Roth v. Sawyer-Cleator Lumber Co.

• Citation: 61 F.3d 599
• Decision Date: 20 September 1995
• Docket Number: SAWYER-CLEATOR,No. 94-3368,94-3368
• Parties: , 19 Employee Benefits Cas. 1641, Pens. Plan Guide P 23911A Gerald G. ROTH; Logan M. Ammon, Appellants, v.LUMBER COMPANY, Employee Stock Ownership Plan; Charles J. Sawyer; Clifford E. Sawyer, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 599

61 F.3d 599

64 USLW 2148, 19 Employee Benefits Cas. 1641,

Pens. Plan Guide P 23911A

Gerald G. ROTH; Logan M. Ammon, Appellants, v. SAWYER-CLEATOR LUMBER COMPANY, Employee Stock Ownership Plan; Charles J. Sawyer; Clifford E. Sawyer, Appellees.

No. 94-3368.

United States Court of Appeals Eighth Circuit.

Submitted March 14, 1995.

Decided July 27, 1995.

Rehearing and Suggestion for Rehearing En Banc Denied Sept.

20, 1995.

George R. Serdar, Minneapolis, MN, argued, for appellants.

Marc J. Manderscheid, St. Paul, MN, argued (Bruce J. McNeil, on the brief), for appellees.

Before MAGILL, Circuit Judge, HEANEY, Senior Circuit Judge, and MORRIS SHEPPARD ARNOLD, Circuit Judge.

MAGILL, Circuit Judge.

Plaintiffs Gerald G. Roth and Logan M. Ammon appeal from the district court's order granting summary judgment to Charles J. Sawyer and Clifford E. Sawyer, trustees of the Sawyer-Cleator Lumber Company Employee Stock Ownership Plan (the Plan). Roth and Ammon, who were participants in the Plan, claim that the district court erred when it determined that any breach of duty by the trustees resulted in no loss to the Plan. We reverse and remand for further proceedings consistent with this opinion.

I. BACKGROUND

Roth and Ammon are former employees of the Sawyer-Cleator Lumber Company (the Company). Before its demise in 1991, the Company was a closely-held corporation engaged in wholesale and retail lumber sales in the Minneapolis-St. Paul area. In 1975, the Company established an employee stock ownership plan (ESOP) to provide retirement benefits to its employees. Under the Plan, each participant had one account consisting of Company stock, and another consisting of other investments. Because the Company was closely-held, one of the methods of distributing Plan benefits to participants was a "put option." Under the put option, the participants could require the Company ¹ to purchase the stock owned by the participants.

Roth and Ammon retired in 1988 and 1989, respectively. At the time of their retirement, Charles J. Sawyer and Clifford E. Sawyer were trustees of the Plan. Roth and Ammon chose to exercise their put options. The stock sale was accomplished by means of a promissory note and stock pledge agreement. The Plan obligated itself to make payments to Roth and Ammon over ten years, and Roth and Ammon retained a security interest in their stock under the stock pledge agreement. ² Roth and Ammon each received partial payment of the sums due under the promissory notes, but the Company began to experience financial difficulties. In December 1990, the Company terminated its business operations and the Plan defaulted on payments due under the promissory notes. In February 1991, the Company was forced into Chapter 7 bankruptcy, thereby rendering the Company stock owned by the Plan (and hence, Roth's and Ammon's security) worthless.

Roth and Ammon filed suit in June 1991, asserting state and federal claims against the Plan and the trustees. The district court dismissed the state law claims and granted summary judgment to the trustees on Roth's and Ammon's ERISA Sec. 409(a) ³ breach of fiduciary duty claim, finding that the Company stock was "adequate security" under federal law. Roth and Ammon appealed, and this court reversed, holding that "the trustees have failed to show that there are no genuine issues of material fact regarding the reasonableness of their conduct." Roth v. Sawyer-Cleator Lumber Co. Employee Stock Ownership Plan, 16 F.3d 915, 918-19 (8th Cir.1994) (Roth I ). After remand, the district court again granted summary judgment to the trustees on the ERISA Sec. 409(a) breach of fiduciary duty claim, this time on the grounds that Roth and Ammon had not demonstrated the required "loss to the plan." All other claims involving the trustees having been resolved, the district court entered judgment for the trustees pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. Roth and Ammon timely appeal.

II. DISCUSSION

Summary judgment is appropriate when there is no disputed issue of material fact and the moving party is entitled to judgment as a matter of law. Egan v. Wells Fargo Alarm Servs., 23 F.3d 1444, 1446 (8th Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 319, 130 L.Ed.2d 280 (1994); Fed.R.Civ.P. 56(c). We review a grant of summary judgment de novo, applying the same standard as the district court. Id.

