Jacobson v. Hughes Aircraft Co.

• Decision Date: 23 January 1997
• Docket Number: No. 93-55392,93-55392
• Parties: , 20 Employee Benefits Cas. 2393, 97 Cal. Daily Op. Serv. 669, 97 Daily Journal D.A.R. 845, Pens. Plan Guide (CCH) P 23930V Stanley I. JACOBSON; Daniel P. Welsh; Robert E. McMillin; Ernest O. Blandin; Richard E. Hook, Plaintiffs-Appellants, v. HUGHES AIRCRAFT COMPANY; Hughes Non-Bargaining Retirement Plan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1288

105 F.3d 1288

65 USLW 2498, 20 Employee Benefits Cas. 2393,

97 Cal. Daily Op. Serv. 669,

97 Daily Journal D.A.R. 845,

Pens. Plan Guide (CCH) P 23930V

Stanley I. JACOBSON; Daniel P. Welsh; Robert E. McMillin Ernest O. Blandin; Richard E. Hook, Plaintiffs-Appellants, v. HUGHES AIRCRAFT COMPANY; Hughes Non-Bargaining Retirement Plan, Defendants-Appellees.

No. 93-55392.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 4, 1993.

Decided Jan. 23, 1997.

Jerome Tauber, Sipset, Weinstock, Harper & Dorn, New York City, for plaintiffs-appellants.

Robert F. Walker (argued/brief), and Belinda K. Orem (brief), Paul, Hastings, Janofsky, Walker, Santa Monica, CA, for defendants-appellees.

Appeal from the United States District Court for the Central District of California, Richard A. Gadbois, Jr., District Judge, Presiding. D.C. No. CV-92-04020-RG.

Before FLETCHER, PREGERSON and NORRIS, Circuit Judges.

Opinion by Judge PREGERSON; Dissent by Judge NORRIS.

PREGERSON, Circuit Judge:

Plaintiffs appeal the district court's dismissal of their action brought under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et. seq. Plaintiffs are retired Hughes Aircraft Company employees who are participants in the Hughes Non-Bargaining Retirement Plan (the "Contributory Plan"). Plaintiffs allege in their complaint that the employer, defendant Hughes Aircraft Company ("Hughes"), breached its statutory and fiduciary duties under ERISA when it used the Contributory Plan's surplus assets-attributable in part to employee contributions-to fund an early retirement program for existing employees and a new non-contributory pension plan for

some employees that were not participants of the Contributory Plan. Plaintiffs seek a variety of remedies, including a distribution of "all or a portion of the excess Plan assets" in the form of increased benefits. The district court dismissed plaintiffs' complaint under Fed.R.Civ.P. 12(b)(6), without leave to amend. The simple question before us is whether plaintiffs have alleged sufficient facts in their complaint to state any claim for relief under ERISA. Assuming plaintiffs can prove what they have plead in their complaint, we conclude their claims are cognizable. We, therefore, reverse.

FACTS

According to the complaint, ¹ defendant Hughes is an aerospace and electronics manufacturing company. Since 1951, Hughes has provided a retirement pension plan for its employees. At issue in this litigation is the use by Hughes of surplus assets from the Contributory Plan.

The terms of the Contributory Plan provide, in relevant part, that both Hughes and its employees must contribute to the Plan. The employees' contributions are automatically deducted from their pay. By 1986, as a result of both employer and employee contributions and as a result of investment growth, the Contributory Plan's assets exceeded the actuarial or present value of accrued benefits by almost one billion dollars.

Apparently, because of this surplus, and after being acquired by the General Motors Corporation, Hughes, in 1987, ceased making contributions to the Contributory Plan. ² The employees, in contrast, despite the overfunding, were required to continue making contributions to the Contributory Plan. As of January 1, 1992, approximately half the surplus in the Contributory Plan was attributable to employee contributions and the other half to employer contributions.

In 1989, Hughes amended the Plan and used part of the asset surplus to provide an early retirement program for existing employees. According to plaintiffs, by offering this program, Hughes was able to reduce its workforce and save payroll costs.

Plaintiffs also allege in their complaint that Hughes terminated the Contributory Plan on January 1, 1991, when Hughes created a new defined benefit plan (the "Non-Contributory Plan") and froze new enrollment in the Contributory Plan. The new Non-Contributory Plan covers all new employees as well as those old employees who chose not to remain in the Contributory Plan.

Although created through an "amendment" to the Contributory Plan, the Non-Contributory Plan shares virtually no characteristics with the older plan, other than administration by the same trustees. The Contributory Plan is elective and requires monthly contributions by the employees. The Contributory Plan also provides health coverage, a cost of living adjustment, and unreduced early retirement benefits.

