Farr v. US West, Inc.

• Citation: 58 F.3d 1361
• Decision Date: 26 June 1995
• Docket Number: No. 93-35086,93-35086
• Parties: , 19 Employee Benefits Cas. 1532, 95 Daily Journal D.A.R. 8355, Pens. Plan Guide P 23913G Donald J. FARR; Gregory H. Ishmiel; Rod W. Tracy; Willis L. Rader; Joseph T. Dean; Robert Heuser; and Jeanette P. Neufeld, Plaintiffs-Appellants, v. US WEST, INC., a Colorado corporation; The US West Management Pension Plan; and US West Communications, a Colorado corporation, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1361

58 F.3d 1361

64 USLW 2048, 19 Employee Benefits Cas. 1532,

95 Daily Journal D.A.R. 8355,

Pens. Plan Guide P 23913G

Donald J. FARR; Gregory H. Ishmiel; Rod W. Tracy; Willis

L. Rader; Joseph T. Dean; Robert Heuser; and Jeanette P. Neufeld, Plaintiffs-Appellants, v. US WEST, INC., a Colorado corporation; The US West

Management Pension Plan; and US West

Communications, a Colorado corporation,

Defendants-Appellees.

No. 93-35086.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Sept. 13, 1994.

Decided June 26, 1995.

Leslie L. Wellman, Wellman & Murray, Portland, OR, for plaintiffs-appellants.

D. Ward Kallstrom, Lillick & Charles, San Francisco, CA, for defendants-appellees.

Appeal from the United States District Court for the District of Oregon.

Before: ALDISERT, ^* NORRIS, and THOMPSON, Circuit Judges.

WILLIAM A. NORRIS, Circuit Judge:

Plaintiffs were long term employees of defendants US West, Inc. and US West Communications. In Jan. 1990, plaintiffs chose to retire under an amendment to the US West Management Pension Plan known as the "5 + 5 program" which created early retirement incentives for many long term employees. Under the 5 + 5 program, plaintiffs chose to receive their accrued pension benefits in a lump sum. Plaintiffs allege that US West did not tell them that those lump sum distributions in excess of the amount qualified to be rolled over into Individual Retirement Accounts ("IRAs") would be taxed.

On Dec. 15, 1989, J. Thomas Bouchard, Senior Vice President and Chief Human Resources Officer at US West, sent a letter to employees eligible to retire under the 5 + 5 program. Attached to the letter was a 15-page booklet providing an overview of the program. The booklet included a section entitled "Tax Considerations Affecting Choice of Distribution" which purported to "highlight[ ] the basic federal tax rules" relevant to the choice between taking the pension benefits in a lump sum or in a series of monthly installments. The booklet warned plan participants that the tax consequences of the available options were "very complex" and that employees "should consult with your tax advisor." For those who were not age 50 before 1986, the booklet provided the following information on lump sum distributions: "Distribution fully included in taxable income received except to the extent rolled over to another IRS-qualified plan or IRA within 60 days." For those who were age 50 before 1986, the booklet provided the following information on lump sum distributions: "All or part of [lump sum] distribution may be rolled over to another qualified plan or an IRA within 60 days without any current tax liability." The booklet did not say that only qualified portions of the lump sum distributions could be rolled over, and that everything else would be taxed.

The Dec. 18, 1989 issue of US West Today, a publication circulated to US West employees, contained an interview with Mr. Kamen, the Executive Director of Human Resources for US West, with the heading "Lump-Sum option clarified." In response to questions regarding the tax consequences of the lump sum option, Mr. Kamen stated, "Obviously, the lump-sum payment will provide you with a large amount of money that you can control and invest however you like. For some, the lump sum may also offer significant tax advantages."

On Jan. 17, 1990, several Pension Plan representatives and US West managers participated in a live telecast presentation concerning the 5 + 5 program broadcast to eligible employees. The telecast featured a panel of US West officers and upper management. Before the telecast aired, two of the panelists discussed the possibility of disclosing the potential tax problems with lump sums which could not be rolled over into IRAs, but decided to withhold this information. During the broadcast, Mr. Kamen mentioned that a "qualified portion of the lump-sum distribution" could be rolled over into an IRA, but did not explain what he meant by "qualified portion."

Each of the plaintiffs retired under the 5 + 5 program, elected to receive their accrued benefits in lump sums, attempted to roll over all of their lump sums into IRAs, but discovered that only qualified portions of those sums could be rolled over, and the rest was promptly taxed. On Feb. 6, 1990, after US West management realized that a significant number of people were in this predicament, it held a meeting to discuss possible responses. The plan actuary suggested reducing the discount rate from 8% to 5.25% on the excess portion of the lump sum to mitigate unfavorable tax consequences. The US West Employees' Benefits Committee adopted this proposal.

