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.

Burstein v. Retirement Account Plan for Employees of Allegheny Health Education and Research Foundation

July 02, 2003

WILLIAM H. BURSTEIN, M.D.; EFRAIN J. CRESPO, M.D.; RICHARD R. AUSTIN; ELEANOR HING FAY; JEAN B. HAAS, INDIVIDUALLY AND ON BEHALF OF OTHERS SIMILARLY SITUATED, APPELLANTS
v.
RETIREMENT ACCOUNT PLAN FOR EMPLOYEES OF ALLEGHENY HEALTH EDUCATION AND RESEARCH FOUNDATION, C/O ADMINISTRATOR DWIGHT KASPERBAUER, INDIVIDUALLY AND AS PLAN ADMINISTRATOR, AND NAMED FIDUCIARY; DAVID C. MCCONNELL; WILLIAM F. ADAM; J. DAVID BARNES; RALPH W. BRENNER; DOROTHY MCKENNA BROWN; FRANK V. CAHOUET; DOUGLAS D. DANFORTH; RONALD R. DAVENPORT; HARRY R. EDELMAN, III; ROBERT L. FLETCHER; IRA J. GUMBERG; ROBERT M. HERNANDEZ; FRANCIS B. NIMICK, JR.; ROBERT B. PALMER; ROBERT M. POTAMKIN; DAVID W. SCULLEY; W. P. SNYDER, III; MELLON BANK NA; PENSION BENEFIT GUARANTY CORPORATION, AS SUCCESSOR-IN-INTEREST



On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 98-cv-06768) District Judge: Honorable Charles R. Weiner

Before: Scirica, Chief Judge, Ambro and Garth, Circuit Judges

The opinion of the court was delivered by: Garth, Circuit Judge

As amended August 1, 2003.

WILLIAM H. BURSTEIN, M.D.; EFRAIN J. CRESPO, M.D.; RICHARD R. AUSTIN; ELEANOR HING FAY; JEAN B. HAAS, INDIVIDUALLY AND ON BEHALF OF OTHERS SIMILARLY SITUATED, APPELLANTS
v.
RETIREMENT ACCOUNT PLAN FOR EMPLOYEES OF ALLEGHENY HEALTH EDUCATION AND RESEARCH FOUNDATION, C/O ADMINISTRATOR DWIGHT KASPERBAUER, INDIVIDUALLY AND AS PLAN ADMINISTRATOR, AND NAMED FIDUCIARY; DAVID C. MCCONNELL; WILLIAM F. ADAM; J. DAVID BARNES; RALPH W. BRENNER; DOROTHY MCKENNA BROWN; FRANK V. CAHOUET; DOUGLAS D. DANFORTH; RONALD R. DAVENPORT; HARRY R. EDELMAN, III; ROBERT L. FLETCHER; IRA J. GUMBERG; ROBERT M. HERNANDEZ; FRANCIS B. NIMICK, JR.; ROBERT B. PALMER; ROBERT M. POTAMKIN; DAVID W. SCULLEY; W. P. SNYDER, III; MELLON BANK NA; PENSION BENEFIT GUARANTY CORPORATION, AS SUCCESSOR-IN-INTEREST

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 98-cv-06768) District Judge: Honorable Charles R. Weiner

Jay W. Eisenhofer (argued) Denise T. DiPersio Grant & Eisenhofer, P.A. 1201 North Market Street, Suite 2100 Wilmington, DE 19801

Mark J. Krum 1515 Market Street, Suite 1100 Philadelphia, PA 19102 Counsel for Appellants

John F. Schultz (argued) Kristofor T. Henning Drinker, Biddle & Reath, Llp 18th & Cherry Streets One Logan Square Philadelphia, PA 19103 Counsel for Appellees Retirement Account Plan and Kasperbauer

David J. Laurent Babst, Calland, Clements & Zomnir, P.C. Two Gateway Center 8th Floor Pittsburgh, PA 15222 Counsel for Appellee McConnell

David L. McClenahan (argued) William T. Cullen Wendy E. D. Smith Kirkpatrick & Lockhart 535 Smithfield Street Henry W. Oliver Building Pittsburgh, PA 15222 Counsel for Appellees Adam, Brown, Danforth, Edelman, Fletcher, Gumberg, Hernandez, Nimick, Palmer, Potamkin,and Sculley

