Tullis v. Umb Bank, N.A.

515 F.3d 673

David H. TULLIS, Michael S. Mack, Plaintiffs-Appellants/Cross-Appellees, v. UMB BANK, N.A., Defendant-Appellee/Cross-Appellant.

No. 06-4632.

No. 06-4633.

United States Court of Appeals, Sixth Circuit.

Argued: October 25, 2007.

Decided and Filed: January 28, 2008.

ARGUED:

Marvin A. Robon, Barkan & Robon, Maumee, Ohio, for Appellants. Scott A. Haselman, Robison, Curphey & O'Connell, Toledo, Ohio, for Appellee. Elizabeth Hopkins, United States Department of Labor, Washington, D.C., for Amicus Curiae.

ON BRIEF:

Marvin A. Robon, Gregory R. Elder, David H. Mylander, Barkan & Robon, Maumee, Ohio, for Appellants. Scott A. Haselman, Mark C. Abramson, Robison, Curphey & O'Connell, Toledo, Ohio, for Appellee. Elizabeth Hopkins, United States Department of Labor, Washington, D.C., for Amicus Curiae.

Before: MERRITT, ROGERS, and McKEAGUE, Circuit Judges.

OPINION

MERRITT, Circuit Judge.

I.

This appeal raises the question of whether two physicians can sue to recover losses from a bank that allegedly failed to notify them of fraudulent activities affecting their ERISA-governed pension plans. The District Court for the Northern District of Ohio held that the two physicians did not have standing to bring their breach of fiduciary duty claims under ERISA because they sought individual damages— and not, as it deemed necessary, damages for the plan as a whole—from the defendant bank. Additionally, the plaintiff's argue in this appeal that an indemnity agreement between the Defendant and the ERISA-plan administrators contravenes 29 U.S.C. § 1110(a) by impermissibly shielding a fiduciary from liability. Finally, the defendant has filed a cross-appeal, contending that the District Court erred by dismissing, without prejudice instead of with prejudice, the plaintiff's' improperly pled claims under the Private Securities Litigation Reform Act.

We hold that the plain language and intent of ERISA permits an individual plan participant to seek recovery of losses due to a fiduciary breach. Because we hold that the plaintiff's have standing to pursue their claims under 29 U.S.C. § 1132(a)(2), thereby permitting the case to proceed to the merits, we pretermit resolution of both the plaintiff's' argument that the Master Trust Agreement contravenes 29 U.S.C. § 1110(a) and the defendant's cross-appeal that the District Court erred by failing to dismiss the Private Securities Litigation Reform Act claims with prejudice.¹

II.

Plaintiff's David Tullis and Michael Mack are two physicians from Toledo who maintained pension funds through the Toledo Clinic Employees' 401(k) Profit Sharing Plan ("Plan"), an ERISA-governed, "defined contribution" pension plan.² In the early 1990s, the plaintiff's chose William Davis of Continental Capital Corporation ("Capital") as their investment advisor. In October 1999, the U.S. Securities and Exchange Commission entered a Temporary Restraining Order against Capital because two of its brokers were engaged in fraudulent activities. The plaintiff's contend that the defendant, UMB Bank, which served as the Trustee for the plan, knew of the fraud yet failed to inform them.

In April 2001, the defendant bank filed suit against Davis and a subsidiary of Capital on behalf of the Plan, alleging that several investments were improper, severely declined in value immediately after being purchased, or simply never took place. The plaintiff's allege that the defendant again failed to inform them of either Davis' or Capital's fraudulent activities, a required duty of a fiduciary. Additionally, the defendant continued to accept and honor allegedly forged investment directives from Davis without consulting or warning the plaintiff's. Consequently, according to the complaint, the plaintiff's continued to maintain their investment account with Davis.

In the spring of 2003, a court order ended Capital's ability to conduct business and appointed the Security Investor Protection Program as Trustee. During the ensuing bankruptcy proceedings, it was discovered that a number of Davis' investments were nonexistent. At this point, the plaintiff's discovered the full extent of the losses to the value of their pension plans. Tullis alleges that as of February 28, 2003, UMB Bank represented the value of his retirement assets to be $724,561.29, while the actual value was $142,269.41, a difference of $582,291.88.³ Mack contends that on July 1, 2001, the defendant represented the value of his retirement assets to be $1,613,407.87. When Mack attempted to withdraw those assets, however, he discovered that they were only worth $420,793.57, a difference of $1,192,614.30.

