Opinion
No. C 04-01917 CRB.
September 28, 2004
MEMORANDUM AND ORDER
This is an action pursuant to section 502(a)(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"). Now before the Court is defendants' motion to dismiss for failure to state a claim upon which relief can be granted (Fed.R.Civ.Proc. 12(b)(6)). After carefully considering the parties' submissions, and having had the benefit of oral argument, defendants' motion to dismiss is GRANTED.
ALLEGATIONS OF THE COMPLAINT
Plaintiff Louis Gerard Goeres was a beneficiary of a Schwab Plan Retirement Savings and Investment Plan ("Retirement Plan"). Plaintiff was designated as a beneficiary by his late domestic partner, Stephen M. Ward, who was a Schwab employee and participant in the Retirement Plan. Complaint ¶ 4.
Plaintiff and Mr. Ward were domestic partners from November 1988 until Mr. Ward's death in December 1999. Id. ¶ 8. On September 18, 1992, Mr. Ward designated plaintiff as his primary beneficiary under the Retirement Plan. Complaint ¶ 12. The beneficiary designation form was countersigned by a Schwab benefits representative on that same date. Id. Plaintiff did not have a copy of the 1992 beneficiary designation form until Schwab provided one to him in August 2003.Id. ¶ 14.
In January 2000, plaintiff informed Schwab's human resources department of Mr. Ward's death. Id. ¶ 16. At this time, plaintiff was receiving benefits as Mr. Ward's domestic partner under Schwab's employee welfare benefit plans, including medical, dental, and vision care plans. Id. ¶ 15. Plaintiff was told that he would be contacted about Mr. Ward's Retirement Plan after he submitted Mr. Ward's death certificate. Id. ¶ 16. Plaintiff submitted the death certificate but was never contacted about the Retirement Plan. Id. ¶ 17. In January or February 2000, plaintiff contacted Schwab Retirement Plan Services and was told that he was not the designated beneficiary on Mr. Ward's Retirement Plan account. Id. ¶ 18. Mr. Ward's sister contacted Schwab Retirement Plan Services in "early 2000," and was also told that plaintiff was not the designated beneficiary of Mr. Ward's Retirement Plan account. Id. ¶ 19.
On May 15, 2001, Schwab Retirement Plan Services contacted plaintiff because it had "recently learned of Mr. Ward's death and that plaintiff was the designated beneficiary of Mr. Ward's Retirement Plan account." Id. ¶ 22. This occurred about sixteen months after plaintiff first notified Schwab of Mr. Ward's death. Schwab Retirement Plan Services sent plaintiff the application for Plan benefits and other materials at this time. Id. ¶ 21. Plaintiff claims that these materials failed to adequately inform him of his distribution options as a non-spouse beneficiary.Id. ¶ 24.
On December 31, 1999, which was around the time of Mr. Ward's death, Mr. Ward's retirement account was valued at approximately $1.2 million. Id. ¶ 27. On June 30, 2000, Mr. Ward's retirement account was valued at approximately $1.6 million. Id. ¶ 28. Plaintiff collected the proceeds of the Retirement Plan in 2004, when it was valued at approximately $565,000. Id. ¶ 30.
Plaintiff claims that he received significantly less money than he would have received had defendants promptly notified him of his beneficiary status and adequately informed him of his benefit distribution options. The drop in the stock market coupled with the failure to timely notify plaintiff of his beneficiary status resulted in a loss to plaintiff of more than $500,000.
Plaintiff brought suit against three defendants: (1) Schwab; (2) Schwab Retirement Plan Services, Inc. ("Schwab Retirement Plan Services"); and (3) the Administrative Committee of the Schwab Plan Retirement Savings and Investment Plan (the "Administrative Committee"). Plaintiff claims that all three defendants were fiduciaries of the Retirement Plan within the meaning of ERISA, and all three breached their fiduciary duties by failing to notify plaintiff that he was the beneficiary of an ERISA retirement plan. Complaint ¶ 36. Plaintiff claims that he is entitled to equitable relief pursuant to ERISA section 502(a)(3), 29 U.S.C. § 1132(a)(3) (hereinafter "section 1132(a)(3)"). Namely, plaintiff wants the Retirement Plan's records modified to reflect plaintiff's entitlement to a distribution of Mr. Ward's retirement account as of a date no later than June 30, 2000. Complaint at 7.
DISCUSSION
1. Legal Standard
A motion to dismiss should be granted where the complaint fails to allege sufficient facts to constitute a cognizable claim or legal theory of recovery. See Fed.R.Civ.P. 12(b)(6). A court cannot grant a motion to dismiss pursuant to Rule 12(b)(6) unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In evaluating a Rule 12(b)(6) motion, a complaint is construed in the light most favorable to the plaintiff. See Firoozye v. Earthlink Network, 153 F.Supp.2d 1115, 1119 (N.D. Cal. 2001). The court must accept as true all material allegations in the complaint as well as the reasonable inferences to be drawn from them. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). Dismissal is disfavored and should be granted only in "extraordinary" cases. See United States v. Redwood City, 640 F.2d 963, 966 (9th Cir. 1981).
