Edmonson v. Lincoln Nat'l Life Ins. Co.

• Decision Date: 07 August 2013
• Docket Number: No. 12–1581.,12–1581.
• Citation: 725 F.3d 406
• Parties: Connie J. EDMONSON, individually and on behalf of all others similarly situated v. LINCOLN NATIONAL LIFE INSURANCE COMPANY.
• Court: U.S. Court of Appeals — Third Circuit

725 F.3d 406

Connie J. EDMONSON, individually and on behalf of all others similarly situated

v.LINCOLN NATIONAL LIFE INSURANCE COMPANY.

No. 12–1581.

United States Court of Appeals,Third Circuit.

Argued Nov. 13, 2012.

Filed: Aug. 7, 2013.

M. Scott Barrett, Esq., Barrett & Associates, Bloomington, IN, John C. Bell, Jr., Esq. (argued), Lee W. Brigham, Esq., Bell & Brigham, Augusta, GA, Jeffrey G. Casurella, Esq., Atlanta, GA, Cary L. Flitter, Esq., Flitter Lorenz, Narberth, PA, for Appellant Connie J. Edmonson.

David H. Pittinsky, Esq. (argued), Joel E. Tasca, Esq., Ruth S. Uselton, Esq., Ballard Spahr, Philadelphia, PA, for Appellee Lincoln National Life Insurance Company.

Waldemar J. Pflepsen, Jr. Esq., Jorden Burt, Washington, DC, for Amicus Curiae American Council of Life Insurers.

Before: SCIRICA, FISHER, and JORDAN, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

Plaintiff Connie Edmonson was a beneficiary of a life insurance plan established by her employer and governed by the Employee Retirement Income Security Act of 1974 (ERISA). Defendant Lincoln National Life Insurance Co. chose to pay her benefits using a retained asset account, which allowed it to hold onto the benefits and invest them for its own profit until Edmonson affirmatively chose to withdraw them from the account.

Edmonson claims Lincoln breached its fiduciary duty of loyalty under ERISA and seeks disgorgement of the profit Lincoln earned by investing the benefits owed to her. The District Court granted summary judgment in Lincoln's favor, concluding Lincoln was not acting in a fiduciary capacity when it took the actions subject to complaint. We will affirm.

I. Background

Connie Edmonson's husband was insured under a group life insurance policy issued by Lincoln. The policy was established under an ERISA employee benefit plan sponsored by Edmonson's employer, Schurz Communications. When her husband died, Edmonson was entitled to $10,000 in benefits. The policy states, “[u]pon receipt of satisfactory proof of a Dependent's death while insured under this Policy, the Company will pay the amount of the Dependents [sic] Life Insurance in effect on the date of such death,” and that “[a]ny benefits payable under this Policy will be paid immediately after the Company receives complete proof of claim.” The policy does not state that Lincoln will pay the benefits using a retained asset account and does not otherwise specify how Lincoln was to pay Edmonson the benefits.

Edmonson submitted a claim form to Lincoln for payment. The form stated that when the benefits are greater than $5,000, Lincoln's usual method of payment is to open a SecureLine Account in the beneficiary's name. After Lincoln approved Edmonson's claim, it set up a SecureLine Account in her name in the amount of $10,000, and sent her a checkbook from which she could draw checks on the account. Lincoln explained to Edmonson that she would receive interest on the account in the amount of the Bloomberg national average rate for interest-bearing checking accounts plus 1%. Lincoln also explained that if Edmonson wanted the entire proceeds immediately, all she had to do was write one check for the entire balance.

The SecureLine Account was a retained asset account. When distributing benefits using retained asset accounts, an insurance company does not deposit any funds into the account. Rather, it merely credits the account with the benefits, and when a beneficiarywrites a check on the account, the insurance company transfers funds into the account to cover the check. Until that time, the insurance company retains the money owed to the beneficiary (the “retained assets”), and can invest the retained assets for its own profit.

Three months after Lincoln set up the SecureLine Account, Edmonson withdrew the full amount of the insurance proceeds. Lincoln wrote her a check for $52.33 of interest. Edmonson contends that the profit Lincoln earned from investing the retained assets was greater than the amount of interest paid to her, and that Lincoln made approximately $5 million in profit in 2009 by investing retained assets credited to her account and the accounts of other beneficiaries.

