Wilmington Shipping Co. v. New England Life Ins.
| Citation | 496 F.3d 326 |
| Decision Date | 03 August 2007 |
| Docket Number | No. 06-2052.,06-2052. |
| Parties | WILMINGTON SHIPPING COMPANY; Peter Brown Ruffin, Jr., Plaintiffs-Appellants, and Peter Brown Ruffin, Plaintiff, v. NEW ENGLAND LIFE INSURANCE COMPANY, Defendant-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (4th Circuit) |
ARGUED: David Calep Wright, III, Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina, for Appellants. Eric D. Welsh, Parker, Poe, Adams & Bernstein, L.L.P., Charlotte, North Carolina, for Appellee.
ON BRIEF:
B. Chad Ewing, Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina, for Appellants. Stacy K. Wood, Kristin R. Poolos, Parker, Poe, Adams & Bernstein, L.L.P., Charlotte, North Carolina, for Appellee.
Before WILLIAMS, Chief Judge, and MOTZ and SHEDD, Circuit Judges.
Affirmed in part and reversed in part by published opinion. Chief Judge WILLIAMS wrote the opinion, in which Judge MOTZ and Judge SHEDD joined.
Appellants Wilmington Shipping Company ("WSC") and Peter Brown Ruffin, Jr. appeal from the district court's grant of summary judgment to New England Life Insurance Company ("NEL") on Ruffin's claim for breach of fiduciary duty under § 502(a)(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C.A. § 1132(a)(2) (West 1999 & Supp.2005), and Appellants' claims under North Carolina law for unfair and deceptive trade practices, breach of contract, negligent misrepresentation, and constructive fraud. Appellants allege, among other things, that NEL grossly mismanaged the assets of WSC's pension plan (the "Plan"), ultimately resulting in the Plan's insolvency and termination, and that NEL consistently misinformed them about the Plan's financial health in an effort to conceal this mismanagement. The district court ruled that Ruffin, a Plan participant, does not have standing to sue under ERISA § 502(a)(2) because the Plan is now terminated and the Pension Benefit Guaranty Corporation ("PBGC") has been appointed statutory trustee over the Plan. The district court also ruled that ERISA preempts Appellants' various state-law claims because the claims relate to the Plan.
We agree with the district court that ERISA preempts Appellants' state-law claims because they "relate to" the Plan. We conclude, however, that Ruffin has standing to sue under ERISA § 502(a)(2) even though the Plan is now terminated and the PBGC has been appointed trustee over the Plan. Accordingly, we affirm the district court's grant of summary judgment to NEL on Appellants' state-law claims and reverse the district court's grant of summary judgment to NEL on Ruffin's ERISA claim.
This is a summary judgment case, so we construe the facts in the light most favorable to Appellants, the non-moving parties, drawing all reasonable inferences in their favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
WSC is a North Carolina corporation that offers a number of services to the steamship industry, including vessel maintenance, repair, and warehousing. Peter Brown Ruffin, Jr. is a shareholder and officer in WSC and a participant in the Plan. Ruffin's father, Peter Brown Ruffin, Sr., was one of WSC's founders. NEL is a Massachusetts insurance company.1
On January 1, 1970, WSC created the Plan as a defined-benefit pension plan for its employees.2 WSC employed NEL to help create the Plan. NEL advised WSC concerning all aspects of the Plan and drafted the Plan documents. The Plan named WSC as the Plan Administrator, and WSC administered the Plan from its inception to its termination. As Plan Administrator, WSC did "not have any authority over the investment of the assets of the Plan." (J.A. at 625.)3 Instead, the Plan provided that WSC would enter into group annuity policies with an insurance company and that the insurance company would manage the Plan's investments.
WSC selected NEL as the insurance company that would perform these functions.4 In 1970, NEL issued a group investment account policy (the "GIA Policy") to WSC. The GIA Policy consisted of a general investment account and other specialized investment accounts for equity securities, capital growth, bonds, mortgages, and real estate. Under the terms of the policy, the Plan Administrator had "no individual ownership of any investments or other assets of the [investment] Accounts" and NEL had "exclusive ownership and control" of funds deposited by the Plan. (J.A. at 1225.)
In 1982, NEL issued another policy to WSC, the Developmental Properties Account ("DPA") Policy. Pursuant to the policy, WSC deposited Plan funds into the DPA to be used by one of NEL's wholly-owned subsidiaries for investment in real estate. (J.A. at 1533.) NEL's offering brochure for the DPA Policy described NEL as a "statutory fiduciary under ERISA." (J.A. at 1260.) As with the GIA Policy, the DPA Policy gave NEL exclusive control and ownership of the funds invested by the Plan.
