:: Plan Language Sufficient To Authorize Settlement Of ERISA Benefit Claims With TCA’s
Thus, the fact that the Kodak and GM Plans provided for distribution of death benefits through the establishment of a TCA, and that MetLife complied with those provisions, does not in itself immunize MetLife from liability here. What does prevent a claim for breach of fiduciary duties here, however, is the simple fact that Plaintiffs received all of the benefits to which they were entitled under the Plans. . . . That Plaintiffs did not know or did not understand how the TCA’s would work, or that MetLife would retain certain funds for reinvestment until they were withdrawn, does not transform MetLife’s conduct into a breach of fiduciary duty.
Carol D. Faber & the Estate of Russell E. Young v. Metro. Life Ins. Co., 2009 U.S. Dist. LEXIS 98775 (S.D.N.Y. Oct. 23, 2009)
The recent decision in Faber & Young v. Metro. Life Ins. Co. highlights the boundary between conduct authorized under the plan on the one hand, and conduct forbidden by the fiduciary prohibitions of ERISA. The district court, influenced by the Second Circuit’s opinion in Kendall v. Employees Retirement Plan of Avon Prods., 561 F.3d 112, 118 (2d Cir. 2009), held that the fiduciary’s conduct did not cross the line drawn by ERISA’s fidiciary constraints.
The Facts
The facts involve an issue that has been somewhat controversial in the settlement of life insurance claims. The insurer settles the claim, not by payment of a cash benefit, but rather by the creation of an account which it manages for the beneficiary – the beneficiary receiving a checkbook thereby, rather than a settlement check.
Plaintiff Faber was the beneficiary of a plan sponsored by her late husband’s employer the Eastman Kodak Company (the “Kodak Plan”) and the Young Estate was the beneficiary of a plan sponsored by the late Russell E. Young’s employer the General Motors Corporation (the “GM Plan”). Both the Kodak Plan and the GM Plan were funded with group life insurance policies issued by MetLife. The two plans are substantially similar and both provide for the establishment of a TCA.
Under the Plans, if the amount of death benefits payable exceeds a specified amount, a TCA is established in the name of the beneficiary, and the beneficiary is provided with a personalized “checkbook” that he or she can use to draw on the TCA for any or all of the funds in the TCA at any time. The Kodak Summary Plan Description (”SPD”) states that “[p]ayment of a death benefit of $ 7,500 or more is made under MetLife’s [TCA]. The death benefit amount is deposited in an interest bearing money market account and your beneficiary is provided with a checkbook to use for writing checks to withdraw funds.”
. . . While a beneficiary’s funds are in the TCA, it is “guaranteed” by MetLife. Moreover, funds in the TCA earn interest at market rates, but beneficiaries under the Kodak and GM Plans are guaranteed to receive a minimum of 1.5% interest per annum.
The Allegations
The plaintiffs alleged that although they understood that the funds in their TCA would be transferred into a money market account at a bank, MetLife concealed the fact that it “retains and invests the proceeds for its own account,” and that MetLife only deposits any amount of death benefits into the TCA upon the presentment of a check for payment from a beneficiary.
Thus, Plaintiffs allege that “[u]ntil a beneficiary draws a check on his or her Total Control Account and the check is paid, legal title to and actual possession of the funds are retained by MetLife and MetLife has the use of the funds for its own benefit.” As a result, Plaintiffs allege that MetLife earns a profit based on the interest that it earns by investing the money in the TCA’s. That is, Plaintiffs allege that MetLife earns more managing and investing the funds than it pays out in interest to the beneficiaries. Plaintiffs claim that MetLife, as a fiduciary of the Plans, was not entitled to make a profit by reinvesting the benefits for their own account and that Plaintiffs and those similarly situated are therefore entitled to recover this profit and to enjoin MetLife from similar conduct in the future.
Standing Issues
The Court first addressed the twin issues of constitutional and statutory standing. The Kendall decision foretold the outcome for the constitutional standing issue for the plaintiffs. In short, standing was present for injunctive relief but not for the remedy of disgorgement or restitution:
. . . the Second Circuit has recently expressly drawn a distinction between constitutional standing to bring a claim for injunctive relief and constitutional standing to bring a claim for the remedy of disgorgement or restitution. As to the former remedy, the Second Circuit held that standing to bring an ERISA claim for injunctive relief is to be viewed broadly, and a plaintiff need not demonstrate actual harm to have standing to seek such relief. See Central States Southeast & Southwest Areas Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C., 433 F.3d 181, 199-200 (2d Cir. 2005).
