Lanfear v. Home Depot, Inc.

• Decision Date: 31 July 2008
• Docket Number: No. 07-14362.,07-14362.
• Citation: 536 F.3d 1217
• Parties: Raymond A. LANFEAR, Terry Clark, Randall W. Clark, Plaintiffs-Appellants, v. HOME DEPOT, INC., Robert L. Nardelli, John I. Clendenin, Milledge A. Hart, III, Kenneth G. Langone, et al., Defendants-Appellees, Larry M. Mercer, et al., Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

536 F.3d 1217

Raymond A. LANFEAR, Terry Clark, Randall W. Clark, Plaintiffs-Appellants, v. HOME DEPOT, INC., Robert L. Nardelli, John I. Clendenin, Milledge A. Hart, III, Kenneth G. Langone, et al., Defendants-Appellees, Larry M. Mercer, et al., Defendants.

No. 07-14362.

United States Court of Appeals, Eleventh Circuit.

July 31, 2008.

Jeffrey M. Norton, Harwood Feffer, LLP, New York City, Geoffrey M. Johnson, Chagrin Falls, OH, Lisa T. Millican, Greenfield Millican, P.C., Atlanta, GA, David R. Scott, Scott & Scott, Amanda F. Lawrence, Colchester, CT, Thomas J. McKenna, Gainey & McKenna, New York City, for Plaintiffs-Appellants.

Darren A. Shuler, David Tetrick, Jr., Joseph P. Rockers, Michael R. Smith, King & Spalding, Atlanta, GA, for Defendants-Appellees.

Appeal from the United States District Court for the Northern District of Georgia.

Before EDMONDSON, Chief Judge, PRYOR, Circuit Judge, and JOHNSON,^* District Judge.

PRYOR, Circuit Judge:

This appeal presents an issue of first impression in this circuit: whether a complaint for breach of fiduciary duty regarding the diminution of value of a defined contribution retirement plan states a claim for benefits under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1461. The plaintiffs, former employees of The Home Depot, Inc., filed a complaint against Home Depot and its officials for breach of fiduciary duty in the administration of a retirement plan. The former employees have received their benefit payments, but they complain that the payments were less than they should have been. The district court dismissed the complaint with prejudice for lack of subject-matter jurisdiction on the ground that the complaint was for damages, not benefits, and the former employees did not qualify as "participants" entitled to sue for breach of fiduciary duty. The district court concluded alternatively that the former employees had failed to exhaust their available administrative remedies, but the district court did not decide whether it should dismiss the complaint without prejudice on that ground or stay the action to allow the former employees to pursue their administrative remedies.

We disagree with some of what the district court decided and agree with other aspects of its ruling, but we are unable to resolve all of the issues in this appeal. We conclude that the district court erred when it treated the threshold issue as one of subject-matter jurisdiction and when it dismissed the former employees' complaint with prejudice. We conclude that a complaint for breach of fiduciary duty that seeks restitution of the diminished value of a defined contribution plan is for benefits, not damages. Although we agree with the district court that the former employees failed to exhaust their administrative remedies, we remand this matter for the district court to determine, in the first instance, whether to dismiss the complaint without prejudice or stay the litigation to allow the former employees to pursue their administrative remedies. We reverse in part, affirm in part, and remand.

I. BACKGROUND

Home Depot offers its employees a retirement plan in which assets are allocated to the account of each participant. The board of directors of Home Depot appoints both the investment committee and the administrative committee for the plan. The investment committee makes decisions regarding the investment of plan assets, and the administrative committee is responsible for the administration of the plan, including claims determinations.

The plan provides defined contributions instead of defined benefits. In a plan for defined benefits, a formula is used to compute the benefits owed to the participant. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439-40, 119 S.Ct. 755, 761, 142 L.Ed.2d 881 (1999). The amount of benefits to which a participant is entitled is not affected by the value of the plan assets. See id. In a plan for defined contributions, a formula determines the amount that the employer is required to contribute, but no formula is used to determine the amount of benefits. See id. at 439, 119 S.Ct. at 761. The participant is entitled to the value of the assets in his account, whatever that value may be. See id.