"The primary purpose of [ERISA] is the protection of individual pension rights...." H.R.Rep. No. 533, 93d Cong., 2d Session 1 (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4639. In order to accomplish this purpose, a breach of fiduciary duty by a trustee ⁴ triggers several potential remedies. H.Conf.Rep. No. 1280, 93d Cong., 2d Sess. (1974), reprinted in 1974 U.S.C.C.A.N. 5038, 5100. One of these remedies is provided by Sec. 409, which "provides that trustees may be personally liable, but only for losses 'to the plan.' " Roth I, 16 F.3d at 919 (quoting 29 U.S.C. Sec. 1109(a)). We determine whether there is a "loss to the plan" by applying a three-step analysis. First, we decide whether the events underlying this action have resulted in a "loss." Second, assuming that a "loss" has occurred, we determine whether that loss is "to the plan" or merely to the beneficiaries. Finally, we determine whether the alleged breach of trust resulted in the identified losses to the Plan. To the extent that there are ambiguities in determining loss, we resolve them against the trustee in breach. Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2d Cir.1985) (citing Wootton Land & Fuel Co. v. Ownbey, 265 F. 91, 99 (8th Cir.1920)); see James F. Jordan et al., Handbook on ERISA Litigation Sec. 3.05[C], at 3-114 (1992) ("Courts generally hold that ambiguities in measuring losses should be resolved against the breaching fiduciary.").

A. Has anyone suffered a loss?

The district court relied upon two rationales to find that Roth and Ammon did not produce a prima facie case of loss to the Plan. First, the district court reasoned that in Roth I, this court noted "that the plaintiffs have never proffered evidence of loss to the plan." 16 F.3d at 920. Although the district court does not specifically label this as the law of the case, it may have treated this statement as law of the case. Second, in evaluating loss, the district court focused upon the assets of the Plan, but viewed the value of these assets in a "snapshot" fashion, and thus viewed it too narrowly.

The district court's first rationale may be quickly disposed of. Law of the case applies only to issues actually decided, either implicitly or explicitly, in the prior stages of a case. Little Earth of the United Tribes, Inc. v. United States Dep't of Hous. & Urban Dev., 807 F.2d 1433, 1438 (8th Cir.1986); 2A Federal Procedure: Lawyers Edition Sec. 3:705 (1994). However, in Roth I, we addressed the trustees' loss argument as follows:

The trustees here argue that the ESOP did not suffer a loss as a result of their decision to secure the plaintiffs' notes with Company stock. We decline to review this argument, however, because the trustees did not raise the loss issue in their memorandum supporting their summary judgment motion.

16 F.3d at 920. Thus, we expressly declined to resolve the issue of loss. As there was no decision concerning loss, the doctrine of law of the case does not apply. Although it is impossible to tell from the district court's order exactly how much weight it gave to our observations in Roth I, it is clear that the law of the case doctrine does not support a finding of no loss.

The district court's second line of analysis was to "focus[ ] on 'a decrease in the value of the Trust estate' to determine whether there has been a loss to the plan." Order at 8 (July 27, 1994). The district court relied upon Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir.1985), and Physicians HealthChoice, Inc. v. Trustees of Automotive Employee Benefit Trust, 784 F.Supp. 1416 (D.Minn.1992), aff'd, 988 F.2d 53 (8th Cir.1993) (PHC ), to support this proposition. We believe that the district court's analysis of Donovan and PHC was incomplete. One cannot determine whether the assets of the ESOP were diminished in the abstract; a comparison must be made between the value of the plan assets before and after the breach. The district court failed to consider the time frame component of the loss calculation, and so doing implicitly focused upon too narrow a time frame. If the Plan's assets are compared immediately before and after the alleged breach (i.e., the decision to secure the notes from the Plan with Company stock), the Plan has suffered no loss. Indeed, the only case in which there could be a loss under this "snapshot" approach would be when the breach consisted of an overpayment by the ESOP. This measure of loss is appropriate in cases where the loss is due to self-dealing or price manipulation. See Donovan, 754 F.2d at 1054-55. However, this case does not involve an overpayment or a breach of trust by self-dealing or price manipulation. In cases such as this, a broader time frame is appropriate. If the assets of the Plan before the alleged breach are compared with the assets of the Plan after the Company has entered bankruptcy, ⁵ there is a loss: Some portion of the Plan's predecision assets were used to purchase the now worthless Company stock.

Physicians HealthChoice, Inc. v. Trustees of Automotive Employee Benefit Trust, 988 F.2d 53 (8th Cir.1993), supports our conclusion. The PHC opinion cited by the district court is the district court opinion in a case that was affirmed with opinion by the Eighth Circuit. An affirmance by this court, even without opinion, is not equivalent to endorsement of the reasoning or language of the district court. 5 Am.Jur.2d Appeal & Error Sec. 934, at 361-62 (1962 & Supp.1994); 5B C.J.S. Appeal & Error Sec. 1857, at 295 (1958). The opinion of this court, which is the applicable precedent, is directly contrary to the district court...