Thomas J. Farrell Thieman & Farrell 436 Seventh Avenue 2312 Koppers Building Pittsburgh, PA 15219 Counsel for Appellee Barnes

Michele Langer Marvin, Larsson, Henkin & Scheuritzel 1500 Market Street Centre Square West, Suite 3510 Philadelphia, PA 19102 Counsel for Appellee Brenner

James J. Restivo, Jr. Perry A. Napolitano Daniel E. Wille Reed Smith 435 Sixth Avenue Pittsburgh, PA 15219 Counsel for Appellee Cahouet

Anthony W. Clark Eric M. Davis Skadden, Arps, Slate, Meagher & Flom One Rodney Square P.O. Box 636 Wilmington, DE 19899

Henry P. Wasserstein Jonathan L. Frank Skadden, Arps, Slate, Meagher & Flom Four Times Square New York, NY 10036 Counsel for Appellee Snyder

Jay H. Calvert, Jr. Joseph B.G. Fay Steven D. Spencer Morgan, Lewis & Bockius Llp 1701 Market Street Philadelphia, PA 19103 Counsel for Appellee Mellon Bank, N.A.

James J. Keightley, General Counsel

Jeffrey B. Cohen, Deputy General Counsel

Deborah West, Senior Assistant General Counsel

Sara B. Eagle (argued) Joseph M. Krettek Pension Benefit Guaranty Corporation Office of the General Counsel 1200 K Street, N.W. Washington, DC 20005 Counsel for Appellee Pension Benefit Guaranty Corporation

Before: Scirica, Chief Judge, Ambro and Garth, Circuit Judges

The opinion of the court was delivered by: Garth, Circuit Judge

PRECEDENTIAL

Argued: April 24, 2003

OPINION OF THE COURT

The plaintiff-appellants in this ERISA case appeal from the district court's dismissal of their First Amended Complaint for failure to state a claim and also challenge the denial of their motion to file a Second Amended Complaint as futile.

The plaintiffs are five former employees of the nowbankrupt Allegheny Health Education and Research Foundation ("AHERF "). These plaintiffs sought to recover benefits that they believed they had accrued through AHERF 's Retirement Account Plan. They also sought to represent a class of similarly situated persons, though that issue is not before us. The plaintiffs filed various claims under provisions of the Employee Retirement Income Security Act of 1974, 88 Stat. 891, as amended, 29 U.S.C. § 1001 et seq.

As we will explain, in the course of resolving this appeal, we join several other Circuits in ruling that when a summary plan description under ERISA conflicts with the complete, detailed ERISA plan document, a plan participant may nevertheless state a claim for plan benefits based upon terms contained in the summary plan description.

Therefore, and for further reasons specified in this opinion, we will reverse the dismissal of the plaintiffs' claim for plan benefits against the Plan itself and against the Pension Benefit Guaranty Corporation ("PBGC") as Plan administrator, as distinct from guarantor. We will also reverse the dismissal of the plaintiffs' claim for breach of fiduciary duty against Dwight Kasperbauer, the Plan's former administrator. However, we will affirm the dismissal of the remaining counts and of all other defendants, and will also direct the district court to permit the plaintiffs to make a final effort at amending the complaint. Finally, in light of our disposition, which reverses the district court's dismissal of certain counts, we will also reverse the district court's ruling that the plaintiffs' motion for class certification was moot, inasmuch as the counts we are reversing must once again receive the district court's attention.

I.

Since this appeal is from a Rule 12(b)(6) motion to dismiss as well as from the denial of leave to file an amended complaint, we have derived our explication of the facts from the allegations contained in the plaintiffs' First Amended Complaint, supplemented by some additional facts alleged in the proposed Second Amended Complaint.

