Martinez v. Schlumberger, Ltd.

Decision Date09 July 2003
Docket NumberNo. 02-20173.,02-20173.
Citation338 F.3d 407
PartiesWilliam MARTINEZ; Frank Ditta; and Lafayette Kirksey, Plaintiffs-Appellants, v. SCHLUMBERGER, LTD.; and Schlumberger Technology Corp., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Martin A. Shellist (argued), Shellist, Lore & Lazarz, Houston, TX, for Plaintiffs-Appellants.

Tony P. Rosenstein, Katherine Traverse Vukadin (argued), Baker Botts, Houston, TX, for Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Texas.



This case presents the question whether the Employee Retirement Income Security Act of 1974 ("ERISA")1 imposes upon a company that acts as administrator of its employee benefit program a duty to truthfully disclose, upon inquiry from plan participants or beneficiaries, whether it is considering amending the benefit plan. Although the majority of other circuits have already confronted this issue,2 it is one of first impression for our circuit. In line with the majority rule of other circuits, the district court concluded that such a duty does not arise until the company is "seriously considering" a plan change, and granted summary judgment for the defendant employer based on its conclusion that the employer was not seriously considering the plan change at the time the employee plaintiffs inquired about whether the company intended to amend the benefit program. We affirm, although for reasons different from those relied upon by the district court.


William Martinez, Frank Ditta, and Lafayette Kirksey, long-time employees of Schlumberger Ltd. and Schlumberger Technology Corp., collectively "Schlumberger," took early retirement effective July 1, 1998. Prior to July 1, each had asked personnel representatives at Schlumberger whether the company planned to implement an enhanced retirement incentive program, and personnel told them that they knew nothing about a new plan. However, only a month after their retirement, on July 27, 1998, Schlumberger announced a new voluntary early retirement plan, or "VERP," that provided an additional year of salary not included in the old VERP under which the plaintiffs retired. Because they had terminated their employment with Schlumberger prior to July 27, 1998, they were ineligible for the additional benefits of the new VERP.

The plaintiffs sued Schlumberger in Texas state court for fraud, fraudulent inducement, negligence, and gross negligence, alleging that Schlumberger had falsely told each of them that no new VERP was under consideration before they separately elected to take early retirement. Schlumberger removed the suit to federal court and then moved for summary judgment, arguing that ERISA preempted the plaintiffs' claims. The plaintiffs conceded that ERISA preempted their state law causes of action, but argued that the court should construe their claims as alleging breach of fiduciary duty under ERISA.

Considering the suit as one for breach of fiduciary duty, the trial court reasoned that a company need not truthfully disclose the fact that it is considering adopting a plan change unless it is "seriously considering" such a change. This does not occur until three criteria are present: There is (1) a specific proposal (2) that is being discussed for purposes of implementation (3) by senior management with the authority to implement the change. The district court concluded that Schlumberger did not begin seriously considering the plan change until a few weeks after the last of the plaintiffs had inquired about a possible change, and granted summary judgment in Schlumberger's favor.3 The plaintiffs have timely appealed.


We review a grant of summary judgment de novo, applying the same standards as the district court.4 Summary judgment may be granted only if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.5 The moving party bears the burden of identifying an absence of evidence to support the nonmoving party's case.6 In determining whether summary judgment is appropriate, we must view all of the evidence introduced and all of the factual inferences from the evidence in a light most favorable to the party opposing the motion, and resolve all reasonable doubts about the facts in favor of the nonmoving party.7


It is well-known that Congress enacted ERISA to protect employees' rights to benefits while also encouraging employers to develop employee benefits programs.8 To that end, ERISA provides a "broad federal regulatory scheme governing the operation of privately sponsored employee benefit plans."9 Its fiduciary duty and reporting and disclosure requirements are crucial components of this scheme.10 In regard to reporting and disclosure, ERISA provides specific rules governing the information that must be provided to participants and beneficiaries as well as to certain government agencies.11

The summary plan description is one of the central ERISA disclosure requirements.12 A plan administrator must provide a summary plan description to an individual within ninety days of his or her becoming a participant.13 The description must be written in a manner "calculated to be understood by the average plan participant" and must be "sufficiently comprehensive to apprise the plan's participants and beneficiaries of their rights and obligations under the plan."14 ERISA also mandates that administrators provide a summary description of any material plan modification within 210 days after the end of the plan year in which the change was adopted.15

Apart from the ERISA disclosure rules plan administrators are also subject to fiduciary duties.16 Section 404(a)(1) of ERISA incorporates strict standards of trustee conduct, derived from the common law of trusts, including a standard of loyalty and a standard of care:

Under the former, a plan fiduciary "shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of providing benefits to participants and their beneficiaries... and ... defraying reasonable expenses of administering the plan." Under the latter, a fiduciary "shall discharge his duties with respect to a plan... with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims."17

Other than including these general dictates, ERISA does not expressly enumerate the particular duties of a fiduciary, but rather "relies on the common law of trusts to define the general scope of a fiduciary's responsibilities."18 As a result, "[t]he express language of ERISA provides little indication as to whether there is ever a fiduciary duty to disclose information to participants and beneficiaries," and "[n]either ERISA's fiduciary duty nor reporting and disclosure rules directly address the relationship between" one another.19

Although trust principles impose a duty of disclosure upon an ERISA fiduciary when there are "`material facts affecting the interest of the beneficiary which [the fiduciary] knows the beneficiary does not know'" but "`needs to know for his protection,'"20 this does not answer the question whether an employer-administrator has a duty to disclose potential, as opposed to current, benefit plan provisions. The question is complicated by the fact that ERISA allows an employer to act as a plan administrator, leaving open the potential that the employer could be subject to conflicting loyalties in such a situation: "A loyalty to do what is in the best interest of the company, and a fiduciary duty of loyalty to do what is in the best interest of the [participants and beneficiaries]."21 As the Supreme Court has noted, although a traditional trustee "is not permitted to place himself in a position where it would be for his own benefit to violate his duty to the beneficiaries[, u]nder ERISA ... a fiduciary may have financial interests adverse to beneficiaries."22 Thus, employers "can be ERISA fiduciaries and still take actions to the disadvantage of employee beneficiaries, when they act as employers (e.g., firing a beneficiary for reasons unrelated to the ERISA plan), or even as plan sponsors (e.g., modifying the terms of a plan as allowed by ERISA to provide less generous benefits)."23

To assist in resolving this potential conflict, the Supreme Court created the "two hats" doctrine, which acknowledges that the employer is subject to fiduciary duties under ERISA only "to the extent" that it performs three specific functions identified by Congress:24 (i) exercising "any discretionary authority or discretionary control respecting management of [a benefits] plan or exercis[ing] any authority or control respecting management or disposition of its assets"; (ii) rendering "investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan," or having "any authority or responsibility to do so"; or (iii) having "any discretionary authority or discretionary responsibility in the administration of" the plan.25 Therefore, in suits charging breach of fiduciary duty under ERISA, "the threshold question is not whether the actions of some person employed to provide services under a plan adversely affected a plan beneficiary's interest, but whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint."26


"A plan participant may bring suit for breach of fiduciary duty to obtain `appropriate equitable relief' to redress violations of ERISA."27 Although we have not yet addressed whether ERISA imposes a fiduciary duty upon an employer to truthfully...

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