Kayes v. Pacific Lumber Co.
| Decision Date | 10 April 1995 |
| Docket Number | Nos. 93-16271,93-16575,s. 93-16271 |
| Citation | 51 F.3d 1449 |
| Parties | , 19 Employee Benefits Cas. 1116, Pens. Plan Guide P 23907Z Clarence KAYES; Gene Kennedy; Sharon Kennedy; Wiley Lacy; John R. Maurer; Lester Reynolds; Shirley Reynolds; Hollis Rollins; Donald Filby; Jack Miller; James Lovell; Paul S. Brady; Wilfred A. Blain; Lloyd S. Tucker; Donald J. Schoenhofer, Plaintiffs-Appellants, v. PACIFIC LUMBER COMPANY; Maxxam Group, Inc.; Maxxam, Inc.; Charles Hurwitz; Paul N. Schwartz; James Iaco; William Leone, Defendants-Appellees. Clarence KAYES; Gene Kennedy; Sharon Kennedy; Wiley Lacy; John R. Maurer; Lester Reynolds; Shirley Reynolds; Hollis Rollins; Donald Filby; Jack Miller; James Lovell; Paul S. Brady; Wilfred A. Blain; Lloyd S. Tucker, Plaintiffs-Appellees, v. PACIFIC LUMBER COMPANY; Maxxam Group, Inc.; Maxxam, Inc.; Charles Hurwitz; Paul N. Schwartz; James Iaco; William Leone, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Alfred H. Sigman, Sigman, Lewis & Feinberg, Oakland, CA, for plaintiffs-appellants-cross-appellees.
Kathleen V. Fisher and James F. McCabe, Morrison & Foerster, San Francisco, CA, for defendants-appellees-cross-appellants.
Timothy Hauser, U.S. Dept. of Labor, Washington, DC, for amicus Secretary of Labor.
Warren Gorlick, American Ass'n of Retired Persons, Washington, DC for amicus American Ass'n of Retired Persons.
Appeals from the United States District Court for the Northern District of California.
Before: CHOY, POOLE, and REINHARDT, Circuit Judges.
I. FACTUAL AND PROCEDURAL BACKGROUND
This appeal arises out of an action brought by Plaintiffs under the Employee Retirement Income and Security Act ("ERISA"), 29 U.S.C. Sec. 1001 et seq., on behalf of beneficiaries and participants of the Pacific Lumber Company Pension Plan ("the Plan"). Plaintiffs are former employees, or eligible spouses of former employees of Pacific Lumber Company ("PLC") or of its subsidiaries. Defendant Charles Hurwitz is principal owner of Maxxam, Inc. ("Maxxam"), which owns Maxxam Group Inc. ("MGI"), which in turn owns PLC. Maxxam and MGI are also defendants. Defendant William Leone is the former President and CEO of PLC, and former director of Maxxam and MGI. Defendants Schwartz and Iaco are present or former executives of Maxxam or MGI. 1
This action was filed in response to the termination in 1986 of the Plan, and the subsequent purchase by PLC of a group annuity contract from Executive Life Insurance Company ("ELIC"). The Plan termination followed the successful hostile takeover of PLC by MGI in the fall of 1985. The takeover was financed by $450 million in "junk" bonds, nearly $100 million of which were purchased by ELIC.
Effective March 31, 1986, PLC terminated the Plan. Pursuant to the Plan's terms, the Plan's fiduciaries chose to pay lump sums to Plan participants with less than $3,500 in vested benefits. For the rest of the participants and beneficiaries, PLC initiated a bidding procedure to obtain a group annuity contract to pay vested retirement benefits. ELIC was added to the list of potential bidders at Hurwitz's insistence. On October 1, 1986, despite negative evaluations (the details of which are relevant to the underlying lawsuit, but not to the outcome of this appeal), ELIC was selected to provide the group annuity. ELIC's bid was the lowest offered, $2.7 million lower than the next lowest bid. In accepting this bid, $62 million in "surplus" Plan assets were captured by defendants pursuant to the terms of the Plan.
Plaintiffs filed this suit on September 25, 1989, contending that the above transactions were in violation of the fiduciary duties of ERISA Sec. 404, 29 U.S.C. Sec. 1104, and constituted prohibited transactions under ERISA Sec. 406, 29 U.S.C. Sec. 1106.
ELIC was taken over by the State of California on April 11, 1991, due to its precarious financial condition. Payments were suspended for a short time, and resumed at 70% in May. Subsequently, a Stipulated Order was entered on August 14, 1991, under which PLC agreed to make up retroactively and progressively any shortfall in payments due from ELIC, provide Plaintiffs' counsel with 45 days notice prior to termination of such payments, and notify all Plan participants of pendency of the litigation and of the terms of the agreement. 2 The California conservatorship concluded with the transferring of all of ELIC's "restructured" liabilities to a newly formed Aurora Life Assurance Co. Aurora's financial stability is undetermined at this point.