2. No Relief can be Granted on Plaintiff's Principal Claim as a Matter of Law
A. The Relief Plaintiff Seeks is Legal, not Equitable
Plaintiff seeks to modify the Retirement Plan's records to reflect plaintiff's entitlement to a distribution of Mr. Ward's retirement account as of a date no later than June 30, 2000. Plaintiff maintains that such relief is permissible under section 1132(a)(3). Defendants argue that this claim fails as a matter of law because only equitable relief is available under ERISA and the relief plaintiff seeks is legal.
Section 1132(a)(3) provides:
A civil action may be brought by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan.29 U.S.C. § 1132(a)(3) (2004) (emphasis added). The meaning and scope of the "equitable relief" allowed under this section is the chief issue here.
A recent Supreme Court decision addressed the meaning of "equitable relief" in section 1132(a)(3). The plaintiff inGreat-West Life Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), was an ERISA health-plan ("Plan") beneficiary who became paralyzed in a car accident. Plan provisions required the Plan to be reimbursed by third-party tortfeasors. Id. at 207. The Plan also assigned its right to litigate any claims under the reimbursement provisions to Great-West. Id. The plaintiff received a settlement from a third party tortfeasor. Id. Thereafter, Great-West sued the plaintiff (hereinafter "respondent") to require her to reimburse Great-West the sum it spent on her medical care. Id. at 208.
Upon review, the Supreme Court discussed the equitable remedies available under section 1132(a)(3). First, the Court recognized its own precedent declaring "equitable relief" in section 1132(a)(3) as "`those categories of relief that were typically available in equity.'" Id. at 210 (quoting Mertens v. Hewitt Assocs., 508 U.S. 248 (1993)). The Court acknowledged that Great-West was seeking to impose personal liability on the respondent for a contractual obligation to pay money, which is relief that was not typically available in equity. Knudson, 534 U.S. at 210. Money damages, the Court explained, is the classic form of legal relief. Id. (emphasis in original) (citation omitted).
Great-West also argued that it was seeking equitable relief because it sought to "enjoin an act or practice" that violated the terms of the Plan, i.e., the respondent's failure to reimburse the Plan. Id. at 210 (internal citations omitted). The Court, however, pointed out that an injunction to compel the payment of money or specific performance of a contract to pay money was not typically available in equity. Id. at 211.
Plaintiff here asserts that he seeks equitable relief because he is requesting an order that defendants (1) "take all steps necessary" to place plaintiff in the position he would have been in but for the breach of fiduciary duty and (2) to "modify" the records to reflect plaintiff's entitlement to a distribution of Mr. Ward's account at a higher value. See Complaint at 7. That plaintiff asks to be restored to a previous status, i.e., his June 2000 beneficiary status, rather than an order compelling the payment of money, does not make the relief he seeks equitable. "In determining whether an action for equitable relief is properly brought under ERISA, we look to the substance of the remedy sought . . . rather than the label placed on that remedy."Westaff Inc., v. Arce, 298 F.3d 1164, 1166 (9th Cir. 2002) (citation omitted). A court order modifying the Retirement Plan records to reflect that plaintiff was entitled to a distribution of benefits no later than June 30, 2000 would be meaningless unless it meant that defendants must pay plaintiff the value of the account on that date. Thus, what plaintiff is actually seeking is his monetary damages arising from defendants' failure to timely notify him of his beneficiary status.
Plaintiff cannot make his legal remedy "equitable" by splitting it into two actions. At the hearing on this motion, plaintiff characterized his request for equitable relief as the first step in a two-step process. Plaintiff argued that placing him back into the Retirement Plan as of a certain date is equitable relief, regardless of what flows from such relief. Once in his desired position, plaintiff would bring suit under ERISA section 501(a)(1) to recover benefits due to him under the terms of the Retirement Plan. See 29 U.S.C. § 501(a)(1). Bifurcating this process, however, does not make the requested relief equitable; the substance of the remedy plaintiff seeks remains monetary compensation. See Arce, 298 F.3d at 1166.
B. Even if Defendants Breached a Fiduciary Duty, Plaintiff has no Viable Claim upon which Relief can be Granted
Plaintiff distinguishes his case from Knudson by focusing on defendants' breach of fiduciary duty. Plaintiff argues that even if his claim may be characterized as a claim for monetary relief, compensating a beneficiary for losses sustained as a result of a breach of fiduciary duty was typically available in equity. Opposition at 6-7.
