Opinion
No. C 02-1407 MHP.
January 10, 2003
MEMORANDUM AND ORDER
Jeffrey H. Beck, the liquidating trustee of the estates of Crown Vantage, Inc. and Crown Paper Co. ("Crown"), appeals the bankruptcy court's order directing that Crown's prior employer contributions to the pension plans in excess of annuity costs, or a reversion, be held in an interest-bearing account. The order was based on the bankruptcy court's holding that Crown breached the fiduciary duty owed to the pension plan participants under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C § 1001 et seq., by failing to consider an alternative to annuitizing the pension funds. Having considered the parties' arguments and submissions and for the reasons set forth below, the court rules as follows.
The bankruptcy court also directed the parties to investigate and report to the court on the feasibility of distributing the reversion to plan participants instead of the liquidating trustee for the benefits of Crown's creditors.
BACKGROUND
Crown filed Chapter 11 petitions in the bankruptcy court on March 15, 2000, which led to a piecemeal liquidation of the companies' assets. The bankruptcy court found that as of June 2001 the sale proceeds was not even enough to cover the companies' secured liabilities. Tr. Hr'g, Dec. 11, 2001 (Excerpts of R., Vol. I, Tab 2, Bates 025) (same as Vol. II, Tab 7, Bates No. 392). Crown had to wind down the operations and move to a Chapter 11 plan confirmation. Members of Crown's Board of Directors ("Crown's directors") were also the trustees for Crown's eighteen pension plans, including one for salaried employees and the rest for hourly rate employees.
Crown faced urgent issues regarding the pension plans. The Pension Benefit Guarantee Corporation ("PBGC") had filed Proofs of Claims in the millions if PBGC were forced to assume the liabilities for any of these eighteen plans. The bankruptcy court found PBGC's Proofs of Claims to be "a stumbling block to [Chapter 11] plan confirmation." Tr. Hr'g, Dec. 11, 2001 (Excerpts of R., Vol. I, Tab 2, Bates No. 026). It was also unclear whether any of the plans had sufficient assets to meet plan liabilities through the purchase of an annuity and thus could be terminated. Crown therefore engaged Dietrich Associates ("Dietrich") in July 2001 to obtain quotes from insurance companies for an annuity. Dietrich obtained preliminary bids for Crown starting on August 30, 2001, and Crown's Directors were surprised to find out that they were able to annuitize at least some of the pension plans. Tr. Hr'g, Nov. 29, 2001, (Excerpts of R. Vol. I, Tab 5, Bates Nos. 307-08). In order to purchase an annuity, Crown merged twelve of the seventeen hourly rate employee pension plans into a Merged Plan. J. Report at 2, Feb. 12, 2002 (Excerpts of R., Vol. II, Tab 8).
During the summer of 2001, Pace International Union ("Union") suggested a possibility to merge Crown's seventeen union plans into the Pace Industrial Union Management Pension Fund ("PIUMPF"), a multi-employer pension fund for members of the Union. The bankruptcy court found that this merger would be superior to standard termination in two ways. First, the retirees might received more than the minimum benefits under the merged plans because PIUMPF had occasionally paid pensioneers a thirteenth monthly check during the year. Second, the employees could resort to an established dispute resolution program under the merged plans. Tr, Hr'g, Dec. 11, 2001 (Excerpts of R., Vol. I, Tab 2, Bates No. 027).
However, the bankruptcy court found that Crown's directors never seriously considered the merger proposal. Tr. Hr'g, Dec. 11, 2001 (Excerpts of R., Vol. I, Tab 2, Bates No. 031-033). Crown's directors were never presented any document pertinent to the proposed merger on or before October 9, 2001. Nor did they request an analysis of the PIUMPF offer and thereby compare the risks and benefits of the PIUMPF merger with annuitization. One of Crown's directors testified that the merger was never a viable alternative to annuitization because PIUMPF is a multi-employer plan in a weak industry. The only indication that the directors considered the merger proposal is a statement in the minutes of the October 9, 2001 board meeting that PBGC allegedly had reservation about a merger with PIUMPF and therefore might not release Crown for a Chapter 11 confirmation. But the bankruptcy court found no evidence that Crown's attorneys pursued a release from PBGC under the proposed merger and cited rebuttal evidence that a PBGC attorney involved in Crown's pension plan matters never stated any reservations or concerns about a merger with PIUMPF. Tr. Hr'g, Dec. 11, 2001 (Excerpts of R., Vol. I, Tab 2, Bates No. 032).
