Opinion
Case No. 1:04cv2503.
August 23, 2006
OPINION ORDER
Before the Court is a Motion to Dismiss (Doc. #27) filed by the Defendant Board of Trustees of the Teamsters Joint Council No. 41 Severance Plan ("Board of Trustees" or "Defendant"). Plaintiff Terrance Freeman ("Freeman") brings this action pursuant to the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001, et seq. (ERISA), asserting three claims for relief: (1) a claim to recover benefits he alleges are due to him under the terms of the Defendant's severance plan, (2) a claim for breach of the plan, and (3) a claim for breach of fiduciary duty. Defendant's present motion seeks to dismiss Freeman's second and third claims for relief (breach of plan and breach of fiduciary duty). Freeman has a filed a brief in opposition to Defendant's motion (Doc. #29), and Defendant has filed a brief in reply (Doc. #30). Accordingly, this matter is ripe for adjudication. For the reasons articulated below, the Court GRANTS in part and DENIES in part Defendant's motion. Defendant's motion is granted as to Plaintiff's second claim for relief (breach of the plan) but denied as to Plaintiff's third claim for relief (breach of fiduciary duty).
I. BACKGROUND
This case centers around the question of which date should be used as Freeman's eligibility date for purposes of calculating his service credit under Defendant's severance plan ("the Severance Plan"). Defendant established Freeman's eligibility date as April 1, 1995. Freeman alleges in his complaint that Defendant incorrectly established his eligibility date, arguing that the correct date should be October 1, 1976.
The issue is whether Freeman worked for a "participating employer" during the years 1976 to 1993. There is no dispute that Freeman worked for a participating employer from 1993 to 1995 and, thus, is entitled to credit for those years. A participating employer is defined by the relevant documents as a "participating Teamster Union Local which is a member of Teamsters Joint Council 41." The Teamsters Joint Council No. 41 ("Joint Council") sponsors the Severance Plan. Freeman alleges in his complaint that, from October 1, 1976 to 1993, he worked as a business agent for Teamsters Local Union No. 507 ("Local 507"), which, during those years, was a member of the Joint Council and a participating employer within the meaning of the Severance Plan. (Doc. #1 at ¶¶ 10, 11). He also alleges that, from 1976 to 1993, he was being paid by the Cleveland Bakers and Teamsters Pension Fund and the Cleveland Bakers and Teamsters Health and Welfare Fund ("the Funds"), which are non-participating employers. (Doc. #1 at ¶ 27). A position as a business agent for Local 507 would qualify Freeman for benefits credit under the Severance Plan. According to Freeman, however, he was working pursuant to a "shared employee" arrangement that existed between Local 507 and the Funds, in which employees performed services for Local 507 (and other local unions) but were officially employed by the Funds.
According to the complaint, this "shared employee" arrangement was the subject of a 1992 action filed by the Department of Labor (DOL) against trustees of certain employee benefit plans, including the Funds that paid Freeman, as well as certain unions, including Local 507. See Reich v. Friedman, Case No. 1:92cv1875 (N.D. Ohio 1992). The complaint in that action alleged, among other things, that the defendants "permitted personnel employed by the Plans . . . to perform services for the Defendant Unions without commensurate reimbursement." The action resulted in a consent decree in which the unions agreed to pay nearly $2 million to the employee benefit plans. The consent decree came about, in part, because the defendants unilaterally reorganized their operations to eliminate the offending employment arrangement. Freeman alleges that, because of the "shared employee" arrangement, Defendant did not count Freeman's employment from 1976 to 1993 as being by a participating employer.
In 1993, Freeman was elected as Secretary-Treasurer of Local 507. Two years later, in March 1995, Freeman was asked to sign a written certification confirming his employment start date as March 1, 1993 and his eligibility date under the plan as April 1, 1995 (the terms of the Severance Plan require two years of service for not less than 1000 hours before an employee can be eligible to participate). This written certification was submitted to Defendant by the president of Local 507 pursuant to the terms of the Severance Plan. Based in part on this certification, Defendant later calculated Freeman's service credit as being only two years.