Edmonson brought an ERISA claim contending Lincoln violated its fiduciary duties under ERISA by choosing to pay her using a retained asset account and by investing the retained assets for its own profit. She contends ERISA's fiduciary duties were implicated because both acts involved exercising “discretionary authority or discretionary control respecting management” or “administration” of an ERISA plan and exercising “authority or control respecting management or disposition of [plan] assets.” 29 U.S.C. § 1002(21)(A) (setting forth the various functions that trigger ERISA fiduciary duties). She argues Lincoln's acts breached its fiduciary duties because these actions were not taken for her exclusive benefit and because they involved self-dealing. See id. § 1104(a)(1) (“[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of ... providing benefits to participants and their beneficiaries.”); id. § 1106(b)(1) (“A fiduciary with respect to a plan shall not ... deal with the assets of the plan in his own interest or for his own account.”). Edmonson seeks disgorgement of the profits earned by Lincoln from the investment of the retained assets under 29 U.S.C. § 1132(a)(3), which allows a participant, beneficiary, or fiduciary to obtain equitable relief to redress violations of ERISA.

Lincoln moved to dismiss, arguing Edmonson lacked both constitutional and statutory standing to bring her claim. It also argued it was not acting as a fiduciary under ERISA when it took the actions subject to complaint and, even if it were, it did not breach any fiduciary duty by taking these actions. See Edmonson v. Lincoln Nat'l Life Ins. Co., 777 F.Supp.2d 869, 876 (E.D.Pa.2011). The trial court rejected all of Lincoln's arguments. Id. at 874. The court first concluded Edmonson had standing under Article III because she suffered an injury-in-fact based on the amount of the spread between the interest Lincoln paid to her and the profit it earned by investing the retained assets. Id. at 881. The court then concluded Edmonson had statutory standing under ERISA, rejecting Lincoln's argument that Edmonson was no longer a “beneficiary” of an ERISA plan once the SecureLine Account was closed. Id. at 883. Finally, the court concluded Edmonson had sufficiently alleged that Lincoln breached its fiduciary duties under ERISA. Id. at 892.

Following discovery, Lincoln moved for summary judgment on the ground that it was not a fiduciary under ERISA when it took the contested actions. Edmonson moved for partial summary judgment on the same issue. Edmonson also moved to certify a class of individuals who were paid ERISA benefits by Lincoln via a retained asset account. The court granted Lincoln's motion for summary judgment, denied Edmonson's motion for partial summary judgment, and dismissed as moot Edmonson's motion for class certification. Edmonson v. Lincoln Nat'l Life Ins. Co., 899 F.Supp.2d 310, 313 (E.D.Pa.2012). The court concluded Lincoln's actions were not governed by ERISA fiduciary duties because the acts did not involve the administration or management of the plan and did not involve exercising authority or control over plan assets. Edmonson appeals, contending the court erred with respect to both conclusions.¹

II. ERISA's Fiduciary Principles

“ ‘ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans.’ ” Ingersoll–Rand Co. v. McClendon, 498 U.S. 133, 137, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983)). To protect participants in employee benefit plans and their beneficiaries, ERISA “ ‘establish[es] standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans.’ ” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 44, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) (quoting 29 U.S.C. § 1001(b)). ERISA defines the circumstances under which a person or entity is a fiduciary, sets forth the duties of these fiduciaries, and provides various causes of action designed to promote the enforcement of these duties.

Under ERISA,

a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

29 U.S.C. § 1002(21)(A). “ ‘ERISA ... defines ‘fiduciary’ not in terms of formal trusteeship, but in functional terms of control and authority over the plan.' ” In re Unisys Corp. Retiree Med. Benefits ERISA Litig., 579 F.3d 220, 228 (3d Cir.2009) (alteration and emphasis in original) (quoting Mertens v. Hewitt Assocs., 508 U.S. 248, 262, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993)). “Accordingly, ‘[f]iduciary duties under ERISA attach not just to particular persons, but to particular persons performing particular functions.’ ” Id. (alteration in original) (quoting Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1158 (3d Cir.1990)). The definition of a fiduciary under ERISA is to be broadly construed. Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226, 233 (3d Cir.1994) (citing Smith v. Hartford Ins. Grp., 6 F.3d 131, 141 n. 13 (3d Cir.1993)).

Among other duties, ERISA requires that a fiduciary “discharge his duties with respect to a plan solely in the interest of the...