Instead, Crown's directors decided on October 9, 2001 to accept the bid which would have expired within twenty-four hours from Hartford Life Insurance Company, an insurance company qualified as an annuitant based on Dietrich's analysis, Crown signed an agreement the next day to deposit with Hartford over eighty four million dollars from the Merged Plan assets. After the payment of the annuity premium, approximately five million dollar in assets remained in the Merged Plan. The bankruptcy court found no evidence suggesting that Crown's directors sought an extension or waiver of the twenty-four hour deadline. However, Dietrich's president, Robert Schaefer, testified that such bids from potential annuitants were usually good for only one day because of the volatile nature of the investment market. Tr. Hr'g, Nov. 29, 2001 (Excerpts of Record, Vol. I, Tab 5, Bates No. 232).
The bankruptcy court found that Crown had determined to annuitize the pension plans perhaps as early as when preliminary annuity bids were submitted on August 30, 2001 and failed to consider the PIUMPF merger proposal seriously. Tr. Hr'g, Dec. 11, 2001 (Excerpts of R., Vol. I, Tab 2, Bates Nos. 032-033). The bankruptcy further held that the decision whether to annuitize the plans or merge them into PIUMPF was a discretionary act subject to fiduciary responsibilities as mandated by ERISA and the case law. Tr. Hr'g, Dec. 11, 2001 (Excerpts of R., Vol. I, Tab 2, Bates No. 036). Finding evidence that Crown was motivated to choose annuitization instead of merger by factors other than the pension plan participants' best interests, the bankruptcy court held that Crown's officers and directors breached their fiduciary duty under ERISA and consequently granted a preliminary injunction against Crown. Instead of attempting to undo the annuitization by Hartford, the bankruptcy court ordered that any reversion paid by the insurer be placed into an interest-bearing account as a constructive trust pending a final decision. The parties were also directed to investigate and then report to the court on the feasibility of investing this reversion into one or more pension plans. Before the court now is Crown's appeal from this preliminary injunction. The appellees ("Pace") include the Union, on behalf of members and former member participants sponsored by Crown, a Edward J. Miller and a Jeffrey D. Macek on behalf of themselves and others similarly situated.
LEGAL STANDARD
The court reviews the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. See Havelock v. Taxel ( In re Pace), 67 F.3d 187, 191 (9th Cir. 1995). A factual finding is clearly erroneous if the appellate court, after reviewing the record, has a definite conviction that a mistake has been made. Beauchamp v. Hoose ( In re Beauchamp), 236 B.R. 727, 729 (B.A.P. 9th Cir. 1999). Findings of fact based on credibility are given particular deference by reviewing courts.Id. at 730. Mixed questions of fact and law are reviewed de novo. Id. DISCUSSION
There are two main issues on appeal. First, Crown argues, for the first time, that none of the appellees has standing to bring this action. Second, Crown argues that no fiduciary duty under ERISA was implicated when Crown's Directors decided to annuitize the pension plans at issue instead of merging them into PIUMPF. Standing, as a threshold issue, is addressed first.
I. Standing
Crown appears to be arguing that the appellees lack both constitutional standing and a statutory cause of action to prosecute the claims under ERISA. Because the purchase of an annuity did not result in any loss recognized by ERISA to the pension plans at issue, Crown contends that none of the appellees possesses standing to assert a claim for breach of fiduciary duty under ERISA. Crown further argues that the Union is not an enumerated party under ERISA and therefore has no standing to enforce ERISA. 29 U.S.C. § 1132(a) (empowering participants, beneficiaries or fiduciaries to bring a civil action to enforce ERISA benefit rights under Subchapter I of ERISA, 29 U.S.C. § 1001-1191). Finally, Crown argues that Miller and Macek, the other appellees, do not have standing because they were not participants in all the pension plans at issue.