At some point (the precise date is unclear from the complaint), Freeman became the principal officer of Local 507 and withdrew that union from the Joint Council in 1996, such that Local 507 was no longer a "participating employer" for purposes of Defendant's plan. In 2000, Freeman retired, and, in 2002, Local 507 became reaffiliated with the Joint Council.
In 2003, Freeman formally requested that Defendant recalculate his credit based on his employment from 1976 to 1993 pursuant to the "shared employee" arrangement. On June 15, 2004, the Administrative Committee for the Defendant denied Freeman's claim, and Freeman sought review by the Defendant's Board of Trustees. On July 23, 2004, the Board of Trustees affirmed the denial of Freeman's claim. Freeman filed this action on December 21, 2004 pursuant to ERISA, and, on February 8, 2006, Defendant filed this present motion to dismiss Freeman's second and third claims for relief.
After Defendant's motion to dismiss was fully briefed, both parties moved for judgment on the administrative record as to Freeman's first claim for relief. ( See Doc. #s 36, 37). Those motions are still pending as of the date of this order.
II. ANALYSIS
A. Legal Standard
Under Federal Rule of Civil Procedure 12(b)(6), the Court may dismiss a claim for failure to state a claim upon which relief can be granted. A motion to dismiss under Rule 12(b)(6) is directed solely at the complaint itself. Roth Steel Products v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir. 1983) (citing Sims v. Mercy Hospital of Monore, 451 F.2d 171, 173 (6th Cir. 1971)). When evaluating a complaint in light of a motion to dismiss, the Court must accept all of the plaintiff's allegations as true and resolve every doubt in the plaintiff's favor. Craighead v. E.F. Hutton Co., 899 F.2d 485, 489 (6th Cir. 1990) (citing Hishon v. King Spalding, 467 U.S. 69, 73 (1984)). A complaint should not be dismissed for failure to state a claim "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." Id. (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
B. Discussion
Freeman brings three claims against Defendant under two different subsections of § 502 of ERISA, 29 U.S.C. § 1132. His first claim for relief is a claim to recover pension benefits under § 502(a)(1)(B), which provides that "[a] civil action may be brought . . . by a participant or beneficiary . . . to recover benefits due to him under the terms of his plan . . ." Freeman brings his second and third claims for relief, alleging breach of the plan and breach of fiduciary duty, under § 502(a)(3), which provides that:
(a) A civil action may be brought —
* * * *
(3) by a participant, beneficiary, or fiduciary
(A) to enjoin any act or practice which violates any provision of this subchapter 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 subchapter or the terms of the plan.
Only Freeman's second and third claims are the subject of the present motion to dismiss.
The Supreme Court has described § 502(a)(3), the subsection upon which Freeman's second and third claims are based, as a "catchall" provision that offers relief "for injuries caused by violations that § 502 does not elsewhere adequately remedy." Varity Corp. v. Howe, 516 U.S. 489, 512 (1996). In doing so, "[t]he Supreme Court clearly limited the applicability of [§ 502(a)(3)] to beneficiaries who may not avail themselves of [§ 502's] other remedies." Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 615 (6th Cir. 1998) (citing Varity, 516 U.S. at 512). Claims under § 503(a)(3) may be dismissed at the pleadings stage, prior to discovery, for failure to state a claim. See Marks v. Newcourt Credit Corp., 342 F.3d 444, 454 (6th Cir. 2003).