On June 12, 1991, the Secretary of Labor filed an action against the same defendants alleging violations of ERISA Secs. 404 & 403, 29 U.S.C. Secs. 1104 & 1103, based on the purchase and selection of an annuity. Reich v. Pacific Lumber Co., No. C-91-1812-SBA (N.D.Cal. filed June 12, 1991). The two actions were not formally consolidated, but were treated as related cases and proceeded concurrently pursuant to the same pretrial order.
On March 8, 1993, Defendants moved for summary judgment on the grounds that ERISA's fiduciary duty provisions are inapplicable to the selection of an annuity provider and that the McCarran-Ferguson Act, 15 U.S.C. Secs. 1011-1015, precludes relief. The district court rejected both these assertions. PLC has filed a cross-appeal solely as to the holding regarding the McCarran-Ferguson Act.
On April 14, 1993, the district court denied Plaintiffs' request for class certification, finding that the action instead had to be maintained as a derivative suit pursuant to Fed.R.Civ.P. 23.1, and ordered Plaintiffs to file an amended complaint. The district court also dismissed certain named plaintiffs as inadequate representatives, and ordered Plaintiffs' counsel to withdraw from representing certain persons and entities with whom it found potential for conflicts of interest. Plaintiffs appeal this order in its entirety.
On May 11, 1993, Defendants moved for summary judgment on the two Sec. 406 prohibited transactions claims. This motion was granted. Plaintiffs appeal this judgment.
On May 17, 1993, the district court held that PLC, Hurwitz, and Leone were fiduciaries as a matter of law, and that summary judgment as to the fiduciary status of the other defendants could not be determined as a matter of law due to unresolved issues of fact. PLC cross-appeals this order. In the same order, the district court held that Plaintiffs were no longer participants or beneficiaries under ERISA because the group annuity purchase provided them with an irrevocable commitment to payment of all vested benefits. Therefore, the district court held that they lacked standing to sue for any breach of fiduciary duty in the choice of the group annuity. On July 17, 1993, this holding was affirmed on reconsideration. Plaintiffs appeal this order.
Plaintiffs made two motions for interim attorneys fees, on June 13, 1992 and on July 26, 1993. Both were denied on the basis that they were premature; the second was also denied for lack of standing. Plaintiffs appeal this holding.
II. DISCUSSION
The district court held that Plaintiffs lacked standing to sue within the meaning of 29 U.S.C. Sec. 1132(a)(2) as they were no longer "participants" of a pension plan because the Plan had terminated prior to their commencing this action. Standing is a question of law which we review de novo. Ellis v. City of La Mesa, 990 F.2d 1518, 1523 (9th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 2707, 129 L.Ed.2d 834 (1994).
ERISA Sec. 502(a)(2), 29 U.S.C. Sec. 1132(a)(2), provides: "A civil action may be brought--(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title." A participant is defined as "any employee or former employee of an employer or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan." ERISA Sec. 3(7), 29 U.S.C. Sec. 1002(7). The district court followed this court's reasoning in Kuntz v. Reese, 785 F.2d 1410 (9th Cir.) (per curiam), cert. denied, 479 U.S. 916, 107 S.Ct. 318, 93 L.Ed.2d 291 (1986), which held that former pension plan participants and beneficiaries who had received all of the vested benefits owed to them under the plan no longer had standing to sue on behalf of the terminated plan. The Kuntz court reasoned:
Kuntz plaintiffs are not participants because, as former employees whose vested benefits under the plan have already been distributed in a lump sum, the Kuntz plaintiffs were not "eligible to receive a benefit," and were not likely to become eligible to receive a benefit, at the time that they filed the suit. Because, if successful, the plaintiffs' claim would result in a damage award, not in an increase of vested benefits, they are not plan participants.... any recoverable damages would not be benefits from the plan.
Id. at 1411. The district court declined to apply an exception to the Kuntz holding created in Amalgamated Clothing & Textile Workers Union, AFL-CIO v. Murdock, 861 F.2d 1406, 1408 (9th Cir.1988), which permitted former plan participants to pursue the equitable remedy of a constructive trust imposed on the plan fiduciary's ill-gotten profits.
Congress has since directly addressed the ability of former pension plan participants and beneficiaries to bring suit under ERISA. The Pension Annuitants Protection Act of 1994 ("PAPA"), Pub.L. No. 103-401 (Oct. 22, 1994), amends ERISA Sec. 502(a), 29 U.S.C. Sec. 1132(a), to clarify that former participants or beneficiaries of terminated pension plans have standing to seek relief where, as here, a fiduciary breach has occurred involving the purchase of insurance contracts or annuities in connection with their termination as plan participants. 3 Section 2 of PAPA, 29 U.S.C. Sec. 1132(a)(9), provides:
[ (a) A Civil action may be...
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