Maher v. Strachan Shipping Co.

• Decision Date: 14 November 1995
• Docket Number: No. 94-30618,94-30618
• Parties: 19 Employee Benefits Cas. 2297, Pens. Plan Guide P 23916E Warren A. MAHER, et al., Plaintiffs-Appellants, Cross-Appellees, v. STRACHAN SHIPPING COMPANY, et al., Defendants-Appellees, Cross-Appellants, United States of America, Intervenor.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 951

68 F.3d 951

19 Employee Benefits Cas. 2297, Pens. Plan Guide P 23916E

Warren A. MAHER, et al., Plaintiffs-Appellants, Cross-Appellees, v. STRACHAN SHIPPING COMPANY, et al., Defendants-Appellees,

Cross-Appellants,

United States of America, Intervenor.

No. 94-30618.

United States Court of Appeals, Fifth Circuit.

Nov. 14, 1995.

David B. Spizer, New Orleans, Steven K. Faulkner, Jr., Metairie, LA, for appellants.

Elizabeth Hopkins, Timothy Hauser, Allen H. Feldman, Nathaniel I. Spiller, U.S. Dept. of Labor, Plan Benefits Security Div., Washington, DC, for amicus curiae Secretary of Labor.

Howard Shapiro, Anne H. Breaux, Steven R. Cupp, David P. Bendana, McCalla, Thompson, Pyburn, Hymowitz & Shapiro, New Orleans, LA, for appellees.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before POLITZ, Chief Judge, and JONES and PARKER, Circuit Judges.

EDITH H. JONES, Circuit Judge:

When this class action was filed in 1992, the applicable ERISA statute of limitations, 29 U.S.C. Sec. 1113 (1987), barred cases six years after the breach occurred and three years after the earliest date on which a plaintiff "had actual knowledge of the breach or violation ..." The district court found that the plaintiffs' knowledge in 1987 that Strachan had purchased Executive Life annuities to replace their former retirement benefits plan tolled the three year statute of limitations period and time-barred their claims.

Accordingly, the central issue on appeal is whether the information known by the class members three years before the date suit was filed amounted to "actual knowledge of the breach or violation" for purposes of Sec. 1113(2)(A). We hold that for summary judgment purposes, it does not, and the lower court's grant of summary judgment must be reversed. We also reject Strachan's challenge to the impact of the Pension Annuities Protection Act of 1994 on appellants' standing.

BACKGROUND

Strachan Shipping Company ("Strachan") was the employer sponsor of a qualified retirement plan subject to the provisions of ERISA (the "Plan"). The Plan was a defined benefit plan established to provide retirement benefits for Strachan's employees and their beneficiaries. Strachan administered the Plan through its appointed retirement board, of which defendants/appellees Robert W. Groves III and Edwin L. Ennis were members. Groves was chairman of the board of directors as well as a member of the board's compensation committee. Ennis was the secretary/treasurer of Strachan and also served on the compensation committee. All appellees were fiduciaries of the plan.

By memorandum dated December 26, 1986, Ennis informed plan participants and beneficiaries that the plan was being reorganized. On April 17, 1987 and July 15, 1987, memoranda from Ennis advised plan participants and beneficiaries that the plan's reorganization was "designed to allow the company to utilize excess assets which have accumulated in the pension plan." The parties were assured that their benefits would not be "diminished in any way by this reorganization."

Shortly afterward, Strachan agreed to purchase a group single premium annuity contract from the now-infamous Executive Life for approximately $10,750,000 to cover the plan participants' benefits. As a Result of this purchase and the plan's termination, Strachan received a cash reversion of over $4,500,000. ¹

On November 1, 1987, Executive Life began paying monthly benefits to former plan participants and beneficiaries who were in pay status. The checks were in the same amounts as the checks previously received by beneficiaries, but they indicated that Executive Life was now the payor. Participants who were not in pay status first received their Executive Life Annuity Certificates from Strachan in May of 1989, along with a memorandum from Strachan informing participants that their benefits had been secured with "the purchase of a Group Annuity Contract from Executive Life Insurance Company."

On April 11, 1991, Executive Life was placed into conservatorship by the California Commissioner of Insurance. The Commissioner immediately reduced participants' annuity payments by thirty (30) percent. In August, 1992, appellants filed a class action pursuant to Section 502(a) of ERISA, 29 U.S.C. Sec. 1132(a), against Strachan and its officers alleging a breach of their fiduciary duties to plan participants and beneficiaries. ² See ERISA Secs. 404(a)(1)(A) and (B), Sec. 403(c)(1), 29 U.S.C. Secs. 1104(a)(1)(A) and (B), and Sec. 1103(c)(1).