Defendant argues that Freeman's second claim for relief (breach of the plan) and third claim for relief (breach of fiduciary duty) should be dismissed because those claims were brought pursuant to § 502(a)(3), claims which Freeman cannot maintain because he can avail himself of another remedy under § 502, and, indeed, has asserted a claim under § 502(a)(1)(B) for the recovery of benefits under the terms of the Plan. Based on Varity and Wilkins, Defendant argues that relief under § 502(a)(3) is not available to Freeman and that his two claims under that subsection should be dismissed. In addition, Defendant argues that the breaches of fiduciary duty that Freeman claims in his opposition brief are merely reiterations of his claim for benefits, not "independent" breaches. In addition, Defendant points out that Freeman seeks the same remedy for each claim for relief — adjustment of his eligibility date — and that Freeman's claims for breach of the plan and breach of fiduciary duty do not allege actions or omissions outside of the terms of the Severance Plan, but, rather, are based only on the wrongful denial of benefits in violation of the terms of the Plan. As such, Defendant argues that Freeman has not adequately alleged any "independent" breaches and cannot maintain his second and third claims.
Defendant also argues in its reply brief, but not in its brief in support of its motion to dismiss, that Freeman's claims are time-barred. Because Defendant did not present this argument in its initial brief, thereby giving Freeman an opportunity to respond, the Court finds that it is improperly raised and will not address it. It can be addressed, if appropriate, in the context of the parties' cross-motions for judgment, where it was properly raised and more clearly developed by Defendant.
In response, Freeman does not contest that his second claim for relief (breach of the plan) should be dismissed, devoting his entire opposition brief to his claim for breach of fiduciary duty. He even states at the outset that, "at most, this Court should dismiss the Second Claim for Relief, but not the Third Claim for Relief." (Doc. #29 at 1). The Court, therefore, finds that dismissal of Freeman's second claim is appropriate and addresses only the propriety of Freeman's third claim for relief (breach of fiduciary duty). Freeman argues that there are two ways in which Defendant breached its fiduciary duty: (1) by accepting, without investigating, unaudited reports from Local 507 concerning which employees were eligible to participate in the Severance Plan, which did not include Freeman from 1976 to 1993, despite Defendant's knowledge of the DOL's action against Local 507 and the Funds; and (2) by failing to provide complete and accurate information to Plaintiff about his eligibility to participate in the Severance Plan despite its awareness of the DOL action and its effect on Freeman's status in the Plan. As to the second alleged breach, Freeman contends that Defendant solicited a statement from him (his signature) on his certification form confirming his eligibility date without informing him of the potential affect of the DOL action on his eligibility status.
The Court is presented with two issues. First, the Court must decide whether Freeman can maintain both a claim for breach of fiduciary duty under § 502(a)(3) and a claim for benefits under the terms of the plan pursuant to § 502(a)(1)(B). If so, the Court must then determine whether Freeman has adequately alleged a claim for breach of fiduciary duty.
1. Maintaining a claim under § 502(a)(3) of ERISA
Before addressing the parties' arguments, the Court briefly reviews the Supreme Court's decision in Varity, the case upon which Defendant primarily relies. In Varity, employees of a firm's employee welfare benefit plan sued their plan administrator (also the employer) under ERISA, alleging that the administrator deceived them into withdrawing from the plan and forfeiting their benefits. Varity, 516 U.S. at 491-92. The alleged deception occurred when the administrator convened the employees for a presentation to persuade them to transfer their benefits to a newly created subsidiary and a new benefit plan, a change that ultimately caused the employees to lose their benefits. Id. at 492-94. The administrator foresaw that the new subsidiary would fail and that the employee benefits would be lost, but "viewed such a failure as closer to a victory than a defeat . . . because [the subsidiary's] failure would not only eliminate several of Varity's poorly performing divisions, but it would also eradicate various debts that Varity would transfer to the [subsidiary]." Id. at 493. The lower courts found, and the Supreme Court agreed, that the administrator provided false assurances and deceptive information to the employees at the meeting it convened. Id.
