Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan

• Decision Date: 31 August 1989
• Docket Number: No. 88-1494,88-1494
• Citation: 883 F.2d 345
• Parties: 11 Employee Benefits Ca 1673 The SOMMERS DRUG STORES COMPANY EMPLOYEE PROFIT SHARING TRUST, Plaintiff-Appellant Cross-Appellee, v. Walter N. CORRIGAN and Corrigan Enterprises, Inc., Defendants-Appellees Cross-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 345

883 F.2d 345

11 Employee Benefits Ca 1673

The SOMMERS DRUG STORES COMPANY EMPLOYEE PROFIT SHARING TRUST, Plaintiff-Appellant Cross-Appellee, v. Walter N. CORRIGAN and Corrigan Enterprises, Inc. Defendants-Appellees Cross-Appellants.

No. 88-1494.

United States Court of Appeals Fifth Circuit.

Aug. 31, 1989.

Charles R. Shaddox, Charles B. Gorham, Shaddox, Compere, Gorham & Good, San Antonio, Tex., E. Anne McKinsey, Colleen O. Nelson, Minneapolis, Minn., for plaintiff-appellant cross-appellee.

Shannon H. Ratliff, S. Jack Balagia, Jr., Marc O. Knisely, McGinnis, Lochridge & Kilgore, Austin, Tex., for defendants-appellees cross-appellants.

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

Before JOLLY, HIGGINBOTHAM and SMITH, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

A class of participants and beneficiaries of Sommers Drug Stores Company Employee Profit Sharing Trust sued Walter N. Corrigan and Corrigan Enterprises, Inc., for breach of their fiduciary duty under ERISA and under state common law. The trial court dismissed the state law claim on grounds that it was preempted by ERISA, and the case proceeded to trial on the ERISA claims. The court entered judgment for the class following a jury verdict in its favor.

In Sommers Drug Stores v. Corrigan Enterprises, 793 F.2d 1456 (5th Cir.1986) cert. denied, 479 U.S. 1089, 107 S.Ct. 1298, 94 L.Ed.2d 154 (1987), we vacated the district court's judgment and remanded for new trial, finding that ERISA did not preempt the state law claim and that the court had erroneously instructed the jury regarding fiduciary duty under ERISA. On remand, the trial court once again dismissed the state law claim, finding that Maryland law governed and that Maryland law did not recognize such a claim. After a second trial on the ERISA claim, the district court entered judgment on a jury verdict for defendants.

On appeal, the class argues that the trial court failed to instruct the jury properly on its ERISA claim and erroneously dismissed its state law claim. In response, defendants urge that the class representatives lack standing to sue under ERISA because they have accepted their vested benefits in a lump sum. We are persuaded that the class representatives have colorable claims for vested benefits and therefore qualify as "participants" authorized to bring suit under ERISA. Because we find that the trial court properly instructed the jury on fiduciary liability under ERISA, we affirm the judgment for defendants on that claim. We likewise affirm the dismissal of the pendent state law claim.

I

Sommers Drug Store Company began negotiations to sell its drug store assets to Malone & Hyde, Inc. As part of this effort to sell, the shareholders approved a reverse stock split recommended by the board. Following the split, Walter N. Corrigan, Sommers' President, held approximately 52% of Sommers' outstanding shares and the Employee Profit Sharing Trust held roughly 20%. Sommers, with shareholder approval, later agreed to sell its drug store assets and trade name to Malone & Hyde. Sommers changed its name to Corrigan Enterprises, and in exchange for the drug store assets and trade name was paid over five million dollars in cash and assumed over two million dollars in debts. Malone & Hyde also agreed to hire Corrigan for ten years at $100,000 per year.

Following the sale, Walter Corrigan and Corrigan Enterprises offered to buy stock owned by other shareholders at $40 per pre-split share. Several shareholders accepted. The trustees also considered whether to sell the shares owned by the Trust and liquidate the Trust, distributing the proceeds to the participants. Corrigan indicated in a letter that Corrigan Enterprises desired that the assets of the Trust be reduced to cash and distributed to the participants. The trustees and participants debated the merits of this plan, but ultimately the trustees decided to accept the offer, and the participants unanimously approved this decision at a meeting on December 16, 1977. The sale was accomplished in March 1978 and the Trust was liquidated and distributed. In October 1980, the class sued Corrigan and Corrigan Enterprises alleging, among other things, breach of fiduciary duty under ERISA and state common law.

