Ely v. Bd. of Trs. of the Pace Indus. Union-Management Pension Fund

• Decision Date: 04 February 2019
• Docket Number: Case No. 3:18-cv-00315-CWD
• Parties: DONNIE ELY, Plaintiff, v. BOARD OF TRUSTEES OF THE PACE INDUSTRY UNION-MANAGEMENT PENSION FUND, Defendant.
• Court: U.S. District Court — District of Idaho

DONNIE ELY, Plaintiff, v. BOARD OF TRUSTEES OF THEPACE INDUSTRY UNION-MANAGEMENT PENSION FUND, Defendant.

Case No. 3:18-cv-00315-CWD

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF IDAHO

February 4, 2019

MEMORANDUM DECISION AND ORDER

INTRODUCTION

Plaintiff Donnie Ely, a participant in the Pace Industry Union Management Pension Fund (PIUMPF or the Fund), challenges an action taken by the PIUMPF Board of Trustees in 2013, whereby the Board amended its Rehabilitation Plan to require withdrawing employers to pay an additional exit fee based on the Fund's accumulated funding deficiency (the "AFD Exit Fee"). Ely alleges that the AFD Exit Fee is undermining PIUMPF's solvency, and that the actions taken by the Board of Trustees violate the Employee Retirement Income Security Act of 1974 (ERISA).

Before the Court is the Board of Trustees' motion to dismiss, and its motion to stay discovery.¹ (Dkt. 16, 17.) The Court conducted a hearing on the motions on November 13, 2018. After carefully considering the parties' arguments, their written memoranda, and relevant authority, the Court will grant in part and deny in part the Board of Trustees' motion to dismiss, and deny the motion to stay discovery.

BACKGROUND

PIUMPF is an employee pension benefit plan as defined by 29 U.S.C. § 1002(3)(2)(A) and a multiemployer pension plan within the meaning of 29 U.S.C. § 1002(37). PIUMPF is governed by its Trust Agreement, restated as of April 2, 2000, and as amended thereafter. One-half of the members of the Board of Trustees are appointed by participating employers, and the other one-half are appointed by the sponsoring labor union. Trust Agreement, Ex. 1 (Dkt. 1-1); 29 U.S.C. § 186(c)(5)(B) (stating that employers must be "equally represented in the administration" of a pension fund). The Board of Trustees is the Fund's sponsor, meaning it is tasked with administering the Fund. Trust Agreement, Ex. 1 (Dkt. 1-1); 29 U.S.C. § 1002(16)(B) (defining plan sponsor). In addition, the Board of Trustees is designated as the named fiduciary of the Trust and Plan. Trust Agreement Ex. 1 (Dkt. 1-1.)

Ely is a participant in the Fund. The Fund currently is in critical status (and has been since 2010), which means that it is in dire financial condition. See 29 U.S.C.§ 1085(b)(2), ERISA § 305(b)(2) (defining critical status). Because of its critical status, specific funding rules required the Board of Trustees to adopt a rehabilitation plan for the Fund. See 29 U.S.C. § 1085(a)(2) (requiring the plan sponsor of a plan in critical status to adopt and implement a rehabilitation plan in accordance with 29 U.S.C. § 1085(e), ERISA § 305(e)). A rehabilitation plan consists of actions, such as reductions in future benefit accruals, reductions in plan expenditures, or increases in contributions, designed to improve the Fund's financial outlook and enable it to either "cease to be in critical status by the end of the [ten-year] rehabilitation period," or "emerge from critical status at a later time or to forestall possible insolvency." 29 U.S.C. § 1085(e)(3)(A), ERISA § 305(e)(3)(A).²

On April 30, 2010, the Board of Trustees published a Notice of Critical Status Certification for the Fund, explaining to the Plan's participants:

Critical status

The Fund is considered to be in critical status because it has funding or liquidity problems, or both. More specifically, the Fund's actuary determined that the Fund is projected to have an accumulated funding deficiency within three (3) years after the current Plan Year. The projected year of the deficiency is 2013.

Rehabilitation Plan and Possibility of Reduction in Benefits

Federal law requires pension plans in critical status to adopt a rehabilitation plan aimed at restoring the financial health of the Fund ....

Thereafter, the Board of Trustees determined that the contribution rate increase schedules provided under the initial rehabilitation plan were not reasonable and would cause employers to withdraw from the Fund, thereby expediting rather than forestalling insolvency. Thus, by Resolution dated April 10, 2013, the Trustees retroactively adopted, as of November 15, 2012, the 2012 Amended and Updated Rehabilitation Plan ("Amended and Updated Rehabilitation Plan"). Compl. Ex. 4. The Amended and Updated Rehabilitation Plan had contribution rate schedules requiring lower annual increases to the contribution rate.³

In addition to the revised schedules, the Amended and Updated Rehabilitation Plan added a paragraph that included the AFD Exit Fee. This paragraph states in pertinent part:

In addition, in the event an Employer withdraws during a Plan Year when the Fund has an accumulated funding deficiency,⁴ as determined under Section 304 of ERISA, the Employer shall be responsible for its pro rata share of such deficiency in addition to any withdrawal liability determined under Section 4211 of ERISA.

