Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Ely v. Board of Trustees of Pace Industry Union-Management Pension Fund

United States District Court, D. Idaho

February 4, 2019

DONNIE ELY, Plaintiff,
v.
BOARD OF TRUSTEES OF THE PACE INDUSTRY UNION-MANAGEMENT PENSION FUND, Defendant.

          MEMORANDUM DECISION AND ORDER

          CANDY W. DALE JUDGE

         INTRODUCTION

         Plaintiff Donnie Ely, a participant in the Pace Industry Union Management Pension Fund (PIUMPF or the Fund), challenges an action taken by the PIUMPF Board of Trustees in 2013, whereby the Board amended its Rehabilitation Plan to require withdrawing employers to pay an additional exit fee based on the Fund's accumulated funding deficiency (the “AFD Exit Fee”). Ely alleges that the AFD Exit Fee is undermining PIUMPF's solvency, and that the actions taken by the Board of Trustees violate the Employee Retirement Income Security Act of 1974 (ERISA).

         Before the Court is the Board of Trustees' motion to dismiss, and its motion to stay discovery.[1] (Dkt. 16, 17.) The Court conducted a hearing on the motions on November 13, 2018. After carefully considering the parties' arguments, their written memoranda, and relevant authority, the Court will grant in part and deny in part the Board of Trustees' motion to dismiss, and deny the motion to stay discovery.

         BACKGROUND

         PIUMPF is an employee pension benefit plan as defined by 29 U.S.C. § 1002(3)(2)(A) and a multiemployer pension plan within the meaning of 29 U.S.C. § 1002(37). PIUMPF is governed by its Trust Agreement, restated as of April 2, 2000, and as amended thereafter. One-half of the members of the Board of Trustees are appointed by participating employers, and the other one-half are appointed by the sponsoring labor union. Trust Agreement, Ex. 1 (Dkt. 1-1); 29 U.S.C. § 186(c)(5)(B) (stating that employers must be “equally represented in the administration” of a pension fund). The Board of Trustees is the Fund's sponsor, meaning it is tasked with administering the Fund. Trust Agreement, Ex. 1 (Dkt. 1-1); 29 U.S.C. § 1002(16)(B) (defining plan sponsor). In addition, the Board of Trustees is designated as the named fiduciary of the Trust and Plan. Trust Agreement Ex. 1 (Dkt. 1-1.)

         Ely is a participant in the Fund. The Fund currently is in critical status (and has been since 2010), which means that it is in dire financial condition. See 29 U.S.C.§ 1085(b)(2), ERISA § 305(b)(2) (defining critical status). Because of its critical status, specific funding rules required the Board of Trustees to adopt a rehabilitation plan for the Fund. See 29 U.S.C. § 1085(a)(2) (requiring the plan sponsor of a plan in critical status to adopt and implement a rehabilitation plan in accordance with 29 U.S.C. § 1085(e), ERISA § 305(e)). A rehabilitation plan consists of actions, such as reductions in future benefit accruals, reductions in plan expenditures, or increases in contributions, designed to improve the Fund's financial outlook and enable it to either “cease to be in critical status by the end of the [ten-year] rehabilitation period, ” or “emerge from critical status at a later time or to forestall possible insolvency.” 29 U.S.C. § 1085(e)(3)(A), ERISA § 305(e)(3)(A).[2]

         On April 30, 2010, the Board of Trustees published a Notice of Critical Status Certification for the Fund, explaining to the Plan's participants:

Critical status
The Fund is considered to be in critical status because it has funding or liquidity problems, or both. More specifically, the Fund's actuary determined that the Fund is projected to have an accumulated funding deficiency within three (3) years after the current Plan Year. The projected year of the deficiency is 2013.
Rehabilitation Plan and Possibility of Reduction in Benefits
Federal law requires pension plans in critical status to adopt a rehabilitation plan aimed at restoring the financial health of the Fund ….

