The opinion of the court was delivered by: KESSLER
This matter is before the Court upon the Motions of Defendants AT&T Corporation, the AT&T Employees' Benefit Committee and the other AT&T employee benefit entities identified in the Complaint
(collectively, "AT&T") and Defendant Lucent Technologies, Inc. ("Lucent") to Dismiss the Complaint [# 42, # 44].
Plaintiffs bring this action for violation of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., and common law breach of contract. Upon consideration of the Defendants' Motions, the Plaintiffs' Opposition, Defendants' Replies, Plaintiffs' Surreply, the various supplemental pleadings filed by the parties, the arguments of counsel in open court on July 31, 1997, and the entire record herein, for the reasons discussed below, Defendants' Motions to Dismiss are granted.
Plaintiffs are current and retired employees of AT&T and Lucent, prospective retirees and spouses of both Defendants, and the unions that represent them (the "Unions").
Together, the Unions represent approximately 16,000 individuals. More than 300,000 individuals are entitled to receive benefits from the pension and welfare plans. Compl. P 1.
A. The Bell System Divestiture
AT&T is a successor to the American Telephone & Telegraph Company and Bell System. During the 1970's and 1980's the Bell System regional operating companies of the American Telephone and Telegraph Company were divested from AT&T.
That divestiture was carried out pursuant to a plan of reorganization approved by this Court. United States v. Western Elec. Co., 569 F. Supp. 1057 (D.D.C.) (J. Greene), aff'd sub nom., California v. United States, 464 U.S. 1013, 78 L. Ed. 2d 719, 104 S. Ct. 542 (1983).
As part of the Bell System divestiture, pension assets and liabilities were transferred from AT&T to new pension plans "sponsored"
by the regional holding companies. AT&T accomplished this transfer in compliance with the safe harbor assumptions and procedures set forth by the Pension Benefit Guarantee Corporation ("PBGC") under 29 C.F.R. Part 2619 and related regulations in effect at the time of the divestiture. Under the divestiture, some employees of the American Telephone & Telegraph Co. and the Bell System were "assigned" to the new regional holding companies.
Before the divestiture, a practice known as "portability" allowed employees who transferred from one company to another company in the Bell System to carry with them their years of service with their prior Bell System employer for pension and seniority purposes. See generally Western Elec., 569 F. Supp. at 1091-94. At the time of the divestiture, AT&T and the regional holding companies entered into the Divestiture Interchange Agreement (the "DIA"). The DIA provided for the continued portability of pension rights for most employees who transferred between the divested companies during calendar year 1984. See id. at 1094 & n.158. Judge Greene's decision and the accompanying DIA extended portability only through 1984. In 1984, Congress passed the Deficit Reduction Act of 1984, Pub. L. No. 98-369, 98 Stat. 494, 900 (1984), which codified, with some modifications, certain aspects of the DIA. It provides that:
notwithstanding any provision of the [DIA] to the contrary, in the case of any change in employment on or after January 1, 1985, by a covered employee, the recognition of service credit, and enforcement of such recognition, shall be governed in the same manner and to [the] same extent as provided under the [DIA] for a change in employment by a covered employee during calendar year 1984.
Id. In response to the new statute, AT&T and the regional operating companies entered into the Mandatory Portability Agreement (the "MPA"). Among other provisions, the MPA requires that when a "covered employee" moves from AT&T or one regional operating company to another, the former employer must transfer to the new employer assets sufficient to fund the pension obligations assumed by the latter company.
After the divestiture, AT&T also established its own welfare plan trusts for both union and non-union employees to fund welfare benefits
for present and future retirees.
The trusts were financed, in part, by a transfer of assets from the AT&T Pension Plan and the AT&T Management Pension Plan. That transfer was accomplished in accordance with 26 U.S.C. § 420 and an agreement with the collective bargaining representatives for the union employees, including Plaintiff Systems Council EM-3. Once the welfare trusts were established and the corresponding assets had been transferred, employees of AT&T and its affiliates who retired did so in reliance on AT&T's promise of continued benefits. Compl. PP 6(i)-k, 17-18.
In 1995, Congress changed the regulation of the telecommunications industry. In response to these legislative changes, as well as other economic and business factors, AT&T announced in the fall of 1995 that it would undertake a strategic restructuring pursuant to which AT&T would separate into three publicly traded businesses: AT&T would focus on communications services; Lucent would focus on communications systems; and NCR Corporation would focus on transaction intensive computing.
Compl. P 19.
Lucent was incorporated on January 4, 1996. Although it is a publicly traded company, it is under the control of AT&T for the purposes of ERISA, section 29 U.S.C. § 1301(b). Thus, AT&T is considered a "single employer" of the employees of AT&T and Lucent. Compl. P 20.