Ely seeks a declaration that the AFD Exit Fee implemented via the Amended and Updated Rehabilitation Plan is unenforceable, and that the Board of Trustees should beenjoined from further enforcement or implementation of the AFD Exit Fee on behalf of the PIUMPF. The Complaint asserts three counts for violations of ERISA.

In Count I, Ely alleges 29 U.S.C. § 1451(a)(1), ERISA § 4301(a)(1), permits him to bring an action for appropriate legal or equitable relief as a participant "adversely affected by an act or omission of a party under ERISA Title IV, Subtitle E." He asserts that, by implementing the AFD Exit Fee, the Board of Trustees violated 29 U.S.C. § 1391, ERISA § 4211, and 29 C.F.R. § 4211.21(c), which "prohibits any withdrawal liability allocation method that results in a systematic and substantial over-allocation of the plan's unfunded vested benefits (assessing employers amounts greater than the amount of vested liabilities less the plan's assets)." Compl. ¶ 25. Ely alleges also in Count I that the AFD Exit Fee violates 29 U.S.C. § 1085(e)(3)(A)(ii), ERISA § 305(e)(3)(A)(ii), because it is not a "reasonable measure to emerge from critical status at a later time or to forestall possible insolvency." 29 U.S.C. § 1085(e)(3)(A)(ii), ERISA § 305(e)(3)(A)(ii). Ely contends that, rather than a reasonable measure, the AFD Exit Fee has caused PIUMPF's decline in value, such that the Plan is projected to be unable to pay benefits to its participants in 2031.

In Count II, Ely alleges the Board of Trustees breached its fiduciary duty of prudence. Ely contends the AFD Exit Fee is imprudent because it is a second, and impermissible, way to collect unfunded vested benefits, and because it delays, rather than prevents, insolvency. In Count III, he alleges a breach of co-fiduciary duty against the individual Trustees, for failure to act prudently and failure to discharge their duties with respect to the Plan solely in the interest of plan participants and beneficiaries.

The Board of Trustees argues that Count I must be dismissed, because 29 U.S.C. § 1451(a)(1), ERISA § 4301(a)(1), does not provide a cause of action to challenge a rehabilitation plan adopted pursuant to 29 U.S.C. § 1085(e), ERISA § 305(e). As for Counts II and III, the Board of Trustees argues dismissal is proper because the Board was not acting in a fiduciary capacity, but rather in its capacity as a settlor of the plan, when it adopted the Amended and Updated Rehabilitation Plan.

In his response to the Board of Trustees' motion to dismiss, Ely raised additional arguments addressed by the Board of Trustees in its reply. He alleges the AFD Exit Fee violates ERISA's "anti-cutback provision, 29 U.S.C. § 1054(g)(1), ERISA § 204(g)(1); that proper notice of amendment to the rehabilitation plan was not given to plan participants, in violation of 29 U.S.C. § 1054(h), ERISA § 204(h); and that the Board of Trustees' actions in delaying, but not preventing, insolvency of the Plan by implementing the AFD Exit Fee violates 29 U.S.C. § 1085(e)(3)(A)(ii), ERISA § 305(e)(3)(A)(ii). The Board of Trustees notes none of these theories of recovery were mentioned in the Complaint. Nonetheless, the Board of Trustees argues amendment would be futile because ERISA § 204(g)(1) and (h) do not apply to plan amendments adopted pursuant to ERISA § 305(e), and Ely's interpretation of ERISA § 305(e)(3)(A)(ii) is not supported by the plain language of the statue.

STANDARD OF REVIEW

A motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a party's claim for relief. When considering such a motion, the Court's inquiry is whether the allegations in a pleading are sufficient under applicablepleading standards. Federal Rule of Civil Procedure 8(a) sets forth minimum pleading rules, requiring only a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2).

A motion to dismiss will be granted only if the complaint fails to allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations omitted). Although "we must take all of the factual allegations in the complaint as true, we are not bound to accept as true a legal conclusion couched as a factual allegation." Id. at 1949-50; see also Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Therefore, "conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Caviness v. Horizon Comm. Learning Cent., Inc., 590 F.3d 806, 812 (9th Cir. 2010) (citation omitted).

DISCUSSION

By way of background, a...