Although appellees' standing was never raised before the bankruptcy court, the court may not waive this issue in the present action. "Constitutional standing concerns whether the plaintiff's stake in the lawsuit is sufficient to make out a concrete `case' or `controversy' to which the federal judicial power may extend under Article III [of the Constitution]," the issues of which are "jurisdictional" and therefore "must be addressed whenever raised." Pershing Park Villas Homeowners Ass'n. v. United Pacific Ins. Co., 219 F.3d 895, 899 (9th Cir. 2000). Further, the Ninth Circuit has repeatedly held that "a plaintiff's standing under section 1132(a)(1) is a prerequisite to ERISA jurisdiction." Curtis v. Nevada Bonding Corp., 53 F.3d 1023, 1026-27 (9th Cir. 1995) (citing three other Ninth Circuit decisions to support the holding that "federal courts lack subject matter jurisdiction if the plaintiff in an action for benefits owed under an ERISA plan lacks standing to bring a civil suit enforcing ERISA under 29 U.S.C. § 1132(a)(1)(B)"). See also, Local 159, 342, 343 344 v. Nor-Cal Plumbing, Inc., 185 F.3d 978, 981 (9th Cir. 1999). Therefore, the issues of standing under the statute as well as issues of constitutional standing cannot be waived and the court must address them on appeal. Cf. United Pacific Ins., 219 F.3d at 899 (distinguishing constitutional standing and prudential standing and finding that the issues of nonconstitutional standing not properly raised before the district court are waived).
A. PACE International Union
Many courts have found that the list of entities empowered by section 1132(a) is exclusive. U.S.C. § 1132(a). For example, the Third Circuit stated: "It is clear from the statute that labor unions are neither participants nor beneficiaries, and consequently plaintiff does not fall within the provision." New Jersey State AFL-CIO v. New Jersey, 747 F.2d 891, 893 (3d Cir. 1984). The D.C. Circuit affirmed a lower court's findings that "under the plain language of the statute, the Union Plaintiffs do not have standing to bring an ERISA action" and the union standing issue under. ERISA was distinct from constitutional standing issues implicated by an association's bringing actions on behalf of its members. Systems Control EM-3 v. ATT Corp., 972 F. Supp. 21, 27 (D.D.C. 1997), aff'd, 159 F.3d 1376 (D.C. Cir. 1998). The Six Circuit also affirmed a district court's holdings that "the Union, simply by virtue of its status as a labor union, does not fall within those who are designated by the statute as capable of bringing an ERISA action," that although "an ERISA claim may derive from a collective bargaining agreement negotiated by a union, Congress has obviously chosen not to include a labor union as an appropriate party to vindicate employees' rights under ERISA." International Union v. Auto Glass Employees Fed. Credit Union, 858 F. Supp. 711, 721-22 (M.D. Tenn. 1994), aff'd, 72 F.3d 1243 (6th Cir. 1996). See also, Communications Workers of Am. Disability Income Plan, 80 F. Supp.2d 631 (W.D. Tex. 1999) (discussing many cases where courts found the list of empowered entities under section 1132(a) to be exclusive and dismissing the union plaintiff);United Food Commercial Workers Local 204 v. Harris-Teeter Super Markets, Inc., 716 F. Supp. 1551, 1561 (W.D.N.C. 1989) (holding that the union lacks standing as a plaintiff under section 1132(a)). Therefore, unions, which are neither participants nor beneficiaries, do not possess standing to bring a civil action under section 1132. 29 U.S.C. § 1132 (civil enforcement of ERISA benefits and rights as afforded by Subchapter I of ERISA governing the protection of employee benefit rights, 29 U.S.C. § 1001-1191, and separate from Subchapter III of ERISA governing the plan termination insurance, 29 U.S.C. § 1301-1461).