The allegation that defendants breached a fiduciary duty is irrelevant under controlling case law. For example, in one Ninth Circuit case, an employee sued her employer's ERISA plan administrator for failing to notify her that she had become eligible for coverage under a cancer insurance policy. McLeod v. Oregon Lithoprint Inc., 102 F.3d 376, 377 (9th Cir. 1996). The employee developed cancer and sued under section 1132(a)(3) for the amount that would have been paid on her behalf had she been properly notified of her eligibility for the cancer coverage.Id. McLeod found that the employee was not seeking equitable relief but rather "to be made whole through an award of money damages equal in amount to the benefits that she would have been paid . . ." Id. at 378. McLeod rejected the employee's argument that "appropriate equitable relief" should include monetary relief because without monetary relief she had no adequate remedy. Id. at 378. Instead, McLeod declared that "the status of a defendant, whether fiduciary or nonfiduciary, does not affect the question of whether damages constitute `appropriate equitable relief' under [§ 1132(a)(3)]." Id. See also Farr v. US West Communs., Inc., 151 F.3d 908, 916 (9th Cir. 1998), amended by 179 F.3d 1252 (9th Cir. 1999) (holding that even though defendant employers breached their fiduciary duties by failing to notify pension benefit recipients of the tax consequences of an early retirement incentive, the damages sought by the plaintiffs — monetary reimbursements equal to the amount they paid in taxes — were not recoverable as "other appropriate equitable relief" under ERISA section 1132(a)(3)). McLeod andFarr clarify that suing a fiduciary does not transform monetary damages into "appropriate equitable relief" under ERISA. C. Plaintiff's Situation is Materially Different from Mathews
Plaintiff relies heavily on a case where an employer ("Chevron") breached its fiduciary duty under ERISA by "actively misinforming" certain employees of their retirement options.Mathews v. Chevron Corp., 362 F.3d 1172, 1183-1185 (9th Cir. 2004). Mathews confirmed that ordering Chevron to modify the employees' retirement-plan records to give them the retirement benefits they would have received had Chevron not actively misinformed them was appropriate equitable relief pursuant to section 1132(a)(3). See Id. at 1186. Chevron argued that because modifying the plan records would result in paying the employees sums of money, such relief was precluded by section 1132(a)(3). Id. at 1185-86. Mathews disagreed and decided that such relief was appropriate.
On its face, an order to modify plan records is not an award of monetary damages. More importantly, the relief granted by the district court here is also equitable in substance. To instate the [employees] retroactively into [the retirement plan] simply puts them in the position they would have been had Chevron not breached its fiduciary duty . . . Although in this instance the remedy will result in Chevron paying sums of money equivalent to the benefits they lost because of Chevron's breach, the mere payment of money does not necessarily render the award compensatory monetary damages.Id. at 1186.
Plaintiff similarly argues that modifying the Retirement Plan records to place him in the [financial] position he would have been in had defendants not breached their fiduciary duty is still equitable relief, even if it may result in defendants paying plaintiff money.
Mathews is materially distinguishable from the facts alleged here. The relief the Mathews plaintiffs received was in statement into a retirement plan to which they should have been notified. This relief rendered them participants of a particular retirement plan — a plan that existed at that time. Incidently, instating the Mathews plaintiffs into the retirement plan resulted in their receiving sums of money from Chevron, but it was money Chevron should have paid the plaintiffs in the first place.
In contrast, there is no plan into which plaintiff can be "instated." Plaintiff collected his partner's Retirement Plan proceeds in May 2004 and there is nothing left to distribute. Moreover, unlike the Mathews plaintiffs, plaintiff here does not seek benefits that defendants should have paid him but for their breach of fiduciary duty. Rather, the Retirement Plan required defendants to pay plaintiff the value of the retirement account, and this is what they paid him. Plaintiff now seeks to recover for the loss of the value of that account caused by defendants' negligence, but such a claim is legal.
3. The Appropriate Defendants
Plaintiff brought his claim against (1) Schwab; (2) Schwab Retirement Plan Services; and (3) the Administrative Committee. Plaintiff alleges that all three defendants were fiduciaries of the Retirement Plan within the meaning of ERISA, and all three defendants breached their fiduciary duties. Complaint ¶ 36.
Defendants argue that plaintiff states no claim sufficient to give rise to liability against both Schwab and the Administrative Committee. Motion at 8:16-17. Defendants also argue that plaintiff's complaint does not provide "fair notice" of his claims against these defendants and the ground on which they rest. Therefore, defendants argue that plaintiff's claims against both Schwab and the Administrative Committee should be dismissed. Motion at 9-10.
It is not necessary to determine which are the appropriate defendants at this juncture. As discussed above, plaintiff states no claim upon which relief may be granted, and the claim fails regardless of who the appropriate defendants are.
CONCLUSION
Plaintiff brought this action pursuant only to ERISA section 1132(a)(3), which provides for "appropriate equitable relief." No matter how he characterizes it, plaintiff seeks to recover for the loss of the value of the Retirement Plan due to defendants' negligence. This claim for relief is legal, not equitable. Unfortunately, the Supreme Court has held that legal relief is not available under ERISA section 1132(a)(3). Therefore, plaintiff's claim fails as a matter of law. Accordingly, the Court GRANTS defendants' motion to dismiss for failure to state a claim upon which relief can be granted.
Plaintiff also asks for "an injunction compelling defendants to establish and maintain a reasonable claims procedure for the Retirement Plan that ensures that non-spouse beneficiaries timely receive applications for Retirement Plan benefits." Complaint at 7. This Order does not dismiss the request for such injunctive relief. A case management conference will be held on October 22, 2004 at 8:30 a.m.
IT IS SO ORDERED.