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June 14, 1985

CHARLES S. FOLTZ, et al., Plaintiffs,
U.S. NEWS & WORLD REPORT, INC., et al., Defendants

Barrington D. Parker, District Judge.

The opinion of the court was delivered by: PARKER

Barrington D. Parker, District Judge:


 On March 28, 1985, this Court denied the plaintiffs' motion for a preliminary injunction prohibiting the distribution of funds by defendants U.S. News and World Report, Inc. ("U.S. News") and the Profit-Sharing Plan of U.S. News ("Plan"), and issued a Memorandum Opinion in support of its decision, 608 F. Supp. 1332. The plaintiffs are former employees of U.S. News who challenge the undervaluation of their interests in the company and the Plan. The Court of Appeals affirmed this Court's decision in part, vacated it in part and remanded the proceedings to this Court for further proceedings, "in light of the fuller explication of the legal issues on this appeal." Foltz v. U.S. News & World Report, et al., 760 F.2d 1300, 1302 (D.C. Cir. 1985).

 At this time, the Court determines that the plaintiffs are entitled to some equitable relief against the Plan under the provisions of section 1132(a)(1)(B) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1461. The reasons for this determination are set forth below. Before embarking on this discussion, the Court will address a few preliminary matters.

 Following remand, the parties have expressed some disagreement about the meaning and breadth of this Court's initial opinion as it relates to the scope of the inquiry which the Court of Appeals directed this Court to undertake after remand. To dispel any remaining confusion or doubt, the Court will briefly summarize its initial findings and conclusions, and then turn to the questions raised by the Court of Appeals. Because the factual background of this litigation was discussed in great detail in both opinions, it will not be repeated here, except where it serves to clarify any additional findings and conclusions.

 After remand, only the question of the propriety of injunctive relief against the Plan need be addressed. 760 F.2d 1300, slip op. at 2, 12-13. During the relevant period represented by the class plaintiffs, the Plan Committee, appointed by the U.S. News' Board of Directors, had responsibility for overseeing the daily activities of the Plan. The Committee continues to exercise this responsibility, and is the named fiduciary under the Plan. The Mercantile Safe Deposit & Trust Company is the trustee. The Court's March 28, 1985 opinion, of course, addressed the propriety of injunctive relief under ERISA against both U.S. News and the Plan. The findings and conclusions expressed in that opinion will be discussed in the context of the equitable relief which is available against the Plan. Such an inquiry, however, should also assess the damages which may ultimately be recovered from defendants other than the Plan.


 Memorandum Opinion of March 28, 1985

 In its initial opinion, the Court canvassed the four factors which traditionally govern the issuance of a preliminary injunction: "the likelihood of success on the merits, the possibility that the plaintiffs will suffer irreparable injury in the absence of equitable relief, the balance of hardships between the parties, and the public interest." 608 F. Supp. at 1340. The plaintiffs' request for injunctive relief was disallowed because, in the Court's view, they had not "made the requisite showing of irreparable harm." Id. at 1343. In reaching that conclusion, the Court primarily relied on two factors: first, the well established rule that except in unusual circumstances, "monetary relief in a legal action may not be ordered prior to a final determination of liability and computation of damages," id. at 1341 (citing Friends for All Children, Inc. v. Lockheed Aircraft Corp., 241 U.S. App. D.C. 83, 746 F.2d 816 (D.C. Cir. 1984)), and second, the plaintiffs' inability to demonstrate that "the substantial assets of the individual and corporate defendants would be insufficient or unavailable to satisfy a judgment." Id. at 1343.

 Before reaching this conclusion, the Court examined the basis for the plaintiffs' claims that their interests in the company were liquidated at grossly undervalued rates. They supported their charges by arguing that five policies and practices of various defendants resulted in undervaluation: "failure to properly value U.S. News' significant real estate holdings, improper application of a marketability discount to reflect the fact that the stock was owned by a closely-held corporation, valuation of the stock on a minority basis rather than on a control premium basis, the inclusion of certain items as liabilities, *fn1" and manipulation of the appraisals to match certain predetermined values fixed by U.S. News." Id. at 1337. These practices were criticized in an affidavit in which Mr. John Hempstead, the plaintiffs' expert, gave his opinion as to the proper fair market value of U.S. News' stock during the class period. His calculations were based on the crucial assumption that the sale price of the company in 1984, along with other financial indicia, should be utilized to determine the value of the company in previous years. These values, in turn, determined the fair market value of U.S. News' stock during that period. The plaintiffs utilized these figures to determine the amount by which their interests in the Plan were undervalued. This amount, plus prejudgment interest, equaled the plaintiffs' claimed damages. At the initial stage of the proceedings, the plaintiffs' claimed maximum damages of approximately $ 75 million from the Plan, including prejudgment interest.