         Thereafter, the Board of Trustees determined that the contribution rate increase schedules provided under the initial rehabilitation plan were not reasonable and would cause employers to withdraw from the Fund, thereby expediting rather than forestalling insolvency. Thus, by Resolution dated April 10, 2013, the Trustees retroactively adopted, as of November 15, 2012, the 2012 Amended and Updated Rehabilitation Plan (“Amended and Updated Rehabilitation Plan”). Compl. Ex. 4. The Amended and Updated Rehabilitation Plan had contribution rate schedules requiring lower annual increases to the contribution rate.[3]

         In addition to the revised schedules, the Amended and Updated Rehabilitation Plan added a paragraph that included the AFD Exit Fee. This paragraph states in pertinent part:

In addition, in the event an Employer withdraws during a Plan Year when the Fund has an accumulated funding deficiency, [4]as determined under Section 304 of ERISA, the Employer shall be responsible for its pro rata share of such deficiency in addition to any withdrawal liability determined under Section 4211 of ERISA.

         Ely seeks a declaration that the AFD Exit Fee implemented via the Amended and Updated Rehabilitation Plan is unenforceable, and that the Board of Trustees should be enjoined from further enforcement or implementation of the AFD Exit Fee on behalf of the PIUMPF. The Complaint asserts three counts for violations of ERISA.

         In Count I, Ely alleges 29 U.S.C. § 1451(a)(1), ERISA § 4301(a)(1), permits him to bring an action for appropriate legal or equitable relief as a participant “adversely affected by an act or omission of a party under ERISA Title IV, Subtitle E.” He asserts that, by implementing the AFD Exit Fee, the Board of Trustees violated 29 U.S.C. § 1391, ERISA § 4211, and 29 C.F.R. § 4211.21(c), which “prohibits any withdrawal liability allocation method that results in a systematic and substantial over-allocation of the plan's unfunded vested benefits (assessing employers amounts greater than the amount of vested liabilities less the plan's assets).” Compl. ¶ 25. Ely alleges also in Count I that the AFD Exit Fee violates 29 U.S.C. § 1085(e)(3)(A)(ii), ERISA § 305(e)(3)(A)(ii), because it is not a “reasonable measure to emerge from critical status at a later time or to forestall possible insolvency.” 29 U.S.C. § 1085(e)(3)(A)(ii), ERISA § 305(e)(3)(A)(ii). Ely contends that, rather than a reasonable measure, the AFD Exit Fee has caused PIUMPF's decline in value, such that the Plan is projected to be unable to pay benefits to its participants in 2031.

         In Count II, Ely alleges the Board of Trustees breached its fiduciary duty of prudence. Ely contends the AFD Exit Fee is imprudent because it is a second, and impermissible, way to collect unfunded vested benefits, and because it delays, rather than prevents, insolvency. In Count III, he alleges a breach of co-fiduciary duty against the individual Trustees, for failure to act prudently and failure to discharge their duties with respect to the Plan solely in the interest of plan participants and beneficiaries.

         The Board of Trustees argues that Count I must be dismissed, because 29 U.S.C. § 1451(a)(1), ERISA § 4301(a)(1), does not provide a cause of action to challenge a rehabilitation plan adopted pursuant to 29 U.S.C. § 1085(e), ERISA § 305(e). As for Counts II and III, the Board of Trustees argues dismissal is proper because the Board was not acting in a fiduciary capacity, but rather in its capacity as a settlor of the plan, when it adopted the Amended and Updated Rehabilitation Plan.

         In his response to the Board of Trustees' motion to dismiss, Ely raised additional arguments addressed by the Board of Trustees in its reply. He alleges the AFD Exit Fee violates ERISA's “anti-cutback provision, 29 U.S.C. § 1054(g)(1), ERISA § 204(g)(1); that proper notice of amendment to the rehabilitation plan was not given to plan participants, in violation of 29 U.S.C. § 1054(h), ERISA § 204(h); and that the Board of Trustees' actions in delaying, but not preventing, insolvency of the Plan by implementing the AFD Exit Fee violates 29 U.S.C. § 1085(e)(3)(A)(ii), ERISA § 305(e)(3)(A)(ii). The Board of Trustees notes none of these theories of recovery were mentioned in the Complaint. Nonetheless, the Board of Trustees argues amendment would be futile because ERISA § 204(g)(1) and (h) do not apply to plan amendments adopted pursuant to ERISA § 305(e), and Ely's interpretation of ERISA § 305(e)(3)(A)(ii) is not supported by the plain language of the statue.

         STANDARD OF REVIEW

         A motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a party's claim for relief. When considering such a motion, the Court's inquiry is whether the allegations in a pleading are sufficient under applicable pleading standards. Federal Rule of Civil Procedure 8(a) sets forth minimum pleading rules, requiring only a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2).