The Plaintiff's initially filed suit against Davis, Capital, the defendant, and others in the Lucas County Court of Common Pleas. Those cases were stayed pending the outcome of bankruptcy proceedings. The plaintiff's then requested that the Toledo Pension Plan, which administers the 401(k) program, bring suit against the defendant for the bank's alleged breach of fiduciary duties as an ERISA trustee, The Plan declined to do so, citing a Master Trust Agreement ("MTA") that includes an indemnification clause holding the bank harmless from claims. Consequently, the plaintiff's filed this action in the Northern District of Ohio on January 24, 2006. The defendant, in turn, filed a motion to dismiss.

The District Court granted the defendant's motion to dismiss the plaintiff's' case after finding: (1) that the plaintiff's lacked standing to bring their ERISA claims; (2) that ERISA preempts any state law causes of action; and (3) that claims based on the Securities Exchange Act did not meet the pleading requirements imposed by the Private Securities Litigation Reform Act (PSLRA). As to the standing to bring the breach of fiduciary duties claims, the District Court agreed with the defendant that an action under ERISA section 502(a)(2), 29 U.S.C. § 1132(a)(2), had to be brought "in a representative capacity on behalf of the plan as a whole" and that the plaintiff's had only sought recovery for individual losses to their plan accounts. Tullis v. UMB Bank, 464 F.Supp.2d 725, 729 (N.D.Ohio 2006) (emphasis added).

In this appeal, the plaintiff's argue that the District Court erred by denying them standing to bring the breach of fiduciary duty claims. The plaintiff's do not challenge the lower court's preemption ruling. The Secretary of Labor has filed an amicus curiae brief, joining the plaintiff's in arguing that individual beneficiaries do have standing to bring their claims under § 1132(a)(2).

III.

We review de novo a district court's dismissal pursuant to the terms of Federal Rule of Civil Procedure 12(b)(6). Miller v. Champion Enterprises, Inc., 346 F.3d 660, 671 (6th Cir.2003).

Plaintiff's' standing under ERISA

The Employee Retirement Income Security Act (ERISA) governs employee benefit plans and establishes both the obligations of plan fiduciaries and the remedies for any breach of those duties. ERISA permits civil actions to be brought "by the Secretary [of Labor], or by a participant, beneficiary or fiduciary for appropriate relief under section 409 (29 U.S.C. § 1109)." See ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2). ERISA section 409, in turn, governs liability for breaches of fiduciary duty and reads in relevant part:

(a) Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate

. . .

(emphasis added). Additionally, ERISA section 502(a)(3), 29 U.S.C. § 1132(a)(3), allows a "participant, beneficiary, or fiduciary" to enjoin an action that violates any provision within ERISA or "obtain other equitable relief." Thus, "[p]lan fiduciaries who breach any of their ERISA-imposed responsibilities, obligations, or duties may be held personally liable for damages, for restitution, and for `such other equitable remedial relief as the court may deem appropriate.'" Pfahler v. Nat'l Latex Co., 405 F.Supp.2d 839, 843 (N.D.Ohio 2005) (quoting Mertens v. Hewitt Assocs., 508 U.S. 248, 252, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993)). According to the plaintiff's, the defendant—a fiduciary under the terms of ERISA—breached its obligation by failing to warn them of the fraudulent investments and should be liable for the resulting damages. The complaint seeks compensation for losses under § 1132(a)(2), as well as restitution under § 1132(a)(3).⁴

The District Court held that the plaintiff's did not have standing to pursue their § 1132(a)(2) claims after concluding that the damages sought did not benefit the plan directly, but rather only benefited the individuals. To support this conclusion, the lower court stressed the language of § 1109(a), which states that the fiduciary is liable for "`any losses to the plan resulting from such brief.'" Tullis, 464 F.Supp.2d at 729 (emphasis in original) (citing Pfahler, 405 F.Supp.2d at 843). According to the District Court, this language only permits recovery where a plaintiff sues in a "representative capacity." Id. The District Court attempted to distinguish other cases where courts had permitted actions for damages to proceed under § 1132(a)(2), focusing on the supposed difference between recovery to the plan and recovery to specific individual accounts. See Kuper v. Iovenko, 66 F.3d 1447 (6th Cir.1995); Rogers v. Baxter Int'l, Inc., 417 F.Supp.2d 974 (N.D.Ill.2006). The court characterized our Kuper decision as allowing standing for a "subclass" of ERISA plan participants, while emphasizing that the Rogers case involved a class action. According to the District Court, therefore, the plaintiff's did not have...