Plaintiffs subsequently submitted claims to the Plan for additional benefits to offset their unexpected tax liability. The Benefits Committee denied their claims.

Plaintiffs allege that US West breached its fiduciary duty to them under Sec. 404 of the Employee Retirement Income Security Act of 1974, as amended 29 U.S.C. Sec. 1001 et seq. ("ERISA") by providing them with incomplete, false, and misleading information regarding the tax consequences of their lump sum distributions. Plaintiffs additionally sue US West under Oregon state law for, inter alia, fraud and negligent misrepresentation. Plaintiffs now seek either front and back pay from the dates they actually retired under the 5 + 5 program to the dates they would have retired had they not exercised that option, or a surcharge against US West equal to the taxes they had to pay on the portion of their benefits which could not be rolled over into IRAs.

The district court awarded US West summary judgment on both the ERISA and the state law claims. First, the district court held that, even if US West had breached a fiduciary duty to plaintiffs, plaintiffs would not be entitled to the relief they sought because ERISA does not provide for individual recovery for breaches of fiduciary duties. Farr v. U.S. West, Inc., 815 F.Supp. 1364, 1374-75 (D.Or.1992). ¹ Second, it held that plaintiffs' state law fraud and negligent misrepresentation claims were preempted by ERISA. Farr v. US West, Inc., 815 F.Supp. 1360, 1363 (D.Or.1992). ² We affirm in part and reverse in part.

I ERISA Claim

There are two fiduciary duty provisions in ERISA. The first provides that a fiduciary

who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate ...

29 U.S.C. Sec. 1109(a). It is settled law that Sec. 1109 only allows recovery that "inures to the benefit of the plan as a whole." Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 140, 105 S.Ct. 3085, 3089, 87 L.Ed.2d 96 (1985). See also id. at 144, 105 S.Ct. at 3091 ("[T]he entire text of [Sec. 1109] persuades us that Congress did not intend that section to authorize any relief except for the plan itself."). Thus, a plan may get relief under Sec. 1109, but individual beneficiaries generally may not. Horan v. Kaiser Steel Retirement Plan, 947 F.2d 1412, 1418 (9th Cir.1991). As we have explained, "the fiduciary duty provisions in ERISA are primarily concerned with protecting the integrity of the plan, which in turn protects all beneficiaries, rather than remedying each wrong suffered by individual beneficiaries." Id. (citation omitted). See also Sokol v. Bernstein, 803 F.2d 532, 536 (9th Cir.1986) ("the statute focuses not on the direct protection of a beneficiary's interests, but on the protection of the integrity of the plan in which the beneficiary is enrolled"). Therefore, "[a]lthough individual beneficiaries may bring a breach of fiduciary duty claim against an ERISA plan administrator, they must do so for the benefit of the plan." Parker v. BankAmerica Corp., 50 F.3d 757, 768 (9th Cir.1995). See also Sokol, 803 F.2d at 536 ("ERISA grants no private right of action by a beneficiary qua beneficiary; rather, it accords beneficiaries the right to sue on behalf of the entire plan if a fiduciary breaches the plan's terms.").

There is no dispute in this case that plaintiffs' claims for damages are individual and are not sought for the benefit of the plan as a whole. Plaintiffs assert, however, that they may recover individual damages under a separate fiduciary duty provision of ERISA, Sec. 1104. However, in a case brought under Sec. 1104, we rejected this argument, reiterating that "a fiduciary's duty under ERISA runs to the plan as a whole and not to the individual beneficiary." Williams v. Caterpillar, Inc., 944 F.2d 658, 665 (9th Cir.1991) (citations omitted). In sum, under Sec. 1104 as well as Sec. 1109, plaintiffs' recovery "is limited to relief protecting the integrity of the plan as a whole and does not extend to individual plan participants." Williams, 944 F.2d at 665 (citation omitted). Like the plaintiffs in Horan, "the plaintiffs [here] fail to present a fiduciary breach claim [because] the only remedy sought is for their own benefit, rather than for the benefit of the Plan as a whole." 947 F.2d at 1418.

II State Law Claims

ERISA provides that it "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. Sec. 1144(a). This language is "conspicuous for its breadth." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138, 111 S.Ct. 478, 482, 112 L.Ed.2d 474 (1990) (citation omitted). As we have noted, "ERISA preemption is notoriously broad, but several recent cases have held that it has reasonable limits." Bogue v. Ampex Corp., 976 F.2d 1319, 1322 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1847, 123 L.Ed.2d 471 (1993). Essentially, a plaintiffs' state law claim " 'relates...