Jenkins v. Yager
| Decision Date | 14 April 2006 |
| Docket Number | No. 04-4258.,04-4258. |
| Citation | 444 F.3d 916 |
| Parties | Earlene JENKINS, Plaintiff-Appellant, v. Michael D. YAGER and Mid America Motorworks, Incorporated, formerly known as Mid America Direct, Incorporated, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Sean M. Anderson (argued), Sutkowski & Rhoads, Peoria, IL, for Plaintiff-Appellant.
William W. Austin, Parker, Siemer, Austin, Resch & Fuhr, Effingham, IL, Roy G. Davis (argued), Davis & Campbell, Peoria, IL, for Defendants-Appellees.
Before EASTERBROOK, RIPPLE and ROVNER, Circuit Judges.
Earlene Jenkins, who brought this action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., appeals the district court's grant of summary judgment in favor of plan administrator Michael Yager and her former employer Mid America Motorworks ("Mid America"). For the reasons set forth in this opinion, we affirm in part and reverse in part the judgment of the district court, and remand the case to the district court for further proceedings consistent with this opinion.
Ms. Jenkins was an employee of Mid America, an auto-parts distributor, from August 1988 through September 2002. Michael Yager owns and operates Mid America and serves as the company's president.
In mid-1991, Mid America established a profit-sharing and pension plan for the company's 100-plus employees. At all times relevant to this litigation, Mid America was the plan administrator and Mr. Yager was the plan trustee. The plan was prepared by RSM McGladrey, Inc., and was reviewed by Mid America's attorneys. Dwight Erskine, the Registered Principal of Raymond James Financial Services in Effingham, Illinois, also advised Mr. Yager regarding the various funds available for the investment of plan funds, and Mr. Yager purchased the funds for the plan through Erskine's office.1
Under the profit-sharing portion of the plan, Mid America contributes a discretionary amount to the plan at the end of the year; that amount then is divided among the participants. The plan requires Mr. Yager to direct the investment of the discretionary profit-sharing contribution by Mid America. The profit-sharing assets are invested in four funds marketed by American Funds: American Mutual Fund, The Growth Fund of America ("Growth Fund"), Euro-Pacific Growth Fund and the Capital World Growth & Income ("Capital World") Fund. Under the plan, employees are eligible to collect their profit-sharing earnings along with their pension earnings upon termination, retirement, total and permanent disability, or death. During the years 2000 through 2002, the profit-sharing plan sustained losses of over $400,000.2
The plan also contains a pension component. Employees may defer up to fifteen percent of their salary for investment into the pension portion of the plan; Mid America matches that contribution dollar-for-dollar up to the legal limit of six percent of that deferral. The plan provides that plan participants may make limited investment directions as to the salary reduction and the employer-matched plan contributions (the "401(k) assets") by choosing to direct the investment of those assets among four funds marketed by American Funds: Euro-Pacific Growth Fund, The Growth Fund of America ("Growth Fund"), The Income Fund of America ("Income Fund") and The Cash Management Trust of America ("Cash Management Fund"). These options have not changed since 1991. During the calendar years of 2000, 2001 and 2002, the plan's 401(k) assets sustained investment losses of over $700,000.3
Mr. Yager testified in his deposition that he never reviewed the participants' individual 401(k) investment decisions. From 1991-2002, participants could change their investment directions only once per year. Beginning in 2002, participants could change investment directions once every six months. Prior to 2003, each plan participant received a form letter in November or December that set forth the participant's level of salary deferral and the funds in which the participant's 401(k) funds were invested. The letter further stated that the participant could make changes to the investment of their funds; those changes would be effective January 1 of the following year. Plan participants also were given a statement of the balance of their 401(k) assets once a year, after the end of the calendar year. Under this arrangement, as a practical matter, plan participants had to make investment choices for the following year before they knew how their earlier fund choices had performed in the previous year.