Crown correctly states that only the "enumerated entities [in section 1132(a)] may bring civil actions based upon breach of fiduciary duty." Appellant's Br., at 19:27-19:28. As Pace conceded, although in a footnote, "[m]ost courts which have considered the issue have held that unions do not have standing to assert the ERISA claims of their members." Appellees' Br., at 21, n. 7.
Although Pace attempts to argue that the Ninth Circuit's answer to this issue might be different, the court is not convinced. Crown correctly pointed out the defects in Pace's reasoning: the Ninth Circuit case cited by Pace relied on the faulty analysis in Fentron Indus. v. National Shopmen Pension Fund, 674 F.2d 1300, 1305 (9th Cir. 1982), that "ERISA § 502(a) [ 29 U.S.C. § 1132(a)] does not provide an exhaustive list of eligible plaintiffs." Amalgamates Clothing Textile Workers Union v. Murdock, 861 F.2d 1406, 1410, n. 6 (9th Cir. 1988). In fact, the Ninth Circuit noted that Fentron "has been twice repudiated by the Supreme Court." Cripps v. Life Ins. of North Am., 980 F.2d 1261, 1265 (9th Cir. 1992). Cripps discussed Massachusetts Mutual Life Ins. Co. v. Russell, U.S. 134, 145-47, 105 S.Ct. 3085, 3092 (1985), which held that section 1132 contains comprehensive and "carefully integrated" enforcement provisions demonstrating Congress's intention not to authorize other remedies not provided for in the statute. Cripps, 980 F.2d at 1265. Cripps further relied on Franchise Tax Bd. c. Construction Laborers Vacation Trust, 463 U.S. 1, 103 Ct. 2841 (1983), which held that "ERISA carefully enumerates the parties entitled to seek relief under § 502 [, 29 U.S.C. § 1132]" and does not empower anyone other than the listed entities to assert ERISA claims. Cripps, 980 F.2d at 1265. The Supreme Court reinforced its holdings during the last term, noting that "ERISA's `carefully crafted and detailed enforcement scheme provides strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.'" Great-West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209, 122 S.Ct., 708, 712 (2002) (quoting Mertens v. Hewitt Associates, 508 U.S. 248, 254, 113 S.Ct. 2063, 2067 (1993)) (emphasis in original) (citations omitted). Because section 1132 provides an exclusive list of those who can assert ERISA claims to enforce employee benefit rights, this court was convinced that "if the Ninth Circuit is confronted with the issue of whether an employer can bring suit to enforce claims against an ERISA fiduciary it will fully overturn Fentron." Tool v. National Employee Benefit Servs., 957 F. Supp. 1114, 1117 (N.D. Cal. 1996). The same rationale applies with equal force in the present action and therefore the Union does not have standing under section 1132 to sue Crown for breach of ERISA fiduciary duties.
Accordingly, it is not necessary to address the issue whether the alleged lack of financial harm to the pension plans would deprive the Union of standing under ERISA.
Pace argues that section 4070 of ERISA, 29 U.S.C. § 1370, explicitly provides the Union standing to bring this action. This argument is premised on Pace's assertion that "the present suit concerns improper termination of a plan under section 1341." However, improper termination in violation of section 1341 is not at issue in the present action. See 29 U.S.C. § 1341. First, until the reply brief on appeal, Pace never asserted any violation by Crown under section 1341. The First Amended Complaint filed on November 19, 2001, the operative pleading in the present action, only alleged ERISA jurisdiction under sections 1132(a)(2) and (e)(1). First Am. Compl. (Excerpts of R., Vol I. Tab 4, Bates No. 062). More importantly, the issue in this action is whether Crown's directors breached their fiduciary obligations to the pension plan participants and beneficiaries in choosing a termination by annuitization over a merger with PIUMPF, even when the termination in and of itself fully complies with section 1341. See 29 U.S.C. § 1104 (on fiduciary obligations); 29 U.S.C § 1341 (on termination).
The bankruptcy court stated: "Had there been no prospect of a merger with another plan, then the Board's court of conduct in choosing Hartford almost surely would have passed muster." TR. Hr. Dec. 11, 2001, Excerpts of Record, Vol. I, Tab 2, Bates No. 035.