The EBA also governs Lucent's responsibility for payment of employee pension and welfare benefit obligations. After the distribution of Lucent stock from AT&T to individual AT&T stockholders, Lucent will be responsible for administering and paying all benefit obligations for its employees and retirees, that is, those employees and retirees assigned to Lucent in the restructuring. Lucent will be delegated benefit responsibilities for those employees who had been employed in the businesses transferred to Lucent or who are otherwise assigned for employee benefit allocation purposes to Lucent. Lucent will establish its own pension and other employee benefit plans, which will generally be the same in form as the AT&T plans. However, the EBA allows Lucent to discontinue or change its pension and welfare plans in the future without regard to the level of benefits being provided to AT&T employees and retirees at the time of such amendment. Compl. P 22-23.
The EBA provides for the distribution of the assets of the AT&T pension plans between those plans and plans Lucent will establish. The methodology for determining the division of assets between the AT&T and Lucent plans differs from that used to distribute benefit plan assets in the Bell System divestiture. However, the EBA provides that the actuarial assumptions used must be the same as those used by AT&T to determine the minimum funding requirements for its pension plans under § 302 of the ERISA, 29 U.S.C. § 1082, and § 412 of the Internal Revenue Code, 26 U.S.C. § 412. EBA § 8.2(a). Those assumptions are required, by law, to be reasonable. See 26 U.S.C. § 412(c)(3)(A)(i). Further, the EBA allocates any surplus pension assets equally between the AT&T and Lucent pension plans. EBA § 3.2. Plaintiffs contend that the methodology embodied in the EBA "may" unlawfully favor AT&T. Compl. PP 6(d)-(e), 24.
AT&T has also directed that those assets allocable to the retirees and employees assigned to Lucent which are held in AT&T's welfare plan trusts and other welfare plans are to be transferred to a corresponding trust or other funding vehicle established by Lucent. Plaintiffs contend that the liabilities being transferred to Lucent (i.e., the benefits that Lucent will be responsible for paying to employees and retirees) are disproportionate to those being retained by AT&T. They further contend that the actuarial assumptions being used to determine the allocation of assets in the division do not give priority to cash needs for present retirees. Compl. P 25.
Under the EBA, Lucent is to appoint a nominally independent fiduciary. The fiduciary's duty is limited to a review of the accuracy of data, computations and application of the methodology provided in the EBA. The fiduciary will not have the authority to challenge the EBA's methodology and, according to Plaintiffs, will not be provided with sufficient resources to adequately review and implement the reorganization of the employee benefit plans. Compl. P 26.
Plaintiffs object to the procedures to be used for division of pension plan assets in conjunction with the spin-off because they differ from the procedures used in the Bell System divestiture and provided for in the MPA and DIA. They further contend that the division of the welfare plan assets is in contravention of common law principles. Compl. P 27. Plaintiffs filed this seven-count Complaint asserting Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. 1001 et seq., violations and common law breach of contract claims seeking declaratory, monetary, and injunctive relief. Most specifically, they seek appointment of an independent fiduciary to review the procedures and assumptions associated with the spin-off of the AT&T plans. AT&T's and Lucent's Motions to Dismiss are now before the Court.
Defendants have moved under Fed. R. Civ. P. 12(b)(6) to dismiss Plaintiffs' Complaint because it does not state a cause of action. Plaintiffs' "complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff[s] can prove no set of facts in support of [their] claim which would entitle [them] to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). The factual allegations of the complaint must be presumed true and liberally construed in favor of Plaintiffs. Shear v. National Rifle Ass'n of Am., 196 U.S. App. D.C. 344, 606 F.2d 1251, 1253 (D.C. Cir. 1979).
Plaintiffs are, understandably, concerned--both personally and institutionally--about the full ramifications of this very large, complex commercial transaction involving the transfer of more than $ 40 million in assets. The question, at this early point in the proceedings, is whether Plaintiffs have stated a cause of action. ERISA is a highly technical statute and it is the Court's job to "apply it as precisely as [it] can, rather than to make adjustments according to a sense of equities in a particular case." Johnson v. Georgia-Pac. Corp., 19 F.3d 1184, 1190 (citing John Hancock Mut. Life Ins. Co. v. Harris Trust & Savs. Bank, 510 U.S. 86, 110, 126 L. Ed. 2d 524, 114 S. Ct. 517 (1993)). Rhetorical or emotional arguments voicing fears about the future or decrying the absence of oversight by an independent fiduciary simply cannot substitute for rigorous analysis of the pertinent statutory provisions. With these concepts in mind, the Court turns to the substance of Plaintiffs' claims.
Defendants contend that the Union Plaintiffs do not have standing to bring a civil action under ERISA. Section 502 of ERISA, 29 U.S.C. § 1132, enumerates those classes of persons who may bring an ERISA civil action: "(1) a participant or beneficiary, (2) the Secretary of Labor, and (3) a fiduciary." Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12, 14 (2d Cir. 1991), cert. denied, 505 U.S. 1212, 120 L. Ed. 2d 887, 112 S. Ct. 3014 (1992). It is clear that this statutory list is exclusive. See Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 27, 77 L. Ed. 2d 420, 103 S. Ct. 2841 (1983) (ERISA "does not provide anyone other than participants, beneficiaries, or fiduciaries with an express cause of action"); Grand Union Co. v. Food Employers Labor Relations Ass'n, 257 U.S. App. D.C. 171, 808 F.2d 66, 71 (D.C. Cir. 1987). Thus, under the plain language of the statute, the Union Plaintiffs do not have standing to bring an ERISA action.