The former employees complained that Home Depot violated its fiduciary duty by allowing the plan to invest in Home Depot stock even though corporate officials were backdating stock options and making fraudulent transactions, which artificially inflated the value of Home Depot stock. The complaint named as defendants Home Depot, current and former members of the investment committee and the administrative committee of the plan, and current and former members of the board of directors of Home Depot. In their request for relief, the former employees sought to compel the defendants to restore to the plan all losses that resulted from a breach of fiduciary duty, all profits that a breach of fiduciary duty prevented the plan from realizing, and all profits made through the misuse of plan assets. They requested that the court allocate to their individual accounts a proportionate amount of the restitution of plan losses.

The former employees filed their complaint on behalf of all plan participants for the period on and after June 30, 2001. The complaint was filed in the Eastern District of New York, but the action was transferred to the Northern District of Georgia. None of the former employees pursued administrative remedies before filing the complaint.

Home Depot moved to dismiss the complaint on the grounds that the former employees did not qualify as participants of the plan under ERISA, failed to exhaust their administrative remedies, and failed to state a claim on which relief could be granted. The district court dismissed the complaint with prejudice under Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction because the plaintiffs did not qualify as participants of the plan, 29 U.S.C. § 1132(a)(2), and, as a result, lacked statutory standing to sue for breach of fiduciary duty, 29 U.S.C. § 1109. Alternatively, the district court found that, under Rule 12(b)(6), the former employees' failure to exhaust their administrative remedies precluded relief. The district court declined to consider whether to stay the litigation to allow the former employees to pursue their administrative remedies.

II. STANDARDS OF REVIEW

We review de novo a dismissal for lack of subject-matter jurisdiction. Elend v. Basham, 471 F.3d 1199, 1204 (11th Cir.2006). We review de novo whether former employees qualify as participants of a plan under ERISA. See United States v. Haun, 494 F.3d 1006, 1008 (11th Cir.2007) (citing United States v. Searcy, 418 F.3d 1193, 1195 (11th Cir.2005)). Whether the requirement of exhaustion of administrative remedies applies to a claim is a question of law that we review de novo. See Mason v. Cont'l Group, Inc., 763 F.2d 1219, 1224-27 (11th Cir.1985). We review for a clear abuse of discretion the decision whether to excuse the failure to exhaust administrative remedies. Perrino v. S. Bell Tel. & Tel. Co., 209 F.3d 1309, 1315 (11th Cir.2000).

III. DISCUSSION

The former employees make two arguments on appeal. First, the former employees argue that the district court erred when it concluded that they did not qualify as participants and lacked standing to sue for breach of fiduciary duty. Second, the former employees argue that the district court erred when it determined that the plaintiffs were required to exhaust their administrative remedies and clearly abused its discretion when it declined to excuse their failure to exhaust administrative remedies. We discuss each argument in turn and then discuss the disposition of this appeal.

A. The Former Employees Are Participants of the Plan Entitled To Sue for Breach of Fiduciary Duty.

Our discussion about the standing of the former employees is divided in two parts. First, we discuss whether the status of the former employees as participants implicates the subject-matter jurisdiction of the district court or is a question about the merits of the action. Second, we discuss whether the former employees qualify as participants under ERISA. The latter issue turns on whether the former employees assert a claim for benefits or damages.

The district court erroneously dismissed the former employees' complaint for lack of subject-matter jurisdiction. When a plaintiff makes a plausible argument that a federal statute creates his right to relief, the district court has subject-matter jurisdiction over that complaint. In Blue Cross & Blue Shield of Alabama v. Sanders, we explained that whether the plaintiff qualified as a fiduciary entitled to bring an action under section 1132(a)(3) of ERISA involved the merits of the case, not subject-matter jurisdiction, because the argument of the plaintiff in favor of fiduciary status was plausible. 138 F.3d 1347, 1351-53 & nn. 4 & 5 (11th Cir.1998). We relied on Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946), for the proposition that "a federal court may dismiss a federal question claim for lack of subject-matter jurisdiction only if: (1) `the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction'; or (2) `such a claim is wholly insubstantial and frivolous.'" Sanders, 138 F.3d at 1352 (quoting Bell, 327 U.S. at 682-83, 66 S.Ct. at 776).

Our decision in Sanders controls here. The former employees plausibly argue that they are participants entitled to sue for breach of fiduciary duty. Because the former employees' argument for participant status is plausible, the district court had subject-matter jurisdiction. Whether the former employees qualify as participants involves the merits of the appeal. The district court erred when it concluded that it lacked subject-matter jurisdiction over this complaint.

The former employees argue...