B. Miller Macek
Crown first argues that none of the appellees has standing under ERISA because the annuity policy would satisfy all the accrued benefits afforded by the pensions plans at issue. The court is not convinced that the authority cited by Crown applies to the present action where the reversion, arguably surplus of the pension plans, was generated by the plan fiduciaries' questionable act that may have constituted a breach of the duty of loyalty. Crown relies on Hughes Aircraft Co. v. Jacobson, which held that participants in defined benefit pension plans have "a nonforfeitable right only to their `accrued benefit'" and "no entitlement to share in a plan's surplus." 525 U.S. 432, 439, 119 S.Ct. 755, 761 (1999). However, in Jacobson, the company "did not use the surplus for its own benefit." Id. Further, there was no issue of fiduciary duties, "because ERISA's fiduciary provisions are inapplicable to the amendments [by Hughes to the benefit plans]." Id. at 443. Crown further cites Harley v. Minnesota Mining Mfg. Co., which relied onJacobson to dismiss ERISA claims that the pension plan fiduciaries failed to investigate and monitor the investment using the pension fund assets when the defined benefit plan at issue had a substantial surplus. 284 F.3d 901, 906 (8th Cir. 2002) (citing Jacobson, 525 U.S. at 440, that a "loss to Plan surplus is a loss only to . . . the plan's sponsor"). However, Harley also did not involve a breach in duty of loyalty because: the plan fiduciaries did not use the surplus for their own benefits. Id.
As addressed in the next section, the most dispositive fiduciary obligation implicated in the present action is the duty of loyalty. Using surplus to the fiduciary's own benefit certainly raises the issue of loyalty. This appears to be the driving force behind the bankruptcy court's decision: Crown had dual fiduciary obligations to the creditors of an insolvent corporation as well as to the pension plan participants. In electing to terminate the pension plans by annuitization as motivated by the prospect of a reversion interest beneficial to the creditors while failing to investigate an alternative which may better serve the pension plan participants' interests, Crown breached the duty of loyalty as the fiduciaries of the pension plans.
Further, Jacobson and Harley do not purport to overturn decisions such as Waller v. Blue Cross of California, 32 F.3d 1337, 1339 (9th Cir. 1994). Waller found that the pension plan participants "have standing to pursue the equitable remedy of a constructive trust to distribute defendants' allegedly ill-gotten profits [by a bidding process geared solely toward selecting an annuity policy that would enable defendants to obtain the maximum reversion possible] to the former participants and beneficiaries of the plan." Id. Crown's interpretation of Jacobson andHarley also contradicts Leigh v. Engle, which held that "ERISA clearly contemplates actions against fiduciaries who profit by using trust assets, even where the plan beneficiaries do not suffer direct financial loss." 727 F.2d 113, 121-22 (7th Cir. 1984) (quoting section 1109(a), 29 U.S.C. § 1109(a), to support the holding that "[a] fiduciary who breaches his duties "shall be personally liable . . . to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary"). In Waller and Leigh, the participants suffered no financial harm to their accrued benefits. However, the plan fiduciaries did not act "solely in the interest of the participants and beneficiaries." 29 U.S.C. § 1104(a)(1). Therefore, even if Hartford's annuity policy would satisfy all accrued benefits under the pension plans in question, the plan participants can assert ERISA claims against the fiduciaries when the plan assets were used to purchase the annuity in order to generate a reversion that serves an interest in conflict with that of the plan participants.