It is true, as Plaintiffs contend, that unions have standing as associations to bring actions on behalf of their members. See Warth v. Seldin, 422 U.S. 490, 45 L. Ed. 2d 343, 95 S. Ct. 2197 (1975). However, Warth and the other cases cited by Plaintiffs explore the constitutional limitations on standing, not the statutory limits that are in issue here.
Plaintiffs rely on Communications Workers of Am. v. AT&T, 828 F. Supp. 73, 74-75 (D.D.C. 1993), rev'd on other grounds and vacated, 309 U.S. App. D.C. 170, 40 F.3d 426 (D.C. Cir. 1994). In Communication Workers, the defendant corporation challenged the standing of the plaintiff labor organization to sue on behalf of its members. The district court rejected defendants' arguments, stating that the express language of ERISA section 502 did not preclude the union from bringing suit on behalf of its members. 828 F. Supp. at 74-75. The Court of Appeals reversed the district court's decision on other grounds, noting in a footnote, without any analysis, that "once CWA-represented employees have exhausted their administrative remedies under the Plan, CWA will acquire representational standing to sue on behalf of its members under section 502 of ERISA." Communications Workers, 40 F.3d at 434 n.2.
Lucent moves to dismiss the Complaint in its entirety or, alternatively, that it remain a defendant solely for the limited purposes of Fed. R. Civ. P. 19. Lucent correctly contends that the Complaint alleges no violation of law by nor seeks any relief from Lucent. Specifically: (1) Lucent is not a fiduciary of any AT&T plan, so it cannot be liable for a prohibited transaction under Counts I, IV and VII; (2) Lucent is not responsible for the allocation of the plan assets in the spin-off under Counts II and III; and, (3) any claims to post-retirement welfare benefits in Count V run only against AT&T, not Lucent.
Plaintiffs' only response to Lucent's arguments is a conclusory statement that "Lucent is a proper party Defendant".
This is insufficient to overcome Lucent's arguments. Given Lucent's acknowledgment that it is a proper Rule 19 defendant, all claims against it in other than its Rule 19 capacity are dismissed.
C. Breach of Fiduciary Duties (Counts I, IV, and VII)
In Counts I, IV, and VII of their Complaint, Plaintiffs allege that Defendants have engaged in a transaction prohibited by ERISA and have breached their fiduciary duties with respect to the AT&T pension and welfare plans. These alleged ERISA violations arise from the transfer of assets necessitated by the spin-off of the Lucent pension and welfare plans resulting from AT&T's reorganization.
Defendants argue that Counts I, IV, and VII are legally insufficient because ERISA imposes no fiduciary duties on an employer who amends a plan and allocates the assets of that plan pursuant to a spin-off. In particular, Defendants contend that ERISA section 208, 29 U.S.C. § 1058, which governs the transfer of plan assets, does not impose fiduciary duties on transferors, but only establishes minimum funding requirements. They argue, further, that, to state a cause of action under the fiduciary duty sections of ERISA, implicated in Counts IV and VII of Plaintiff's Complaint, the acts challenged by Plaintiffs must be fiduciary in nature. However, Plaintiffs contend that the prohibited transaction and conflict of interest provisions, implicated in Count I of their Complaint, do not require the challenged act to be fiduciary in nature in order to state a cause of action.
The Supreme Court's decision in Lockheed Corp. v. Spink, 135 L. Ed. 2d 153, 116 S. Ct. 1783 (1996), makes it clear that a challenged act must be fiduciary within the meaning of ERISA before the ERISA protections invoked by Plaintiffs attach. In Spink, the Supreme Court faced the issue of whether conditioning payment of benefits under an early retirement program on the participants' release of employment related claims was a prohibited transaction under § 406(a) of ERISA, 29 U.S.C. § 1106(a). 116 S. Ct. at 1786. Section 406 prohibits a "fiduciary with respect to a plan . . . [from] causing the plan to engage in a transaction, if he knows or should know that such a transaction constitutes a direct or indirect . . . transfer to, or use by or for the benefit of a party in interest, of any assets of the plan." 29 U.S.C. § 1106(a)(1)(D). The Court stated that a violation of § 406 requires a plaintiff to show that the fiduciary caused the plan to engage in the allegedly unlawful transaction. Spink, 116 S. Ct. at 1788. Thus, a threshold issue was whether fiduciary status existed. Id. at 1789.
Spink did concern liability under § 406(a)(1)(D), which prohibits certain acts by a fiduciary. However, to determine whether the employer was acting as a fiduciary, the Court felt it necessary to analyze and apply the definition of fiduciary set forth in the general definitions section of subchapter I of ERISA. ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A).
That definition applies to all provisions of ERISA subchapter I, "Protection of Employee Benefit Rights",