Hunt v. Hawthorne Associates, Inc.

Decision Date05 August 1997
Docket NumberNo. 95-2078,95-2078
Citation119 F.3d 888
Parties21 Employee Benefits Cas. 1625, Pens. Plan Guide (CCH) P 23936C, 11 Fla. L. Weekly Fed. C 294 Harry L. HUNT, Plaintiff-Appellee, Cross-Appellant, v. HAWTHORNE ASSOCIATES, INC., Defendant, Eastern Air Lines Variable Benefit Retirement Plan for Pilots; Trust Administrative Committee of the Eastern Airlines Variable Benefit Retirement Plan for Pilots, Defendants-Appellants, Cross-Appellees.
CourtU.S. Court of Appeals — Eleventh Circuit

John H. Pelzer, Shari J. Ronkin, Ft. Lauderdale, FL, for Plaintiff-Appellee, Cross-Appellant.

Mary E. Martin, Albert C. Penson, Tallahassee, FL, for Defendants-Appellants, Cross-Appellees.

Appeals from the United States District Court for the Northern District of Florida.

Before TJOFLAT and COX, Circuit Judges, and CLARK, Senior Circuit Judge.

TJOFLAT, Circuit Judge:

Harry L. Hunt is a retired Eastern Air Lines ("Eastern") pilot seeking to recover a lump-sum retirement benefit under the Eastern Air Lines Variable Benefit Retirement Plan for Pilots (the "Plan"). 1 Eastern, the Plan's administrator, which is a debtor before the Bankruptcy Court for the Southern District of New York, has refused to pay the benefit because the Plan has been amended, with the approval of the bankruptcy court, to foreclose the lump-sum benefit Hunt seeks. As the Plan now stands, Hunt is entitled to receive only a modified lump-sum benefit: he may receive a partial distribution immediately and subsequent payments over time as the Plan's assets are liquidated.

Hunt rejected this modified lump-sum benefit, as well as other payment options provided under the Plan, and sued Eastern; the Air Line Pilots Association ("ALPA"), the pilots' union; Charles H. Copeland, the Chairman of the Trust Administrative Committee (the "TAC"), the Plan's named fiduciary; Paul M. O'Connor, Jr., of O'Connor, Morris & Jones, the TAC's legal counsel (the "O'Connor law firm"); and Hawthorne Associates, Inc. ("Hawthorne"), the TAC's principal investment advisor, to recover his retirement benefit in a lump sum. Hunt brought his suit under the Employee Retirement Income Security Act of 1974 ("ERISA"), Pub.L. No. 93-406, 88 Stat. 829, 29 U.S.C. §§ 1001-1461 (1994). His complaint, framed in six counts, asked for compensatory and punitive damages, injunctive relief in the form of an order requiring the defendants to pay his lump-sum benefit, statutory penalties, and attorneys' fees.

Eastern's Bankruptcy Trustee, in a motion for summary judgment, contended that Eastern could not be held liable to Hunt because it had properly discharged its responsibilities as administrator under the Plan. Later, when opposing Hunt's motion for leave to file an amended complaint, Eastern argued that Hunt's claim for a lump-sum benefit had been foreclosed by a bankruptcy court ruling against Hunt in Eastern's bankruptcy case. In an apparent attempt to avoid the effect of this ruling, Hunt voluntarily dismissed Eastern from the case with prejudice and, with leave of court, filed an amended complaint against three defendants--Hawthorne, the TAC, and the Plan--that asserted essentially the same claims presented in his initial complaint.

The case was tried to the district court; by that time, the only defendants before the court were the TAC and the Plan. Without referring to the bankruptcy court's ruling against Hunt, the court held that he was entitled to his lump-sum benefit and entered judgment for Hunt in the amount of that benefit. The judgment stated that the benefit was to be satisfied out of the Plan's fund of assets. The court rejected Hunt's remaining claims and entered judgment for the defendants.

The TAC and the Plan now appeal. Hunt cross-appeals the court's rejection of his claim requesting the court to impose a statutory penalty on the defendants. We reverse the court's judgment against the TAC and the Plan, and affirm its judgment on the statutory-penalty claim.

I.

Hunt claims that, under ERISA and the provisions of the Plan, he is entitled to recover his retirement benefits in a lump sum. Unlike the typical scenario in which a participant in an employee benefit plan sues to recover ERISA benefits, Hunt sought his lump-sum payment while the administrator of the Plan, Eastern, was undergoing a highly publicized bankruptcy proceeding that ultimately resulted in the company's demise. In addition to scrutinizing ERISA and the provisions and operation of the Plan, we must therefore consider the interrelationship between the Plan and Eastern's bankruptcy in order to evaluate Hunt's claims for relief.