II

The class brought this ERISA action pursuant to 29 U.S.C. Sec. 1132(a)(2). That provision authorizes either the Secretary of Labor or a "participant," "beneficiary" or "fiduciary" to bring a civil action for breach of fiduciary duty as proscribed by Sec. 1109(a). Section 1132(e)(1) confers exclusive jurisdiction on federal courts to hear such actions. 29 U.S.C. Sec. 1132(e). Defendants deny that the class representatives are among the groups the statute authorizes to sue and that there is federal subject matter jurisdiction.

The debate centers on whether the class representatives qualify as plan "participants" within the meaning of ERISA. Section 1002(7) defines "participant" as:

[A]ny employee or former employee of an employer ... who is or may become eligible to receive a benefit of any type from an employee benefit plan....

29 U.S.C. Sec. 1002(7) (emphasis added).

Defendants contend that the class representatives are not "participants" because they have accepted their vested benefits in a lump-sum and, thus, are no longer eligible or likely to become "eligible to receive a benefit" under the plan.

The class contends that defendants waived their right to contest standing by not raising the issue during the original appeal. We have recognized, however, that standing is essential to the exercise of jurisdiction, and that lack of standing can be raised at any time by a party or by the court. United States v. One 18th Century Colombian Monstrance, 797 F.2d 1370, 1374 (5th Cir.1986), cert. denied, 481 U.S. 1014, 107 S.Ct. 1889, 95 L.Ed.2d 496 (1987). "Standing, since it goes to the very power of the court to act, must exist at all stages of the proceeding, and not merely when the action is initiated or during an initial appeal." Safir v. Dole, 718 F.2d 475, 481 (D.C.Cir.1983), cert. denied, 467 U.S. 1206, 104 S.Ct. 2389, 81 L.Ed.2d 347 (1984). We find no waiver.

Defendants rely on Yancy v. American Petrofina, Inc., 768 F.2d 707, 709 (5th Cir.1985), for the proposition that a "participant" who accepts his benefits in a lump sum no longer has standing to sue under ERISA. We think defendants read Yancy too broadly.

Yancy, a pension plan participant, took early retirement from American Petrofina, electing to receive his benefits in one lump-sum payment in order to avoid an announced decrease in the interest rate factor used to compute such payments. Over a year later he sued American Petrofina, alleging that the change in the plan's method of computing interest caused him to retire early, violated the Plan, and breached the fiduciary duty imposed by ERISA. The district court granted summary judgment in favor of American Petrofina on grounds that Yancy lacked standing. We affirmed the trial court's finding that Yancy lacked standing, stating that:

A participant or beneficiary is defined as an employee or former employee who is or may be eligible to receive a benefit under the plan. 29 U.S.C. Sec. 1002(7). "This excludes retirees who have accepted the payment of everything owed to them in a lump sum, because these erstwhile participants have already received the full extent of their benefits and are no longer eligible to receive future payments." Joseph v. New Orleans Electrical Pension & Retirement Plan, 754 F.2d 628, 630 (5th Cir.1985). * * * Yancy accepted his lump sum when he retired prior to the effective date of the amendment. He admits that the lump sum was the full amount due to him under the terms of the plan as in effect when he retired. ERISA does not provide standing for him to come into court over a year later and complain that a change in the plan effective after his retirement forced him to retire early thereby depriving him of several years of income and so decreasing his final retirement benefit.

768 F.2d at 708.

The class contends that Yancy and the cases cited therein are distinguishable because plaintiffs in those cases sought relief based on breaches that occurred after they received their lump sum. Yancy challenged a plan amendment that did not become effective until after he received his benefits. Similarly, plaintiffs in Joseph sought benefits made available for the first time after they had received everything owed them in a lump sum. Joseph, 754 F.2d 628. The class asserts that its representatives, on the other hand, seek benefits that were allegedly owed them at the time they sold their shares. We agree with the class that Yancy is distinguishable, although we are not persuaded that the sequence of payment and breach is necessarily determinative. Rather, the point is that to accept the class's position that its representatives are "participants," we must find that they "[are] or may become eligible to receive a benefit" under the plan. The Supreme Court has recently stated that a former employee does not fall within the "may become eligible" language of Section 1002(7) unless he has a reasonable expectation of returning to covered employment or a colorable claim to vested benefits. Firestone Tire and Rubber Co. v. Bruch, --- U.S. ----, 109 S.Ct. 948, 958, 103 L.Ed.2d 80 (1989). Since the class representatives have no expectation of returning to covered employment, we must determine whether their present claim is one for "vested benefits" under the plan.

In Yancy, we had no difficulty concluding that plaintiff's claim was for damages rather than for vested benefits. We explained that:

Yancy's claim is not for an ascertainable amount, but for a sum that possibly could have been earned if he had continued working. The term "participant" encompasses only those former employees who are owed vested benefits. Nugent v. Jesuit High School of New Orleans,...