Opinion
No. C 04-01672 WHA.
September 29, 2004
ORDER DENYING DEFENDANTS' MOTION FOR PARTIAL DISMISSAL OF PLAINTIFFS' COMPLAINT
INTRODUCTION
In this ERISA case, plaintiffs Rebecca Darling, John Huddleston, Michael Murphy, Robert Reiman and Richard Phillips challenge defendants' denial of their retirement benefits. Defendants Steelworkers Western Independent Shops Pension Plan (the "plan") and Joint Board of Trustees of the Steelworkers Western Independent Shops Pension Plan (the "board") move to dismiss all plaintiffs except Rebecca Darling and the claim for breach of fiduciary duty as to all plaintiffs. This order DENIES defendants' motion to dismiss.
STATEMENT
Plaintiffs are employees or former employees of Oregon Metallurgical Corporation ("Oremet") as well as members of the United Steelworkers of America, Local 7150 (Compl. ¶ 11). Plaintiffs were entitled to an employee benefit plan that was administered by the board ( id. ¶¶ 9-10). Employees of Oremet were subject to special provisions of the plan, which included a "Rule of 75" for early retirement benefits ( id. ¶ 12). Pursuant to the rule, an employee was allowed to receive his or her pension when the sum of his or her vesting credits under the plan plus age equaled 75 ( id. at Exh. A). From 1989 to 2002, participants under the plan could elect to receive rule benefits even after having terminated active employment with Oremet (also known as "aging into" the rule) ( id. ¶ 14). Plan representatives allegedly informed participants that the policy of the plan allowed them to age into the rule ( ibid.). Around 1996, the plan awarded full rule benefits to at least one participant who had aged into the requirements ( ibid.). Believing they could age into the rule, all plaintiffs terminated active employment with Oremet before actually meeting the requirements of the rule ( id. ¶ 15).
On October 18, 1996, plaintiff Darling terminated her employment with Oremet ( id. at Exh. C). In July 2002, Darling, who was 51 years old and had 23.17 vested credits at the time, applied for rule benefits under the plan ( id. ¶ 16 and Exh. B). On July 11, 2002, the plan denied her claim, stating that she did not qualify for the rule at the time and advising her to apply at a later date ( id. at Exh. B). In November 2002, Darling qualified for the rule and reapplied for rule benefits ( ibid.). On November 14, 2002, the board determined that Darling did not meet the rule at the time she terminated employment and denied her application ( id. at Exh. C). Darling appealed the denial of her claim on November 26, 2002 ( id. at Exh. D). That appeal was denied on March 31, 2003 ( ibid.). In a follow-up letter, the board expressed its understanding that the rule was limited to actively employed Oremet employees ( ibid.). The Board determined that participants of the plan cannot age into the rule ( ibid.).
In January 2003, plaintiff Huddleston, who was allegedly qualified for the rule pension, submitted an application for benefits ( id. ¶ 18). The plan granted him a reduced retirement pension rather than the rule pension ( ibid.). Huddleston did not appeal that decision ( ibid.). Recently, the plan began refusing applications for rule benefits from former Oremet employees ( id. ¶ 19). The remaining plaintiffs have not yet aged into the rule and have not submitted claims for rule benefits ( id. ¶ 20).
Plaintiffs filed a complaint on April 29, 2004. In the complaint, plaintiffs sought declaratory relief, recovery of benefits, relief for breach of fiduciary duty, and equitable estoppel. On June 30, 2004, defendants filed a motion to dismiss all plaintiffs except Rebecca Darling and the claim for breach of fiduciary duty as to all plaintiffs.
ANALYSIS
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, dismissal for failure to state a claim is appropriate only when it appears beyond doubt that plaintiff can prove no set of facts to support a claim entitling him to relief. Conley v. Gibson, 355 U.S. 41, 46 (1957). On a motion to dismiss, the allegations of plaintiff's complaint are assumed true and a court must draw all reasonable inferences in plaintiff's favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). Even if the face of the complaint suggests that the chance of recovery is remote, a court must allow plaintiff the opportunity to develop a case, especially at an early stage of the proceedings. United States v. City of Redwood City, 640 F.2d 963, 966 (9th Cir. 1981).
Defendants contend that plaintiffs Huddleston, Murphy, Reiman and Phillips have neither adequately exhausted all administrative procedures nor demonstrated futility. Defendants also contend that plaintiffs' claim for breach of fiduciary duty fails as a matter of law as to all plaintiffs.
1. PLAINTIFFS HUDDLESTON, MURPHY, REIMAN AND PHILLIPS DEMONSTRATED FUTILITY.
ERISA requires benefit plans to provide administrative remedies for claim denials. 29 U.S.C. 1133. The general rule governing ERISA claims is that plaintiffs must exhaust all administrative remedies prior to initiating litigation. Futility of exhaustion, however, is an exception to the exhaustion requirement. A claim of futility cannot be based on speculation — ERISA plaintiffs must show that any pursuit of administrative remedies is doomed to fail. Diaz v. United Agric. Employee Welfare Benefit Plan Trust, 50 F.3d 1478, 1485 (9th Cir. 1995).