 Next, the Court discussed in some detail the basis for two of the allegedly improper appraisal practices identified by the plaintiffs: the claim that U.S. News' real estate holdings were undervalued and the claim that a marketability discount was improperly applied. The Court found that these practices supported the plaintiffs' claims that at least some of the non-Plan defendants breached the fiduciary duties imposed by ERISA. Id. 608 F. Supp. 1332, slip op. at 11, 28-29. With respect to the question of the plaintiffs' likelihood of succeeding on their cause of action for breach of fiduciary duty against the non-Plan defendants, the Court stated that "the plaintiffs have raised serious legal questions concerning whether some of the parties to this action have complied with the strict standard of care imposed by ERISA [ 29 U.S.C. § 1109]." Id. slip op. at 28. The propriety of the minority discount and the validity of including certain items as liabilities on the balance sheet was left unanswered. This latter practice allegedly affected U.S. News' applicable earning ratios, and resulted in the undervaluation of its stock.

 Nor did the Court reach any conclusions about the amount of damages which might be attributed to the various components of the plaintiffs' undervaluation claims. These elements of the plaintiffs' damages rested in part on the appraisal policies and practices which have already been discussed: the minority and marketability discounts, real estate undervaluation, and the failure to make the appropriate adjustments to U.S. News' income. *fn2" A detailed analysis of the damage estimates was unnecessary because the Court found that the distribution of the Plan's assets would not irreparably injure the plaintiffs under any likely scenario. In the Court's view, the creditworthiness of the non-Plan defendants meant that a later judgment in favor of the plaintiffs would not go unsatisfied, even if that judgment equalled the plaintiffs' most generous damage estimates. In short, the Court viewed the assets of the Plan as a potential deep pocket source of damages whose dispersion did not threaten irreparable injury.


 Court of Appeals Opinion

examine whether the former employees would lose a potential legal claim against the Plan under [ERISA] were the Plan to pay out all or virtually all of its assets, and if so, whether the loss of a congressionally provided cause of action would work irreparable injury to the class.

 760 F.2d at 1302. For purposes of this analysis, the Court of Appeals noted that

the [district] court will be called upon to determine whether plaintiffs have demonstrated a substantial likelihood of success on the merits [on their claim for benefits due under a covered plan, 29 U.S.C. § 1132(a)(1)(B)]. If, moreover, the court finds on remand that irreparable injury would occur, then the more modest question is whether the plaintiffs have raised a serious legal question in this respect.

 Id. at 1308 n.7. Finally, the Court of Appeals stated:

This is, emphatically, not to say that injunctive relief should in fact be afforded against the Plan. We make no such determination. To the contrary, we leave that question for the District Court to determine expeditiously on remand, in light of the full set of facts and circumstances as they now exist and continue to unfold.

 id. at 1309, and then identified a variety of factors bearing on this consideration. This Court now turns to the inquiry directed by the Court of Appeals.



 Likelihood of Success on the Merits: the Claim for Unpaid Benefits

 Pursuant to 29 U.S.C. § 1132(a)(1)(B)

 The plaintiffs have asserted a theory of liability against the Plan under ERISA which in many respects is separate and distinct from their ERISA asserted claims against the other defendants. The plaintiffs allege that the Plan has violated ERISA by withholding benefits owed to them by virtue of their status as participants in the Plan during the class period. This theory rests on section 502(a)(1)(B) of ERISA, which provides in pertinent part that:

(a) A civil action may be brought --
(1) by a participant or beneficiary --
(B) to recover benefits due to him under the terms of his plan. . . .

 29 U.S.C. § 1132(a)(1)(B). This cause of action provides a different defendant and a different theory of liability than does the concept of breach of fiduciary duty which may be redressed under section 1109(a).

 The plaintiffs' theory of the Plan's alleged liability under section 1132(a)(1)(B), as now articulated, is straightforward. Relying on the language of the statute, the plaintiffs quite simply argue that Congress has provided participants in an ERISA plan a cause of action against their plan for any unpaid benefits which are due and owing. According to them, their interests in the Plan were appraised at grossly undervalued rates, and the Plan retained benefits which would have been paid on the basis of proper appraisals. They deftly sidestep the question of the elements of this cause of action and the precise standard which should be applied by the Court in determining whether benefits have been improperly withheld.

 The plaintiffs' reluctance to precisely articulate the scope of their cause of action against the Plan is quite understandable, given the unusual nature of their claims. This Court has found no ERISA case quite like the present one, and agrees with the Court of Appeals that the claims raise "novel questions in the labyrinthine complexities of ERISA law and practice." 760 F.2d at 1308. As the Ninth Circuit aptly stated, "no provision of ERISA mentions the circumstances under which a plan participant or beneficiary is entitled to recover disputed benefits from a plan," Menhorn v. Firestone Tire & Rubber Co., 738 F.2d 1496, 1499 (9th Cir. 1984), and the legislative history on the question is sparse. Despite these difficulties, a few preliminary conclusions can be drawn about the scope of the congressionally created right of action provided by section 1132(a)(1)(B).

 First, the legislative history of ERISA indicates that the avenues of relief and the right of action afforded pension plan participants should be generously construed. Congress gave "participants and beneficiaries [] broad remedies for redressing or preventing violations of the Act." H.R. Rep. No. 533, 93rd Cong., 2d Sess. 17, reprinted in 1974 U.S. Code Cong. & Ad. News ...

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