kravitz, Judge) granted the defendants' motion for summary judgment and reaffirmed its decision upon reconsideration. See Coan v. Kaufman (Coan I), 333 F.Supp.2d 14 (D.Conn.2004); Coan v. Kaufman (Coan II), 349 F.Supp.2d 271 (D.Conn.2004).

The three issues on this appeal do not concern Coan's underlying claim of breach of fiduciary duty, but rather the scope of the rights of action created by ERISA's civil enforcement provisions. The first issue, which the district court concluded it did not need to decide, is whether Coan, as a former employee who participated in the defunct KLC 401(k) plan, is entitled to bring suit as a "participant" in a benefit plan for purposes of ERISA. The second issue is whether the district court erred in dismissing the claim brought by Coan on behalf of the 401(k) plan on the ground that individual plaintiffs bringing suit on behalf of employee benefit plans under ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), must comply with procedural safeguards applicable to suits brought in a representative or derivative capacity. The third issue is whether the district court erred in dismissing Coan's claim for individual equitable relief under section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), on the ground that the relief she seeks is not "equitable" within the meaning of the statute. We agree with the district court as to the first and third issues. Although we have doubts about some of the grounds for the district court's decision as to the second issue, we agree with its ultimate conclusion and therefore affirm.

BACKGROUND

The facts relevant to this appeal are not in dispute. Coan was employed at KLC as its controller while KLC was being acquired by another company, Unicapital Corporation. During that 1998 acquisition, the two defendants, Kaufman and Lee, rolled one of the three funds comprising KLC's 401(k) plan into Unicapital's 401(k) plan, but, for some three years thereafter, maintained control over the other two funds. At first, Kaufman and Lee invested money from the two funds principally in a government-bond mutual fund. Later they transferred a significant portion of it to stock funds. Between 1999 and 2001, the two funds earned returns totaling about $500,000 less than benchmark funds identified by Coan's expert. Upon the final dissolution of the KLC plan in 2001, the plan's assets were distributed in lump sums to its participants, including Coan, according to their individual account balances. Coan continued to be employed by Unicapital after its acquisition of KLC but was laid off soon thereafter, in July 2000. She does not assert that any of the events relevant to this lawsuit played a role in her termination.

In September 2001, Coan brought this action in the United States District Court for the District of Connecticut asserting that she was doing so both individually and on behalf of KLC's 401(k) plan. She alleged that the plan lost some $500,000 as a result of the imprudent investment decisions of Kaufman and Lee, which, according to Coan, constituted breaches of fiduciary duty in violation of ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1).

Invoking section 409 of ERISA, 29 U.S.C. § 1109, which establishes personal liability for breaches of fiduciary duty, Coan asked for damages and restitution pursuant to section 502(a)(2) of ERISA, which allows participants in an employee benefit plan to bring suit on behalf of the plan for legal and equitable remedies allegedly caused by breaches of fiduciary duty. Coan also sought restitution and "other appropriate equitable relief" under section 502(a)(3) of ERISA, which provides equitable relief for any violation of ERISA or of the terms of an ERISA-covered plan. Coan suggests that appropriate equitable relief might entail "make whole monetary relief" or an injunction "reinstating the terminated plans, requiring the trustees to pay into them additional benefits lost through a breach of fiduciary duty, and directing them to pay the additional benefits to Coan as required by the terms of the plans." Coan Br. at 14.

At the close of discovery, the defendants moved for summary judgment, arguing (1) that Coan did not have statutory standing as a "participant" under ERISA;(2) that Coan could not recover under section 502(a)(2) of ERISA because, having failed to take any steps to include other plan participants in the action, her suit was not properly brought on behalf of KLC's 401(k) plan as required by section 502(a)(2); and (3) that section 502(a)(3) relief was unavailable to her because the remedies Coan sought were not equitable but legal. After oral argument, the district court granted the defendants' motion. Assuming without deciding that Coan was a "participant," the court agreed with the defendants that relief was, in any event, not available to Coan under sections 502(a)(2) and 502(a)(3) of ERISA. See Coan I, 333 F.Supp.2d at 23-27.

Coan moved for reconsideration, arguing principally that the district court erred in dismissing her section 502(a)(2) claim. The district court granted the motion to reconsider, but having reconsidered, reaffirmed its decision in Coan I. See Coan II, 349 F.Supp.2d at 277.

Coan appeals.

DISCUSSION

I. Standard of Review

We review de novo a district court's grant of summary judgment. Island Software & Computer Serv., Inc. v. Microsoft Corp., 413 F.3d 257, 260 (2d Cir.2005). The interpretation of ERISA is a question of law that is also subject to de novo review. Burke v. Kodak Retirement Income Plan, 336 F.3d 103, 111 (2d Cir. 2003), cert. denied, 540 U.S. 1105, 124 S.Ct. 1046, 157 L.Ed.2d 890 (2004).

II. "Participant" Standing

The rights of action that Coan seeks to assert are available only to — other than the Secretary of Labor — participants, beneficiaries, or fiduciaries of an employee benefit plan. 29 U.S.C. §§ 1132(a)(2) & (a)(3); Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 100-01 (2d Cir.2005); Connecticut v. Physicians Health Servs. Of Conn., Inc., 287 F.3d 110, 121 (2d Cir.) ("[N]on-enumerated parties lack statutory standing to bring suit under [ERISA] even if they have a direct stake in the outcome of the litigation."), cert. denied, 537 U.S. 878, 123 S.Ct. 77, 154 L.Ed.2d 133 (2002). Coan asserts that she is a plan participant. Before the district court and again on appeal, the defendants argue that Coan lacks statutory standing because at the time she brought suit she was no longer a participant in the KLC 401(k) plan for purposes of ERISA.

After thoughtful consideration, the district court declined to decide that question. The court noted that "[t]hough the Second Circuit has not yet expressly addressed this issue, many federal courts have denied participant standing to former employees such as Ms. Coan where the plans in question have been terminated and their assets have been fully disbursed via lump sum distributions." Coan I, 333 F.Supp.2d at 19. But it also noted that "there is support in Second Circuit case law for [a]broad `zone of interests' approach to ERISA standing" that would allow Coan's suit. Id. at 22 (citing Mullins v. Pfizer, 23 F.3d 663, 664, 668 (2d Cir.1994)). Given these countervailing considerations and its ultimate conclusion that Coan's suit should be dismissed on other grounds, the court assumed without deciding that Coan was a "participant" under ERISA. Id. at 23.

ERISA defines a "participant" as "any employee or former employee of an employer ... who is or may become eligible to receive a benefit of any type from an employee benefit plan." 29 U.S.C. § 1002(7). The Supreme Court has explained that "[i]n order to establish that he or she `may become eligible' for benefits, a claimant must have a colorable claim that (1) he or she will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future." Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 117-118, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).

As the district court pointed out, several circuits have concluded that former employees such as Coan who...