Daniels-Hall v. Nat'l Educ. Ass'n
| Decision Date | 20 December 2010 |
| Docket Number | No. 08-35531,08-35531 |
| Parties | Jerre DANIELS-HALL; David Hamblen, Plaintiffs-Appellants, v. NATIONAL EDUCATION ASSOCIATION, a Washington, D.C. corporation; NEA Member Benefits Corporation, a Delaware corporation; Security Benefit Corporation, a Kansas intermediate stock holding company; Security Benefit Life Insurance Company, a Kansas stock life insurance company; Security Benefit Group, a Kansas holding company and management and financial services company; Security Distributors, Inc., a Kansas corporation; Dennis Bernie Van Roekel, Director of NEA Member Benefits Corporation; Nationwide Life Insurance Company, an Ohio corporation; William Bjork, Director of NEA Member Benefits Corporation; Al Mance, Director of NEA Member Benefits Corporation; Sheridan Pearce, Director of NEA Member Benefits Corporation; Terri Sanders, Director of NEA Member Benefits Corporation; Susan Kuziak, Director of NEA Member Benefits Corporation; Sarah Borgman, Director of NEA Member Benefits Corporation; Lily Eskelsen, Chairman of the Board of Directors of NEA Member Benefits Corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Derek W. Loeser, Keller Rohrback LLP, Seattle, WA, argued the cause for plaintiffs-appellants. Karin B. Swope, Keller Rohrback LLP, Seattle, WA, filed the briefs. Lynn Lincoln Sarko, Tana Lin, and Ian J. Mensher, all of Keller Rohrback LLP, Seattle, WA, also were on the briefs, as was Jeffrey C. Engerman, Los Angeles, CA.
Julia Penny Clark, Bredhoff & Kaiser, PLLC, Washington, D.C., argued the cause for all defendants-appellees and filed the brief for defendant-appellee NEA. Jonathan Hacker, O'Melveny & Myers LLP, Washington, D.C., signed the same brief on behalf of defendant NEA MBC and the individual defendants. Douglas L. Greenfield and Abigail V. Carter, both of Bredhoff & Kaiser, PLLC, Washington,D.C., also were on the brief for defendant NEA, and Bob Eccles, O'Melveny & Myers LLP, Washington, D.C., also was on the brief for defendant NEA MBC and the individual defendants.
Nicholas T. Christakos, Sutherland Asbill & Brennan LLP, Washington, D.C., filed the brief for defendants-appellees Security Benefit Life Insurance Company, Security Distributors, Inc., Security Benefit Corporation, and Security Benefit Group, Inc. Steuart H. Thomsen, W. Mark Smith, and Phillip E. Stano, all of Sutherland Asbill & Brennan LLP, Washington, D.C., also were on the brief.
David J. Burman, Perkins Coie LLP, Seattle, WA, filed the brief for defendant-appellee Nationwide Life Insurance Company. Charles Platt and Emily Meyers, both of Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, also were on the brief, as were David Bowker and Mark Bieter, both of Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C.
Melissa Bowman, U.S. Department of Labor, filed a brief for the Secretary of Labor as amicus curiae in support of the defendants-appellees. Nathaniel I. Spiller, Counsel for Appellate and Special Litigation, Timothy D. Hauser, Associate Solicitor, and Carol A. De Deo, Deputy Solicitor of Labor for National Operations, all of the U.S. Department of Labor, also were on the brief.
Appeal from the United States District Court for the Western District of Washington, Ronald B. Leighton, District Judge, Presiding. D.C. No. 3:07-cv-05339-RBL.
Before: CYNTHIA HOLCOMB HALL, DIARMUID F. O'SCANNLAIN and MARSHA S. BERZON, Circuit Judges.
We must decide whether the National Education Association established or maintained an employee pension benefit plan under the Employee Retirement Income Security Act of 1974 by endorsing and aggressively marketing certain tax-sheltered annuities.
Both Jerre Daniels-Hall and David Hamblen (collectively, "Plaintiffs") are members of the National Education Association ("NEA") and employees of local public school districts. Daniels-Hall is an employee of the South Kitsap School District in Washington, and Hamblen is an employee of El Dorado Union High School District in California.
The NEA is a public employee labor union, consisting of over 3.2 million teachers, administrators, and other educators in public schools throughout the United States. The NEA provides numerous benefits to its members, including insurance coverage, discounts, and other services. Many of those benefits are provided through NEA's Member Benefits Corporation ("NEAMBC"), a wholly owned subsidiary of the NEA.