Plaintiffs allege futility of exhaustion. The complaint alleges that the board informed participants that they could age into the rule (Compl. ¶¶ 14-15). Relying on these representations, plaintiffs terminated their employment with Oremet prior to meeting rule requirements ( id. ¶ 15). The board then issued a final decision as to plaintiff Darling's application, clearly stating that "an Oremet employee who terminates employment prior to satisfying [the rule] cannot `age into' . . . the benefit" ( id. at Exh. D). Plaintiff Huddleston claims that he was qualified for benefits under the rule when he submitted an application, but instead received a reduced pension ( id. ¶ 18). Although the board never formally denied his application for rule benefits, its actions demonstrate that it was following its current interpretation of the rule, as described in Darling's final rejection letter. The remaining plaintiffs have not applied for rule benefits, but the complaint alleges that the board began refusing applications for rule benefits from former Oremet employees. Moreover, since the board's stated policy undeniably indicates that they are ineligible for such benefits due to their inactive employment status, their applications are certain to be denied, or so it must be presumed at the pleading stage.
Defendants contend that rejection of Darling's claim cannot stand as an example because each claim needs to be determined on an individual basis (Reply Br. 4). They insist that because plaintiffs' claims revolve around the issue of what representations were made to each of them, the board must have the opportunity to examine each claim individually ( ibid.). This, however, ignores the alleged declaration by the board regarding rule benefits. Defendants fail to explain how any other plaintiff might receive a different determination from the one Darling received. In fact, defendants fail to even mention the board's reinterpretation of the rule. Instead, they merely insist that every claim (on the merits) is different because each plaintiff has individual circumstances. Plaintiffs' claims of futility, however, are based on the board's reinterpretation of the rule as stated in the denial of Darling's claim, and not — as defendants suggest — on the denial itself. Under the board's current interpretation of the rule, no participant can age into the rule, regardless of any individual circumstances. As such, under the liberal pleading standards of rule 12(b)(6), plaintiffs have sufficiently demonstrated futility. Of course, plaintiffs must still prove futility at trial or on a motion for summary judgment.
2. PLAINTIFFS' CLAIM OF BREACH OF FIDUCIARY DUTY CAN BE RE-PLED.
In their opposition brief, plaintiffs concede that they have improperly brought their breach of fiduciary duty claim under ERISA Section 502(a)(3) (Opp. 18). Plaintiffs instead seek leave to amend their complaint to bring the breach of fiduciary duty claim under ERISA Section 502(a)(2) ( ibid.). Section 502(a)(2) allows plaintiffs to bring suit under ERISA Section 409, which provides that a fiduciary to a plan is personally liable to the plan for any losses resulting from its breach and is therefore subject to equitable or remedial relief. Plaintiffs base their claim on the alleged disparate treatment of Oremet employees under the plan with respect to the disbursement of rule benefits ( id. at 19). Plaintiffs contend that such disparate treatment harms the plan as a whole and the declaratory and equitable relief they seek would inure to the benefit of the plan ( ibid.).
On the other hand, defendants contend that this Court should deny plaintiffs leave to amend and instead dismiss the claim because section 409 only provides remedies for the plan, not for individual participants, and plaintiffs "seek an award of monetary benefits for themselves" (Reply Br. 6). Defendants also contend that even if there were disparate treatment, just because the board "mistakenly" awarded benefits to one or more participants in 1996 does not mean it breached its fiduciary duty when it applied the plan to Darling and Huddleston ( ibid.).
Defendants, once again, err. Defendants assume that the breach of fiduciary duty occurred when the board "mistakenly" awarded benefits in 1996. Defendants suggest that the board "acted in accordance" when it applied its current interpretation of the plan. Defendants' arguments, however, are circular. They contend that the board's previous granting of rule benefits was actually a fluke rather than a policy. The complaint, however, alleges that the board represented that it had a policy of allowing Oremet employees to age into the rule. By granting rule benefits to at least one plan participant and denying it to others who have similarly relied on the board's representations, the board could have easily breached its fiduciary duty. Defendants also improperly conclude that plaintiffs seek only monetary relief. It is apparent from their complaint that they also seek declaratory and equitable relief. Plaintiffs claim of breach of fiduciary duty therefore has merit under section 502(a)(2). As such, dismissal of the claim is improper and instead plaintiffs should be granted leave to amend the complaint with respect to their breach of fiduciary duty claim.
CONCLUSION
For the foregoing reasons, this order DENIES defendants' motion for partial dismissal of the complaint. Plaintiffs may file a motion for leave to amend the complaint to cure the deficiencies noted in this order. Any such motion shall be brought no later than OCTOBER 13, 2004.
IT IS SO ORDERED.