A.

ERISA is a "comprehensive and reticulated statute" that created a framework for the administration and maintenance of private employee benefit plans. Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 361, 100 S.Ct. 1723, 1726, 64 L.Ed.2d 354 (1980). The cornerstone of an ERISA plan is the written instrument, which must provide for "the allocation of responsibilities for the operation and administration of the plan." ERISA § 402(b)(2), 29 U.S.C. § 1102(b)(2); see also ERISA § 402(a)(1), 29 U.S.C. § 1102(a)(1) ("Every employee benefit plan shall be established and maintained pursuant to a written instrument.").

The written instrument must designate an "administrator," ERISA § 3(16)(A)(i), 29 U.S.C. § 1002(16)(A)(i), "to run the plan in accordance with the ... governing plan documents." Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 84-86, 115 S.Ct. 1223, 1231, 131 L.Ed.2d 94 (1995); see also Varity Corp. v. Howe, --- U.S. ----, ----, 116 S.Ct. 1065, 1086, 134 L.Ed.2d 130 (1996) ("Essentially, to administer the plan is to implement its provisions and to carry out plan duties imposed by [ERISA].") (Thomas, J., dissenting). In some instances, ERISA imposes specific obligations on the plan administrator. See, e.g., ERISA § 101(b), 29 U.S.C. § 1021(b) (duty to file plan description, modifications and changes, and reports with the Department of Labor); ERISA § 105(a), 29 U.S.C. § 1025(a) (duty to provide plan participants with information regarding their benefits).

The written instrument must also "provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan." ERISA § 402(a)(1), 29 U.S.C. § 1102(a)(1). The administrator, as well as the named fiduciary, is considered a "fiduciary" under ERISA. 2 Both the administrator and the named fiduciary must discharge their duties "in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with [ERISA]," ERISA § 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D), "for the exclusive purpose of providing benefits to participants and their beneficiaries," ERISA § 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A). Because both the plan administrator and named fiduciary must discharge their duties in accordance with the written instrument, we examine the provisions of the Plan in detail. 3

B.

The Plan is a variable benefit pension plan for Eastern pilots that was created in 1958 pursuant to a collective bargaining agreement between Eastern and ALPA. The parties rewrote the Plan in the 1970s to comply with ERISA and subsequently amended it in 1986. 4

The Plan is a "defined contribution plan." 5 According to 26 U.S.C. § 414(i), a defined contribution plan is a "plan [that] provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account." More simply, in the words of an ALPA newsletter sent to Eastern pilots, a participant's interest in a defined contribution plan is "determined solely by contributions made in a beneficiary's name and the subsequent investment performance of those contributions." The Plan requires that Eastern make contributions on behalf of each participant, see § 4.1 ("Eastern Contributions"), 6 for investment in stocks, bonds, real estate, and other assets. These investments constitute the Plan's "Variable Fund" (the "Fund"). See § 1.36 ("Variable Fund"). 7 As a result, the value of a participant's interest in the Plan depends not only upon the funds contributed but also on the investment return on the Fund's assets. See Borst v. Chevron Corp., 36 F.3d 1308, 1311 n. 2 (5th Cir.1994), cert. denied, 514 U.S. 1066, 115 S.Ct. 1699, 131 L.Ed.2d 561 (1995). The value of the Fund is calculated annually as of December 31 of each calendar year. See § 5.1 ("Fund Value").

The Plan designates Eastern as the "plan administrator." Eastern has "those powers necessary to carry out the day to day operation of the Plan." See § 2.2(a) ("Administration"). Those powers include the broad responsibility to "initially determine all questions arising from the administration, interpretation, and application of the Plan pursuant to all applicable law, agreements and contracts and such determination shall be binding upon all persons, except as otherwise provided by law, and further provided that each Participant shall be granted the same treatment under similar conditions." Id. The Plan also charges Eastern with the responsibility for, inter alia, keeping records, see § 2.4 ("Records"), preparing and distributing periodic Plan summaries, see § 2.5 ("Plan Summary"), and sending to each participant an annual statement reflecting the value of his investment in the Plan, see § 2.6 ("Annual Statement"). Section 13.1 of Article XIII, which is titled "Modification, Suspension or Discontinuance," grants Eastern the authority to unilaterally modify, suspend, or discontinue any feature of the Plan, provided that any such action does not "adversely affect" any benefits "already provided" to a participant under the Plan. An exercise of this authority, however, would not constitute an...

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