In that case, the Supreme Court first reviewed the structure of ERISA and determined that § 502(a)(3) and (5) are "catchall" provisions, intended to provide a remedy when no other subsection of § 502 provides adequate relief. Id. at 515. The Court held that the employees could bring an action under § 502(a)(3) of ERISA for breach of fiduciary duty, finding that they could not proceed under any other subsection of § 502. Id. at 515. Specifically, the employees could not proceed under the first subsection because they were no longer members of their original plan, having been deceived into withdrawing from that plan, and had no benefits due to them under that plan. Id. Without recourse under another subsection of § 502, the Court determined that "[t]hey must rely on the third subsection [§ 502(a)(3)] or they have no remedy at all." Id. (emphasis in original).
Both parties argue that Varity supports their positions. Defendant argues that Freeman's claim for relief under § 502(a)(3) is clearly inappropriate because he has another remedy available under § 502(a)(1)(B), a remedy that the plaintiffs in Varity did not have. Freeman argues that, like the employees in Varity, he was misled by the plan administrator when he was asked to confirm his eligibility date without being given complete and accurate information about the effect of his status by the DOL action.
After considering these arguments, the Court concludes that, at this stage of the pleadings, Freeman can maintain his claim for breach of fiduciary duty under § 502(a)(3) even though he also pled a claim for relief under another subsection of § 502. Although under certain circumstances, a claim under § 502(a)(3) may be dismissed at the pleadings stage, dismissal is not appropriate in this case. Significantly, in Defendant's pending Motion for Judgment on the Administrative Record (Doc. #36), Defendant primarily argues that Freeman cannot contend that he is entitled to benefits starting in 1976 because Freeman himself certified that his correct eligibility date was April 1, 1995. If the Court ultimately agrees with Defendant that Freeman's written certification precludes him from receiving additional benefits under the terms of the Severance Plan, then Freeman will not be able to avail himself of a remedy under § 502(a)(1)(B). In that situation, Freeman will be in the same position as the plaintiffs in Varity — due to the alleged deception of a plan administrator, Freeman must rely on § 502(a)(3) or he has no remedy at all.
Because the Court concludes that Freeman has stated a claim for breach of fiduciary duty with respect to Defendant's alleged act of soliciting a statement from Freeman without providing complete and accurate information, it does not address the other act that Freeman alleges constitutes a breach of fiduciary duty (i.e., the acceptance of unaudited reports of employee eligibility from Local 507).
The Court's conclusion is consistent with Varity. The plaintiffs in Varity, as a result of the administrator's deception, were no longer participants in the plan under which they sought benefits and, therefore, could not proceed under § 502(a)(1)(B). In this case, although Freeman was still a participant in Defendant's Plan, the effect of Defendant's alleged perception, if proven, is the functional equivalent of the effect of the deception in Varity: Freeman will have no other remedy than under § 502(a)(3).
In reaching this conclusion, the Court expresses no opinion as to the ultimate viability of Freeman's claim; it only decides that the claim survives a motion to dismiss under Rule 12(b)(6). Because the validity of Freeman's first claim for relief directly affects the validity of his breach of fiduciary duty claim, the latter cannot be dismissed at this early stage of the pleadings. The Court also notes that the unique circumstances of this case compel its conclusion. Certainly not every claim for breach of fiduciary duty under § 502(a)(3) can survive a motion to dismiss pending resolution of a beneficiary's claims under other subsections of § 502. If that were the case, a claim under § 502(a)(3) could never be dismissed on a Rule 12(b)(6) motion. Where, however, as here, a beneficiary alleges that deception by his plan administrator potentially is thecause of the beneficiary's inability to avail himself of another remedy under § 502, that breach of fiduciary claim cannot be dismissed at an early stage in the pleadings.
In addition, because resolution of the parties' cross-motions for judgment may moot Freeman's breach of fiduciary duty claim, the parties should not file any further motions on the claim for breach of fiduciary duty until their pending motions for judgment have been resolved.