Additionally, Mid America conducted an annual meeting in December for all participants in the plan; at that meeting, Mr. Erksine explained the performance of the funds over the past year and the options available to participants, as well as answered any questions. However, Ms. Jenkins attended only one of these annual meetings during her employment with Mid America. The materials from this meeting also were left in the break room so that employees could review them. Mr. Erskine also stated that he was available in person and by telephone in his office to answer any questions about the four funds; there is no indication from the record that Ms. Jenkins availed herself of his services.
Ms. Jenkins brought this action against Mr. Yager and Mid America, alleging that Mr. Yager's performance fell below the standard imposed on ERISA trustees. The district court denied Ms. Jenkins' motion for summary judgment on December 7, 2004. In doing so, the district court quoted Ms. Jenkins' summary of her position:
By [1] providing plan participants with unduly restrictive means to direct investments, by [2] failing to prudently monitor the [p]lan's investments, and by [3] failing to operate the [p]lan according to ERISA, Yager and Mid America breached their fiduciary duties to the [p]lan.
The district court began by discussing Ms. Jenkins' third contention. Section 403 of ERISA, 29 U.S.C. § 1103(a), states that "all assets of an employee benefit plan shall be held in trust by one or more trustees," and that those named trustees "shall have exclusive authority and discretion to manage and control the assets of the plan." There are two explicit exceptions to this rule found in 29 U.S.C § 1103(a)(1) and § 1103(a)(2), although as discussed later, neither exception applies to the Mid America plan. Ms. Jenkins contended that Mr. Yager and Mid America had violated ERISA by delegating control over plan assets to plan participants. However, the district court noted that section 404(c) of ERISA absolves a fiduciary from liability caused by plan participants when the "pension plan ... provides for individual accounts and permits a participant or beneficiary to exercise control over the assets in his account." 29 U.S.C. § 1104(c)(1). The district court stated that "[a] plain reading of that language suggests that participant control is assumed permissible in the first instance, for the statute absolves a fiduciary of liability `in the case of' a plan providing for individual accounts and allowing participant control." R.34 at 5. The district court then held that an "implied exception" to ERISA's non-delegation provision in section 403 existed for plans that allow participant control, and therefore, Mr. Yager and Mid America did not violate section 403. Id.
Next, with respect to Ms. Jenkins' remaining claims, the district court determined that the record established that Mr. Yager did act prudently in selecting and monitoring investments. The district court noted that Mr. Yager had employed a long-term strategy for the investment of the 401(k) funds. He had chosen conservative and stable funds and had decided to remain invested in those funds during periods of market fluctuation. The court then determined that, because Mr. Yager had selected funds that were conservative and not volatile in the long-term, he had not breached his fiduciary duty for not "hastily retreating from that strategy in the face of what appears to have been nothing more than mere market fluctuation." Id. at 8. Additionally, the district court held that Mr. Yager had provided plan participants with all the information that they needed to make informed investment decisions and that he did not violate any duty in not providing additional advice or information. The district court did not address Mr. Yager's fiduciary duty with respect to the profit-sharing funds.
Although the district court denied Ms. Jenkins' motion for summary judgment, it did not grant, at that point, summary judgment to Mr. Yager and Mid America because they had not cross-moved for summary judgment. However, after the district court denied Ms. Jenkins' motion for summary judgment, Ms. Jenkins determined that, based on the district court's interpretation of the law, she could not prevail at trial. Ms. Jenkins stipulated that the defendants' memorandum in opposition to summary judgment could be treated as a motion for summary judgment. In this stipulation, she reserved her right to appeal any final order granting defendants' cross-motion for summary judgment. As a result of the stipulation, the district court granted summary judgment to the defendants and dismissed Ms. Jenkins' claims with prejudice.
We review a district court's grant of summary judgment de novo, drawing all reasonable inferences in the light most favorable to the non-moving party. Vallone v. CNA Fin. Corp., 375 F.3d 623, 631 (7th Cir.2004).
Ms. Jenkins submits that the Mid America plan, which allows plan participants to direct their 401(k) funds, violates ERISA provisions that forbid the delegation of trustee duties.
In evaluating Ms. Jenkins' submission, we begin with section 403(a) of ERISA. It states:
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