In contrast, the Non-Contributory Plan requires no employee contributions, and new employees are enrolled automatically. The new plan does not provide health coverage, cost of living adjustment, or unreduced early retirement benefits. In addition, the new plan pays lower monthly retirement benefits than the Contributory Plan, and the two plans use different formulas to compute benefits.

According to plaintiffs' complaint, Hughes used and continues to use the asset surplus generated by employee and employer contributions from the Contributory Plan to fund the new Non-Contributory Plan. Plaintiffs further allege that in so doing, Hughes is improperly using plan assets attributable in part to employee contributions for its own benefit.

Plaintiffs filed this class action in the United States District Court for the District of Arizona. The putative class consists of over 10,000 persons who were participants in the

Contributory Plan on December 31, 1991. The court granted Hughes's motion to transfer venue to the Central District of California. Defendants filed a motion to dismiss under Federal Rules of Civil Procedure 12(b)(6). The district court granted the motion and dismissed plaintiffs' complaint without leave to amend. No discovery was ever taken in the district court.

ANALYSIS

A. Standard of Review

We review de novo a district court's dismissal of a complaint for failure to state a claim under Federal Rules of Civil Procedure 12(b)(6). Everest and Jennings v. American Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir.1994) (citations omitted). We apply the same standard on appeal as the district court. Id. "It is axiomatic that a complaint should not be dismissed unless 'it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.' Conley v. Gibson, 355 U.S. 41, 45-46 [78 S.Ct. 99, 102, 2 L.Ed.2d 80] (1957); see 5 C. Wright & A. Miller, Federal Practice & Procedure §§ 1202, 1205-1207, 1215-1224, 1228 (1969)." McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232, 246, 100 S.Ct. 502, 511, 62 L.Ed.2d 441 (1980) (emphasis added).

The Supreme Court has consistently adhered to this standard. Most recently, in Hartford Fire Ins. Co. v. California, 509 U.S. 764, 809-13, 113 S.Ct. 2891, 2916-17, 125 L.Ed.2d 612 (1993), Justice Scalia, who concurred in the Court's decision, stated that, although he disagreed with Justice Souter's analysis as to what constitutes a boycott, he agreed that the action should not be dismissed because "other allegations in the complaints describe conduct that may amount to a boycott if the plaintiffs can prove certain additional facts." Id. (emphasis added). Justice Scalia further noted that allegations in a complaint are to be "[l]iberally construed" at the 12(b)(6) stage. Id. at 811, 113 S.Ct. at 2917.

Thus, a court's role at the 12(b)(6) stage is not to decide winners and losers or evaluate the strength or weakness of claims. See Everest and Jennings, 23 F.3d at 228; Abramson v. Brownstein, 897 F.2d 389, 391 (9th Cir.1990). Nor can a court resolve factual questions at the 12(b)(6) stage. We must accept as true the allegations in the complaint and decide only whether plaintiff has advanced potentially viable claims.

With this standard in mind, we now examine plaintiffs' claims in this action.

B. Plaintiffs' ERISA Claims

At the heart of this dispute is whether Hughes is entitled to use and control for its own benefit the Contributory Plan's one billion dollar surplus, approximately half of which was generated by employee contributions. This is not a case in which the pension plan at issue was funded entirely by employer contributions. Nor is this a case in which the employer used the plan's asset surplus solely to benefit participants of the plan. Because plaintiffs allege that the employer used the Contributory Plan's asset surplus attributable in part to employee contributions for its own benefit and for the benefit of employees who were never participants in the Contributory Plan, we conclude that plaintiffs have stated cognizable claims under ERISA.

First Claim

Plaintiffs' first claim alleges that Hughes violated ERISA § 403(c)(1), 29 U.S.C. § 1103(c)(1), which provides that "the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants of the plan." The term "inure" has been defined as "mean[ing] broadly to 'become of advantage to the employer.' " Amato v. Western Union Int'l, Inc., 773 F.2d 1402, 1414 (2d Cir.1985)(citing Teamsters Local 639 v. Cassidy Trucking, Inc., 646 F.2d 865, 868 (4th Cir.1981)), cert. dismissed, 474 U.S. 1113, 106 S.Ct. 1167, 89 L.Ed.2d 288 (1986).

The district court rejected plaintiffs' anti-inurement claim. We agree with the district court that Hughes did not violate § 1103(c)(1) by the mere fact that Hughes ceased its contributions to the Contributory This, however, does not mean that Hughes can use the Contributory Plan's asset surplus for its own benefit and for the benefit of employees who were never participants in the Contributory Plan. Hughes did not do anything so blatant as to distribute the surplus to itself and to the new employees. Instead, Hughes twice "amended" the Contributory Plan to its own advantage and used the asset surplus attributable in part to plaintiffs' contributions to offer an early retirement program and the Non-Contributory Plan for existing and new...