On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. No. 86-2545
Stapleton, Mansmann and Garth, Circuit Judges.
Opinion ANNOUNCING THE JUDGMENT OF THE COURT
This appeal, which arises from two corporate reorganizations and the consequent termination of a pension plan, requires us to answer the question: do pension plan fiduciaries have a duty under § 404 (29 U.S.C. § 1104) and § 406 (29 U.S.C. § 1106) of the Employee's Retirement Income Security Act (ERISA) to notify the former members of a plan who now claim an interest in a plan surplus, of a termination of the plan prior to the ten day requirement of the Pension Benefit Guaranty Corporation (PBGC)*fn1 regulations found at 29 C.F.R. 2616 et seq.? We conclude that in the circumstances presented here, no notification was required beyond the 10-day notice mandated by the regulation.*fn2
The district court granted defendants' motion for summary judgment and denied the plaintiffs' motion for partial summary judgment, holding that the duties embodied in § 404 and § 406 did not apply to HMW's business decision to terminate the pension plan. We affirm.
The plaintiffs, represented by John J. Hamilton and Paul L. Payonk ("Payonk"), consist of a class of employees or former employees of Hamilton Precision Metals ("Metals") and of Wallace Silversmiths, Inc. ("Wallace") who withdrew from a defined benefit pension plan shortly before its termination and, therefore, did not share in the distribution of the surplus of the Plan. The defendants, HMW Industries, Inc., Hamilton Technology, Inc., Clabir Corp., Bernhardt, Kenneth R., Strantz, Gloria G., and Clarke, Henry D., Jr., are alleged to have breached their fiduciary duty by failing to inform Payonk of the impending plan termination and by self-dealing.*fn3 The relevant facts, none of which are in dispute, have been detailed by the district court in its Memorandum and Order of June 27, 1988. We reproduce the pertinent portions of that recital supplemented by additional facts disclosed in the record.
Prior to August 5, 1983, Wallace, HamTech and H-K Exchange, were wholly owned subsidiaries of HMW. The employees of these subsidiaries, including Metals, were participants in the HMW plan, an overfunded pension plan that was funded by both employer and employee contributions. On August 5, 1983, Katy Industries, a corporation not a party to this action, acquired Wallace and Metals from HMW. As a result of this divestiture, Wallace and Metals employees were no longer considered employees of HMW under the terms of the HMW plan and could no longer accrue benefits under the Plan. However, the divestiture did not affect benefits that had already accrued to those employees and they were entitled to withdraw their accumulated employee contributions with interest at anytime. During the fall of 1983, HMW arranged with Connecticut General Life Insurance Company to purchase annuities covering the accrued benefits of the Wallace and Metals HMW plan participants.
On October 25, 1983, in response to several requests from Wallace and Metals employees, defendant Strantz wrote to each Wallace and Metals employee stating the amount of employee contribution that each could withdraw from the HMW plan. Strantz's letter explained further that the employees had the option of withdrawing their employee contributions from the HMW plan immediately or leaving their contributions in the plan until regular retirement age. This letter did not inform plaintiffs that they could share in any surplus should the HMW plan be terminated if they left their contributions in the plan until termination. Only a few employees withdrew their contributions during the last few months of 1983.
On February 1, 1984, Wallace announced its new employee benefits package. The new package included a Guaranteed Retirement Income Plan pursuant to which the employees would be guaranteed payments at retirement at least as high as those they would have received as HMW plan participants. To be eligible for the new plan, all employees had to roll over their employee contributions from the HMW plan to the Wallace Plan. Hartford Life Insurance Co., the administering company of the new plan, also agreed to guarantee a 12.75% interest rate on the rolled over funds for the first five years. To take advantage of this guaranteed interest rate, however, the employees had to roll over their HMW contributions within a limited specified period.
A similar announcement was made by Metals on February 23, 1984, followed by a confirming letter to the employees dated March 1, 1984. The new Metals plan offered the same plan and 12.75% interest rate opportunity as the Wallace plan. Both Wallace and Metals management encouraged their employees to roll over their HMW contributions to the new plans. These announcements were followed by mass withdrawals from the HMW plan.
Soon after Katy Industries acquired Wallace and Metals. Defendant Clabir obtained a controlling interest in HMW. Clabir's Director of Administration, Richard Van Hoesen, was directed to bring the HamTech (HMW's remaining subsidiary) retirement program into conformity with the Clabir Plan which was an employer contribution plan rather than a matched employer-employee plan. In order to do so it appeared that the old HMW Plan would have to be terminated.
On December 19, 1983 Van Hoesen received a copy of a letter from James M. Schell, his supervisor at Clabir, addressed to John L. Owen, the Human Resources Supervisor at HamTech, directing that preparation should begin in the process of terminating the HMW Plan. Although termination was still tentative, it was apparently Schell's intention to get the administrative process started. On January 5, 1984, representatives of Clabir met with representatives of HamTech and Connecticut General Life Insurance Company to discuss the possible termination of the HMW plan and its replacement with a new retirement plan patterned after the plans at other Clabir subsidiaries. Because of the matters raised at the meeting, the tentative target date of February 1, 1984 for the termination of HMW's plan was pushed back to March 1, 1984. After a number of meetings, the resolution of certain logistical problems and three changes in the proposed termination date, the HMW Board of Directors passed a resolution on March 7, 1984 terminating the HMW plan effective March 31, 1984.