         A motion to dismiss will be granted only if the complaint fails to allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations omitted). Although “we must take all of the factual allegations in the complaint as true, we are not bound to accept as true a legal conclusion couched as a factual allegation.” Id. at 1949-50; see also Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Therefore, “conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim.” Caviness v. Horizon Comm. Learning Cent., Inc., 590 F.3d 806, 812 (9th Cir. 2010) (citation omitted).

         DISCUSSION

         By way of background, a multiemployer pension plan is one in which multiple employers pool contributions into a single fund that pays benefits to covered retirees who spent a certain amount of time working for one or more of the contributing employers. See Trustees of Local 138 Pension Tr. Fund v. F.W. Honerkamp Co. Inc., 692 F.3d 127, 129 (2d Cir. 2012). The court in Honerkamp explained that plans of this sort

offer important advantages to employers and employees alike. For example, employers in certain unionized industries likely would not create their own pension plans because the frequency of companies going into and out of business, and of employees transferring among employers, make single-employer plans unfeasible. Multiemployer plans allow companies to offer pension benefits to their employees notwithstanding these practicalities, and at the same time to share the financial costs and risks associated with the administration of pension plans.

Id. (citing Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust Fund for S. Cal., 508 U.S. 602, 605-07 (1993)).

         However,

[a] key problem of ongoing multiemployer plans, especially in declining industries, is the problem of employer withdrawal. Employer withdrawals reduce a plan's contribution base. This pushes the contribution rate for remaining employers to higher and higher levels in order to fund past service liabilities, including liabilities generated by employers no longer participating in the plan, so-called inherited liabilities. The rising costs may encourage-or force-further withdrawals, thereby increasing the inherited liabilities to be funded by an ever-decreasing contribution base. This vicious downward spiral may continue until it is no longer reasonable or possible for the pension plan to continue.

Id. (quoting Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 722 n.2 (1984), in turn quoting Pension Plan Termination Insurance Issues: Hearings before the Subcommittee on Oversight of the House Committee on Ways and Means, 95th Cong., 2nd Sess., 22 (1978) (statement of Matthew M. Lind)) (internal quotation marks omitted).

         The Pension Protection Act of 2006 (PPA) was enacted in response to the actual or forecasted termination of various large pension plans and is aimed at stabilizing pension plans to ensure they remain solvent. Id. at 130. In essence, here Ely argues the Amended and Updated Rehabilitation Plan, and specifically the AFD Exit Fee, is by design encouraging employers to leave the Plan and forcing the remaining participating employers to shoulder the ever-increasing financial burden, thereby threatening his (and other participants) vested future benefits. Each of Ely's theories of recovery, set forth above, will be discussed in turn.

         1. Count I - 29 U.S.C. § 1451(a), ERISA § 4301(a)(1)

         ERISA specifically sets forth the parties who can bring certain civil actions under the Act, and the type of actions each of those parties may pursue. Cyr v. Reliance Std. Life Ins. Co., 642 F.3d 1202, 1205 (9th Cir. 2011). Accordingly, civil actions under ERISA are “limited only to those parties and actions Congress specifically enumerated in [29 U.S.C. §] 1132.” Gulf Life Ins. Co. v. Arnold, 809 F.2d 1520, 1524 (11th Cir. 1987). Ely contends in Count I that he has a valid cause of action pursuant to 29 U.S.C. § 1451(a)(1), ERISA § 4301(a)(1). This provision of ERISA authorizes a plan participant, beneficiary, employer, or plan fiduciary to bring an action when he or she is “adversely affected by the act or omission of any party under this subtitle.” 29 U.S.C. § 1451(a)(1). Ely asserts that the imposition of the AFD Exit Fee violates 29 U.S.C. § 1391, ERISA § 4211, because it results in an over-allocation of the plan's unfunded vested benefits, and violates 29 U.S.C. § 1085(e)(3)(A)(ii), ERISA § 305(e)(3)(A)(ii), because its purpose is to delay, but not prevent, insolvency of the Plan.

