Pilkington PLC v. Perelman
| Citation | 72 F.3d 1396 |
| Decision Date | 27 December 1995 |
| Docket Number | No. 93-55573,93-55573 |
| Parties | , 19 Employee Benefits Cas. 2494, 95 Cal. Daily Op. Serv. 9859, 95 Daily Journal D.A.R. 17,163, Pens. Plan Guide P 23915O PILKINGTON PLC; Pilkington Visioncare, Inc.; Pilkington Visioncare Pension Plan, Plaintiffs-Appellants, v. Ronald O. PERELMAN; Howard Gittis; Jewel S. LaFontant; Bruce Slovin; Fred R. Sullivan; Pierre A. Rinfret; Revlon, Inc., Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Janis L. Harwell and M. Scott Donahey, Holtzmann, Wise & Shepard, Palo Alto, California, for plaintiffs-appellants.
Frank Rothman, Harriet S. Posner, Kenneth A. Ostrow, Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California, for defendants-appellees.
Lauren M. Serper, United States Department of Labor, Washington, D.C., for amicus curiae.
Appeal from the United States District Court for the Central District of California.
Before: FEINBERG, * SCHROEDER, and KOZINSKI, Circuit Judges.
Opinion by Judge SCHROEDER; Dissent by Judge KOZINSKI.
This is a suit under the Employee Retirement Income Security Act of 1974, 29 U.S.C. Secs. 1001, et seq. ("ERISA"), claiming damages for alleged breaches of fiduciary duties imposed by the Act. Plaintiffs include Pilkington, a British corporation that purchased the "Visioncare" companies from the defendant Revlon corporation; Pilkington's American subsidiary, Pilkington Visioncare, Inc., which now operates these companies and administers their pension plan; and the Pilkington Visioncare Pension Plan, an ERISA plan. Plaintiffs sued the trustees of their predecessor plan to recover damages representing benefits owed to Visioncare employees under their ERISA plan. The defendants are the Revlon Corporation and its various officers who were trustees of the predecessor Revlon ERISA plan. Plaintiffs seek to recoup in this action benefit payments that represent obligations to former Revlon employees that Pilkington inherited when it purchased Revlon's subsidiary Visioncare companies. The annuity provider, Executive Life Insurance Company, chosen by the defendants, never paid the plan beneficiaries the benefits owed to them under the plan because Executive Life defaulted on its annuity contract. Pilkington Visioncare and the Visioncare Pension Plan made up the shortfall in Executive Life's payments by making direct payments to the Plan beneficiaries. Plaintiffs claim that the payments were necessitated by defendants' earlier breaches of fiduciary duty to the predecessor plan.
The district court granted the defendants' motion for summary judgment on the ground that the plaintiffs lacked standing under ERISA to sue the trustees of the predecessor Revlon plan. The district court recognized that 29 U.S.C. Sec. 1132(a) of ERISA grants standing to "fiduciaries" but held that such standing exists to sue only other fiduciaries of the same plan, not fiduciaries of any other plan, even fiduciaries of a predecessor plan. As an alternative ground for its grant of summary judgment, the district court held that even if plaintiffs had standing under ERISA, the defendants were entitled to summary judgment on the merits because there was no genuine issue of material fact and, as a matter of law, defendants had not breached any fiduciary duties.
Revlon chose Executive Life to fund an annuity contract when Revlon decided in 1985 to terminate or "spin-off" its over-funded pension plan. The spin-off was accomplished by purchasing an annuity contract intended to cover the obligations to the Revlon plan participants and beneficiaries. The Department of Labor has appeared amicus curiae in this action because the Secretary is plaintiff in a number of other actions seeking to recover benefits for beneficiaries of plans damaged by Executive Life's collapse. In this case, the principal claim on the merits is that the defendant trustees of Revlon breached their fiduciary duties when they chose Executive Life as the annuity contract provider.
We hold that the plaintiff fiduciaries of the Pilkington Visioncare Pension Plan have standing to pursue this action against the predecessor plan's fiduciaries whose alleged violations of duty caused plaintiffs' plan to suffer losses. We reverse on the merits because there exist genuine issues of material fact as to whether defendants breached their fiduciary duties under ERISA.
In December of 1985, shortly after a hostile takeover of Revlon, Revlon's Board of Directors decided to terminate the company's pension plan by purchasing an annuity contract to cover the pension benefits owed to Revlon's plan participants and beneficiaries. At the time, the plan covered the employees of Revlon's subsidiaries and affiliated companies. Containing nearly $200 million in assets, the plan was over-funded. Under the new Revlon plan, the same employees were to be covered and provided with the same benefits, through the annuity purchase.