In accordance with regulations promulgated by the Pension Benefit Guarantee Corporation (PBGC), defendant Strantz sent out a package of letters dated March 12, 1984 to Wallace and Metals for distribution to employees notifying them of the decision to terminate the HMW plan. These letters were accompanied by notices of termination dated March 14, 1984. HMW filed its notice of termination with the PBGC on March 21, 1984. The PBGC ultimately approved the termination effective March 31, 1984. PBGC approval for the termination of the old HMW Plan took fourteen months and was issued in May, 1985. It was then that management learned that only those employees who were still participants in the old HMW Plan on the March 31, 1984 termination date were entitled to share in the distribution of the plan surplus.
In 1985, surplus plan assets were distributed in part to plan participants whose contributions remained in the HMW plan and in part to HMW. Those employees of Wallace and Metals who rolled over their contributions from the HMW plan to their new pension plans prior to the effective date of the plan termination received no part of the surplus distribution. Had these employees maintained their contributions in the HMW plan, they would have shared in the surplus reversion.
Named plaintiffs filed suit in May 1986 alleging that HMW had breached its fiduciary duties of care and loyalty, inter alia, by failing to investigate Payonk's right to share in the surplus and by failing to inform Payonk of the impending termination in violation of ERISA section 404, 29 U.S.C. § 1104. Payonk further alleged that HMW breached the prohibition against self-dealing contained in ERISA section 406, 29 U.S.C. § 1106, by failing to notify class members of "important and material facts about their interest in the HNW plan, thereby increasing the reversion of surplus assets to themselves or the corporate interests they represent."
HMW moved for summary judgment and Payonk moved for partial summary judgment. The district court granted HMW's motion on the grounds that the plan terminated by HMW was not subject to the fiduciary standards prescribed in § 404 and § 406; that the termination of HMW's plan was made by HMW in its business capacity; that HMW had no duty to notify Payonk of the HMW plan termination until the termination date was fixed; that HMW as employer had no duty to disclose formulative or preliminary information leading up to the termination of the plan; that PBGC regulations prescribed the time and manner of notice of termination; that HMW had complied with those PBGC regulations and that therefore HMW had breached no duty to the former plan members. Payonk appealed.
Our review of an appeal from the grant of a motion for summary judgment is plenary. Where factual controversies exist, disputes over material facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). However, where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, or where the facts are not disputed, there is no genuine issue for trial. Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986).
Here, the facts are undisputed. We must therefore determine whether the district court properly analyzed the relevant legal principles governing the parties' dispute when it concluded that judgment should be entered for HMW.
We first turn our attention to the question whether, under the circumstances of this case, HMW's decision to terminate its plan was strictly a corporate management business decision, which by its nature imposed no fiduciary duties on HMW, see Trenton v. Scott Paper Co, 832 F.2d 806 (3d Cir. 1987) cert. denied, 485 U.S. 1022, 108 S. Ct. 1576, 99 L. Ed. 2d 891 (1988); or whether the decision to terminate was an action subject to fiduciary duties governed by § 404 and § 406.*fn4
The determination as to whether the decision taken was a business corporate management decision or whether it was an action falling within the fiduciary functions delineated by ERISA is a threshold determination in our analysis. As we understand the jurisprudence in this area, where an administrator of a plan decides matters required in plan administration or involving obligations imposed upon the administrator by the plan, the fiduciary duties imposed by ERISA attach. See Rosen v. Hotel Restaurant Emp. Bartenders Union, 637 F.2d 592 (3d Cir.) cert. denied, 454 U.S. 898, 102 S. Ct. 398, 70 L. Ed. 2d 213 (1981). Where, however, employers conduct businesses and make business decisions not regulated by ERISA, no fiduciary duties apply. And, when employers wear "two hats" as employers and as administrators ". . . they assume fiduciary status 'only when and to the extent' that they function in their capacity as plan administrators, not when they conduct business that is not regulated by ERISA." Amato v. Western Union Intern. Inc., 773 F.2d 1402, 1416-17 (2d Cir. 1985) cert. dismissed, 474 U.S. 1113, 106 S. Ct. 1167, 89 L. Ed. 2d 288 (1986).
It is these principles that must guide us in our analysis and in assessing the arguments advanced by Payonk.