2. Breach of fiduciary duty
Finding that Freeman can maintain a claim for breach of fiduciary duty under § 502(a)(3) even though he also brings a claim to recover benefits under § 502(a)(1)(B) does not end the inquiry. Defendant also argues that it simply had no affirmative duty to provide complete and accurate information in the circumstances alleged by Freeman. As such, Defendant contends that, even if the Court reviews the merits of Freeman's breach of fiduciary duty claim, there is no set of facts that Freeman can prove that would entitle him to relief.
To resolve this question, the Court must determine under what circumstances an ERISA fiduciary must provide complete and accurate information to its beneficiaries. In general, "ERISA imposes high standards of fiduciary duty upon administrators of an ERISA plan." Krohn v. Huron Memorial Hosp., 173 F.3d 542, 547 (6th Cir. 1999). ERISA's fiduciary duty encompasses three components: (1) a duty of loyalty that requires all decisions of an ERISA plan to be made "with an eye single to the interests of the participants and beneficiaries;" (2) a "prudent person" fiduciary obligation that requires a plan fiduciary to exercise his duties with the care, skill, prudence, and diligence of a prudent person under the circumstances; and (3) an obligation to act "for the exclusive purpose of providing benefits to the plan beneficiaries." Id. (internal quotations and citations omitted).
In Varity, the Supreme Court found a breach of fiduciary duty because the administrator "participate[d] knowingly and significantly in deceiving a plan's beneficiaries in order to save the employer money." Varity, 516 U.S. at 506. In so finding, it stated the uncontroversial principle that "lying is inconsistent with the duty of loyalty owed by all fiduciaries and codified in section 404(a)(1) of ERISA." Id. (citation omitted). Because the breach in that case was an obvious breach, the Court decided that it "need not reach the question of whether ERISA fiduciaries have any fiduciary duty to disclose truthful information on their own initiative, or in response to employee inquiries." Id. Since Varity, the Sixth Circuit has had the opportunity to address the questions left unresolved by the Supreme Court.
In Sprague v. General Motors Corporation, 133 F.3d 388, 406 (6th Cir. 1998), the Sixth Circuit noted that no courts of appeals have imposed fiduciary liability on an ERISA fiduciary for failure to disclose information that is not required to be disclosed. The Court also suggested, however, that there are two situations in which an ERISA fiduciary may have a fiduciary duty to provide non-misleading information: (1) when a beneficiary requests information about the plan from an ERISA fiduciary, and (2) when an ERISA fiduciary, on its own initiative, provides information to a beneficiary. Id. ("Had an early retiree asked about the possibility of the plan changing, and had he received a misleading answer, or had GM on its own initiative provided misleading information about the future of the plan . . . a different case would have been presented.")
In Krohn, the Sixth Circuit confirmed the suggestion in Sprague that an ERISA fiduciary has a duty to provide non-misleading information when a beneficiary requests information about a plan covered by ERISA. There, the Court even went beyond the dicta in Sprague and affirmatively agreed with other courts of appeals that,
once an ERISA beneficiary has requested information from an ERISA fiduciary who is aware of the beneficiary's status and situation, the fiduciary has an obligation to convey complete and accurate information material to the beneficiary's circumstance, even if that requires conveying information about which the beneficiary did not specifically inquire. Krohn, 173 F.3d at 547 (emphasis added). In that case, the Court held that an administrator breached its fiduciary duty by failing to provide certain information about a participant's long-term disability benefits when the participant's husband requested general information about benefits. Id. at 547-551.
In James v. Pirelli Armstrong Tire Co., 305 F.3d 439, 455 (6th Cir. 2002), the Sixth Circuit confirmed the second suggestion in Sprague: that, when an ERISA fiduciary provides information on its own initiative, it has a duty to provide non-misleading information. In that case, the Court explained that "[t]he breach of fiduciary duty occurs when the employer or plan administrator on its own initiative provides misleading information about the future benefits of a plan." Id. The holding of James was later reinforced in Gregg v. Transportation Workers of America International, 343 F.3d 833, 847 (6th Cir. 2003), in which the Court reiterated that "once an ERISA fiduciary begins affirmatively providing information not required by statute, the fiduciary may not mislead, even if this means disclosing information that the fiduciary would not otherwise need to disclose."