According to the Complaint, in the 1990s, the NEA, through the NEAMBC, worked with defendant Nationwide Life Insurance Co. ("Nationwide") and, after 2000, with defendant Security Benefit Life Insurance Company and its subsidiaries (collectively, "Security Benefit") to offer the NEA "Valuebuilder Plan" (the "Plan") to its members.1 The Plan is "purportedto be a section 403(b) retirement plan." 2 The NEA "selected Nationwide, and then Security Benefit as the exclusively endorsed" providers of the Plan. After selecting Nationwide and Security Benefit, NEA designed certain annuities in conjunction with them. These annuities were called "Valuebuilder annuities." NEA negotiated the terms of the Valuebuilder annuities, exclusively endorsed the Valuebuilder annuities as favorable retirement savings vehicles, and aggressively marketed the Valuebuilder annuities to NEA members. NEA also monitored and managed the Valuebuilder annuities for its participants.
In exchange for the NEA's role in marketing the Valuebuilder annuities, Nationwide and Security Benefit paid royalties and annual fees to the NEA, took on the salaries of 110 NEAMBC representatives, and contributed to NEA charitable foundations. NEA's royalty income from Security Benefit alone amounted to approximately $2 million per year. Nationwide and Security Benefit, in turn, received fees from investment companies whose mutual funds were made available through the Valuebuilder annuities.
The NEA did not fully disclose to its members the nature or amount of the payments it received from Nationwide and Security Benefit, or the fact that Nationwide and Security Benefit received payments from investment companies whose mutual funds were included in the Valuebuilder annuities. Instead, the NEA marketed the Valuebuilder annuities provided by Nationwide and Security Benefit as the most favorable retirement option for its members, despite the fact that Valuebuilder annuities charged fees that were as much as ten times those charged on comparable annuity contracts. Plaintiffs participated in their school district employers' section 403(b) retirement plans, and selected Valuebuilder annuities—instead of other annuities made available by their employers—because of the NEA's enthusiastic endorsement.
In essence, Plaintiffs allege that the NEA knowingly duped them into purchasing unattractive annuities by "creating an atmosphere of trust and confidence that was exploited by Defendants for their financial gain." Plaintiffs purport to represent a class of more than 57,000 similarly situated NEA members on whose behalf public school district employers across the country purchased Valuebuilder annuities totaling over $1 billion.
Plaintiffs' theory of the case is that by negotiating, endorsing, marketing, and promoting the NEA Valuebuilder annuities, the NEA "established or maintained" an "employee pension benefit plan" within the coverage of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.See 29 U.S.C. § 1002(2)(A). Plaintiffs contendthat the NEA and NEAMBC are "plan fiduciaries" under ERISA, and that by, inter alia, failing to ensure that the fees charged by Nationwide and Security Benefit in connection with the annuity contracts were reasonable, NEA and NEAMBC breached their fiduciary duties. Plaintiffs allege that Nationwide and Security Benefit were plan fiduciaries as well, and that they also breached their duties by, inter alia, selecting unreasonably high-cost mutual funds for inclusion in the Valuebuilder annuities. Plaintiffs brought this action for breach of fiduciary duties, and other violations of ERISA, against NEA, NEAMBC, NEAMBC's directors, Nationwide, Security Benefit, and Security Benefit's involved subsidiaries (collectively, "Defendants"), seeking damages, equitable relief, costs, and fees.
In their motions to dismiss the Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), Defendants argued that ERISA does not cover section 403(b) retirement plans that public school systems provide for their employees. More specifically, Defendants argued that, as a matter of law, tax-deferred section 403(b) plans cannot be "established or maintained" by employee organizations such as the NEA.
The district court was "convinced that if the NEA could legally establish or maintain" § 403(b) annuity plans, then Plaintiffs would have "demonstrat[ed] that it did so as a factual matter." But the court then explained that "employee organizations simply cannot, as a matter of law, establish or maintain § 403(b) annuity plans." The court concluded that since "the § 403(b) Annuities" were "not 'plans' under ERISA," the court lacked subject matter jurisdiction "over the Plaintiffs' claim arising out of those annuities." On May 23, 2008, the court dismissed Plaintiffs claims pursuant to Federal Rule of Civil Procedure 12(b)(1). Plaintiffs timely appealed. 3
Before addressing the merits, we must express a disagreement with the district court's analysis of jurisdiction. It dismissed Plaintiffs' claims for lack of subject matter jurisdiction because it concluded that the "Valuebuilder Plan" was not an employee benefit pension plan subject to ERISA. But to ask whether the alleged Plan is subject to ERISA is a merits question. "Subject-matter jurisdiction, by contrast, refers to a tribunal's power to hear a case." Morrison v. Nat'l Austl. Bank Ltd., --- U.S. ----, 130 S.Ct. 2869, 2877, 177 L.Ed.2d 535 (201...
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