Revlon solicited bids as part of its annuity selection process, aided by Hewitt Associates, an actuarial consulting firm. Before inviting bids from a spectrum of insurance carriers, Revlon asked Executive Life to submit a price quote for the annuity contract. Revlon made an advance, refundable deposit of $18 million toward the purchase of an Executive Life contract prior to the official opening of the bidding process to other insurance carriers. Of the four carriers that eventually submitted bids, Executive Life submitted the lowest by over $13 million. All four carriers that submitted bids were rated AAA or A+ by Standard & Poors and A.M. Best, respectively. Revlon chose to purchase Executive Life's annuity at its $85 million bid price, which resulted in a reversion of the remainder $100+ million in plan assets to Revlon.
In September 1987, Pilkington, a British corporation, purchased the "Visioncare" companies from Revlon. Pilkington's American subsidiary, Pilkington Visioncare, Inc., now operates these companies. Prior to the sale, the Visioncare employees were covered by Revlon's new, post-spin-off pension plan.
As part of the Pilkington/Revlon transaction, the new Revlon plan was to transfer a "paid up annuity contract" to the Visioncare Pension Plan to cover pension liability related to Visioncare employees. By the time Revlon tendered the certificates of insurance, Executive Life was in default on the annuity contract and collapsed soon thereafter.
Plaintiffs alleged in their complaint that by selecting Executive Life, Revlon violated its twin duties of prudence and loyalty owed to plan beneficiaries and participants under ERISA. See 29 U.S.C. Sec. 1104(a)(1)(A). The issues on appeal center on (1) whether plaintiffs have standing under ERISA to sue the fiduciaries of the predecessor Revlon plan and (2) if so, whether the district court properly granted defendants summary judgment on the merits.
The first issue on appeal is whether any of the plaintiffs have standing to sue the defendants for the asserted violations of fiduciary duty ERISA imposed upon the defendants who were fiduciaries of the predecessor Revlon plan. The plaintiffs include fiduciaries of the Pilkington Visioncare Pension Plan who succeeded to all of the assets and liabilities of the Revlon plan. The plaintiffs assert that the defendants' bad judgment, fueled by greed, drove the selection of Executive Life as the carrier. The plaintiffs ground their standing upon 29 U.S.C. Sec. 1132(a), which expressly authorizes suits to enforce ERISA's provisions to be brought by fiduciaries as well as three other classifications of persons: participants, beneficiaries, and the Secretary of Labor. 1
The district court held that none of the plaintiffs had standing. It did so on the principal ground that ERISA authorizes suits by fiduciaries only against other fiduciaries of the same plan, and therefore does not authorize fiduciaries to sue fiduciaries of a predecessor plan. The defendants-appellees urge such a limitation should apply even in a case like this, in which the predecessor fiduciaries are alleged to have caused injury to the plan that plaintiffs administer. The statute does not contain any express limitation on suing fiduciaries of other plans, and applying such a limitation in this case could hardly further Congress' intent to impose strict fiduciary duties on administrators of ERISA plans. See 29 U.S.C. Sec. 1001(b); Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570, 105 S.Ct. 2833, 2840, 86 L.Ed.2d 447 (1985) (). If we were to read such a limitation into the statute, we would hold, in effect, that fiduciaries can insulate themselves from liability for breaches of substantive statutory obligations by effecting a spin-off, merger, or other formal change of the trust entity.
To support their argument against standing, the defendants contend we are controlled by a tenet of the Supreme Court's opinions in Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985), and Franchise Tax Bd. v. Constr. Laborers Vac. Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). The Supreme Court in those cases held that both the remedies created by ERISA and the parties expressly authorized to seek them were exclusive. See Massachusetts Mutual, 473 U.S. at 146, 105 S.Ct. at 3092; Franchise Tax Bd., 463 U.S. at 27, 103 S.Ct. at 2855-56. The Court described the enforcement provisions in Sec. 1132 as "carefully integrated," and gave close consideration to ERISA's "interlocking, interrelated, and interdependent remedial scheme, which is in turn part of a 'comprehensive and reticulated statute.' " Massachusetts Mutual, 473 U.S. at 146, 105 S.Ct. at 3092 (quoting Nachman Corp. v. Pension Ben. Guaranty Corp., 446 U.S. 359, 361, 100 S.Ct. 1723,...
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