For nearly a decade, the relationship between the parties was uneventful, but, in 1991, it changed. In that year, Ruffin and Robert Hutchens purchased WSC. At the time, the Plan appeared on paper to be in excellent financial shape, having roughly $5 million in assets — with the DPA valued at around $1.5 million — and liabilities of only $3.3 million. In fact, the Plan's financial health seemed so assured that, upon purchasing WSC, Ruffin and Hutchens specified that the Plan's surplus would go to its participants in the event the Plan was terminated.
Following the change in ownership, WSC informed NEL during a July 1991 meeting that it wanted to terminate the Plan and instead fund a 401(k) plan. During the meeting, however, NEL told WSC that the Plan could not be terminated at the time because the DPA was "not currently liquid" due to "all cash [ ] going into properties." (J.A. at 924-25.) WSC officials were upset by this news. They expressed their displeasure with NEL's investment management and questioned NEL's investment decisions with respect to both the GIA and DPA Policies.
WSC continued to express its strong desire to terminate the Plan. In response, NEL advised WSC to freeze future benefit accruals and wait until the DPA was "liquid" to terminate the Plan. (J.A. at 1315.) NEL estimated that it would take roughly two years to terminate the Plan, and NEL's actuary did not believe that WSC would have to make any more contributions to the Plan, even under a "worst case scenario." (J.A. at 1318.)
So WSC waited. All the while the DPA's value spiraled downward. The GIA Policy did not fare much better, producing lower-than-market returns in both 1994 and 1995. The large number of participants entitled to Plan benefits only compounded the Plan's financial problems. Nevertheless, from 1991 to 1996, WSC "s [a]t tight," as NEL advised, waiting for the DPA to become liquid so that the Plan could be terminated. (J.A. at 1331.)
In 1996, NEL informed WSC that it needed to contribute more than $130,000 to the Plan to completely fund it. At a meeting, Hutchens and Bill Emerson, WSC's CEO, again complained to NEL about WSC's inability to terminate the Plan and diversify its assets. NEL responded that WSC could move the Plan's funds into other investments, but only if the Plan paid a penalty to NEL amounting to more than $200,000. NEL alternatively offered to allow WSC to transfer twenty percent of the GIA Policy's assets each year for five years, but then only to other NEL-controlled accounts.5
WSC took NEL up on its offer to transfer twenty percent of the GIA Policy's funds per year. At the time, NEL reaffirmed its commitment to monitoring the Plan's assets. But the DPA never recovered. It was ultimately liquidated and paid out from 1996 to 2003.
In March 2000, NEL submitted a final termination study to WSC. Although the study concluded that "much ground ha[d] been made up" in terms of the Plan's performance, the Plan was still underfunded by between $150,000 and $200,000, an amount that NEL concluded WSC would need to contribute if it chose to terminate the Plan immediately. (J.A. at 1387-88.)
On March 7, 2003, Appellants, along with Ruffin, Sr., brought suit against NEL under ERISA § 502(a)(2), alleging that NEL had breached its fiduciary duties to the Plan and caused the Plan severe financial loss. NEL answered on May 19, 2003, denying the wrong-doing and asserting a number of affirmative defenses, including that it was not a fiduciary under ERISA.
NEL's denial of fiduciary status under ERISA led Appellants to move to amend their complaint to add state-law claims against NEL for unfair and deceptive trade practices, breach of contract, negligent misrepresentation, and constructive fraud. NEL opposed Appellants' motion, arguing that ERISA preempted the proposed state-law claims. On November 21, 2003, the district court granted Appellants leave to amend their complaint to add the state-law claims.
On July 22, 2004, NEL moved for summary judgment on the grounds that (1) Appellants' claims were barred by the statute of limitations and laches; (2) NEL was not a fiduciary under ERISA as a matter of law; (3) ERISA preempted Appellants' state-law claims; and (4) there was no factual basis for Appellants' state-law claims. Appellants opposed the motion.6
In December 2004, the PBGC, a wholly-owned federal corporation charged with administering ERISA and its pension insurance program, determined that the Plan lacked sufficient assets to continue paying benefits to participants. The PBGC concluded that termination of the Plan would serve the best interests of the Plan's participants.
Accordingly, on January 28, 2005, the PBGC and WSC executed an agreement terminating the Plan, effective December 31, 2004, and appointing the PBGC as statutory trustee of the Plan pursuant to 29 U.S.C.A. § 1342(b) (West 1999 & Supp. 2007). On March 22, 2005, the PBGC notified the district court of its appointment as trustee of the now-terminated Plan.
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