Crown then argues that Miller and Macek cannot represent the participants in the eight plans that Miller and Macek did not originally belong to because of the uncertainty about which original plans the reversion of approximately five million dollars was attributable to. Miller and Macek (and other similarly situated) were participants of four pension plans, Plan No. 1-1, Frozen Plan No. 1-1, Adams Plan and Frozen Adams Plan. Appellee's Br., at 22:8-22:9. These four plans together with seven other plans were merged into Plan No. 7 to form the Merged Plan, which was terminated under the standard termination procedure. Appellee's Supp. Excerpts of R., Tab 14. Therefore, Miller and Macek were participants of the Merged Plan. Accordingly, they can represent other participants in the Merged Plan, which would include the participants in all twelve original plans. As plan participants, they are clearly an enumerated party under ERISA and therefore entitled to enforce the fiduciary obligations of the plan administrator for the Merged Plan pursuant to section 1104. 29 U.S.C. § 1132 (on civil enforcement); 29 U.S.C. § 1104 (On fiduciary obligations). Crown's argument that the reversion might be attributable to plans other than Miller and Macek's original four plans is unrelated to the standing issue. Rather, it would only become relevant if and when the parties determined that it was feasible to re-invest the reversion into the pension plans at issue. This goes solely to the equitable remedy that may be fashioned. Miller and Macek can assert claims of the Merged Plan. The claims are the Plan's, not the individual plaintiff-participant's.
It is undisputed that Crown's Directors remained as the plan administrator for the Merged Plan.
In this aspect, therefore, the bankruptcy court's order of establishing a constructive trust for the five million-dollar reversion and requesting parties' investigation and report on the feasibility of re-investing the reversion into one or more of the pension plans is proper.
II. Breach of Fiduciary Duty
Crown also argues that Crown's directors did not owe a fiduciary duty to the plan participants and beneficiaries choosing an annuity policy to terminate the plans was a business decision. And even if a merger with PIUMPF is an alternative method to terminate the plans, Crown's Directors were not allowed to do so under the terms of the pension plans. Crown further argues that the directors did not breach their fiduciary duty in choosing Hartford instead of other insurance carriers, which is not disputed by the appellees.
See supra note 3 (The bankruptcy court did not find Crown's choosing Hartford over other annuitants questionable.). Pace does not argue otherwise on appeal.
The parties agree that Crown's decision to terminate the pension plans, as a business decision, did not raise any issues of fiduciary obligations under ERISA. They dispute, however, whether the decision to choose the Hartford annuity policy over a merger with PIUMPF was shielded by the business judgment rule. Crown argues that a merger with PIUMPF is an alternative to a decision to terminate rather than an alternative way of terminating the plans. The bankruptcy court, however, found that the merger was an alternative way of implementing the decision to terminate and therefore not a business decision.
The bankruptcy court stated: "Although the decision to terminate a plan is a business decision, both ERISA and the case law impose fiduciary responsibilities as to discretionary actions taken to implement that decision. . . . The decision whether to annuitize the plans or merge them infor PIUMPF was such a discretionary act." Tr. Hr'g, Dec. 11, 2001 (Excerpts of R, Vol. II, Tab 7, Bates No. 403).
Crown contends that ERISA does not envision termination by merger. The argument, however, is not persuasive. Section 1341 and section 1412 govern standard termination of a single-employer pension plan and transfers between a multi-employer plan and a single employer plan, respectively. 29 U.S.C. § 1341, 1412. Nevertheless, Crown fails to note that both sections are in the same Subchapter III of ERISA entitled "Plan Termination Insurance." More importantly, the plain statutory language governing standard termination demonstrates that a merger in addition to annuitization can be a method of implementing the termination procedure. Section 1341(b)(3) states: "In distributing [plan] assets [pursuant to the standard termination of the plan under this subsection], the plan administrator shall (i) purchase irrevocable commitments from an insurer to provide all benefit liabilities under the plan, or (ii) in according with the provisions of the plan and any applicable regulations, otherwise fully provide all benefit liabilities under the plan." 29 U.S.C. § 1341(b)(3). Therefore, a plan administrator can implement a merger to terminate a plan, if the merger can cover all benefit liabilities under the plan and complies with the terms of the plan and "any applicable regulations."