With respect to claims for restitution and/or disgorgement, the Second Circuit found that to obtain such relief, “ERISA requires that a plaintiff satisfy the strictures of constitutional standing by demonstrating individual loss; to wit, that they have suffered an injury in fact.” Id. at 200 (internal citations and quotation marks omitted); see also Kendall, 561, F.3d at 119-20, 121. To have standing to bring a claim for restitution or disgorgement as a result of an alleged breach of fiduciary duties under ERISA, therefore, plaintiffs “must show that they were injured by the alleged breach of the duty.” Kendall, 561 F.3d at 120. It is not sufficient for a plaintiff to claim that he was injured by the breach of the duty itself; rather, he must show a particularized injury to himself. Id. at 121.
The statutory standing issue raised problems for even the claims for injunctive relief, but the Court bypassed that issue, and rendered a decision on the merits. (The Court noted that statutory standing may be presumed to exist for the purposes of determining whether a plaintiff has stated a viable claim under ERISA.)
The Promised Benefits Delivered
The Court was persuaded that the defendant provided what the plan promised, thereby distinguishing a recent First Circuit case on this issue:
Plaintiffs rely in part on the First Circuit’s recent holding in Mogel v. UNUM Life Ins. Co. of Am., 547 F.3d 23 (1st Cir. 2008), which held that “UNUM cannot be said to have completed its fiduciary duty under the plan when it set up the [retained asset accounts] and mailed the checkbooks, retaining for its use the funds due until they were withdrawn.” Id. at 26. Although Mogel did involve a similar type of account as the TCA’s involved in this case, Plaintiff’s reliance on this case is misplaced. The plan at issue in Mogel expressly required UNUM to pay the beneficiaries via lump sum payment when their benefits vested.
By contrast, here, the Kodak and GM Plans expressly required payment by TCA, by which Plaintiffs could have readily accessed the sum total of their death benefits at any time.
Focus On Statutory Purpose
The Court dismissed the plaintiffs claims largely on the view that the conduct at issue complied with the plan terms and the statutory purpose of the prohibitions on fiduciary conduct, stating:
. . . the Supreme Court has interpreted § 1106 to “prohibit [ ] fiduciaries from involving the plan and its assets in certain kinds of business deals . . . Congress enacted [§ 1106] to bar categorically a transaction that [is] likely to injure the pension plan.” Lockheed Corp. v. Spink, 517 U.S. 882, 888 (1996) (emphasis added) (internal citation and quotation marks omitted). Plaintiffs have failed to allege any “injury to the plan” so as to state a claim under § 1106.
Consequently, in light of all the circumstances of this case, this Court finds that, although upon first glance it may appear that the letter of ERISA has been violated, the way in which MetLife administered Plaintiffs’ TCA’s complied with the purpose of ERISA and did not constitute a breach of fiduciary duties.
Note: The Court gave some indication that it might have entertained an argument based on theories of misrepresentation, but the facts did not seem to support such a claim.
While the Court expresses no opinion as to whether Plaintiffs might have a cause of action under some other theory (some words that Plaintiffs have used have included unjust enrichment, conversion and/or negligent or fraudulent misrepresentation), it is clear that Plaintiffs do not state a claim under ERISA for which relief may be granted, and the Amended Complaint must be dismissed.
Statutory Standing - The Second Circuit has been one of the strictest on the question of statutory standing and perhaps not the best venue where that issue may be raised.
The Second Circuit has taken a narrow view of this threesome, and has found that only individuals who fall within the enumerated categories may bring a claim under ERISA, with some narrow exceptions not relevant here. See Pressroom Unions-Printers League Income Sec. Fund v. Continental Assurance Co., 700 F.2d 889, 892 (2d Cir. 1983).
Fiduciary Duties - And yet something seems out of place in holdings such as these, for all the reliance on plan terms. The statute does not embrace all conduct merely because condoned by plan language. From Section 1106:
(b) Transactions between plan and fiduciary. A fiduciary with respect to a plan shall not–
(1) deal with the assets of the plan in his own interest or for his own account,
(2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or
(3) receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.
If the insurer were to fail, for example, a prospect that is a more realistic concern in these economic times than ever, the retention of assets by the insurer would result in a loss to the participant. These issues are likely to be further evaluated in subsequent litigation.