A. The Parties

The plaintiffs-appellants in this case are William H. Burstein, M.D., Efrain J. Crespo, M.D., Richard R. Austin, Eleanor Hing Fay, and Jean B. Haas. According to the proposed Second Amended Complaint ("SAC" or "complaint"), Burstein was employed as a doctor at AHERF for four years, and became an employee of the Tenet Healthcare Corporation when Tenet purchased some of AHERF 's assets. Crespo had been employed as a doctor by AHERF for "less than five years," SAC ¶ 13, and also became a Tenet employee. Austin had been employed by AHERF as director of major gifts and planned giving at St. Christopher's Hospital for three and a half years. Hing Fay had been employed by AHERF for two and three-quarters years in the Corporate and Foundation Relations department at St. Christopher's Hospital for Children. Haas had been employed by AHERF for one year in the development office of (we assume) St. Christopher's Hospital.*fn1

AHERF laid off Austin, Hing Fay, and Haas on September 30, 1998, and Tenet did not hire them.*fn2

There are several defendants-appellees in this case. They are: (1) the Plan itself; (2) the PBGC;*fn3 (3) Dwight Kasperbauer, the former Plan administrator, and a former executive vice president and chief of human resources at AHERF; (4) the Plan's former asset manager, David McConnell, who had been AHERF 's chief financial officer; (5) the members of the Plan sponsor's Board of Trustees ("AHERF Trustees");*fn4 and (6) the Plan's custodial trustee, Mellon Bank.

B. The Events Leading to the Lawsuit

In 1988, AHERF, which operated hospitals and other health-care facilities in western Pennsylvania, began acquiring hospitals and associated physician practices and medical schools in the Philadelphia area.

AHERF had begun to experience significant financial losses by the late 1990s. In July 1998, AHERF filed for bankruptcy. The complaint alleges that AHERF, a nonprofit corporation, was profligate in its expenditures and generous (to a fault) in furnishing its executives with compensation, stock options, travel opportunities, and the like. SAC ¶¶ 43-44, 49, 51, 53, 55.

In the months prior to filing for bankruptcy, AHERF made an $89 million payment on a line of credit to Mellon Bank (the Plan's custodial trustee), id. ¶ 47, and the complaint alleges that Mellon Bank, and certain trustees with relationships to the bank, exerted improper influence to secure this payment. Id. ¶ 48.

The bankruptcy court auctioned off AHERF 's assets, including eight Philadelphia-area hospitals. The eight hospitals were purchased by Tenet, a for-profit health care company. The Retirement Account Plan was not acquired by Tenet. SAC ¶¶ 56-57.

AHERF 's Retirement Account Plan was a defined benefit pension plan under ERISA.*fn5 The AHERF Plan was a "cash balance plan,"*fn6 a form of a defined benefit plan under ERISA in which "the employer's contribution is made into hypothetical individual employee accounts." SAC ¶ 66. The complaint alleged that because the Plan "speaks in terms of a participant's 'account,' many participants are fooled into thinking that the cash balance plan works like a defined contribution plan." Id. Under a cash balance plan, however, if the plan terminates, "it is possible that the plan will be underfunded as to some or all of the participants." Id.

Indeed, ERISA does not require that the cash-balance plan sponsor fund the plan fully for all participants; rather, it only requires that these plans be funded for those participants whose benefits had vested prior to the plan's (partial) termination.*fn7 Burstein has not claimed that AHERF failed to fund the Plan in accordance with these minimum standards.

Burstein alleges that he was surprised to learn that AHERF had not funded the Plan for the benefits he believed had accrued. According to the complaint, the Plan administrator, defendant Kasperbauer, mailed form letters dated November 25, 1998, to various former employees. The complaint alleges that the letter sent to Burstein was addressed to "Former AHERF Employees who Transferred to Tenet or the New University." This letter explained that a partial plan termination had occurred, but that any person who had not completed five years of service with AHERF would not be entitled to any benefits:

As you may be aware, the Retirement Account Plan also contains a provision, required by the Internal Revenue Code, concerning vesting in the event of a partial plan termination. Specifically, this provision states that, if there is a partial plan termination, the non-vested benefits of affected participants will become vested "to the extent funded." We believe that a partial plan termination did occur because of the sale of the hospitals to Tenet and the sale of Allegheny University of the Health Sciences. However, because non-vested accrued benefits under the Plan are not "funded" within the meaning of this provision, you will not be entitled to any benefits from the Plan if, as of Nov. 10, 1998, you have not completed at least five years of vesting service.

Letter from Kasperbauer to Burstein at 1, A233 (emphasis in original).

The PBGC and AHERF agreed on September 30, 1999, that the Plan should be deemed terminated as of August 25, 1999, based on PBGC's determination that the Plan would be unable to pay benefits when they became due. Accordingly, the PBGC took over the Plan on September 30, 1999. See Agreement for Appointment of Trustee and Termination of Plan, A526-27.