Crown further argues that a merger with PIUMPF is not allowed under the terms of the pension plans at issue. The pertinent terms provide that any distributions on termination from the pension fund "may be effectuated in the discretion of the plan administrator by the purchase of nontransferable annuities, or by continuing the Retirement Fund in existence, or by a cash settlement with any Member with the Member's consent." § 12.4, Excerpts of R. Vol. I, Tab 9, Bates No. 386. Crown maintains that a merger with PIUMPF would contradict these terms and constitute breach of ERISA duties. But these terms should not be interpreted as exclusive. The next section in the term sheet concerns "merger or consolidation of the Plan with, or the transfer of assets and liabilities of the Plan to, any other employee benefit plan." § 12.5, Excerpts of R. Vol. I, Tab 9, Bates No. 386. This section also provides that "each Member in the Plan will (if the Plan had then terminated) receive a benefit immediately after the merger, consolidation or transfer. . . ." § 12.5, Excerpts of R. Vol. I, Tab 9, Bates No. 386. Clearly the merged plan can be a terminated one, and vice versa. Therefore, the plan terms do not bar a merger with PIUMPF.
Accordingly, the bankruptcy court did not err in finding that a merger with PIUMPF is an alternative way to implement the business decision to terminate the plans. Crown does not dispute that the acts of implementing the termination procedure are subject to the scrutiny under ERISA's sections governing the plan administrator's fiduciary obligations. Neither does Crown dispute the bankruptcy court's finding that "the officers and directors of Crown did not make the intensive and scrupulous investigation of the plan's investment options that the circumstances required particularly given their dual fiduciary capacity." Tr. Hr'g, Dec. 11, 2001 (Excerpts of R., Vol. II, Tab 7, Bates No. 402) (internal quotations omitted). Therefore, the bankruptcy court was correct in holding that Crown's Directors, failing to consider the merger option seriously while acting as the plan administrator, breached the fiduciary duties under ERISA.
Crown states: "The fiduciary standard described in Leigh v. Engle is a standard applicable to plan administrators' actions, not plan sponsors' actions." Because the bankruptcy court is correct in finding that a merger with PIUMPF is an alternative method to implement the termination procedure, Crown's Directors acted as the plan administrator, rather than the plan sponsor. Therefore, the bankruptcy court's reliance on Leigh, 32 F.3d 1337, is appropriate.
It is immaterial that a termination by annuitization or a merger with PIUMPF can be characterized as "investment options." The bottom line is whether, how and for what purposes the pension plan assets have been used.
As a last resort, Crown argues that, even if the officers and directors breached their fiduciary duties a constructive trust for the reversion is not a proper remedy. This argument is based on the assertions that Crown did not profit from the alleged wrongdoing or risk the trust assets. Cf. Murdock, 861 F.2d 1406 ("If ERISA fiduciaries breach their duties by risking trust assets for their own purposes, beneficiaries may recover the fiduciaries' profits made my misuse of the plan's assets."). However, the court is not persuaded that Murdock is only applicable to monetary profits made by fiduciaries with plan assets. Although the reversion would most likely inure to the benefit of Crown's administrative and priority creditors, it is also beneficial to Crown to discharge the fiduciary obligations owed to these creditors. Further, the dispositive factor in Murdock was the self-serving purpose of using plan assets rather than the actual risk of such a use. See id. at 1414 ("In the case before us, the fiduciaries allegedly breached one of the duties to an employee benefit plan that lies at the core of ERISA — the duty of loyalty."). Contrary to Crown's interpretation,Waller also did not focus on the risks involved in choosing an unstable annuity provider. 32 F.3d 1337. Rather, the rationale underlying Waller was that the fiduciaries chose the lowest annuity bid in order to obtain the highest amount of reversion interest for themselves. See id. Therefore, when Crown was motivated by interests other than that of the plan participants and beneficiaries and used the plan assets for an annuity policy that generated the reversion for such interests, Murdock and Waller applies. Accordingly, the constructive trust as ordered by the bankruptcy court is a proper remedy.
This is exactly where the bankruptcy court found conflict of interests against the plan participants and beneficiaries. See supra note 4.
The appellees asserted some directors filed claims in the bankruptcy proceedings. First Am. Compl. Therefore, the self-interests may not only be in discharging the fiduciaries obligations to the creditors but also getting money back for these directors themselves.
CONCLUSION
For the foregoing reasons, the court hereby AFFIRMS the preliminary injunction as issued by the bankruptcy court. The court further ORDERS that Pace International Union is DISMISSED from the present action.
IT IS SO ORDERED.