Payonk's arguments may be summarized as follows: first, Payonk does not contend that the decision by HMW to terminate its plan was a fiduciary decision. (Appellant Br. at 22.) Thus, Payonk concedes that when the district court concluded that HMW's decision to terminate its plan was exempt from ERISA's fiduciary obligations under the cases on which the district court relied, the district court was correct in relying on those authorities.*fn5 (Appellant Br. at 23.) Payonk, however, contends that even though the termination of HMW's plan was not a fiduciary decision, there was an obligation upon HMW to protect the existing interests and entitlement of the beneficiaries, i.e., the plaintiff class members in the termination process. Referring to the Sixth Circuit opinion in Berlin v. Michigan Bell Telephone Co., 858 F.2d 1154 (6th Cir. 1988) which reversed Ogden v. Michigan Bell Telephone Co., 657 F. Supp. 328 (E.D.Mich. 1987), (the district court case upon which the district court in the instant action relied), Payonk argues that HMW had an affirmative duty to disclose termination information which it possessed. Payonk claims that rather than disclosing such information, HMW withheld that information in breach of its duty.
In short, we understand Payonk's position to be that although the decision to terminate was not a fiduciary decision, fiduciary obligations arose as a consequence of HMW's business decision to terminate. Stated otherwise, Payonk argues that while the decision to terminate is a business decision, that nevertheless the treatment of the interests of those who would claim as individual beneficiaries and participants fall within fiduciary responsibilities of the plan administrator.
In this respect, Payonk's argument resembles the argument made by plaintiffs in Berlin, supra, where the Berlin plaintiffs also conceded that Michigan Bell's decision to offer a new plan (MIPP) from which plaintiffs were excluded, was a non-fiduciary decision. The Berlin plaintiffs argued that a distinction had to be drawn between the actual corporate decision to offer new benefits and communications made by fiduciaries to potential plan participants about such a new offering. Berlin, 858 F.2d at 1161. The district court in Berlin, had rejected any such distinction, finding that "[it] would be illogical to hold that even though the ultimate decision to offer MIPP was a business decision, that representations about the eventuality were made in a fiduciary capacity." Id. Because of its holding that the decision to offer MIPP benefits was a business decision and that therefore any communications relating to that decision were not fiduciary in nature, the district court in Berlin did not reach the question of whether misrepresentations which misled the Berlin plaintiffs, actually occurred with respect to the new MIPP plan.
The court of appeals, in reversing the district court's summary judgment in favor of Michigan Bell, focused its attention on the issue of affirmative misrepresentations and held that the plan fiduciary had a fiduciary duty not to make negligent or intentional misrepresentations to plan participants concerning the MIPP offering. This holding was reached in the context of facts that charged Michigan Bell with having excluded plan participants from the new plan by reason of affirmative misrepresentations made by Michigan Bell's district Manager.*fn6
Thus, the thrust of the Berlin opinion centered on the misrepresentations alleged by the Berlin plaintiffs. It is for that reason the Berlin court held that liability will lie only if material misrepresentations in violation of 29 U.S.C. § 1104 are proven by the plaintiffs. Id. at 1164. That holding distinguishes Berlin from the facts before us. For in the instant case, the record reveals no claims or assertions that HMW had misrepresented its termination decision. Rather, Payonk's claim is that notification should have been given at a time when HMW merely contemplated the termination of the plan but had not yet decided to do so. In the absence of any claim that Payonk was mislead by affirmative misrepresentations made by HMW, Payonk cannot rely on Berlin as authority for imposing fiduciary duties on HMW.
As noted, Payonk argues that HMW breached its fiduciary duty by failing to notify the Metals and the Wallace employees of HMW's proposed plan termination. In support of this argument Payonk refers us to Delgrosso v. Spang and Co., 769 F.2d 928 (3d Cir. 1985), cert. denied 476 U.S. 1140, 106 S. Ct. 2246, 90 L. Ed. 2d 692 (1986), arguing that this court has held that "a business decision to terminate a pension plan does not render fiduciary obligations inapplicable to recapture of a surplus in which employees have a legitimate interest." (Appellant Br. at 21.) Payonk also seeks to support his position by referring to Rosen v. Hotel & Restaurant Emp. Bartenders Union, 637 F.2d 592 (3d. Cir.), cert. denied 454 U.S. 898, 70 L. Ed. 2d 213, 102 S. Ct. 398 (1981).
Payonk's reliance on Delgrosso and Rosen is misplaced. In Delgrosso the employer breached its fiduciary duty under ERISA by unilaterally amending its pension fund to provide for a reversion of plan assets to itself in violation of the pension agreement. This fiduciary duty stemmed from its general duty under ERISA as an administrator of the plan and thus as a fiduciary. The employer's decision to amend its plan in violation of the existing pension agreement to provide for a reversion to itself was not an action which could be given effect as a corporate management decision. Hence, fiduciary obligations attached.
Here, on the other hand, no violation of the pension agreement occurred and the decision to terminate the HMW plan could only have been made and effectuated by HMW in its role as employer. No other party, including in particular HMW as administrator, had the authority to make that decision. Until the termination decision became final on March 7, 1984 (to be effective March 31, 1984) disclosure was not required because (1) prior to March 7, 1984, the discussions concerning termination were preliminary, indefinite and subject to change; (2) as a corporate management decision, the decision to terminate did not impose fiduciary obligations on HMW in its role as employer; (3) no Berlin type misrepresentations took place which might implicate general fiduciary disclosure, see Berlin, supra; and (4) ERISA requirements of disclosure did not provide for notice until 10 days ...