C. Procedural History Leading to the Proposed Second Amended Complaint

On December 30, 1998, shortly after receiving the letters from Kasperbauer (but before the PBGC took over the Plan on September 30, 1999), Burstein filed the initial complaint in the United States District Court for the Eastern District of Pennsylvania. The bankruptcy court for the Western District of Pennsylvania stayed the case in April 1999 at the request of AHERF 's bankruptcy trustee. In July 2000, the bankruptcy court lifted the stay. Burstein filed the First Amended Complaint on August 10, 2000, and the defendants moved to dismiss. In addition to opposing the motion to dismiss, Burstein sought leave to file a proposed Second Amended Complaint.

D. The Claims in the Second Amended Complaint

The Second Amended Complaint contains eleven counts, which can be grouped into three categories of claims,*fn8 appropriate for the district court to reconsider its class certification ruling in light of this opinion.*fn9

Category One: Claims for Plan Benefits (Counts VII-X)

One category of counts (Counts VII-X) in Burstein's Second Amended Complaint involves claims for plan benefits under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B)*fn10 against the Plan and the PBGC.*fn11 Count VII asserts that Burstein "became eligible to vest in 100% of [his] accrued benefits" "[w]hen AHERF partially terminated the Plan." SAC ¶¶ 186-189.

Count VIII alleges that the "PBGC is obligated, as the statutory trustee [i.e., substituted administrator] of the Plan," to pay benefits to Burstein. SAC ¶¶ 190-194. As we explain in note 23, infra, Kasperbauer, at this time, was no longer the administrator of the Plan, and the Plan had PBGC as its substitute administrator. As such, PBGC, as administrator, had the obligation of distributing Plan assets according to statute. Hence, counsel's colloquy, reproduced at note 11, supra, must be understood as relieving all defendants other than the Plan and the Plan's present administrator, PBGC, from liability under the claim for plan benefits.

Count IX alleges that the "PBGC is statutorily required to insure the payment of all nonforfeitable benefits." SAC ¶¶ 195-200.

Count X alleges that because the PBGC collected premiums from AHERF to insure plan assets, "the PBGC created an insurer-insured relationship with Plaintiffs" obligating the PBGC to pay benefits. SAC ¶¶ 201-206.

Taken together, then, Counts VII-X may be read as claims for plan benefits, but only against the Plan and the PBGC. ( But see infra, where we have held that PBGC may be liable as substituted administrator but not as a guarantor. See infra note 23 and Part III(D)).

Category Two: Equitable Estoppel Claim (Count VI)

Count VI alleges an equitable estoppel claim against Kasperbauer, McConnell, and the Trustees, alleging that they intended to induce, should have anticipated, or in any event are responsible for, Burstein's reliance on "misrepresentations in the Plan Brochure and SPD." SAC ¶¶ 179-185.

Category Three: Claims for Breach of Fiduciary Duty (Counts I-V)

Counts I-V of the Second Amended Complaint allege various breaches of alleged fiduciary duty. Count I alleges that Kasperbauer, McConnell, and the AHERF Trustees breached their fiduciary duties to Burstein in violation of ERISA § 404(a), 29 U.S.C. § 1104(a), by representing, "through the Plan Brochure, the SPD and/or verbal communications," that if the Plan was terminated, all participants would automatically become vested and entitled to benefits.

Count II alleges that Kasperbauer, McConnell, Mellon Bank, and the AHERF Trustees failed to warn Burstein of AHERF 's imminent bankruptcy and the Plan's underfunding. Further, Count II alleges that the defendants had failed to warn Burstein that he had been misled about his benefits under the Plan Brochure and SPD. Count II charges that such failures to warn constitute a failure to discharge fiduciary duties.

Count III alleges that Kasperbauer, McConnell, and the AHERF Trustees mismanaged plan assets "in one of the most favorable investment climates in history, resulting in an asset shortfall," and allowed an "$89 million payment to Mellon Bank." SAC ¶¶ 156-61.

Count IV alleges that Mellon Bank mismanaged plan assets and "improperly influenced AHERF to make an $89 million payment" prior to AHERF 's ...


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.