Based on Sprague, Krohn, James, and Gregg, an ERISA fiduciary has a fiduciary duty to provide non-misleading information when (1) a beneficiary requests information about the plan from an ERISA fiduciary, or (2) an ERISA fiduciary, on its own initiative, provides information to a beneficiary. In the present case, Freeman did not request information from Defendant, and Defendant did not provide information on its own initiative. Instead, Defendant solicited a statement from Freeman regarding his eligibility for benefits by asking Freeman to sign the written certification in 1995. Freeman alleges that Defendant solicited the statement without providing Freeman with all the information he needed to confirm or contest his eligibility date, despite the fact that Defendant allegedly knew that such information might affect Freeman's status.
Although Local 507 was the entity that required Freeman to sign the written certification, it did so because it was required to by the terms of the Severance Plan. Accordingly, the Court treats the act of soliciting Freeman's statement as being done by Defendant, not Local 507.
Defendant also argues that it neither had knowledge of the DOL action nor of that action's affect on Freeman's status and, therefore, it could not have a duty to provide that information to Freeman. Those matters, however, are factual matters to be considered later in the proceedings.
Based on those assertions, the Court finds that Freeman has sufficiently stated a claim for breach of fiduciary duty. Although this case does not fall within the precise contours of Sprague, Krohn, James, and Gregg, the reasoning and policy behind the holdings in those cases apply equally here. As the Court stated in Gregg, "ERISA imposes trust-like fiduciary responsibilities, and a trustee `is under a duty to communicate to the beneficiary material facts affecting the interest of the beneficiary which he knows the beneficiary does not know and which the beneficiary needs to know for his protection in dealing with a third person.'" Gregg, 343 F.3d at 847 (quoting RESTATEMENT (SECOND) OF TRUSTS § 173, cmt. d (1959)). Freeman has sufficiently alleged that Defendant breached a fiduciary duty when it did not inform him of the DOL action's potential impact on his eligibility status. Freeman's allegation that Defendant actively solicited his statement lends further support to the sufficiency of his pleading. At least in the context of a motion to dismiss, the Court concludes that Freeman has stated a claim upon which relief can be granted.
Defendant also argues in its reply brief that Freeman does not allege specifically in his complaint that Defendant breached its fiduciary duty by soliciting a statement from Freeman without disclosing certain information. According to Defendant, Freeman's claim should be dismissed because "it is plainly impermissible to plead claims like this after-the-fact in the form of an opposition to a Motion to Dismiss." (Doc. #30 at 4). Although Defendant is correct that the complaint does not allege the precise basis for the breach of fiduciary duty that Freeman argues in his opposition brief, Defendant overstates the notice pleading requirements in Rule 8 of the Federal Rules of Civil Procedure. Freeman specifically pled a separate claim for relief entitled "Breach of Fiduciary Duty" and specified under which section of ERISA his claim was based. In addition, the complaint specifically describes the 1992 DOL action. (Doc. #1 at ¶ 29). Accordingly, the Court finds that the requirements of Rule 8 have been satisfied.
The Court, therefore, finds that Freeman can maintain his claim for breach of fiduciary duty under § 502(a)(3) of ERISA at this stage of the litigation, but that his claim for breach of plan must be dismissed.
III. CONCLUSION
Defendant's motion to dismiss in GRANTED in part and DENIED in part. The Court grants Defendant's motion as to Freeman's second claim for relief (breach of the plan) but denies the motion as to Freeman's third claim for relief (breach of fiduciary duty). Defendant's second claim for relief is DISMISSED.