         The Board of Trustees argues that the Court of Appeals for the Eleventh Circuit addressed the issue before the Court in WestRock RKT Co. v. Pace Industry Union-Management Pension Fund, 856 F.3d 1320, 1325 (11th Cir. 2017), and that the court's holding forecloses Ely's cause of action under 29 U.S.C. § 1451(a). Because of the plan's critical status, special funding rules required the board of trustees for the pension plan to adopt a rehabilitation plan for its fund. The rehabilitation plan adopted by the board of trustees included a provision requiring a withdrawing employer to pay a portion of the fund's accumulated funding deficiency. WestRock, an employer contributing to the Pace Industry Union-Management Pension Fund, challenged the board of trustees' amendment to the fund's rehabilitation plan under 29 U.S.C. § 1451(a), as Ely does here.[5]

         Section 1451 is part of Subtitle E of ERISA, which contains special provisions for multiemployer plans and has six parts, one of which governs employer withdrawals.[6] 856 F.3d at 1325. Part one governing employer withdrawals sets forth how to calculate “withdrawal liability”, which is the amount a withdrawing employer is charged for its share of the unfunded vested benefits. Id. (citing 29 U.S.C. §§ 1381-1405 (governing the calculations for withdrawal liability)). WestRock argued that, because Subtitle E of ERISA governs withdrawal liability, it therefore encompassed the exit fee imposed upon employers upon withdrawal. WestRock asserted that the exit fee was an improper additional liability not permitted by any section within Subtitle E of ERISA.

         The court held that Section 1451(a) does not support the employer's reading, because the employer was not challenging an act or omission under Subtitle E of ERISA. Id. at 1326. The board had adopted the amendment to the rehabilitation plan implementing the exit fee under its authority in 29 U.S.C. § 1085(a)(3)(A)(ii), ERISA § 305(a)(3)(A)(ii), which section is under Subtitle B of ERISA, not under Subtitle E. Id. In other words, the court explained, because the employer was not challenging an act or omission under Subtitle E, the employer could not maintain a cause of action under Section 1451(a). Id.

         The court noted that, under ERISA, its approach to statutory interpretation is “measured and restrained.” Id. (citing Gulf Life, 809 F.2d at 1524 (“[C]ivil actions under ERISA are limited only to those parties and actions Congress specifically enumerated….”)). Because there is nothing in the text of ERISA indicating that Congress intended a remedy not specifically enumerated, the court refused to recognize one by implication. Id. Accordingly, the appellate court upheld the district court's order granting the fund's motion to dismiss, finding that ERISA does not provide a cause of action under 29 U.S.C. § 1451(a) to an employer to challenge an action taken by the board under 29 U.S.C. § 1085(a)(3)(A)(ii). Id.

         Absent controlling authority from the Court of Appeals for the Ninth Circuit, the Court here finds the reasoning in WestRock persuasive.[7] The Board of Trustees implemented the AFD Exit Fee pursuant to 29 U.S.C. § 1085(e)(3)(A)(ii), ERISA § 305(e)(3)(A)(ii), the provision authorizing and mandating rehabilitation plans, which is part of Subtitle B of ERISA. Accordingly, the adoption or amendment of the rehabilitation plan is not an act or omission of a party under Subtitle E, and cannot give rise to a cause of action under 29 U.S.C. § 1451(a). The Court finds no distinction between the fact that a participant is suing here instead of an employer, given that Section 1451(a) includes both employers and participants.

         Nor does Ely's argument that the AFD Exit Fee and the imposition of statutorily required withdrawal liability are “intertwined, ” and therefore the imposition of the exit fee should be viewed as an act or omission under Subtitle E of 29 U.S.C. § 1451(a)(1), have merit. WestRock attempted a similar argument, asserting that any liability imposed upon withdrawing employers was encompassed by 29 U.S.C. §§ 1381-1405. The WestRock court explained that the concept of withdrawal liability, and its method of calculation set forth in 29 U.S.C. § 1391, ERISA § 4211, is different than an accumulated funding deficiency, which is defined in 29 U.S.C. § 1084(a), ERISA § 304(a). WestRock 856 F.3d at 1325, and n.6. Further, the court held that the exit fee was implemented pursuant to the board of trustees' authority in 29 U.S.C. § 1085(e)(3)(A)(ii), which is under subtitle B of ERISA. Id. at 1326.

         Accordingly, Ely's attempt to distinguish WestRock, which considered the exit fee imposed upon employers withdrawing from the Pace Industry Union-Management Pension Fund, [8] is not one that matters for purposes of Ely's claim under 29 U.S.C. § 1451(a), ERISA § 4301(a)(1). The court in WestRock determined that the structure of ERISA, and its plain meaning, is such that there simply is no cause ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.