The district court granted summary judgment to Strachan, holding that appellants had no standing or remedy under ERISA and that their suit is barred by the three-year statute of limitations. According to the court, the appellants were put on notice and had actual knowledge of the breach when After receiving the initial adverse judgment, the class moved for relief based on the October 22, 1994, passage of the Pension Annuitants Protection Act, which amended Section 502(a) of ERISA to make clear that annuitants have standing to obtain relief for violations of ERISA in connection with annuity purchases. Applying the amendment, the district court issued an order granting the plaintiffs' motion as to standing but reiterating the statute of limitations bar.

Strachan purchased the Executive Life annuities. The court emphasized that some of the members of the plaintiff class had indicated some "concern" about Executive Life more than three years before filing suit. And, for a similar period, some of the class had known that the plan's termination would enable Strachan to take an enhanced reversion because of Executive Life's low bid.

STANDARD OF REVIEW

This court reviews a district court's granting of summary judgment de novo, applying the same standard as the district court. Dupre v. Chevron U.S.A., 20 F.3d 154, 156 (5th Cir.1994). Summary judgment is proper if there is "no genuine issue as to any material fact" and the movant, Strachan, is entitled to judgment as a matter of law. Fed.R.Civ.Proc. 56(c); Green v. Touro Infirmary, 992 F.2d 537, 538 (5th Cir.1993).

DISCUSSION

A. Statute of Limitations

The ERISA statute of limitations is keyed respectively to the date the cause of action arose and the date the plaintiff had actual notice. Hogan v. Kraft Foods, 969 F.2d 142, 145 (5th Cir.1992). The statute specifies a two-step analysis of accrual of an ERISA action: first, when did the alleged breach or violation occur; and second, when did the plaintiff have actual knowledge of the breach or violation? Ziegler v. Connecticut General Life Ins. Co., 916 F.2d 548, 550 (9th Cir.1990).

In this case, Strachan's selection process for an annuity provider ended on August 6, 1987, with the signing of a Letter Agreement with Executive Life to purchase a group annuity contract. Both sides acknowledge that the alleged breach occurred on that date. Ziegler, 916 F.2d at 551 (the culpability resulting from the breach of ERISA fiduciary duty arises with the contract's creation). Under the first step of analysis, the Maher class filed their action within six years of August 6, 1987.

The second step requires a determination whether the class had actual knowledge of the breach more than three years before the complaint was filed. Because suit was filed in August 1992, the claim is time barred only if appellants had actual knowledge of the breach before August 1989. As to both participants in the Plan and beneficiaries in pay status, the district court equated mere knowledge of Strachan's purchase of annuities from Executive Life with actual knowledge of the alleged breach of fiduciary duty. Each group had actual knowledge early enough to bar their claims under this analysis.

This court recently adopted a test articulated by the Third Circuit for applying the three-year time bar. Reich v. Lancaster, 55 F.3d 1034, 1057 (5th Cir.1995) (district court did not err in finding tax forms did not provide plaintiffs actual knowledge of breach of fiduciary duty or ERISA violation). The Third Circuit held:

[a]ctual knowledge of a breach or violation requires that a plaintiff have actual knowledge of all material facts necessary to understand that some claim exists, which facts could include necessary opinions of experts, knowledge of a transaction's harmful consequences, or even actual harm.

Gluck v. Unisys Corp., 960 F.2d 1168, 1177 (3d Cir.1992).

Later, the Third Circuit elaborated its formula; stating:

[actual knowledge] requires a showing that plaintiffs actually knew not only of the events that occurred which constitute the breach or violation but also that those events supported a claim for breach of fiduciary duty or violation under ERISA.

Int'l Union v. Murata Erie North America, 980 F.2d 889, 900 (3d Cir.1992). Based on

this test, the Third Circuit held that the defendant fiduciary failed to make the showing of actual knowledge necessary to meet the "stringent requirement" imposed by ERISA Sec. 413(2), 29 U.S.C. Sec. 1113(2). Id. at 901.

Application of this actual knowledge standard makes it difficult to conceive how appellants' claims would be barred as a matter of law by their knowledge of the transfer of plan assets into an annuity contract with a company that received some unfavorable publicity. The Ninth Circuit recently dealt with a similar issue in Waller v. Blue Cross of California, 32 F.3d 1337 (9th Cir.1994), which involved the termination of an ERISA plan replaced by annuities purchased from Executive Life. ³ The court declined to equate plaintiffs' knowledge of the purchase of annuities with actual knowledge of the alleged breach of fiduciary duty, reasoning that the disclosure of a transaction that is not inherently a statutory breach of fiduciary duty cannot communicate the existence of an underlying breach. Id. at 1341, citing Fink v. Nat'l Savings and Trust Co., 772 F.2d 951, 957 (D.C.Cir.1985).

In reaching its finding there was no genuine issue of...